TKDC

Leung Yee v. Strong Machinery Co.

G.R. No. L-11658

DOCTRINE: The mere fact that the parties decided to deal with the
building as personal property does not change its character as real
property. Neither the original registry in the chattel mortgage registry
nor the annotation in said registry of the sale of the mortgaged property
had any effect on the building.

FACTS:
Compañia Agricola Filipina bought several rice-cleaning machinery from a
machinery company, Frank L. Strong Machinery Company and executed
a chattel mortgage to secure payment of the purchase price. The deed
of mortgage includes the building where the machinery was installed
without any reference to the land on which it stood. Since Compañia
Agricola Filipina failed to pay when due, the mortgaged property was
sold by the sheriff and was bought by the machinery company.

Few weeks later, Compañia Agricola Filipina executed a deed of sale of

the land where the building stood to the machinery company. In effect,
the machinery company possessed the building when the sale took place
and continued its possession ever since.

When the chattel mortgage was executed, Compañia Agricola Filipina

executed another mortgage in favor of Yee over the building to pay its
debt to the machinery company. Since Compañia Agricola Filipina failed
to pay when due, Yee secured a judgment to levy execution upon the
building and bought the building at the sheriff’s sale; Yee secured the
sheriff’s certificate of sale and registered it in the land registry.

When the execution was levied upon the building, the machinery
company filed with the sheriff a sworn statement setting up its claim of
title and demanding the release of property from the levy. On the other
hand, Yee filed an action to recover possession of the building from the
machinery company. Trial court ruled in favor of the machinery company
on the basis of Article 1473 of the Civil Code; it ruled that the machinery
company registered the title to the building prior to the registration date
of Yee’s certificate.

ISSUE:
Whether or not the nature of property is changed by its registration in
the Chattel Mortgage Registry. -- NO

HELD:
The registry under Article 1473 of the Civil Code refers to registry of real
property and the annotation or inscription of a deed of sale of real
property in a chattel mortgage registry cannot be given the legal effect
of an inscription in the registry of real property.

The Chattel Mortgage Law contemplates mortgages of personal property.

The sole purpose and object of the chattel mortgage registry is the
registration of personal property mortgages executed in the manner and
form prescribed in the statute.

In this case, the building where the rice-cleaning machinery was installed
was real property. The mere fact that the parties dealt with it as
separate and apart from the land on which it stood does not change its
character as real property. Neither the original registry of the building in
the chattel mortgage nor the annotation of sale of the mortgaged
property in the registry had any effect on the building’s nature as
immovable property.
 Davao Sawmill v. Castillo
DAVAO SAW MILL vs. APRONIANO G. CASTILLO and DAVAO
LIGHT & POWER CO., INC. G.R. No. L-40411 August 7, 1935

Facts:
Davao Saw Mill Co., Inc., is the holder of a lumber concession from the
Government of the Philippine Islands. However, the land upon which the
business was conducted belonged to another person. On the land the
sawmill company erected a building which housed the machinery used
by it. Some of the implements thus used were clearly personal property,
the conflict concerning machines which were placed and mounted on
foundations of cement. In the contract of lease between the sawmill
company and the owner of the land there appeared the following
provision: That on the expiration of the period agreed upon, all the
improvements and buildings introduced and erected by the party of the
second part shall pass to the exclusive ownership of the lessor without
any obligation on its part to pay any amount for said improvements and
buildings; which do not include the machineries and accessories in the
improvements.

In another action wherein the Davao Light & Power Co., Inc., was the
plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a
judgment was rendered in favor of the plaintiff in that action against the
defendant; a writ of execution issued thereon, and the properties now in
question were levied upon as personalty by the sheriff. No third party
claim was filed for such properties at the time of the sales thereof as is
borne out by the record made by the plaintiff herein

It must be noted also that on number of occasion, Davao Sawmill treated

the machinery as personal property by executing chattel mortgages in
favor of third persons. One of such is the appellee by assignment from
the original mortgages.

The lower court rendered decision in favor of the defendants herein.

Hence, this instant appeal.

Issue: 
whether or not the machineries and equipments were personal in nature.

Ruling/ Rationale:
Yes. The Supreme Court affirmed the decision of the lower court.

Machinery which is movable in its nature only becomes immobilized

when placed in a plant by the owner of the property or plant, but not
when so placed by a tenant, a usufructuary, or any person having only a
temporary right, unless such person acted as the agent of the owner.

FXRL
Davao Sawmill Co. v. Castillo
G.R. No. 40411,

DOCTRINE: Generally, machinery becomes immobilized when placed by

the owner of the plant or property. This rule does not apply should the
machinery be placed by any other person such as a tenant or
usufructuary.

FACTS:
● The petitioner company operates a sawmill in barrio
Tigatu, Davao.
● Said facility contained both movable and immovable
property (machines and other such implements).
● However, the land on which it is situated belongs to
another person.
● The parties executed a lease contract providing that
upon the expiration or termination of such lease, the following
shall happen:
o The ownership of all structures and improvements
introduced by the petitioner company shall be
transferred to the respondents without any cost or
 obligation to pay.
o The machines and their accessories shall not be
included in said transfer.
● It was noted by the court that in a previous case
between the two parties, judgment was rendered against the
petitioner company upon which a writ of execution was brought
against its machines (as personalty) in favor of Castilllo, et al.
● Additionally, the records of the current case reflected
that the petitioner company had treated its machinery as
personal property by executing chattel mortgages on them in
favor of third persons.
● Petitioner company contends that its machines are
immovable under the first and fifth paragraphs of Article 334
(now Article 415) of the Civil Code.

ISSUE:
W/N the machines of the petitioner company are movable or immovable
property.

HELD:
The machines are movable.

The court observed that the petitioner company failed to register its
protest at the time its machines were sold. Generally, this inaction would
be inconclusive but it is indicative of the intention impressed upon the
property in question.

This is so because while machines are generally movable property, they

may nevertheless be “immobilized” by destination or purpose subject to
several conditions.

This conclusion finds its ground under the fifth paragraph of Article 415.
Here, machinery becomes immobilized when placed by the owner of the
plant or property. This rule does not apply should the machinery be
placed by any other person such as a tenant or usufructuary.

Applying the rule to the case on hand, the machinery was placed by the
petitioner company who was merely a lessee. As such, the equipment
was never immobilized in the first place.

FMM
Machinery & Engineering Supplies, Inc. v. CA
G.R. No. L-7057

DOCTRINE: When the machinery and equipment in question appeared

to be attached to the land, particularly to the concrete foundation of said
premises, in a fixed manner, in such a way that the former could not be
separated from the latter "without breaking the material or deterioration
of the object or that in order to remove said outfit, it became necessary,
not only to unbolt the same, but , also, to cut some of its wooden
supports and when, said machinery and equipment were "intended by
the owner of the tenement for an industry" carried on said immovable
and tended, it becomes immovable property pursuant to paragraphs 3
and 5 of Article 415 of Civil Code of the Philippines.

FACTS:
▪ On 13 March 1953, Machinery &
Engineering Supplies, Inc. (the “Petitioner”) filed a complaint for
replevin in the Court of First Instance (“CFI”) of Manila for the
recovery of the machinery and equipment sold and delivered to Ipo
Limestone Co., Inc and Dr. Antonio Villarama (the “Respondents”)
at their factory in Barrio Bigti, Norzagaray, Bulacan.

▪ Upon application ex-parte of the Petitioner

and upon approval of its bond sum of P15,769.00, herein
Respondent Judge issued an order directing the Provincial Sheriff of
Bulacan to seize and take immediate possession of the properties
specified in the said order.
 ▪ On 19 March 1953, two deputy sheriffs of
Bulacan, Ramon S. Roco and a crew of technician and laborers
proceeded to Bigti to carry out the CFI’s order.

▪ Leonardo Contreras, herein Respondent

Company’s Manager met the sheriffs and handed the latter a letter
addressed to Atty. Leopoldo C. Paled, ex-officio Provincial Sheriff of
Bulacan, signed by the Respondent Company’s counsel, protesting
against the seizure of the properties on the ground that the same
are not personal properties.

▪ Roco and the deputy sheriffs contended that

their duty is ministerial and went ahead to the factory. At the
factory, Rocco’s attention was called to the fact that the equipment
could not possibly be dismantled without causing damages or
injuries to the wooden frames attached to them but Roco insisted in
dismantling the same on his own responsibility and alleged that the
bond was posted for such eventuality. Thus, the deputy sheriffs
directed that some of the machine’s supports be cut.

▪ On 20 March 1953, the Respondent

Company filed an urgent motion, with a counter-bond in the amount
of P15,769 for the return of the properties seized by the sheriffs.
On the same day, the trial court issued an order, directing the
Provincial Sheriff of Bulacan to return the machinery and equipment
to the place where they were installed at the time of seizure.

▪ On 2 March 1953, the deputy sheriffs

returned the said properties by depositing them along the road near
the quarry of the Respondent Company, without inventory and re-
installation in its former position and replacing the destroyed posts,
which rendered its use impracticable.

▪ On 23 March 1953, Respondents’ counsel

asked the provincial sheriff if the machinery and equipment dumped
on the road would be re-installed to their former position and
condition. The next day, the provincial sheriff filed an urgent
motion in court manifesting the Roco had been asked to furnish the
sheriff’s office with the expenses, laborers, technical men and
equipment to carry into effect the courts order, among other things
but that Roco absolutely refused and asking the Court that
Respondent Company be ordered to provide the required aid or
relieve the sheriff of the duty of complying to the said order.

▪ On 30 March 1953, the trial court ordered

the provincial sheriff and the Petitioner Company to reinstate the
machinery and equipment removed by them in their original
condition. An urgent motion of the provincial sheriff dated 15 April
1953 requesting for an extension was denied and on 4 May 1953,
the trial court ordered the Petitioner Company to furnish the
provincial sheriff with the necessary funds and technical crew and
laborers to reinstate the machinery and equipment.

▪ The case was appealed before the Court of

Appeals but the latter dismissed the same for lack of merit.

▪ Hence this petition filed before the Supreme

Court (the “SC”). The Petitioner argued that the respondent judge
had completely disregarded his manifestation that the machinery
and equipment seized were and still are the Petitioner's property
until fully paid for and such never became immovable. The question
of ownership and the applicability of Art. 415 of the new Civil Code
are immaterial in the determination of the only issue involved in this
case.

ISSUE:
Whether the machineries and equipments can be considered as personal
properties subject to replevin. -- NO
HELD:
The SC held that the special civil action known as replevin, governed by
Rule 62 of Court, is applicable only to "personal property". When the
sheriff repaired to the premises of respondent company, the machinery
and equipment in question appeared to be attached to the land,
particularly to the concrete foundation of said premises, in a fixed
manner, in such a way that the former could not be separated from the
latter "without breaking the material or deterioration of the object."
Hence, in order to remove said outfit, it became necessary, not only to
unbolt the same, but, also, to cut some of its wooden supports.
Moreover, said machinery and equipment were "intended by the owner
of the tenement for an industry" carried on said immovable and tended."
For these reasons, they were already immovable property pursuant to
paragraphs 3 and 5 of Article 415 of Civil Code of the Philippines, which
are substantially identical to paragraphs 3 and 5 of Article 334 of the Civil
Code of Spain. As such immovable property, they were not subject to
replevin.

ABB
Associated Insurance and Surety Company v. Iya
103 SCRA 972

DOCTRINE: A building is an immovable property irrespective of where

or not said structure and the land on which it is adhered to belong to the
same owner.

FACTS:
Spouses Adriano Valino and Lucia A. Valino own a house of strong
materials. They filed a bond of P 11,000.00 subscribed by the Associated
Insurance and Surety Co., Inc. and as a counter-guaranty, the spouses
Valino executed an alleged chattel mortgage on the aforementioned
house in favor of the surety company.

The parcel of land on which the house is erected was still registered in
the name of the Philippine Realty Corporation but was able to obtain the
same from them after full payment of the purchase price. The Valinos
acquired another loan from Isabel Iya for P12,000.00, executing a real
estate mortgage over the house and lot. However, they were unable to
pay off their other loan which caused the foreclosure of the chattel
mortgage. The surety company was awarded the land as the highest
bidder in the auction but later on discovered that the land was subject to
a real estate mortgage. The surety company then requested that the
house and lot be excluded from the real estate mortgage. Iya, in her
answer, said that she had a real right over the property and that the
chattel mortgage on which the foreclosure was based should be declared
null and void for non-compliance with the form required by law. The CA
ruled that the foreclosure of the real estate mortgage is limited to the
land alone and they awarded the structure to the surety company saying
that the house is a personal property and may be subject to chattel
mortgage.

ISSUE:
Which of the mortgages should have preference?

HELD:
It was held in Lopez vs. Orosa that the building is an immovable itself,
separate and distinct from the land. A building is an immovable property
irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner.

Only personal properties can be the subject of a chattel mortgage and

since the structure in this case is an immovable, it cannot subject to a
chattel mortgage. Therefore the chattel mortgage and the sale on which
it was based should be declared null and void. Also, while it is true that
said document was registered in the Chattel Mortgage Register of Rizal,
this act produced no effect whatsoever for where the interest conveyed
is in the nature of a real property, the registration of the document in
the registry of chattels is merely a futile act which would produce no
legal effect insofar as the building is concerned.

GCG
Mindanao Bus Co. v. City Assessor and Treasurer
G.R. No. L-17870

DOCTRINE: Movable equipment, to be immobilized in contemplation of

Article 415 of the Civil Code, must be the essential and principal
elements of an industry or works which are carried on in a building or on
a piece of land. Thus, where the business is one of transportation, which
is carried on without a repair or service shop, and its rolling equipment is
repaired or serviced in a shop belonging to another, the tools and
equipment in its repair shop which appear movable are merely
incidentals and may not be considered immovables, and, hence, not
subject to assessment as real estate for purposes of the real estate tax.

FACTS:
Petitioner is a public utility solely engaged in transporting passengers
and cargoes by motor trucks, over its authorized lines in the Island of
Mindanao, collecting rates approved by the Public Service Commission.

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

These machineries have never been or were never used as industrial

equipments to produce finished products for sale, nor to repair
machineries, parts and the like offered to the general public
indiscriminately for business or commercial purposes for which petitioner
has never engaged in,

The City Assessor of CDO then assessed a P4,400 realty tax on said
machineries and repair equipment. This was then appealed to the Court
of Tax Appeals (CTA) who sustained the respondent city assessor's
ruling.

ISSUE:
Whether or not the machineries and the equipments are considered
immobilized and thus subject to a realty tax. -- NO

HELD:
The Supreme Court held a decision for the petition for review to be set
aside and the equipments in question declared not subject to assessment
as real estate for the purposes of the real estate tax.

The law that governs the determination of the question at issue

is as follows:

Art. 415. The following are immovable property:

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements

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

Aside from the element of essentiality the above-quoted provision also

requires that the industry or works be carried on in a building or on a
piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the
"machinery, liquid containers, and instruments or implements" are found
in a building constructed on the land. A sawmill would also be installed in
a building on land more or less permanently, and the sawing is
conducted in the land or building.

But in the case at bar the equipments in question are destined only to
repair or service the transportation business, which is not carried on in a
building or permanently on a piece of land, as demanded 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 a building,
tenement or on a specified land, so said equipment may not be
considered real estate within the meaning of Article 415 (c) of the Civil
Code.

Said equipments are not considered immobilized as they are merely

incidental, not essential and principal to the business of the petitioner.
The transportation business could be carried on without repair or service
shops of its rolling equipment as they can be repaired or services in
another shop belonging to another.

NKVS
Tumalad v. Vicencio
41 SCRA 143

DOCTRINE: The view that parties to a deed of chattel mortgage may

agree to consider a house as personal property for the purposes of said
contract, "is good only insofar as the contracting parties are concerned.
It is based, partly, upon the principle of estoppel.”

FACTS:
On 1 September 1955 defendants executed a chattel mortgage in favor
of plaintiffs over their house located at Quiapo, Manila, which were being
rented from Madrigal & Company, Inc. The mortgage was registered in
the Registry of Deeds of Manila on 2 September 1955. The mortgage
was executed to guarantee a loan of P4,800.00 received from plaintiffs.
It was also agreed that default in the payment of any of the
amortizations, would cause the remaining unpaid balance to become
immediately due and Payable and the Chattel Mortgage will be
enforceable in accordance with the provisions of Special Act No. 3135,
and for this purpose, the Sheriff of the City of Manila or any of his
deputies is hereby empowered and authorized to sell all the Mortgagor's
property after the necessary publication in order to settle the financial
debts of P4,800.00, plus 12% yearly interest, and attorney's fees.

When defendants defaulted in paying, the mortgage was extrajudicially

foreclosed, and the house was sold at public auction pursuant to the said
contract. As highest bidder, plaintiffs were issued the corresponding
certificate of sale. Thereafter, plaintiffs commenced Civil Case No. 43073
in the municipal court of Manila, praying, among other things, that the
house be vacated and its possession surrendered to them, and for
defendants to pay rent of P200.00 monthly from 27 March 1956 up to
the time the possession is surrendered. MTC granted petition.

Defendants, in their answers in both the municipal court and court a quo
impugned the legality of the chattel mortgage, claiming that they are still
the owners of the house. During the pendency of the appeal to the Court
of First Instance, defendants failed to deposit the rent as ordered in the
decision of the municipal court. As a result, the court granted plaintiffs
motion for execution. However, the judgment regarding the surrender of
possession to plaintiffs could not be executed because the subject house
had been already demolished pursuant to the order of the court in a
separate civil case for ejectment against the present defendants for non-
payment of rentals on the land on which the house was constructed.

ISSUE:
W/N the house may be a subject of a Chattel Mortgage. – YES, it may be
the subject of a chattel mortgage.

HELD:
Defendants predicate their theory of nullity of the chattel mortgage on
the ground that the subject matter of the mortgage is a house of strong
materials, and, being an immovable, it can only be the subject of a real
estate mortgage and not a chattel mortgage.

The rule about the status of buildings as immovable property is that it is

obvious that the inclusion of the building, separate and distinct from the
land, in the enumeration of what may constitute real properties could
only mean one thing — that a building is by itself an immovable property
irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner.

It is undeniable that the parties to a contract may by agreement treat as

personal property that which by nature would be real property. The view
that parties to a deed of chattel mortgage may agree to consider a
house as personal property for the purposes of said contract, "is good
only insofar as the contracting parties are concerned. It is based, partly,
upon the principle of estoppel.”

In a case, a mortgaged house built on a rented land was held to be a

personal property, not only because the deed of mortgage considered it
as such, but also because it did not form part of the land for it is now
settled that an object placed on land by one who had only a temporary
right to the same, such as the lessee or usufructuary, does not become
immobilized by attachment. Hence, if a house belonging to a person
stands on a rented land belonging to another person, it may be
mortgaged as a personal property as so stipulated in the document of
mortgage. It should be noted, however that the principle is predicated
on statements by the owner declaring his house to be a chattel, a
conduct that may conceivably estop him from subsequently claiming
otherwise.

Although there is no specific statement referring to the subject house as

personal property, yet by ceding, selling or transferring a property by
way of chattel mortgage defendants could only have meant to convey
the house as chattel, or at least, intended to treat the same as such, so
that they should not now be allowed to make an inconsistent stand by
claiming otherwise.
Moreover, the subject house stood on a rented lot to which defendants
merely had a temporary right as lessee, and although this can not in
itself alone determine the status of the property, it does so when
combined with other factors to sustain the interpretation that the parties,
particularly the mortgagors, intended to treat the house as personalty.
Finally, because it is the defendants themselves, as debtors-mortgagors,
who are attacking the validity of the chattel mortgage in this case, the
doctrine of estoppel therefore applies to the defendants, having treated
the subject house as personalty.

RGGM
Punsalan, Jr. v. Vda. De Lacsamana
121 SCRA 331

DOCTRINE: Buildings are always immovable under the Civil Code.

Separate treatment by the parties of building from the land in which it
stood does not change the immovable character of the building.

FACTS:
Punsalan was the owner of a piece of land, which he mortgaged in favor
of PNB. Due to his failure to pay, the mortgage was foreclosed and the
land was sold in a public auction to which PNB was the highest bidder.

On a relevant date, while Punsalan was still the possessor of the land, it
secured a permit for the construction of a warehouse.

A deed of sale was executed between PNB and Punsalan. This contract
was amended to include the warehouse and the improvement thereon.
By virtue of these instruments, respondent Lacsamana secured title over
the property in her name.

Petitioner then sought for the annulment of the deed of sale. Among his
allegations was that the bank did not own the building and thus, it
should not be included in the said deed.

Petitioner’s complaint was dismissed for improper venue. The trial court
held that the action being filed in actuality by petitioner is a real action
involving his right over a real property.

ISSUE:
Whether or not the warehouse is an immovable and must be tried in the
province where the property lies.

HELD:
Warehouse claimed to be owned by petitioner is an immovable or
real property. Buildings are always immovable under the Civil Code. A
building treated separately from the land on which it is stood is
immovable property and the mere fact that the parties to a contract
seem to have dealt with it separate and apart from the land on which it
stood did not change its character as immovable property.
RSDM
Makati Leasing and Financial Corporation v. Wearever Textile
Mills, Inc.
G.R. No. L-58469

DOCTRINE: If a house of strong materials, like what was involved in

the above Tumalad case, may be considered as personal property for
purposes of executing a chattel mortgage thereon as long as the parties
to the contract so agree and no innocent third party will be prejudiced
thereby, there is absolutely no reason why a machinery, which is
movable in its nature and becomes immobilized only by destination or
purpose, may not be likewise treated as such. This is really because one
who has so agreed is estopped from denying the existence of the chattel
mortgage.

FACTS:
The private respondent Wearever Textile Mills, Inc., discounted and
assigned several receivables with the former under a Receivable
Purchase Agreement in order to obtain financial accommodations from
herein petitioner Makati Leasing and Finance Corporation. To secure the
collection of the receivables assigned, private respondent executed a
Chattel Mortgage over certain raw materials inventory as well as a
machinery described as an Artos Aero Dryer Stentering Range.

Upon default, petitioner filed a petition for extrajudicial foreclosure of the

properties mortgage to it. The Deputy Sheriff assigned to implement the
foreclosure failed to gain entry into private respondent's premises and
was not able to effect the seizure of the aforedescribed machinery.
Petitioner thereafter filed a complaint for judicial foreclosure with the
Court of First Instance of Rizal.

Acting on petitioner's application for replevin, the lower court issued a

writ of seizure, the enforcement of which was however subsequently
restrained upon private respondent's filing of a motion for
reconsideration. After several incidents, the lower court finally issued an
order lifting the restraining order for the enforcement of the writ of
seizure and an order to break open the premises of private respondent
to enforce said writ. The lower court reaffirmed its stand upon private
respondent's filing of a further motion for reconsideration.
The Court of Appeals, in certiorari and prohibition proceedings
subsequently filed by herein private respondent, set aside the Orders of
the lower court and ordered the return of the drive motor seized by the
sheriff pursuant to said Orders, after ruling that the machinery in suit
cannot be the subject of replevin, much less of a chattel mortgage,
because it is a real property pursuant to Article 415 of the new Civil
Code, the same being attached to the ground by means of bolts and the
only way to remove it from respondent's plant would be to drill out or
destroy the concrete floor, the reason why all that the sheriff could do to
enfore the writ was to take the main drive motor of said machinery. The
appellate court rejected petitioner's argument that private respondent is
estopped from claiming that the machine is real property by constituting
a chattel mortgage thereon.
ISSUE:
Whether or not the property in suit is real property – NO. It is a personal
property

HELD:
Examining the records of the instant case, We find no logical justification
to exclude the rule out, as the appellate court did, the present case from
the application of the abovequoted pronouncement. If a house of strong
materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated
as such. This is really because one who has so agreed is estopped from
denying the existence of the chattel mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad

doctrine, the Court of Appeals lays stress on the fact that the house
involved therein was built on a land that did not belong to the owner of
such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not lay
down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery

as chattel by the private respondent is indicative of intention and
impresses upon the property the character determined by the parties. As
stated in Standard Oil Co. of New York v. Jaramillo , 44 Phil. 630, it is
undeniable that the parties to a contract may by agreement treat as
personal property that which by nature would be real property, as long
as no interest of third parties would be prejudiced thereby.

G.R. No. L-46245    May 31, 1982

MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,

vs.

CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF

ASSESSMENT APPEALS OF LAGUNA and PROVINCIAL ASSESSOR
OF LAGUNA, respondents.
Facts:
Pursuant to a pipeline concession issued under the Petroleum Act of
1949, Republic Act No. 387, Meralco Securities installed from Batangas
to Manila a pipeline system consisting of cylindrical steel pipes joined
together and buried not less than one meter below the surface along the
shoulder of the public highway. The pipes are embedded in the soil and
are firmly and solidly welded together so as to preclude breakage or
damage thereto and prevent leakage or seepage of the oil. The valves
are welded to the pipes so as to make the pipeline system one single
piece of property from end to end.

In order to repair, replace, remove or transfer segments of the pipeline,

the pipes have to be cold-cut by means of a rotary hard-metal pipe-
cutter after digging or excavating them out of the ground where they are
buried. In points where the pipeline traversed rivers or creeks, the pipes
were laid beneath the bed thereof. Hence, the pipes are permanently
attached to the land.

Pursuant to the Assessment Law, Commonwealth Act No. 470, the

provincial assessor of Laguna treated the pipeline as real property and
issued tax declarations, containing the assessed values of portions of the
pipeline.

Meralco appealed the assessments to the defendants, but the latter ruled
that pipeline is subject to realty tax. The defendants argued that the
pipeline is subject to realty tax because they are contemplated in
Assessment Law and Real Property Tax Code; that they do not fall within
the category of property exempt from realty tax under those laws; that
Articles 415 & 416 of the Civil Code, defining real and personal property
have no applications to this case because these pipes are constructions
adhered to soil and things attached to the land in a fixed manner, and
that Meralco Securities is not exempt from realty tax under petroleum
law.

Meralco insists that its pipeline is not subject to realty tax because it is
not real property within the meaning of Art. 415.

Issue:
Whether the aforementioned pipelines are subject to realty tax.
Held:
Yes, the pipelines are subject to realty tax.
Section 2 of the Assessment Law provides that the realty tax is due “on
real property, including land, buildings, machinery, and other
improvements.” This provision is reproduced with some modification in
Section 38, Real Property Tax Code, which provides that “there shall be
levied, assessed, and collected xxx annual ad valorem tax on real
property such as land, buildings, machinery, and other improvements
affixed or attached to real property xxx.”

It is incontestable that the pipeline of Meralco Securities does not fall

within any of the classes of exempt real property enumerated in section
3 of the Assessment Law and section 40 of the Real Property Tax Code.

Pipeline means a line of pipe connected to pumps, valves and control

devices for conveying liquids, gases or finely divided solids. It is a line of
pipe running upon or in the earth, carrying with it the right to the use of
the soil in which it is placed.

Article 415[l] and [3] provides that real property may consist of
constructions of all kinds adhered to the soil and everything attached to
an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the
object.

The pipeline system in question is indubitably a construction adhering to

the soil. It is attached to the land in such a way that it cannot be
separated therefrom without dismantling the steel pipes which were
welded to form the pipeline.

WHEREFORE, the questioned decision and resolution are affirmed. The

petition is dismissed. No costs.

MLAV
Manila Electric Co., v. Central Board of Assessment Appeals
114 SCRA 273

DOCTRINE: Oil storage tanks were held to be taxable realty. For

purposes of taxation, the term "real property" may include things which
should generally be regarded as personal property.

FACTS:
The case is about the imposition of the realty tax on two oil storage
tanks installed in 1969 by Manila Electric Company in Batangas which it
leased in 1968 from Caltex (Phil.), Inc. The tanks are within the Caltex
refinery compound, and are used for storing fuel oil for Meralco's power
plants.

According to Meralco, the storage tanks are made of steel plates welded
and assembled on the spot. Their bottoms rest on a foundation
consisting of compacted earth as the outermost layer, a sand pad as the
intermediate layer and a two-inch thick bituminous asphalt stratum as
the top layer. The bottom of each tank is in contact with the asphalt
layer. Hence, it is not attached to its foundation.

On the other hand, according to the hearing commissioners of the

Central Board of Assessment Appeals (CBAA) states that while the tanks
rest or sit on their foundation, the foundation itself and the walls, dikes
and steps, which are integral parts of the tanks, are affixed to the land
while the pipelines are attached to the tanks.

The CBAA ruled that the tanks together with the foundation, walls, dikes,
steps, pipelines and other appurtenances constitute taxable
improvements.

Meralco filed a motion for reconsideration which the Board denied. They
elevated the case to the SC.

ISSUE:
WON the storage tanks are considered “improvements” on real property
such that it is subject to real property tax. -- YES

HELD:
Meralco contends that the said oil storage tanks do not fall within any of
the kinds of real property enumerated in article 415 of the Civil Code
and, therefore, they cannot be categorized as realty by nature, by
incorporation, by destination nor by analogy. Stress is laid on the fact
that the tanks are not attached to the land and that they were placed on
leased land, not on the land owned by Meralco.

The issue raised by Meralco has to be resolved in the light of the

provisions of the Assessment Law, Commonwealth Act No. 470, and the
Real Property Tax Code, Presidential Decree No. 464 which took effect
on June 1, 1974.

Section 2 of the Assessment Law provides that the realty tax is due "on
real property, including land, buildings, machinery, and other
improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property Tax
Code which provides:
Sec. 38. Incidence of Real Property Tax. — They shall be
levied, assessed and collected in all provinces, cities and
municipalities an annual ad valorem tax on real property, such
as land, buildings, machinery and other improvements affixed
or attached to real property not hereinafter specifically
exempted.

The Code contains the following definition in its section 3:

k) Improvements — is a valuable addition made to property or
an amelioration in its condition, amounting to more than mere
repairs or replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or to adapt it
for new or further purposes.

The SC holds that while the two storage tanks are not embedded in the
land, they may, nevertheless, be considered as improvements on the
land, enhancing its utility and rendering it useful to the oil industry. It is
undeniable that the two tanks have been installed with some degree of
permanence as receptacles for the considerable quantities of oil needed
by Meralco for its operations.

Oil storage tanks were held to be taxable realty in Standard Oil Co. of
New Jersey vs. Atlantic City, 15 Atl. 2nd 271.

For purposes of taxation, the term "real property" may include things
which should generally be regarded as personal property. It is a familiar
phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal
property (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).

DJTV
Caltex Philippines v. Central Board of Assessment Appeals
114 SCRA 296

DOCTRINE: Gasoline station equipment and machineries are permanent

fixtures for purposes of realty taxation.

FACTS:
Machines and equipment are loaned by Caltex to gas station operators
under an appropriate lease agreement or receipt. It is stipulated in the
lease contract that the operators, upon demand, shall return to Caltex
the machines and equipment in good condition as when received,
ordinary wear and tear excepted.

The city assessor of Pasay City characterized the said items of gas
station equipment and machinery as taxable realty. The city board of tax
appeals ruled that they are personalty. The assessor appealed to the
Central Board of Assessment Appeals.

The Board said machines and equipment are real property within the
meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code,
Presidential Decree No. 464, which took effect on June 1, 1974, and that
the definitions of real property and personal property in articles 415 and
416 of the Civil Code are not applicable to this case.

Caltex filed this certiorari petition wherein it prayed for the setting aside
of the Board's decision and for a declaration that t he said machines and
equipment are personal property not subject to realty tax.

ISSUE:
Whether or not Gasoline station equipment and machineries are
permanent fixtures for purposes of realty taxation. -- YES

HELD:
The Supreme Court held that gasoline station equipment and
machineries are permanent fixtures for purposes of realty taxation. Thus,
they are subject to the real property tax. The said equipment and
machinery, as appurtenances to the gas station building or shed owned
by Caltex (as to which it is subject to realty tax) and which fixtures are
necessary to the operation of the gas station, for without them the gas
station would be useless, and which have been attached or affixed
permanently to the gas station site or embedded therein, are taxable
improvements and machinery within the meaning of the Assessment Law
and the Real Property Tax Code.

The Central Board of Assessment Appeals did not commit a grave abuse
of discretion in upholding the city assessor's is imposition of the realty
tax on Caltex's gas station and equipment.

WHEREFORE, the questioned decision and resolution of the Central

Board of Assessment Appeals are affirmed. The petition for certiorari is
dismissed for lack of merit.

MCSS

Prudential Bank v. Panis

153 SCRA 390

FACTS:
Plaintiff-spouses Magcale secured two loans over a 2-storey residential
building.

For failure of the plaintiffs to pay their obligation to defendant Bank after
it became due, the deed of the Real Estate Mortgage were extrajudicially
foreclosed.
ISSUE: WON a valid real estate mortgage can be constituted on the
building. -- YES

HELD:
Inclusion of building separate and distinct from land, in the provision of
law can only mean that a building is by itself an immovable property. A
building by itself may be mortgaged apart from the land on which it has
been built.

AMPS
Serg’s Products and Goquiola v. PCI Leasing and Finance
338 SCRA 499

DOCTRINE: After agreeing to a contract stipulating that a real or

immovable property be considered as personal or movable, a party is
estopped from subsequently claiming otherwise. Hence, such property is
a proper subject of a writ of replevin obtained by the other contracting
party.

FACTS:
PCI Leasing and Finance, Inc. filed a complaint with the RTC for a sum of
money with an application for a writ of replevin. Upon an ex-parte
application of PCI Leasing, respondent judge issued a writ of replevin
directing its sheriff to seize and deliver the machineries and equipment
to PCI Leasing after 5 days and upon the payment of the necessary
expenses.

Serg’s filed a motion for special protective order. This motion was
opposed by PCI Leasing on the ground that the properties [were] still
personal and therefore still subject to seizure and a writ of replevin.

In their Reply, petitioners asserted that the properties sought to be

seized were immovable as defined in Article 415 of the Civil Code, the
parties’ agreement to the contrary notwithstanding. They argued that to
give effect to the agreement would be prejudicial to innocent third
parties. They further stated that PCI Leasing was estopped from
treating these machineries as personal because the contracts in which
the alleged agreement were embodied were totally sham and farcical.

Citing the Agreement of the parties, the appellate court held that the
subject machines were personal property, and that they had only been
leased, not owned, by petitioners. It also ruled that the “words of the
contract are clear and leave no doubt upon the true intention of the
contracting parties.”

ISSUE:
Whether or not the machineries purchased and imported by SERG’S
became real property by virtue of immobilization.

HELD:
The machineries herein are real properties but are considered personal
by the parties’ agreement.

The Court will resolve whether the said machines are personal, not
immovable, property which may be a proper subject of a writ of replevin.
Rule 60 of the Rules of Court provides that writs of replevin are issued
for the recovery of personal property only. Section 3 thereof reads:

“SEC. 3. Order. -- Upon the filing of such affidavit

and approval of the bond, the court shall issue an
order and the corresponding writ of replevin
describing the personal property alleged to be
wrongfully detained and requiring the sheriff
forthwith to take such property into his custody.”

On the other hand, Article 415 of the Civil Code enumerates immovable
or real property as follows:
 “ART. 415. The following are immovable property:
x x x....................................x x
x....................................x x x

(5) Machinery, receptacles, instruments or

implements intended by the owner of the tenement
for an industry or works which may be carried on in a
building or on a piece of land, and which tend directly
to meet the needs of the said industry or works;

x x x....................................x x
x....................................x x x”

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

Be that as it may, we disagree with the submission of the petitioners that

the said machines are not proper subjects of the Writ of Seizure.

The Court has held that contracting parties may validly stipulate that a
real property be considered as personal. After agreeing to such
stipulation, they are consequently estopped from claiming otherwise.
Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.

Hence, in Tumalad v. Vicencio, the Court upheld the intention of the

parties to treat a house as a personal property because it had been
made the subject of a chattel mortgage.

It should be stressed, however, that our holding -- that the machines

should be deemed personal property pursuant to the Lease Agreement –
is good only insofar as the contracting parties are concerned. Hence,
while the parties are bound by the Agreement, third persons acting in
good faith are not affected by its stipulation characterizing the subject
machinery as personal. In any event, there is no showing that any
specific third party would be adversely affected.

Tsai v. CA
G.R. No. 120098
DOCTRINE: Even if the properties are immovable by nature, nothing
detracts the parties from treating them as chattels to secure an
obligation under the principle of estoppel.

FACTS:
● EVERTEX secured a loan from PBC, guaranteed by
real estate and chattel mortgage over a parcel of land where the
factory stands, and the chattels located therein, as included in a
schedule attached to the mortgage contract. another loan was
obtained secured by a chattel mortgage over properties 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
insolvency proceedings. It failed to pay its obligation and thus, PBC
initiated extrajudicial foreclosure of the mortgages.
● PBC was the highest bidder in the public auctions,
making it the owner of the properties. It then leased the factory
premises to Tsai.
● Afterwards, EVERTEX sought the annulment of the
sale and conveyance of the properties to PBC as it was allegedly a
violation of the insolvency law.
● The RTC held that the lease and sale were irregular
 as it involved properties not included in the schedule of the
mortgage contract.

ISSUE:
Whether or not the (immovable) properties in question can be entered
into a chattel mortgage. -- YES

HELD:
An immovable may be considered a personal property if there is a
stipulation as when it is used as security in the payment of an obligation
where a chattel mortgage is executed over it, as in the case at bar. While
it is true that the controverted properties appear to be immobile, a
perusal of the contract of real estate mortgage and chattel mortgage by
the parties gives a contrary indication. Both the trial and appellate courts
show that the intention was to treat the machineries as movables or
personal property.

Assuming that the properties were considered immovables, nothing

detracts the parties from treating it as chattels to secure an obligation
under the principle of estoppel.

MANILA ELECTRIC CO. V. CITY ASSESSOR, G.R. NO. 166102,

[AUGUST 5, 2015]

FACTS: MERALCO is a private corporation organized and existing under

Philippine laws to operate as a public utility engaged in electric
distribution. MERALCO has been successively granted franchises to
operate in Lucena City beginning 1922 until present time, particularly,
by: (1) Resolution No. 36 dated May 15, 1922 of the Municipal Council of
Lucena; (2) Resolution No. 108 dated July 1, 1957 of the Municipal
Council of Lucena; (3) Resolution No. 2679 dated June 13, 1972 of the
Municipal Board of Lucena City; (4) Certificate of Franchise dated
October 28, 1993 issued by the National Electrification Commission; and
(5) Republic Act No. 9209 approved on June 9, 2003 by Congress.

On February 20, 1989, MERALCO received from the City Assessor of

Lucena a copy of Tax Declaration No. 019-6500 covering the following
electric facilities, classified as capital investment, of the company: (a)
transformer and electric post; (b) transmission line; (c) insulator; and (d)
electric meter, located in Quezon Ave. Ext., Brgy. Gulang-Gulang, Lucena
City. Under Tax Declaration No. 019-6500, these electric facilities had a
market value of P81,811,000.00 and an assessed value of
P65,448,800.00, and were subjected to real property tax as of 1985. 

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of

Lucena City, which was docketed as LBAA-89-2. MERALCO claimed that
its capital investment consisted only of its substation facilities, the true
and correct value of which was only P9,454,400.00; and that MERALCO
was exempted from payment of real property tax on said substation
facilities.

The LBAA rendered a Decision in LBAA-89-2 on July 5, 1989, finding that

under its franchise, MERALCO was required to pay the City Government
of Lucena a tax equal to 5% of its gross earnings, and “[s]aid tax shall
be due and payable quarterly and shall be in lieu of any and all taxes of
any kind, nature, or description levied, established, or collected . . ., on
its poles, wires, insulators, transformers and structures, installations,
conductors, and accessories, . . ., from which taxes the grantee
(MERALCO) is hereby expressly exempted.” As regards the issue of
whether or not the poles, wires, insulators, transformers, and electric
meters of MERALCO were real properties, the LBAA cited the 1964 case
of Board of Assessment Appeals v. Manila Electric Company  (1964
MERALCO case) in which the Court held that: (1) the steel towers fell
within the term “poles” expressly exempted from taxes under the
franchise of MERALCO; and (2) the steel towers were personal properties
under the provisions of the Civil Code and, hence, not subject to real
property tax. The LBAA lastly ordered that Tax Declaration No. 019-6500
would remain and the poles, wires, insulators, transformers, and electric
meters of MERALCO would be continuously assessed, but the City
Assessor would stamp on the said Tax Declaration the word “exempt.

ISSUES:

A. WON MERALCO PROPERLY POSTED A BOND.

B. WON MERALCO IS SUBJECT TO REAL PROPERTY TAX.

C. WON THE ASSESSMENT MADE BY THE CITY ASSESSOR IS NULL AND

VOID.

HELD: 

A. YES. Section 252 of the Local Government Code mandates that “[n]o

protest shall be entertained unless the taxpayer first pays the tax.” It is
settled that the requirement of “payment under protest” is a
condition sine qua non  before an appeal may be entertained. Section
231 of the same Code also dictates that “[a]ppeal on assessments of real
property . . . shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the
provincial or city assessor, without prejudice to subsequent adjustment
depending upon the final outcome of the appeal.” Clearly, under the
Local Government Code, even when the assessment of the real property
is appealed, the real property tax due on the basis thereof should be
paid to and/or collected by the local government unit concerned.

In the case at bar, the City Treasurer of Lucena, in his letter dated
October 16, 1997, sought to collect from MERALCO the amount of
P17,925,117.34 as real property taxes on its machineries, plus penalties,
for the period of 1990 to 1997, based on Tax Declaration Nos. 019-6500
and 019-7394 issued by the City Assessor of Lucena. MERALCO appealed
Tax Declaration Nos. 019-6500 and 019-7394 with the LBAA, but instead
of paying the real property taxes and penalties due, it posted a surety
bond in the amount of P17,925,117.34.

By posting the surety bond, MERALCO may be considered to have

substantially complied with Section 252 of the Local Government
Code for the said bond already guarantees the payment to the Office of
the City Treasurer of Lucena of the total amount of real property taxes
and penalties due on Tax Declaration Nos. 019-6500 and 019-7394. This
is not the first time that the Court allowed a surety bond as an
alternative to cash payment of the real property tax before
protest/appeal as required by Section 252 of the Local Government
Code. In Camp John Hay Development Corporation v. Central Board of
Assessment Appeals, the Court affirmed the ruling of the CBAA and the
Court of Tax Appeals en banc applying the “payment under protest”
requirement in Section 252 of the Local Government Code and
remanding the case to the LBAA for “further proceedings subject to a full
and up-to-date payment, either in cash or surety, of realty tax on the
subject properties . . . .”

Accordingly, the LBAA herein correctly took cognizance of and gave due
course to the appeal of Tax Declaration Nos. 019-6500 and 019-7394
filed by MERALCO.
B. YES. The last paragraph of Section 234 had unequivocally withdrawn,
upon the effectivity of the Local Government Code, exemptions from
payment of real property taxes granted to natural or juridical persons,
including government-owned or controlled corporations, except as
provided in the same section.

MERALCO, a private corporation engaged in electric distribution, and its

transformers, electric posts, transmission lines, insulators, and electric
meters used commercially do not qualify under any of the ownership,
character, and usage exemptions enumerated in Section 234 of the Local
Government Code. It is a basic precept of statutory construction that the
express mention of one person, thing, act, or consequence excludes all
others as expressed in the familiar maximexpressio unius est exclusio
alterius.  Not being among the recognized exemptions from real property
tax in Section 234 of the Local Government Code, then the exemption of
the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO from real property tax granted under its
franchise was among the exemptions withdrawn upon the effectivity of
the Local Government Code on January 1, 1998.

It is worthy to note that the subsequent franchises for operation granted

to MERALCO, i.e., under the Certificate of Franchise dated October 28,
1993 issued by the National Electrification Commission and Republic Act
No. 9209 enacted on June 9, 2003 by Congress, are completely silent on
the matter of exemption from real property tax of MERALCO or any of its
properties.

It is settled that tax exemptions must be clear and unequivocal. A

taxpayer claiming a tax exemption must point to a specific provision of
law conferring on the taxpayer, in clear and plain terms, exemption from
a common burden. Any doubt whether a tax exemption exists is resolved
against the taxpayer. MERALCO has failed to present herein any express
grant of exemption from real property tax of its transformers, electric
posts, transmission lines, insulators, and electric meters that is valid and
binding even under the Local Government Code. c

C. YES. The Court cannot help but attribute the lack of a valid notice of
assessment to the apparent lack of a valid appraisal and assessment
conducted by the City Assessor of Lucena in the first place. It appears
that the City Assessor of Lucena simply lumped together all the
transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO located in Lucena City under Tax Declaration Nos.
019-6500 and 019-7394, contrary to the specificity demanded under
Sections 224 and 225 of the Local Government Code for appraisal and
assessment of machinery. The City Assessor and the City Treasurer of
Lucena did not even provide the most basic information such as the
number of transformers, electric posts, insulators, and electric meters or
the length of the transmission lines appraised and assessed under Tax
Declaration Nos. 019-6500 and 019-7394. There is utter lack of factual
basis for the assessment of the transformers, electric posts, transmission
lines, insulators, and electric meters of MERALCO.The Court of Appeals
laid the blame on MERALCO for the lack of information regarding its
transformers, electric posts, transmission lines, insulators, and electric
meters for appraisal and assessment purposes because MERALCO failed
to file a sworn declaration of said properties as required by Section 202
of the Local Government Code. As MERALCO explained, it cannot be
expected to file such a declaration when all the while it believed that said
properties were personal or movable properties not subject to real
property tax.