Recommended Book: Commentaries and Jurisprudence on theCivil Code of thePhilippines, Vol. II, Arturo M. TolentinoI. Preliminary Provisions (Art 414)II. Classification of Property (Arts 415-418)a. Immovable Property (Art 415)i. By nature – 415 (1) & (8)ii.By incorporation – 415 (2), (3), & (7)By destination – 415 (4), (5), (6), and (9)iii.By analogy – 415 (10)iv.b. Movable Property (Art 416-418)Cases1. Leung Yee vs. Strong Machinery 37 Phil 6442. Davao Sawmill vs. Castillo 61 Phil 7093. Machinery & Engineering Supplies vs. CA 96 Phil 704. Associated Insurance vs. Isabeliya 103 Phil 9725. Mindanao Bus Company vs. City Assessor 6 S 1976. Bd. Of Assessment Appeals vs. Meralco 10 S 687. Tumalad vs. Vicencio 41 S 1438. Punsalan vs. Lacsamana 121 S 3319. Makati Leasing vs. Wearever 122 S 29610. Meralco Securities vs. Central Bd. Of Assessment Appeals 114S 26011. Meralco Securities vs. Bd. Of Assessment Appeals 114 S 27312. Caltex vs. Bd. Of Assessment Appeals 114 S 29613. Prudential Bank vs. Panis 153 S 39014. Benguet Corp. vs. Central Bd. Of Assessment Appeals 218 S27115. Serg’s Products Inc vs. PCI Leasing and Finance Inc. 338 S49916. Tsai vs. CA 366 S 324c. Importance and Significance of Classificationi. From the point of view of1. Criminal law2. Forms of contracts involving movable or immovables3. Prescription

4. Venue5. Taxationii.Differences between real rights and personal rightsLeung Yee v. Strong Machinery Company37 Phil. 644Facts:The “Compañia Agricola Filipina” bought aconsiderable quantity of rice-cleaning machinery company fromthe defendant machinery company, and executed a chattelmortgage thereon to secure payment of the purchaseprice. Itincluded in the mortgage deed the building of strong materials inwhich the machinery was installed, without any reference tothe land on which it stood. The indebtedness secured by thisinstrument not having been paid when it fell due, the mortgagedproperty was sold by the sheriff, in pursuance of the terms of themortgage instrument. A few weeks thereafter, on or about the14th of January, 1914, the “Compañia Agricola Filipina” executeda deed of sale of the land upon which the building stood tothemachinery company, but this deed of sale, although executedin a public document, was not registered. The machinerycompany went into possession of the building at or about thetime when this sale took place, that is to say, the month ofDecember, 1913, and it has continued in possession ever since.At or about the time when the chattel mortgage was executed infavor of themachinery company, the mortgagor, the“Compañia Agricola Filipina” executed another mortgage to theplaintiff upon the building, separate and apart from the land onwhich it stood. Upon the failure of the mortgagor to pay theamount of the indebtedness secured by the mortgage, theplaintiff secured judgment for that amount, levied execution

upon the building, boughtit in at the sheriff’s sale on or about the18th of December, 1914.This action was instituted by the plaintiffto recover possession of the building from themachinerycompany. The trial judge gave judgment in favor ofthe machinery company. Hence, this appeal.Issue:Whether or not the trial judge erred in sustaining the machinerycompany on the ground that it had its title to the buildingregistered prior to the date of registry of plaintiff’s certificate.Held:We conclude that the ruling in favor of the machinerycompany cannot be sustained on the ground assigned by the trialjudge. We are of opinion, however, that the judgment must besustained on the ground that the agreed statement of facts in thecourt below discloses that neither the purchase of the building bythe plaintiff nor his inscription of the sheriff’s certificate of sale inhis favor was made in good faith, and that the machinerycompany must be held to be the owner of the property Article1544 of the New Civil Code, it appearing that the company firsttook possession of the property; and further, that the buildingand the land were sold to the machinery companylong priorto the date of the sheriff’s sale to the plaintiff. But it appearingthat he had full knowledge of the machinery company’s claim ofownership when he executed the indemnity bond and bought inthe property at the sheriff’s sale, and it appearing further thatthe machinery company’s claim of ownership was well founded,

he cannot be said to have been an innocentpurchaser 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.The decision of the trial court is hereby affirmed.Davao Sawmill Co. v. Castillo61 Phil. 709Facts:The Davao Saw Mill Co., Inc., is the holder of a lumber concessionfrom the Government of the PhilippineIslands. It has operated asawmill in thesi tio of Maa, barrio of Tigatu, municipality ofDavao, Province ofDavao. However, the land upon which thebusiness was conducted belonged to another person. On thelandthe sawmill company erected a building which housed themachinery used by it. Some of theimplements thus used wereclearly personal property, the conflict concerning machines whichwere placedand mounted on foundations of cement. In thecontract of lease between the sawmill company and theowner ofthe land there appeared the following provision:That on the expiration of the period agreed upon, all theimprovements and buildings introduced anderected by the partyof the second part shall pass to the exclusive ownership of theparty of the first partwithout any obligation on its part to pay anyamount for said improvements and buildings; also, in theeventthe party of the second part should leave or abandon the landleased before the time hereinstipulated, the improvements andbuildings shall likewise pass to the ownership of the party of the

firstpart as though the time agreed upon had expired: Provided,however, That the machineries andaccessories are not includedin the improvements which will pass to the party of the first parton theexpiration or abandonment of the land leased.The trial judge found that those properties were personal innature and as a consequence absolved thedefendants from the complaint.Issue:Whether or not the trial judge erred in finding that the subjectproperties are personal in nature.Held:As connecting up with the facts, it should further be explainedthat the Davao Saw Mill Co., Inc., has on anumber of occasionstreated the machinery as personal property by executing chattelmortgages in favorof third persons. One of such persons is theappellee by assignment from the original mortgages.Article 334, paragraphs 1 and 5, of the [Old]Civil Code, is in point.According to the Code, real propertyconsists of1. Land, buildings, roads and constructions of all kinds adheringto the soil;5. Machinery, liquid containers, instruments or implementsintended by the owner of any building or landfor use inconnection with any industry or trade being carried on thereinand which are expressly adaptedto meet the requirements ofsuch trade of industry.Appellant emphasizes the first paragraph, and appellees the lastmentioned paragraph. We entertain nodoubt that the trial judge

and appellees are right in their appreciation of the legal doctrinesflowing fromthe facts.As a rule, the machinery should be considered as personal, sinceit was not placed on the land by theowner of the landimmobilization by destination on purpose cannot generally bemade by a person, whosepossession of the property is onlytemporary, otherwise was will be forced to presume that beintended togive the property permanently to the owner of theland. In this case, they had stipulated that the land inthe endthereby be acted as an agent for the owner of the land. In thissense the property (machines foruse in the sawmill) became realproperty.The judgment appealed from is hereby affirmed.Engineering and Machinery Corporation v. CAFacts:Pursuant to a contract, petitioner undertook to install airconditioning system in private respondent’s building. Thebuilding was later sold to the National Investment andDevelopment Corporation which took possession of it. UponNIDC’s failure to comply with certain conditions, the sale wasrescinded. NIDC reported to respondent that there were certaindefects in the air conditioning system. Respondent filed acomplaint against petitioner for non-compliance with the agreedplans and specifications. Petitioner moved to dismiss thecomplaint on the ground of the 6-month prescription of warrantyagainst hidden defects. Private respondent averred that thecontract was not of sale but for a piece of work, the action fordamages of which prescribes after 10 years.Issue:Is a contract for the fabrication and installation of a central airconditioningsystem in a building, one of "sale" or "for a piece ofwork"?Held:

A contract for a piece of work, labor and materials may bedistinguished from a contract of sale by the inquiry as to whetherthe thing transferred is one not in existence and which wouldnever have existed but for the order, of the person desiring it. Insuch case, the contract is one for a piece of work, not a sale. Onthe other hand, if the thing subject of the contract would haveexisted and been the subject of a sale to some other person evenif the order had not been given, then the contract is one of sale.The distinction between the two contracts depends on theintention of the parties. Thus, if the parties intended that at somefuture date an object has to be delivered, without considering thework or labor of the party bound to deliver, the contract is one ofsale. But if one of the parties accepts the undertaking on thebasis of some plan, taking into account the work he will employpersonally or through another, there is a contract for a piece ofwork.Clearly, the contract in question is one for a piece of work. It isnot petitioner's line of business to manufacture air-conditioningsystems to be sold "off-the-shelf." Its business and particular fieldof expertise is the fabrication and installation of such systems asordered by customers and in accordance with the particular plansand specifications provided by the customers. Naturally, the priceor compensation for the system manufactured and installed will

depend greatly on the particular plans and specifications agreedupon with the customers. The remedy against violations of thewarranty against hidden defects is either to withdraw from thecontract (redhibitory action) or to demand a proportionatereduction of the price (accion quanti manoris), with damages ineither case.While it is true that Article 1571 of the Civil Code provides for aprescriptive period of six months for a redhibitory action, acursory reading of the ten preceding articles to which it referswill reveal that said rule may be applied only in case of impliedwarranties; and where there is an express warranty in thecontract, as in the case at bench, the prescriptive period is theone specified in the express warranty, and in the absence of suchperiod, "the general rule on rescission of contract, which is fouryears (Article 1389, Civil Code) shall apply". It would appear thatthis suit is barred by prescription because the complaint was filedmore than four years after the execution of the contract and thecompletion of the air-conditioning system. However, a closescrutiny of the complaint filed in the trial court reveals that theoriginal action is not really for enforcement of the warrantiesagainst hidden defects, but one for breach of the contract itself.The governing law is Article 1715. However, inasmuch as thisprovision does not contain a specific prescriptive period, thegeneral law on prescription, which is Article 1144 of the CivilCode, will apply. Said provision states, inter alia, that actions"upon a written contract" prescribe in ten (10) years. Since the

governing contract was executed on September 10, 1962 and thecomplaint was filed on May 8, 1971, it is clear that the action hasnot prescribed. The mere fact that the private respondentaccepted the work does not, ipso facto, relieve the petitionerfrom liability for deviations from and violations of the writtencontract, as the law gives him ten (10) years within which to filean action based on breach thereof.Associated Insurance & Surety v. Iya[G.R. Nos. L-10837-38. May 30, 1958.]En Banc, Felix (J): 9 concurFacts: Spouses Adriano and Lucia A. Valino were the owners andpossessors of a house of strong materials constructed on Lot 3,Block 80 of the Grace Park Subdivision in Caloocan, Rizal, whichthey purchased on installment basis from the Philippine RealtyCorporation. On 6 November 1951, to enable her to purchase oncredit rice from the NARIC, Lucia Valino filed a bond (P11,000.00;AISCO Bond 971) subscribed by the Associated Insurance &Surety Co. and as counter-guaranty therefor, the Valinosexecuted an alleged chattel mortgage on the aforementionedhouse in favor of the surety company, which encumbrance wasduly registered with the Chattel Mortgage Register of Rizal on 6December 1951. It is admitted that at the time said undertakingtook place, the parcel of land on which the house is erected wasstill registered in the name of the Philippine Realty Corporation.Having completed payment on the purchase price of the lot, theValinos were able to secure on 18 October 1958, a certificate of

title in their name (TCT 27884). Subsequently, however, or on 24October 1952, the Valinos, to secure payment of an indebtednessin the amount of P12,000.00, executed a real estate mortgageover the lot and the house in favor of Isabel Iya, which was dulyregistered and annotated at the back of the certificate of title.Later, Lucia A. Valino failed to satisfy her obligation to the NARIC,the surety company was compelled to pay the same pursuant tothe undertaking of the bond. The surety company demandedreimbursement from the Valinos, who failed to do so. Thecompany foreclosed the chattel mortgage over the house as aconsequence. A public sale was conducted thereafter by theProvincial Sheriff of Rizal on 26 December 1952, wherein theproperty was awarded to the surety company for P8,000.00, thehighest bid received therefor. The surety company then causedthe said house to be declared in its name for tax purposes (TaxDeclaration 25128).Sometime in July 1953, the surety company learned of theexistence of the real estate mortgage over the lot covered byTTC 26884 together with the improvements thereon; thus, saidsurety company instituted Civil Case 2162 with the CFI Manilanaming Adriano and Lucia Valino and Isabel Iya, the mortgagee,as defendants. On the other hand, on 29 October 1953, Isabel Iyafiled a civil action against the Valinos and the surety company(Civil Case 2504 with CFI Manila) praying for a decree offoreclosure of the land, building and improvements thereon to be

sold at public auction and the proceeds applied to satisfy thedemands; this pursuant to the contract of mortgage as theValinos have failed to pay interest for more than 6 monthsalready; the surety company included as it claims to have aninterest on the residential house covered by said mortgage.The two cases were jointly heard upon agreement of the parties,who submitted the same on a stipulation of facts, after which theCourt rendered judgment dated 8 March 1956, holding that thechattel mortgage in favor of the Associated Insurance & Suretywas preferred and superior over the real estate mortgagesubsequently executed in favor of Isabel Iya. It was ruled that asthe Valinos were not yet the registered owner of the land onwhich the building in question was constructed at the time thefirst encumbrance was made, the building then was still apersonalty and a chattel mortgage over the same was proper.However, as the mortgagors were already the owners of the lotat the time the contract with Isabel Iya was entered into, thebuilding was transformed into a real property and the real estatemortgage created thereon was likewise adjudged as proper. Theresidential building was, therefore, ordered excluded from theforeclosure prayed for by Isabel Iya, although the latter couldexercise the right of a junior encumbrancer. The spouses Valinowere ordered to pay the amount demanded by said mortgagee orin their default to have the parcel of land subject of the mortgagesold at public auction for the satisfaction of Iya's claim.The Supreme Court reversed the decision of the lower court,recognized Isabel Iya's right to foreclose not only the land but

also the building erected thereon, and ordered that the proceedsof the sale thereof at public auction (if the land has not yet beensold), be applied to the unsatisfied judgment in favor of IsabelIya. The decision however is without prejudice to any right thatthe Associated Insurance & Surety may have against the Valinoson account of the mortgage of said building they executed infavor of said surety company. Without pronouncement as tocosts.1. Nature of property encumbered is the decisive factor indetermination of preferential rightThe decisive factor in resolving the issue as to which of theseencumbrances should receive preference over the other is thedetermination of the nature of the structure litigated upon, forwhere it be considered a personalty, the foreclosure of thechattel mortgage and the subsequent sale thereof at publicauction, made in accordance with the Chattel Mortgage Lawwould be valid and the right acquired by the surety companytherefrom would certainly deserve prior recognition; otherwise,appellant's claim for preference must be granted.2. Building always immovableWhile it is true that generally, real estate connotes the land andthe building constructed thereon, it is obvious that the inclusionof the building, separate and distinct from the land, in theenumeration of what may constitute real properties (Art. 415,new Civil Code) could only mean one thing: that a building is byitself an immovable property. Moreover, and in view of theabsence of any specific provision to the contrary, a building is animmovable property irrespective of whether or not said structure

and the land on which it is adhered to belong to the sameowner." (Lopez vs. Orosa).3. Building cannot be divested of character as realty whenconstructed on land belonging to anotherA building certainly cannot be divested of its character of a realtyby the fact that the land on which it is constructed belongs toanother. To hold it the other way, the possibility is not remotethat it would result in confusion, for to cloak the building with anuncertain status made dependent on the ownership of the land,would create a situation where a permanent fixture changes itsnature or character as the ownership of the land changes hands.4. Execution of a chattel mortgage over a building invalidand a nullityAs personal properties could only be the subject of a chattelmortgage (Section 1, Act 3952), the execution of the chattelmortgage covering a building is clearly invalid and a nullity.While it is true that said document was correspondinglyregistered in the Chattel Mortgage Register, this act produced noeffect whatsoever for where the interest conveyed is in thenature of a real property, the registration of the document in theregistry of chattels is merely a futile act. Thus, the registration ofthe chattel mortgage of a building of strong materials produce noeffect as far as the building is concerned (Leung Yee vs. StrongMachinery Co., 37 Phil., 644).5. No right acquired by chattel mortgage creditor whopurchases real properties in an extrajudicial foreclosuresaleA mortgage creditor who purchases real properties at an

extrajudicial foreclosure sale thereof by virtue of a chattelmortgage constituted in his favor, which mortgage has beendeclared null and void with respect to said real properties,acquires no right thereto by virtue of said sale (De la Riva vs. AhKeo, 60 Phil., 899).MINDANAO BUS CO. vs. CITY ASSESSORFACTS:Mindanao Bus Company is a public utility engaged in transportingpassengers and cargoes by motor trucks in Mindanao has itsmain offices in Cagayan de Oro. The company is also owner tothe land where it maintains and operates a garage, a repair shop,blacksmith and carpentry shops; the machineries are place onwooden and cement platforms.The City Assessor of Cagayan de Oro City assessed at P4,400said maintenance and repair equipment. The company appealedthe assessment to the Board of Tax Appeals on the ground thatthe same are not realty. The Board of Tax Appeals of the Citysustained the city assessor, so the company filed with the Courtof Tax Appeals a petition for the review of the assessment. TheCTA held that the Company was liable to the payment of therealty tax on its maintenance and repair equipment. Hence, thecompany filed a petition for review with the Supreme Court.ISSUE:Whether or not the machineries assessed by the respondent arereal properties?HELD:Paragraph 5 of Article 415 of the New Civil which providesmachinery, receptacles, instruments or implements intended bythe owner of the tenement for an industry or works which may be

carried on in a building or on a piece of land, and which tenddirectly to meet the needs of the said industry or works areimmovable properties. Movable equipments to be immobilized incontemplation of the law must first be "essential and principalelements" of an industry or works without which such industry orworks would be "unable to function or carry on the industrialpurpose for which it was established."The tools and equipments in question in this instant case are, bytheir nature, not essential and principal elements of petitioner'sbusiness of transporting passengers and cargoes by motortrucks. They are merely incidentals-acquired as movables andused only for expediency to facilitate and/or improve its service.Even without such tools and equipments, its business may hecarried on.the equipments in question are destined only to repair or servicethe transportation business, which is not carried On in a buildingor permanently on a piece of land, as demanded by the law. Saidequipments may not, therefore, be deemed real property.BOARD OF ASSESSMENT APPEALS V. MANILAELECTRIC COMPANY10 SCRA 68FACTS:City Assessor of QC declared the steel towers for real propertytax under Tax Declarations. After denying the respondent’spetition to cancel these declarations, an appeal was taken withthe CTA which held that the steel towers come under theexception of “poles” under the franchise given to MERALCO;the steel towers are personal properties; and the City Treasureris liable for the refund of the amount paid.

HELD:The steel towers of an electric company don’t constitute realproperty for the purposes of real property tax.Tumalad v. Vicencio[G.R. No. L-30173. September 30, 1971.]En Banc, Reyes JBL (J): 10 concurFacts: On 1 September 1955 Vicencio and Simeon, defendantsappellants,executed a chattel mortgage in favor of theTumalads, plaintiff-appellees over their house of strong materialslocated at 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot6-B and 7-B, Block 2554, which were being rented from Madrigal& Company, Inc. The mortgage was registered in the Registry ofDeeds of Manila on 2 September 1955. The mortgage wasexecuted to guarantee a loan of P4,800.00 received from theTumalads, payable within one year at 12% per annum. The modeof payment was P150.00 monthly, starting September, 1955, upto July 1956, and the lump sum of P3,150 was payable on orbefore August, 1956. It was also agreed that default in thepayment of any of the amortizations would cause the remainingunpaid balance to become immediately due and payable, theChattel Mortgage enforceable, and the Sheriff of Manilaauthorized the Mortgagor’s property after necessary publication.When Vicencio and Simeon defaulted in paying, the mortgagewas extrajudicially foreclosed, and on 27 March 1956, the housewas sold at public auction pursuant to the said contract. Ashighest bidder, the Tumalads were issued the correspondingcertificate of sale.On 18 April 1956, the Tumalads commenced Civil Case 43073 inthe municipal court of Manila, praying, among other things, that

the house be vacated and its possession surrendered to them,and for Vicencio and Simeon to pay rent of P200.00 monthly from27 March 1956 up to the time the possession is surrendered. On21 September 1956, the municipal court rendered its decision infavor of the Tumalads. Having lost therein, appealed to the courta quo (Civil Case 30993) which also rendered a decision againstthem. On appeal, the case was certified to the Supreme Court bythe Court of Appeals (CA-G.R. No. 27824-R) for the reason thatonly questions of law are involved. Plaintiffs-appellees failed tofile a brief and this appeal was submitted for decision without it.Nearly a year after the foreclosure sale the mortgaged house hadbeen demolished on 14 and 15 January 1957 by virtue of adecision obtained by the lessor of the land on which the housestood.The Supreme Court reversed the decision appealed from andentered another dismissing the complaint, with costs againstplaintiffs-appellees.1. Answer a mere statement and not evidence;Allegations or averments determines jurisdictionIt has been held in Supia and Batiaco vs. Quintero and Ayala that"the answer is a mere statement of the facts which the partyfiling it expects to prove, but it is not evidence; and further, thatwhen the question to be determined is one of title, the Court isgiven the authority to proceed with the hearing of the cause untilthis fact is clearly established. In the case of Sy vs. Dalman,

wherein the defendant was also a successful bidder in an auctionsale, it was likewise held by the Court that in detainer cases theclaim of ownership "is a matter of defense and raises an issue offact which should be determined from the evidence at the trial."What determines jurisdiction are the allegations or averments inthe complaint and the relief asked for.2. Fraud and deceit renders a contract voidable orannullable, and not void ab initio; Claim of ownership byvirtue of voidable contract fails without evidence thatsteps were made to annul the sameFraud or deceit does not render a contract void ab initio, and canonly be a ground for rendering the contract voidable orannullable pursuant to Article 1390 of the New Civil Code, by aproper action in court. In the present case, the charge of fraud,deceit or trickery, the conterntions are not supported byevidence. Further, there is nothing on record to show that themortgage has been annulled. Neither is it disclosed that stepswere taken to nullify the same. Hence, defendants-appellants'claim of ownership on the basis of a voidable contract which hasnot been voided fails.3. Buildings as immovableThe rule about the status of buildings as immovable property isstated in Lopez vs. Orosa, Jr. and Plaza Theatre, Inc., cited inAssociated Insurance Surety Co., Inc. vs. Iya, et al. 16 to theeffect that the inclusion of the building, separate and distinctfrom the land, in the enumeration of what may constitute realproperties (art. 415, New Civil Code) could only mean one thing

that a building is by itself an immovable property irrespective ofwhether or not said structure and the land on which it is adheredto belong to the same owner.4. Deviations allowed, parties’ treatment of real propertyas personal property; casesCertain deviations, however, have been allowed for variousreasons. In the case of Manarang and Manarang vs. Ofilada, itwas held that "it is undeniable that the parties to a contract mayby agreement treat as personal property that which by ,naturewould be real property", citing Standard Oil Company of NewYork vs. Jaramillo. In the latter case, the mortgagor conveyed andtransferred to the mortgagee by way of mortgage "the followingdescribed personal property." The "personal property" consistedof leasehold rights and a building. In the case of Luna vs.Encarnacion, the subject of the contract designated as ChattelMortgage was a house of mixed materials, and the Court heldtherein that it was a valid Chattel mortgage because it was soexpressly designated and specifically that the property given assecurity "is a house of mixed materials, which by its very natureis considered personal property." In Navarro vs. Pineda, the Courtstated that the view that parties to a deed of chattel mortgagemay agree to consider a house as personal property for thepurposes of said contract, 'is good only insofar as the contractingparties are concerned. It is based, partly, upon the principle of

estoppel' (Evangelista vs. Alto Surety). In a case, a mortgagedhouse built on a rented land was held to be a personal property,not only because the deed of mortgage considered it as such, butalso because it did not form part of the land, for it is now settledthat an object placed on land by one who had only a temporaryright to the same, such as the lessee or usufructuary, does notbecome immobilized by attachment (Valdez vs. CentralAltagracia, cited in Davao Sawmill vs. Castillo). Hence, if a housebelonging to a person stands on a rented land belonging toanother person, it may be mortgaged as a personal property asso stipulated in the document of mortgage. It should be noted,however that the principle is predicated on statements by theowner declaring his house to be a chattel, a conduct that mayconceivably estop him from subsequently claiming otherwise.(Ladera vs. C.N. Hodges).5. House treated by parties as chattel; factors todetermineIn the contract, the house on rented land is not only expresslydesignated as Chattel Mortgage; it specifically provides that "themortgagor voluntarily cedes, sells and transfers by way of ChattelMortgage the property together with its leasehold rights over thelot on which it is constructed and participation;" whcih could onlyhave meant to convey the house as chattel, or at least, intendedto treat the same as such, so that they should not now beallowed to make an inconsistent stand by claiming otherwise.

Moreover, the subject house stood on a rented lot to whichdefendants-appellants merely had a temporary right as lessee,and although this can not in itself alone determine the status ofthe property, it does so when combined with other factors tosustain the interpretation that the parties, particularly themortgagors, intended to treat the house as personality.6. Estoppel; Party in chattel mortgage cannot questionvalidity of chattel mortgage entered intoInlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza TheatreandLeung Yee vs. F. L. Strong Machinery and Williamson, whereinthird persons assailed the validity of the chattel mortgage, it isthe defendants-appellants themselves, as debtors-mortgagors,who are attacking the validity of the chattel mortgage in thiscase. The doctrine of estoppel therefore applies to the hereindefendants-appellants, having treated the subject house aspersonalty.7. Chattel mortgage covered by Act 1508, ChattelMortgage LawChattel mortgages are covered and regulated by the ChattelMortgage Law, Act 1508. Section 14 of this Act allows themortgagee to have the property mortgaged sold at public auctionthrough a public officer in almost the same manner as thatallowed by Act 3135, as amended by Act 4118, provided that therequirements of the law relative to notice and registration arecomplied with. In the present case, the parties specificallystipulated that "the chattel mortgage will be enforceable inaccordance with the provisions of Special Act 3135.8. Mortgagors entitled to remain in possession withoutrent within redemption periodNearly a year after the foreclosure sale the mortgaged house had

been demolished on 14 and 15 January 1957 by virtue of adecision obtained by the lessor of the land on which the housestood. The CFI sentenced the mortgagors to pay a monthly rentof P200.00 from the time the chattel mortgage was forecloseduntil when it was torn down by the sheriff. The Court ruled thatthe mortgagors were entitled to remain in possession withoutany obligation to pay rent during the one year redemption periodafter the foreclosure sale. Section 6 of Act 3135 provides that thedebtor-mortgagor may, at any time within one year from andafter the date of the auction sale, redeem the property sold atthe extra judicial foreclosure sale. Section 7 of the same Actallows the purchaser of the property to obtain from the court thepossession during the period of redemption: but the sameprovision expressly requires the filing of a petition with theproper CFI and the furnishing of a bond. It is only upon filing ofthe proper motion and the approval of the corresponding bondthat the order for a writ of possession issues as a matter ofcourse. No discretion is left to the court. In the absence of such acompliance, as in the instant case, the purchaser can not claimpossession during the period of redemption as a matter of right.In such a case, the governing provision is Section 34, Rule 39, ofthe Revised Rules of Court which also applies to propertiespurchased in extrajudicial foreclosure proceedings.9. Rentals received during redemption period credited toredemption priceBefore the expiration of the 1-year period within which thejudgment-debtor or mortgagor may redeem the property, the

purchaser thereof is not entitled, as a matter of right, topossession of the same. Thus, while it is true that the Rules ofCourt allow the purchaser to receive the rentals if the purchasedproperty is occupied by tenants, he is, nevertheless, accountableto the judgment-debtor or mortgagor as the case may be, for theamount so received and the same will be duly credited againstthe redemption price when the said debtor or mortgagor effectsthe redemption. Differently stated, the rentals receivable fromtenants, although they may be collected by the purchaser duringthe redemption period, do not belong to the latter but still pertainto the debtor of mortgagor. The rationale for the Rule, it seems,is to secure for the benefit of the debtor or mortgagor, thepayment of the redemption amount and the consequent return tohim of his properties sold at public auction. (Reyes vs. Hamada,reiterating Chan v. Espe)10. Case prematurely filedThe period of redemption had not yet expired when action wasinstituted in the court of origin, and that plaintiffs-appellees didnot choose to take possession under Section 7, Act 3135, asamended, which is the law selected by the parties to govern theextrajudicial foreclosure of the chattel mortgage. Neither wasthere an allegation to that effect. Since plaintiffs-appellees' rightto possess was not yet born at the filing of the complaint, therecould be no violation or breach thereof. Wherefore, the original

complaint stated no cause of action and was prematurely filed.11. Court’s authority to review errors not assignedEven if there was no assignment of error to that effect, theSupreme Court is clothed with ample authority to review palpableerrors not assigned as such if it finds that their consideration isnecessary in arriving at a just decision of the case.PUNZALAN V. LACSAMANABuildings are always treated as immovable or realproperty under the Code… even if it was dealt withseparately from the land upon which it stoodFACTS:Some land belonging to Antonio Punzalan was foreclosed bythe Philippine National Bank Tarlac, Branch in failure of theformer to pay the mortgaged fee amounting to P10 grand SincePNB was the highest bidder, the land went to PNB.Sometime 1974, while the property was still in the possession ofPunzalan, Punzalan constructed awarehouse on the said land byvirtue of the permit secured from the Municipal Mayor ofBamban, Tarlac. Subsequently, in 1978, a contract of sale wasentered into by PNB and Remedios Vda. De Lacsamana, whom inlieu of the said sale secured a title over the property involvingthe warehouse allegedly owned and constructed by the plaintiff.Punzalan filed a suit for annulment of the Deed of Sale withdamages against PNB and Lacsamana before the Court of FirstInstance of Rizal, Branch 31, impugning the validity of the sale ofthe building, requesting the same to be declared null and voidand that damages in the total sum of P23, 200 more or less beawarded to him.

Respondent Lacsamana in his answer averred the affirmativedefense of lack of cause of action contending that she was apurchaser for value, while, PNB filed a Motion to Dismiss on theground of improper venue, invoking that the building was a realproperty under Article 415 of the Civil Code, and therefore,Section 4 (a) of the Rules of Court should apply.Punzalan filed a Motion for Reconsideration asserting that theaction he filed is limited to the annulment of sale and that, itdoes not involved ownership of or title to property but denied bythe court for lack of merit. A motion for pre-trial was also set byPunzalan but was also denied by the court invoking that the casewas already dismissed.Hence, a petition for certiorari was filed by the petitioner.ISSUE:Whether or not the judgment rendered by the court is proper.HELD:While it is true that the petitioner does not directly seek therecovery of the title or possession of the property in question, hisaction for annulment of sale and his claim for damages areclosely intertwined with the issue of ownership of the building,which, under the law, is considered immovable property, therecovery of which is petitioners primary objective. The prevalentdoctrine is that an action for the annulment or rescission of a saleof real property does not operate to efface the objective andnature of the case, which is to recover said property. It is a realaction. Respondent Court did not err in dismissing the case onthe ground of improper venue under Section 12 Rule 4 which wastimely raised under Section 1 Rule 16 of the Rules of Court.Personal Observation: The venue was improperly laid by the

petitioner in the case at bar. Such ground was sufficient to renderdismissal of the case, as the same is one of the grounds providedfor under Rule 16 (c) of the Rules of Court.The Denial of “Motion to Dismiss” rendered by the court in theinstant case is appealable. If such denial constitute grave abuseof discretion on the part of the court , Punzalan may file eitherProhibition or Certiorari under Rule 65 of the Rules of CourtMakati Leasing vs. Wearever TextileFacts:Wearever Textile in order to obtain a financial accommodationfrom Makati Leasing, discounted andassigned several receivableswith the former under a Receivable Purchase Agreement. Tosecure thecollection of the receivables assigned, Waereverexecuted a Chattel Mortgage over certain rawmaterials inventoryas well as a machinery described as an Artos Aero DryerStentering Range.Upon Wearever's default, Makati Leasing filed a petition forextrajudicial foreclosure of the propertiesmortgage to it.However, the Deputy Sheriff assigned to implement theforeclosure failed to gain entryinto Wearever's premises and wasnot able to effect the seizure of the machinery. MakatiLeasingthereafter filed a complaint for judicial foreclosure withthe CFI Rizal.RTC then issued a writ of seizure, the enforcement of which wasrestrained upon Wearever's filing ofa motion for reconsideration.finally issued on 11 February 1981, an order to break open thepremisesof Wearever to enforce said writ.The sheriff enforcing the seizure order, repaired to the premises

of Wearever and removed the maindrive motor of the subject machinery.CA set aside the orders of the RTC and ordered the return of thedrive motor seized by the sheriffafter ruling that the machinery insuit cannot be the subject of replevin, much less of achattelmortgage, because it is a real property pursuant to Article415 of the new Civil Code. CA also rejectedthe argument thatWearever is estopped from claiming that the machine is realproperty byconstituting a chattel mortgage thereon. A motion forreconsideration was filed by Makati Leasing, butit was denied.Hence this petition.Issue:Whether the machinery in suit is real or personal property?Held:If a house of strong materials, like what was involved in theabove Tumalad case, may be consideredas personal property forpurposes of executing a chattel mortgage thereon as long as theparties tothe contract so agree and no innocent third party willbe prejudiced thereby, there is absolutely noreason why amachinery, which is movable in its nature and becomesimmobilized only by destinationor purpose, may not be likewisetreated as such. This is really because one who has so agreedisestopped from denying the existence of the chattel mortgage.It must be pointed out that the characterization of the subjectmachinery as chattel by the privaterespondent is indicative ofintention and impresses upon the property the characterdetermined by theparties. As stated in Standard Oil Co. of New

York vs. Jaramillo, 44 Phil. 630, it is undeniable that theparties toa contract may by agreement treat as personal property thatwhich by nature would be realproperty, as long as no interest ofthird parties would be prejudiced thereby.Meralco Securities v. Central Board of Assessment AppealsG.R. No. L-46245 May 31, 1982[Aquino, J.:]Facts: Petitioner questions the decision of the respondent whichheld that petitioner’s pipeline is subject to realty tax. Pursuant toa concession, petitioner installed a pipeline system from Manilato Batangas. Meanwhile, the provincial assessor of Lagunatreated the pipeline as real property. So, petitioner appealed theassessments to the Board of Assessment Appeals of Laguna. Theboard upheld the assessments and the decision became final andexecutory after the lapse of fifteen days from the date of receiptof a copy of the decision by the appellant. Meralco Securitiescontends that the Court of Tax Appeals has no jurisdiction toreview the decision of the Central Board of Assessment Appealsand no judicial review of the Board's decision is provided for inthe Real Property Tax Code. Hence, the petitioner’s recourse tofile a petition for certiorari.Held: it was held that certiorari was properly availed of in thiscase. It is a writ issued by a superior court to an inferior court,board or officer exercising judicial or quasi-judicial functionswhereby the record of a particular case is ordered to be elevatedfor review and correction in matters of law.The rule is that as to administrative agencies exercising quasijudicial

power there is an underlying power in the courts toscrutinize the acts of such agencies on questions of law andjurisdiction even though no right of review is given by thestatute. The purpose of judicial review is to keep theadministrative agency within its jurisdiction and protectsubstantial rights of parties affected by its decisions. The reviewis a part of the system of checks and balances which is alimitation on the separation of powers and which forestallsarbitrary and unjust adjudications. Judicial review of the decisionof an official or administrative agency exercising quasi-judicialfunctions is proper in cases of lack of jurisdiction, error of law,grave abuse of discretion, fraud or collusion or in case theadministrative decision is corrupt, arbitrary or capriciousMERALCO V BOARD OF ASSESSMENTFACTS:-There are two oil storage tanks installed in 1969 byMeralco on a lot in San Pascual, Batangaswhich it leased in 1968from Caltex (Phil.), Inc. The tanks are within the Caltex refinerycompound.They have a total capacity of 566,000 barrels. Theyare used for storing fuel oil for Meralco's power plants.-Thestorage tanks are made of steel plates welded and assembled onthe spot. Their bottomsreston a foundation consisting of compacted earth as theoutermost layer, a sand pad as theintermediate layer and a twoinchthick bituminous asphalt stratum as the top layer. Thebottom of each tank is in contact with the asphalt layer. The steelsides of the tank are directly supportedunderneath by a circularwall made of concrete, eighteen inches thick, to prevent the tankfromsliding. Hence, according to Meralco, the tank is notattached to its foundation. It is not anchored or welded to the

concrete circular wall. Its bottom plate is not attached to any partof the foundation bybolts, screws or similar devices. The tankmerely sits on its foundation. Each empty tank can befloated byflooding its dike-inclosed location with water four feet deep.-TheBoard concludes that while the tanks rest or sit on theirfoundation, the foundation itself andthe walls, dikes and steps,which are integral parts of the tanks, are affixed to the land whilethepipelines are attached to the tanks. In 1970, the municipaltreasurer of Bauan, Batangas, on thebasis of an assessmentmade by the provincial assessor, required Meralco to pay realtytaxes onthe two tanks. For the five-year period from 1970 to1974, the tax and penalties amounted toP431,703.96.The Board required Meralco to pay thetax and penalties as a condition for entertaining its appeal fromthe adverse decision of the Batangas board of assessmentappeals.-The Central Board of Assessment Appeals ruled that thetanks together with the foundation,walls,dikes, steps, pipelines and other appurtenances constitute taxable improvements. Meralcocontends that the said oil storagetanks do not fall within any of the kinds of realpropertyenumerated in article 415 of the Civil Code and,therefore, they cannot be categorized as realty bynature, byincorporation, by destination nor by analogy. Stress is laid on thefact that the tanks arenot attached to the land and that theywere placed on leased land, not on the land owned byMeralco.ISSUE:W/N the oil tanks are considered as real propertyHELD: YES.-While the two storage tanks are not embedded in theland, they may, nevertheless, be consideredas improvements on

the land, enhancing its utility and rendering it useful to the oilindustry. It isundeniable that the two tanks have been installedwith some degree of permanence as receptaclesfor theconsiderable quantities of oil needed by Meralco for itsoperations.-For purposes of taxation, the term "real property"may include things which should generally beregarded aspersonal property. It is a familiar phenomenon to see thingsclassed as real propertyfor purposes of taxation which on generalprinciple might be considered personal property.ADDITIONAL: baka lang ipa-compare: The case of Board ofAssessment Appeals vs. ManilaElectric Company, 119 Phil. 328,wherein Meralco's steel towers were held not to be subjecttorealty tax, is not in point because in that case the steel towerswere regarded as poles and under its franchise Meralco's polesare exempt from taxation. Moreover, the steel towerswere notattached to any land or building. They were removablefrom their metal frames.CALTEX PHILS. V. CENTRAL BOARD OFASSESSMENT APPEALS114 SCRA 296FACTS:The City Assessor characterized the items in gas stations ofpetitioner as taxable realty. These items includedunderground tanks, elevated tank, elevated water tanks, watertanks, gasoline pumps,computing pumps, etc. These items arenot owned by the lessor of the land wherein theequipment are installed. Upon expiration of the leaseagreement, the equipment should be returned in goodcondition.HELD:The equipment and machinery as appurtenances to the gasstation building or shed owned by Caltex and which fixtures are

necessary to the operation of the gas station, for without themthe gas station would be useless, and which have been attachedand fixed permanently to the gas station site or embeddedtherein, are taxable improvements and machinery within themeaning of the Assessment Law and the Real Property Tax Code.Prudential Bank v. Panis[G.R. No. L-50008. August 31, 1987.]First Division, Paras (J): 4 concur.Facts: On 19 November 1971, Fernando A. Magcale and TeodulaBaluyut Magcale secured a loan of P70,000.00 from PrudentialBank. To secure payment of this loan, the Magcales executed infavor of Prudential Bank a deed of Real Estate Mortgage over a 2-storey, semi-concrete residential building with warehouse space(total area of 263 sq.m.); and granting upon the mortgagee theright of occupancy on the lot where the property is erected. Arider is also included in the deed that in the event the SalesPatent on the lot is issued of Bureau of Lands, the Register ofDeeds is authorized to hold the Registration until the mortgage iscancelled or annotate the encumbrance on the title uponauthority from the Secretary of Agriculture and NaturalResources, which title with annotation release in favor of themortgage. The Real Estate Mortgage was registered under theProvisions of Act 3344 with the Registry of Deeds of Zambales on23 November 1971. Subsequently, the Magcales secured anadditional loan from Prudential Bank, secured by another deed ofReal Estate Mortgage registeed with the Registry of Deeds inOlongapo City, on 2 May 1973.On 24 April 1973, the Secretary of Agriculture issuedMiscellaneous Sales Patent 4776 over the parcel of land,

possessory rights over which were mortgaged to rudential Bank,in favor of the Magcales. On the basis of the Patent, and upon itstranscription in the Registration Book of the Province ofZambales, OCT P-2554 was issued in the name of FernandoMagcale, by the Ex-Oficio Register of Deeds of Zambales, on 15May 1972.For failure of the Magcales to pay their obligation to the Bankafter it became due, the deeds of Real Estate Mortgage wereextrajudicially foreclosed. Consequent to the foreclosure was thesale of the properties mortgaged to the bank as the highestbidder in a public auction sale conducted by the City Sheriff on12 April 1978. The auction sale was held despite written requestfrom the Magcales through counsel, dated 29 March 1978, for theCity Sheriff to desist from going with the scheduled publicauction sale. The issue was raised to the CF Zambales andOlongapo City which, on 3 November 1978, declared the deeds ofReal Estate Mortgage as null and void. The bank filed a motionfor reconsideration on 14 December 1978, which the courtdenied on 10 January 1979 for lack of merit. Hence, the petition.The Supreme Court modified the decision of the CFI Zambales &Olongapo, declaring that the Deed of Real Estate Mortgage forP70,000.00 is valid but ruling that the Deed of Real EstateMortgage for an additional loan of P20,000.00 is null and void,without prejudice to any appropriate action the Government maytake against private respondents.1. Building separate and distinct from the landIn the enumeration of properties under Article 415 of the CivilCode of the Philippines, it is obvious that the inclusion of

'building' separate and distinct from the land, in said provision oflaw can only mean that a building is by itself an immovableproperty. (Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958;Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38,May 30, 1958).2. Building can be mortgaged apart from the land it isbuilt; possessory rights may be validly transferred in adeed of mortgageWhile a mortgage of land necessarily includes, in the absence ofstipulation of the improvements thereon, buildings; still abuilding by itself may be mortgaged apart from the land on whichit has been built. Such a mortgage would be still a real estatemortgage for the building would still be considered immovableproperty even if dealt with separately and apart from the land(Leung Yee vs. Strong Machinery Co., 37 Phil. 644). Possessoryrights over said properties before title is vested on the grantee,may be validly transferred or conveyed as in a deed of mortgage(Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).3. A valid real estate mortgage may be constituted on thebuilding erected on the land belonging to anotherThe original mortgage was executed (19 November 1971) beforethe issuance of the final patent (24 April 1972) and before thegovernment was divested of its title to the land (15 May 1972),an event which takes effect only on the issuance of the salespatent and its subsequent registration in the Office of theRegister of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515;Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs.

Jurado, L-14702, May 23, 1961; Peña, "Law on NaturalResources", p. 49). In the case at bar, it is evident that themortgage executed by Magcale on his own building which waserected on the land belonging to the government is to all intentsand purposes a valid mortgage.4. Public land act and RA 730 not violated in firstmortgageAs to restrictions appearing to the Magcales’ title; Sections 121,122 and 124 of the Public Land Act refer to land already acquiredunder the Public Land Act or any improvement thereon. Section 2of RA 730 refers to encumbrance or alienation before the patentis issued because it refers specifically to encumbrance oralienation on the land itself and does not mention anythingregarding the improvements existing thereon. Both have noapplication to the assailed mortgage in the case at bar; as theformer, the mortgage was executed before such eventuality, andthe latter, it does not encumber nor alienate the land.5. Mortgage made after issuance of Sales Patent an OCTprohibited; Estoppel does not give validating effect to avoid contractAs regards the second mortgage executed, such mortgageexecuted after the issuance of the sales patent and of theOriginal Certificate of Title, falls squarely under the prohibitionsstated in Sections 121, 122 and 124 of the Public Land Act andSection 2 of RA 730, and is therefore null and void. Even if thetitle was voluntary surrendered to the bank for the mortgage tobe annotated without the prior approval of the Ministry of Natural

Resources; in pari delicto may not be invoked to defeat the policyof the State neither may the doctrine of estoppel give avalidating effect to a void contract. Indeed, it is generallyconsidered that as between parties to a contract, validity cannotbe given to it by estoppel if it is prohibited by law or is againstpublic policy (19 Am. Jur. 802). It is not within the competence ofany citizen to barter away what public policy by law seeks topreserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino,supra; Arsenal vs. IAC, 143 SCRA 54 [1986]). Such does not,however, preclude new contracts that may be entered into inaccordance with the requirements of the law. Any newtransaction, however, would be subject to whatever steps theGovernment may take for the reversion of the land in its favor.G.R. No. 106041 January 29, 1993BENGUET CORPORATION, petitioner,vs.CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OFASSESSMENT APPEALS OF ZAMBALES, PROVINCIALASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, andMUNICIPALITY OF SAN MARCELINO, respondents.Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles forpetitioner.CRUZ, J.:The realty tax assessment involved in this case amounts toP11,319,304.00. It has been imposed on the petitioner's tailingsdam and the land thereunder over its protest.The controversy arose in 1985 when the Provincial Assessor ofZambales assessed the said properties as taxable improvements.The assessment was appealed to the Board of AssessmentAppeals of the Province of Zambales. On August 24, 1988, the

appeal was dismissed mainly on the ground of the petitioner's"failure to pay the realty taxes that fell due during the pendencyof the appeal."The petitioner seasonably elevated the matter to the CentralBoard of Assessment Appeals, 1 one of the herein respondents. Inits decision dated March 22, 1990, the Board reversed thedismissal of the appeal but, on the merits, agreed that "thetailings dam and the lands submerged thereunder (were) subjectto realty tax."For purposes of taxation the dam is considered as real propertyas it comes within the object mentioned in paragraphs (a) and (b)of Article 415 of the New Civil Code. It is a construction adheredto the soil which cannot be separated or detached withoutbreaking the material or causing destruction on the land uponwhich it is attached. The immovable nature of the dam as animprovement determines its character as real property, hencetaxable under Section 38 of the Real Property Tax Code. (P.D.464).Although the dam is partly used as an anti-pollution device, thisBoard cannot accede to the request for tax exemption in theabsence of a law authorizing the same.xxx xxx xxxWe find the appraisal on the land submerged as a result of theconstruction of the tailings dam, covered by Tax Declaration Nos.002-0260 and 002-0266, to be in accordance with the Scheduleof Market Values for Zambales which was reviewed and allowedfor use by the Ministry (Department) of Finance in the 1981-1982

general revision. No serious attempt was made by Petitioner-Appellant Benguet Corporation to impugn its reasonableness, i.e.,that the P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is indeed excessive andunconscionable. Hence, we find no cause to disturb the marketvalue applied by Respondent Appellee Provincial Assessor ofZambales on the properties of Petitioner-Appellant BenguetCorporation covered by Tax Declaration Nos. 002-0260 and 002-0266.This petition for certiorari now seeks to reverse the above ruling.The principal contention of the petitioner is that the tailings damis not subject to realty tax because it is not an "improvement"upon the land within the meaning of the Real Property Tax Code.More particularly, it is claimed —(1) as regards the tailings dam as an "improvement":(a) that the tailings dam has no value separate from andindependent of the mine; hence, by itself it cannot be consideredan improvement separately assessable;(b) that it is an integral part of the mine;(c) that at the end of the mining operation of the petitionercorporation in the area, the tailings dam will benefit the localcommunity by serving as an irrigation facility;(d) that the building of the dam has stripped the property of anycommercial value as the property is submerged under waterwastes from the mine;(e) that the tailings dam is an environmental pollution controldevice for which petitioner must be commended rather thanpenalized with a realty tax assessment;(f) that the installation and utilization of the tailings dam as apollution control device is a requirement imposed by law;(2) as regards the valuation of the tailings dam and thesubmerged lands:(a) that the subject properties have no market value as they

cannot be sold independently of the mine;(b) that the valuation of the tailings dam should be based on itsincidental use by petitioner as a water reservoir and not on thealleged cost of construction of the dam and the annual build-upexpense;(c) that the "residual value formula" used by the ProvincialAssessor and adopted by respondent CBAA is arbitrary anderroneous; and(3) as regards the petitioner's liability for penalties fornon-declaration of the tailings dam and the submerged lands forrealty tax purposes:(a) that where a tax is not paid in an honest belief that it is notdue, no penalty shall be collected in addition to the basic tax;(b) that no other mining companies in the Philippines operating atailings dam have been made to declare the dam for realty taxpurposes.The petitioner does not dispute that the tailings dam may beconsidered realty within the meaning of Article 415. It insists,however, that the dam cannot be subjected to realty tax as aseparate and independent property because it does notconstitute an "assessable improvement" on the mine although aconsiderable sum may have been spent in constructing andmaintaining it.To support its theory, the petitioner cites the following cases:1. Municipality of Cotabato v. Santos (105 Phil. 963), where thisCourt considered the dikes and gates constructed by thetaxpayer in connection with a fishpond operation as integralparts of the fishpond.2. Bislig Bay Lumber Co. v. Provincial Government of Surigao(100 Phil. 303), involving a road constructed by the timberconcessionaire in the area, where this Court did not impose arealty tax on the road primarily for two reasons:

In the first place, it cannot be disputed that the ownership of theroad that was constructed by appellee belongs to thegovernment by right of accession not only because it isinherently incorporated or attached to the timber land . . . butalso because upon the expiration of the concession said roadwould ultimately pass to the national government. . . . In thesecond place, while the road was constructed by appelleeprimarily for its use and benefit, the privilege is not exclusive,for . . . appellee cannot prevent the use of portions of theconcession for homesteading purposes. It is also duty bound toallow the free use of forest products within the concession for thepersonal use of individuals residing in or within the vicinity of theland. . . . In other words, the government has practically reservedthe rights to use the road to promote its varied activities. Since,as above shown, the road in question cannot be considered as animprovement which belongs to appellee, although in part is for itsbenefit, it is clear that the same cannot be the subject ofassessment within the meaning of Section 2 of C.A.No. 470.Apparently, the realty tax was not imposed not because the roadwas an integral part of the lumber concession but because thegovernment had the right to use the road to promote its variedactivities.3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), anAmerican case, where it was declared that the reservoir damwent with and formed part of the reservoir and that the damwould be "worthless and useless except in connection with the

outlet canal, and the water rights in the reservoir represent andinclude whatever utility or value there is in the dam andheadgates."4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also fromthe United States. This case involved drain tunnels constructedby plaintiff when it expanded its mining operations downward,resulting in a constantly increasing flow of water in the said mine.It was held that:Whatever value they have is connected with and in fact is anintegral part of the mine itself. Just as much so as any shaftwhich descends into the earth or an underground incline, tunnel,or drift would be which was used in connection with the mine.On the other hand, the Solicitor General argues that the dam isan assessable improvement because it enhances the value andutility of the mine. The primary function of the dam is to receive,retain and hold the water coming from the operations of themine, and it also enables the petitioner to impound water, whichis then recycled for use in the plant.There is also ample jurisprudence to support this view, thus:. . . The said equipment and machinery, as appurtenances to thegas station building or shed owned by Caltex (as to which it issubject to realty tax) and which fixtures are necessary to theoperation of the gas station, for without them the gas stationwould be useless and which have been attached or affixedpermanently to the gas station site or embedded therein, aretaxable improvements and machinery within the meaning of theAssessment Law and the Real Property Tax Code. (Caltex [Phil.]

Inc. v. CBAA, 114 SCRA 296).We hold that while the two storage tanks are not embedded inthe land, they may, nevertheless, be considered asimprovements on the land, enhancing its utility and rendering ituseful to the oil industry. It is undeniable that the two tanks havebeen installed with some degree of permanence as receptaclesfor the considerable quantities of oil needed by MERALCO for itsoperations. (Manila Electric Co. v. CBAA, 114 SCRA 273).The pipeline system in question is indubitably a constructionadhering to the soil. It is attached to the land in such a way thatit cannot be separated therefrom without dismantling the steelpipes which were welded to form the pipeline. (MERALCOSecurities Industrial Corp. v. CBAA, 114 SCRA 261).The tax upon the dam was properly assessed to the plaintiff as atax upon real estate. (Flax-Pond Water Co. v. City of Lynn, 16 N.E.742).The oil tanks are structures within the statute, that they aredesigned and used by the owner as permanent improvement ofthe free hold, and that for such reasons they were properlyassessed by the respondent taxing district as improvements.(Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271)The Real Property Tax Code does not carry a definition of "realproperty" and simply says that the realty tax is imposed on "realproperty, such as lands, buildings, machinery and otherimprovements affixed or attached to real property." In theabsence of such a definition, we apply Article 415 of the CivilCode, the pertinent portions of which state:Art. 415. The following are immovable property.(1) Lands, buildings and constructions of all kinds adhered to the

soil;xxx xxx xxx(3) Everything attached to an immovable in a fixed manner, insuch a way that it cannot be separated therefrom withoutbreaking the material or deterioration of the object.Section 2 of C.A. No. 470, otherwise known as the AssessmentLaw, provides that the realty tax is due "on the real property,including land, buildings, machinery and other improvements"not specifically exempted in Section 3 thereof. A reading of thatsection shows that the tailings dam of the petitioner does not fallunder any of the classes of exempt real properties thereinenumerated.Is the tailings dam an improvement on the mine? Section 3(k) ofthe Real Property Tax Code defines improvement as follows:(k) Improvements — is a valuable addition made to property oran amelioration in its condition, amounting to more than mererepairs or replacement of waste, costing labor or capital andintended to enhance its value, beauty or utility or to adopt it fornew or further purposes.The term has also been interpreted as "artificial alterations of thephysical condition of the ground that arereasonably permanentin character." 2The Court notes that in the Ontario case the plaintiff admittedthat the mine involved therein could not be operated without theaid of the drain tunnels, which were indispensable to thesuccessful development and extraction of the minerals therein.This is not true in the present case.

Even without the tailings dam, the petitioner's mining operationcan still be carried out because the primary function of the damis merely to receive and retain the wastes and water comingfrom the mine. There is no allegation that the water coming fromthe dam is the sole source of water for the mining operation soas to make the dam an integral part of the mine. In fact, as aresult of the construction of the dam, the petitioner can nowimpound and recycle water without having to spend for thebuilding of a water reservoir. And as the petitioner itself pointsout, even if the petitioner's mine is shut down or ceasesoperation, the dam may still be used for irrigation of thesurrounding areas, again unlike in the Ontario case.As correctly observed by the CBAA, the Kendrick case is also notapplicable because it involved water reservoir dams used fordifferent purposes and for the benefit of the surrounding areas.By contrast, the tailings dam in question is beingused exclusively for the benefit of the petitioner.Curiously, the petitioner, while vigorously arguing that thetailings dam has no separate existence, just as vigorouslycontends that at the end of the mining operation the tailings damwill serve the local community as an irrigation facility, therebyimplying that it can exist independently of the mine.From the definitions and the cases cited above, it would appearthat whether a structure constitutes an improvement so as topartake of the status of realty would depend upon the degreeof permanence intended in its construction and use. Theexpression "permanent" as applied to an improvement does notimply that the improvement must be used perpetually but onlyuntil the purpose to which the principal realty is devoted hasbeen accomplished. It is sufficient that the improvement is

intended to remain as long as the land to which it is annexed isstill used for the said purpose.The Court is convinced that the subject dam falls within thedefinition of an "improvement" because it is permanent incharacter and it enhances both the value and utility ofpetitioner's mine. Moreover, the immovable nature of the damdefines its character as real property under Article 415 of theCivil Code and thus makes it taxable under Section 38 of the RealProperty Tax Code.The Court will also reject the contention that the appraisal atP50.00 per square meter made by the Provincial Assessor isexcessive and that his use of the "residual value formula" isarbitrary and erroneous.Respondent Provincial Assessor explained the use of the"residual value formula" as follows:A 50% residual value is applied in the computation because,while it is true that when slime fills the dike, it will then becovered by another dike or stage, the stage covered is still thereand still exists and since only one face of the dike is filled, 50% orthe other face is unutilized.In sustaining this formula, the CBAA gave the followingjustification:We find the appraisal on the land submerged as a result of theconstruction of the tailings dam, covered by Tax Declaration Nos.002-0260 and 002-0266, to be in accordance with the Scheduleof Market Values for San Marcelino, Zambales, which is fifty(50.00) pesos per square meter for third class industrial land(TSN, page 17, July 5, 1989) and Schedule of Market Values forZambales which was reviewed and allowed for use by theMinistry (Department) of Finance in the 1981-1982 generalrevision. No serious attempt was made by Petitioner-Appellant

Benguet Corporation to impugn its reasonableness, i.e, that theP50.00 per square meter applied by Respondent-AppelleeProvincial Assessor is indeed excessive and unconscionable.Hence, we find no cause to disturb the market value applied byRespondent-Appellee Provincial Assessor of Zambales on theproperties of Petitioner-Appellant Benguet Corporation coveredby Tax Declaration Nos. 002-0260 and 002-0266.It has been the long-standing policy of this Court to respect theconclusions of quasi-judicial agencies like the CBAA, which,because of the nature of its functions and its frequent exercisethereof, has developed expertise in the resolution of assessmentproblems. The only exception to this rule is where it is clearlyshown that the administrative body has committed grave abuseof discretion calling for the intervention of this Court in theexercise of its own powers of review. There is no such showing inthe case at bar.We disagree, however, with the ruling of respondent CBAA that itcannot take cognizance of the issue of the propriety of thepenalties imposed upon it, which was raised by the petitioner forthe first time only on appeal. The CBAA held that this "is anentirely new matter that petitioner can take up with theProvincial Assessor (and) can be the subject of another protestbefore the Local Board or a negotiation with thelocal sanggunian . . ., and in case of an adverse decision byeither the Local Board or the local sanggunian, (it can) elevatethe same to this Board for appropriate action."There is no need for this time-wasting procedure. The Court mayresolve the issue in this petition instead of referring it back to the

local authorities. We have studied the facts and circumstances ofthis case as above discussed and find that the petitioner hasacted in good faith in questioning the assessment on the tailingsdam and the land submerged thereunder. It is clear that it hasnot done so for the purpose of evading or delaying the paymentof the questioned tax. Hence, we hold that the petitioner is notsubject to penalty for itsnon-declaration of the tailings dam and the submerged lands forrealty tax purposes.WHEREFORE, the petition is DISMISSED for failure to show thatthe questioned decision of respondent Central Board ofAssessment Appeals is tainted with grave abuse of discretionexcept as to the imposition of penalties upon the petitioner whichis hereby SET ASIDE. Costs against the petitioner. It is soordered.Serg’s Products v. PCI LeasingFacts: On 13 February 1998, PCI Leasing and Finance, Inc. filed acomplaint for sum of money, with anapplication for a writ ofreplevin. On 6 March 1998, upon an ex-parte application of PCILeasing, judgeissued a writ of replevin directing its sheriff toseize and deliver the machineries and equipment to PCILeasingafter 5 days and upon the payment of the necessary expenses.On 24 March 1998, thesheriff proceeded to petitioner's factory,seized one machinery with word that the return for theothermachineries. On 25 March 1998, petitioners filed a motionfor special protective order, invoking thepower of the court tocontrol the conduct of its officers and amend and control itsprocesses, prayingfor a directive for the sheriff to defer

enforcement of the writ of replevin. On 6 April 1998, thesheriffagain sought to enforce the writ of seizure and takepossession of the remaining properties. He wasable to take twomore, but was prevented by the workers from taking the rest. On7 April 1998, theywent to the CA via an original action forcertiorari.Citing the Agreement of the parties, the appellate court held thatthe subject machines were personalproperty, and that they hadonly been leased, not owned, by petitioners; and ruled that the"words ofthe contract are clear and leave no doubt upon the trueintention of the contracting parties." It thusaffirmed the 18February 1998 Order, and the 31 March 1998 Resolution of thelower court, and liftedthe preliminary injunction issued on 15June 1998. A subsequent motion for reconsideration wasdeniedon 26 February 1999. Hence, the petition for review on certiorari.Issue: Whether the machines are personal or real property?Held: The machinery were essential and principal elements oftheir chocolate-making industry. Hence,although each of themwas movable or personal property on its own, all of them havebecome"immobilized by destination because they are essentialand principal elements in the industry." Themachines are thus,real, not personal, property pursuant to Article 415 (5) of the CivilCode.Contracting parties may validly stipulate that a real property beconsidered as personal. After agreeingto such stipulation, they

are consequently estopped from claiming otherwise. Under theprinciple ofestoppel, a party to a contract is ordinarily precludedfrom denying the truth of any material fact foundtherein. Thus,said machines are proper subjects of the Writ of Seizure(compare Tumalad v. Vicencio).The holding that the machines should be deemed personalproperty pursuant to the Lease Agreementis good only insofar asthe contracting parties are concerned. Hence, while the partiesare bound bythe Agreement, third persons acting in good faithare not affected by its stipulation characterizing thesubjectmachinery as personal. In the present case, however, there is noshowing that any specificthird party would be adversely affected.TSAI V. COURT OF APPEALS336 SCRA 324FACTS:EVERTEX secured a loan from PBC, guaranteed by a realestate and chattel mortgage over a parcel of land where thefactory stands, and the chattels located therein, as included ina schedule attached to the mortgage contract. Another loanwas obtained secured by a chattel mortgage overproperties with similar descriptions listed in the first schedule.During the date of execution of the second mortgage,EVERTEX purchased machineries and equipment.Due to business reverses, EVERTEX filed for insolvencyproceedings. It failed to pay its obligation and thus, PBCinitiated extrajudicial foreclosure of the mortgages. PBCwas the highest bidder in the public auctions, making it theowner of the properties. It then leased the factory premisesto Tsai. Afterwards, EVERTEX sought the annulment of thesale and conveyance of the properties to PBC as it was allegedlya violation of the INSOLVENCY LAW.

The RTC held that the lease and sale were irregular as itinvolved properties not included in theschedule of themortgage contract.HELD:While it is true that the controverted properties appear to beimmobile, a perusal of the contract of REM and CMexecuted by the parties gives a contrary indication. In thecase at bar, both the trial and appellate courts show that theintention was to treat the machineries as movables orpersonal property.Assuming that the properties were considered immovables,nothing detracts the parties from treating it as chattels tosecure an obligation under the principle of estoppel.