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2f Property Case Digests

Jennylyn C Ong

Ladera vs. Hodges

No. 8027-R. September 23, 1952.Reyes, J.B.L., J.

Doctrine:Article 315 of the Civil Code (now Article 415, New Civil Code) makes no distinction as to

whether the owner of the land is or is not the owner of the building.

Facts:Ladera entered into a contract with Hodges whereby the latter promised to sell a lot subject to

certain terms and conditions. In case of failure of the purchaser to make a monthly payment within

60 days after it fell due, this contract may be taken and considered as rescinded and annulled, in

which case all sums of money paid would be considered rentals and the vendor shall be at liberty to

dispose of the parcel of land with all the improvements theron to any other person in a manner as if

this contract had never been made. After the execution of the contract, Ladera built on a lot a house

of mixed materials assessed at P4500.

Unfortunately, Ladera failed to pay the agreed installments, whereupon the appellant rescinded the

contract and filed an action for ejectment. The MTC rendered a decision upon agreement of the

parties- Ladera to vacate and surrender possession of the lot and pay P10 a month until delivery of

the premises. The court issued an alias writ of execution and pursuant thereto the sheriff levied upon

all rights, interests, and participation over your house standing on the lot. The sheriff posted the

notices of the sale but did not publish the same in a newspaper of general circulation.

At the auction sale Ladera did not attend because she had gone to Manila and the sheriff sold the

property to Avelina Magno as the highest bidder. On July 6, 1948, Hodges sold the lot to Manuel

Villa and on the same day the latter purchased the house from Magno for P200 but this last

transaction was not recorded.

Ladera returned to Iloilo after the sale and learned of its results. She went to see the sheriff and upon

the latters representation that she could redeem the property, she paid him P230 and the sheriff

issued a receipt. It does not appear, however, that this money was turned over to Hodges.

Thereupon, Ladera spouses filed an action against Hodges, the sheriff, and the judgment sale

purchasers, Magno and Villa to set aside the sale and recover the house. The lower court ruled in

favor of Ladera. Hodges et al contend that the house being built on land owned by another person

should be regarded in law as movable or personal property.

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Issue:Whether the house being built on land owned by another should be regarded as movable

property.

Held:According to Article 334 of the Civil Code (now 415), Immovable property are the following:

Lands, building, roads, and constructions of all kinds adhering to the soil; Applying the principle

Ubi lex non distinguit nec nos distinguere debemu, the law makes no distinction as to whether the

owner of the land is or is not the owner of the building. In view of the plain terms of the statute, the

only possible doubt could arise in the case of a house sold for demolition.

In the case of immovables by destination, the code requires that they be placed by the owner of the

tenement, in order to acquire the same nature or consideration of real property. In cases of

immovable by incorporation, the code nowhere requires that the attachment or incorporation be

made by the owner of the land. The only criterion is union or incorporation with the soil.

Ladera did not declare his house to be a chattel mortgage. The object of the levy or sale was realproperty. The publication in a newspaper of general circulation was indispensible. It being admitted

that no publication was ever made, the execution sale was void and conferred no title on the

purchaser.

The alleged purchaser at the auction sale, Magno, is a mere employee of the creditor Hodges and the

low bid made by her as well as the fact that she sold the house to Villa on the same day that Hodges

sold him the land, proves that she was merely acting for and in behalf of Hodges.

It should be noted that in sales of immovables, the lack of title of the vendor taints the rights of

subsequent purchasers. Unlike in sales of chattels and personalty, in transactions covering real

property, possession in good faith is not equivalent to title.

Caveat: Anyone who claims this digest as his own without proper authority shall be held liable under

the law of Karma.

Mindanao Bus Co. v. City Assessor Digest

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

Facts: Petitioner is a public utility company engaged in the transport of passengers and cargo by

motor vehicles in Mindanao with main offices in Cagayan de Oro (CDO). Petitioner likewise owned a

land where it maintains a garage, a repair shop and blacksmith or carpentry shops. The machineries

are placed thereon in wooden and cement platforms. The City Assessor of CDO then assessed a

P4,400 realty tax on said machineries and repair equipment. Petitioner appealed to the Board of Tax

http://lawsandfound.blogspot.com/2012/07/mindanao-bus-co-v-city-assessor.htmlhttp://lawsandfound.blogspot.com/2012/07/mindanao-bus-co-v-city-assessor.htmlhttp://lawsandfound.blogspot.com/2012/07/mindanao-bus-co-v-city-assessor.html

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Appeals but it sustained the City Assessor's decision, while the Court of Tax Appeals (CTA)

sustained the same.

Note: This is merely a case digest to aid in remembering the important points of a case. It is still

advisable for any student of law to read the full text of assigned cases.

Issue: Whether or n ot the machineries and equipments are considered immob i l ized and thussub ject to a realty tax

Held: The Supreme Court decided otherwise and held that said machineries and equipments are not

subject to the assessment of real estate tax.

Said equipments are not considered immobilized as they are merely incidental, not esential 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

.

Mindanao Bus Co. vs. City Assessor and Treasurer

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

Labrador, J.

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:Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioners equipment

in its repair or service shop. Petitioner appealed the assessment to the respondent Board of Tax

Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City sustained

the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition for the review of

the assessment. The Court of Tax Appeals having sustained the respondent city assessors ruling, and

having denied a motion for reconsideration, petitioner brought the case to this Court.

Issue:Whether the Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil

Code, and holding that pursuant thereto, the movable equipments are taxable realties, by reason of

their being intended or destined for use in an industry.

Held:Yes. Movable equipments, 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 equipments in its repair shop which appear movable are merely incidentals

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

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

2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains BranchOffices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City andKibawe, Bukidnon Province;

3. That the machineries sought to be assessed by the respondent as real properties are thefollowing:

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

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

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

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

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

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

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

4. That these machineries are sitting on cement or wooden platforms as may be seen in theattached photographs which form part of this agreed stipulation of facts;

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

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

The Court of Tax Appeals having sustained the respondent city assessor's ruling, and havingdenied a motion for reconsideration, petitioner brought the case to this Court assigning thefollowing errors:

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cash registers, typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. aremerely incidentals and are not and should not be considered immobilized by destination, forthese businesses can continue or carry on their functions without these equity comments.

Airline companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which areincidentals, not essentials, and thus retain their movable nature. On the other hand, machineriesof breweries used in the manufacture of liquor and soft drinks, though movable in nature, are

immobilized because they are essential to said industries; but the delivery trucks and addingmachines which they usually own and use and are found within their industrial compounds aremerely incidental and retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, by their nature, notessential and principle municipal elements of petitioner's business of transporting passengersand cargoes by motor trucks. They are merely incidentals acquired as movables and usedonly for expediency to facilitate and/or improve its service. Even without such tools andequipments, its business may be carried on, as petitioner has carried on, without suchequipments, before the war. The transportation business could be carried on without the repairor service shop if its rolling equipment is repaired or serviced in another shop belonging toanother.

The law that governs the determination of the question at issue is 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 thetenement for an industry or works which may be carried on in a building or on a piece ofland, and which tend directly to meet the needs of the said industry or works; (Civil Code ofthe Phil.)

Aside from the element of essentiality the above-quoted provision also requires that the industryor 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 foundin a building constructed on the land. A sawmill would also be installed in a building on landmore or less permanently, and the sawing is conducted in the land or building.

But in the case at bar the equipments in question are destined only to repair or service thetransportation 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 notabsolutely essential to the petitioner's transportation business, and petitioner's business is notcarried on in a building, tenement or on a specified land, so said equipment may not beconsidered real estate within the meaning of Article 415 (c) of the Civil Code.

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

So ordered.

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Makati Leasing and Finance Corp., vs Wearever Textile Mills, Inc.,

122 SCRA 296

GR No. L-58469

May 16, 1983

FACTS

Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor of Makati Leasing

and Finance Corporation covering certain raw materials and machinery. Upon default,

Makati Leasing fi led a petition for judicial foreclosure of the properties mortgaged. Acting

on Makati Leasings application for replevin, the lower court issued a writ of seizure.

Pursuant thereto, the sheriff enforcing the seizure order seized the machinery subject

matter of the mortgage. In a petition for certiorari and prohibition, the Court of Appeals

ordered the return of the machinery on the ground that the same can-not be the subject of

replevin because it is a real property pursuant to Article415 of the new Civil Code, the same

being attached to the ground by means of bolts and the only way to remove it from

Wearever textiles plant would be to drill out or destroy the concrete fl oor. When the motion

for reconsideration of Makati Leasing was denied by the Court of Appeals, Makati Leasing

elevated the matter to the Supreme Court.

ISSUE

Whether the machinery in suit is real or personal property from the point of view of the

parties.HELD

There is no logical justification to exclude the rule out the present case from the application

of the pronouncement in Tumalad v Vicencio, 41 SCRA 143. If a house of strong materials,

like what was involved in the Tumaladcase, may be considered as personal property for

purposes of executing a chattel mortgage thereonas long as theparties to the contract so

agreeand no innocent third party will be prejudicedthereby, there is absolutely no reason why

a machinery, which is movable in its natureand becomesimmobilized only by destination or

purpose, may not be likewise treated as such. This is really because one who has so agreed is

estopped from the denying the existence of the chattel mortgage.

In rejecting petitioners assertion on the applicability of the Tumaladdoctrine, the CA 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 builtand We should not lay down distinctions not

contemplated by law.

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It must be pointed out that the characterization by the private respondent is indicative of the

intentionand 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 a real

propertyas long as no interest of third parties would be prejudiced thereby.

The status of the subject matter as movable or immovable property was not raised as an

issue before the lower court and the CA, except in a supplemental memorandum in support

of the petition filed in the appellate court. There is no record showing that the mortgage has

been annulled, or that steps were taken to nullify the same. On the other hand, respondent

has benefited from the said contract.

Equity dictates that one should not benefit at the expense of another.

As such, private respondent could no longer be allowed to impugn the efficacy of the chattelmortgage after it has benefited therefrom.

Therefore, the questioned machinery should be considered as personal property.

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

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

Loreto C. Baduan for petitioner.

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

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate

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

It appears that in order to obtain financial accommodations from herein petitioner Makati Leasingand Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted andassigned several receivables with the former under a Receivable Purchase Agreement. To securethe collection of the receivables assigned, private respondent executed a Chattel Mortgage over

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certain raw materials inventory as well as a machinery described as an Artos Aero Dryer StenteringRange.

Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of theproperties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failedto 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 theCourt of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before thelower court.

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

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private

respondent and removed the main drive motor of the subject machinery.

The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein privaterespondent, set aside the Orders of the lower court and ordered the return of the drive motor seizedby the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject ofreplevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of thenew Civil Code, the same being attached to the ground by means of bolts and the only way toremove it from respondent's plant would be to drill out or destroy the concrete floor, the reason whyall that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. Theappellate court rejected petitioner's argument that private respondent is estopped from claiming thatthe machine is real property by constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner

has brought the case to this Court for review by writ of certiorari. It is contended by privaterespondent, however, that the instant petition was rendered moot and academic by petitioner's act ofreturning the subject motor drive of respondent's machinery after the Court of Appeals' decision waspromulgated.

The contention of private respondent is without merit. When petitioner returned the subject motordrive, it made itself unequivocably clear that said action was without prejudice to a motion forreconsideration of the Court of Appeals decision, as shown by the receipt duly signed byrespondent's representative. 1Considering that petitioner has reserved its right to question the proprietyof the Court of Appeals' decision, the contention of private respondent that this petition has been mootedby such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the machinery insuit is real or personal property from the point of view of the parties, with petitioner arguing that it is apersonality, while the respondent claiming the contrary, and was sustained by the appellate court,which accordingly held that the chattel mortgage constituted thereon is null and void, as contendedby said respondent.

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

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Although there is no specific statement referring to the subject house as personalproperty, yet by ceding, selling or transferring a property by way of chattel mortgagedefendants-appellants could only have meant to convey the house as chattel, or atleast, intended to treat the same as such, so that they should not now be allowed tomake an inconsistent stand by claiming otherwise. Moreover, the subject housestood on a rented lot to which defendants-appellants 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 theparties, particularly the mortgagors, intended to treat the house as personality.Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & LeungYee vs. F.L. Strong Machinery & Williamson,wherein third persons assailed thevalidity of the chattel mortgage, it is the defendants-appellants themselves, asdebtors-mortgagors, who are attacking the validity of the chattel mortgage in thiscase. The doctrine of estoppel therefore applies to the herein defendants-appellants,having treated the subject house as personality.

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

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appealslays stress on the fact that the house involved therein was built on a land that did not belong to theowner of such house. But the law makes no distinction with respect to the ownership of the land onwhich 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 bythe parties. As stated inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable thatthe parties to a contract may by agreement treat as personal property that which by nature would bereal property, as long as no interest of third parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never representednor agreed that the machinery in suit be considered as personal property but was merely requiredand dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blankform at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitionerand not denied by the respondent, the status of the subject machinery as movable or immovablewas never placed in issue before the lower court and the Court of Appeals except in a supplementalmemorandum in support of the petition filed in the appellate court. Moreover, even granting that thecharge is true, such fact alone does not render a contract void ab initio, but can only be a ground forrendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by aproper action in court. There is nothing on record to show that the mortgage has been annulled.Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out bypetitioner and again not refuted by respondent, the latter has indubitably benefited from saidcontract. Equity dictates that one should not benefit at the expense of another. Private respondentcould not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it hasbenefited therefrom,

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From what has been said above, the error of the appellate court in ruling that the questionedmachinery is real, not personal property, becomes very apparent. Moreover, the case of Machineryand Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicableto the case at bar, the nature of the machinery and equipment involved therein as real propertiesnever having been disputed nor in issue, and they were not the subject of a Chattel Mortgage.Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case to be the

more controlling jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversedand set aside, and the Orders of the lower court are hereby reinstated, with costs against the privaterespondent.

SO ORDERED.

G.R. No. L-11139 April 23, 1958

SANTOS EVANGELISTA,petitioner,vs.

ALTO SURETY & INSURANCE CO., INC.,respondent.

Gonzalo D. David for petitioner.Raul A. Aristorenas and Benjamin Relova for respondent.

CONCEPCION, J.:

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

Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista, instituted CivilCase No. 8235 of the Court of First, Instance of Manila entitled " Santos Evangelista vs. RicardoRivera," for a sum of money. On the same date, he obtained a writ of attachment, which leviedupon a house, built by Rivera on a land situated in Manila and leased to him, by filing copy ofsaid writ and the corresponding notice of attachment with the Office of the Register of Deeds ofManila, on June 8, 1949. In due course, judgment was rendered in favor of Evangelista, who, onOctober 8, 1951, bought the house at public auction held in compliance with the writ ofexecution issued in said case. The corresponding definite deed of sale was issued to him onOctober 22, 1952, upon expiration of the period of redemption. When Evangelista sought to takepossession of the house, Rivera refused to surrender it, upon the ground that he had leased theproperty from the Alto Surety & Insurance Co., Inc. respondent herein and that the latter isnow the true owner of said property. It appears that on May 10, 1952, a definite deed of sale ofthe same house had been issued to respondent, as the highest bidder at an auction sale held,on September 29, 1950, in compliance with a writ of execution issued in Civil Case No. 6268 ofthe same court, entitled "Alto Surety & Insurance Co., Inc. vs.Maximo Quiambao, Rosario

Guevara and Ricardo Rivera," in which judgment, for the sum of money, had been rendered infavor respondent herein, as plaintiff therein. Hence, on June 13, 1953, Evangelista instituted thepresent action against respondent and Ricardo Rivera, for the purpose of establishing his(Evangelista) title over said house, securing possession thereof, apart from recoveringdamages.

In its answer, respondent alleged, in substance, that it has a better right to the house, becausethe sale made, and the definite deed of sale executed, in its favor, on September 29, 1950 and

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May 10, 1952, respectively, precede the sale to Evangelista (October 8, 1951) and the definitedeed of sale in his favor (October 22, 1952). It, also, made some special defenses which arediscussed hereafter. Rivera, in effect, joined forces with respondent. After due trial, the Court ofFirst Instance of Manila rendered judgment for Evangelista, sentencing Rivera and respondentto deliver the house in question to petitioner herein and to pay him, jointly and severally, fortypesos (P40.00) a month from October, 1952, until said delivery, plus costs.

On appeal taken by respondent, this decision was reversed by the Court of Appeals, whichabsolved said respondent from the complaint, upon the ground that, although the writ ofattachment in favor of Evangelista had been filed with the Register of Deeds of Manila prior tothe sale in favor of respondent, Evangelista did not acquire thereby a preferential lien, theattachment having been levied as if the house in question were immovable property, although inthe opinion of the Court of Appeals, it is "ostensibly a personal property." As such, the Court of

Appeals held, "the order of attachment . . . should have been served in the manner provided insubsection (e) of section 7 of Rule 59," of the Rules of Court, reading:

The property of the defendant shall be attached by the officer executing the order in thefollowing manner:

(e) Debts and credits, and other personal property not capable of manual delivery, by leavingwith the person owing such debts, or having in his possession or under his control, suchcredits or other personal property, or with, his agent, a copy of the order, and a notice thatthe debts owing by him to the defendant, and the credits and other personal property in hispossession, or under his control, belonging to the defendant, are attached in pursuance ofsuch order. (Emphasis ours.)

However, the Court of Appeals seems to have been of the opinion, also, that the house ofRivera should have been attached in accordance with subsection (c) of said section 7, as"personal property capable of manual delivery, by taking and safely keeping in his custody", forit declared that "Evangelists could not have . . . validly purchased Ricardo Rivera's house from

the sheriff as the latter was not in possession thereof at the time he sold it at a public auction."

Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals. In thisconnection, it is not disputed that although the sale to the respondent preceded that made toEvangelists, the latter would have a better right if the writ of attachment, issued in hisfavor before the sale to the respondent, had been properly executed or enforced. This question,in turn, depends upon whether the house of Ricardo Rivera is real property or not. In theaffirmative case, the applicable provision would be subsection (a) of section 7, Rule 59 of theRules of Court, pursuant to which the attachment should be made "by filing with the registrar ofdeeds a copy of the order, together with a description of the property attached, and a notice thatit is attached, and by leaving a copy of such order, description, and notice with the occupant ofthe property, if any there be."

Respondent maintains, however, and the Court of Appeals held, that Rivera's house is personalproperty, the levy upon which must be made in conformity with subsections (c) and (e) of saidsection 7 of Rule 59. Hence, the main issue before us is whether a house, constructed thelessee of the land on which it is built, should be dealt with, for purpose, of attachment, asimmovable property, or as personal property.

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It is, our considered opinion that said house is not personal property, much less a debt, credit orother personal property not capable of manual delivery, but immovable property. As explicitlyheld, in Laddera vs.Hodges (48 Off. Gaz., 5374), "a true building (not merely superimposed onthe soil) is immovable or real property, whether it is erected by the owner of the land or byusufructuary orlessee. This is the doctrine of our Supreme Court in Leung Yee vs.StrongMachinery Company, 37 Phil., 644. And it is amply supported by the rulings of the French Court.

. . ."

It is true that the parties to a deed of chattel mortgage may agree to consider a house aspersonal property for purposes of said contract (Luna vs.Encarnacion, *48 Off. Gaz., 2664;Standard Oil Co. of New York vs.Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72Phil., 464). However, this view is good only insofar as the contracting parties are concerned. It isbased, partly, upon the principle of estoppel. Neither this principle, nor said view, is applicable tostrangers to said contract. Much less is it in point where there has been no contractwhatsoever,with respect to the status of the house involved, as in the case at bar. Apart from this,in Manarang vs. Ofilada(99 Phil., 108; 52 Off. Gaz., 3954), we held:

The question now before us, however, is: Does the fact that the parties entering into a

contract regarding a house gave said property the consideration of personal property in theircontract, bind the sheriff in advertising the property's sale at public auction as personalproperty? It is to be remembered that in the case at bar the action was to collect a loansecured by a chattel mortgage on the house. It is also to be remembered that in practice it isthe judgment creditor who points out to the sheriff the properties that the sheriff is to levyupon in execution, and the judgment creditor in the case at bar is the party in whose favorthe owner of the house had conveyed it by way of chattel mortgage and, therefore, knew itsconsideration as personal property.

These considerations notwithstanding, we hold that the rules on execution do not allow, and,we shouldnot interpret them in such a way as to allow, the special consideration that partiesto a contract may have desired to impart to real estate, for example, as personal property,

when they are, not ordinarily so. Sales on execution affect the public and third persons. Theregulation governing sales on execution are for public officials to follow. The form ofproceedings prescribed for each kind of property is suited to its character, not to thecharacter, which the parties have given to it or desire to give it. When the rules speak ofpersonal property, property which is ordinarily so considered is meant; and when realproperty is spoken of, it means property which is generally known as real property. Theregulations were never intended to suit the consideration that parties may have privatelygiven to the property levied upon. Enforcement of regulations would be difficult were theconvenience or agreement of private parties to determine or govern the nature of theproceedings. We therefore hold that the mere fact that a house was the subject of the chattelmortgage and was considered as personal property by the parties does not make said house

personal property for purposes of the notice to be given for its sale of public auction. Thisruling is demanded by the need for a definite, orderly and well defined regulation for official

and public guidance and would prevent confusion and misunderstanding.

We, therefore, declare that the house of mixed materials levied upon on execution, althoughsubject of a contract of chattel mortgage between the owner and a third person, is real

property within the purview of Rule 39, section 16, of the Rules of Court as it has become apermanent fixture of the land, which, is real property. (42 Am. Jur. 199-200; LeungYee vs.Strong Machinery Co., 37 Phil., 644; Republic vs.Ceniza, et al., 90 Phil., 544;Ladera,, et al. vs.Hodges, et al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.)

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The foregoing considerations apply, with equal force, to the conditions for the levy ofattachment, for it similarly affects the public and third persons.

It is argued, however, that, even if the house in question were immovable property, itsattachment by Evangelista was void or ineffective, because, in the language of the Court of

Appeals, "after presenting a Copy of the order of attachment in the Office of the Register of

Deeds, the person who might then be in possession of the house, the sheriff took no pains toserve Ricardo Rivera, or other copies thereof." This finding of the Court of Appeals is neitherconclusive upon us, nor accurate.

The Record on Appeal, annexed to the petition for Certiorari, shows that petitioner alleged, inparagraph 3 of the complaint, that he acquired the house in question "as a consequence of thelevy of an attachment and execution of the judgment in Civil Case No. 8235" of the Court of FirstInstance of Manila. In his answer (paragraph 2), Ricardo Rivera admitted said attachmentexecution of judgment. He alleged, however, by way a of special defense, that the title ofrespondent "is superior to that of plaintiff because it is based on a public instrument," whereasEvangelista relied upon a "promissory note" which "is only a private instrument"; that said Publicinstrument in favor of respondent "is superior also to the judgment in Civil Case No. 8235"; and

that plaintiff's claim against Rivera amounted only to P866, "which is much below the real value"of said house, for which reason it would be "grossly unjust to acquire the property for such aninadequate consideration." Thus, Rivera impliedly admitted that his house had been attached,that the house had been sold to Evangelista in accordance with the requisite formalities, andthat said attachment was valid, although allegedly inferior to the rights of respondent, and theconsideration for the sale to Evangelista was claimed to be inadequate.

Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, but only "for thereasons stated in its special defenses" namely: (1) that by virtue of the sale at public auction,and the final deed executed by the sheriff in favor of respondent, the same became the"legitimate owner of the house" in question; (2) that respondent "is a buyer in good faith and forvalue"; (3) that respondent "took possession and control of said house"; (4) that "there was no

valid attachment by the plaintiff and/or the Sheriff of Manila of the property in question as neithertook actual or constructive possession or control of the property at any time"; and (5) "that thealleged registration of plaintiff's attachment, certificate of sale and final deed in the Office ofRegister of Deeds, Manila, if there was any, is likewise, not valid as there is no registry oftransactions covering houses erected on land belonging to or leased from another." In thismanner, respondent claimed a better right, merely under the theory that, in case of double saleof immovable property, the purchaser who first obtains possession in good faith, acquires title, ifthe sale has not been "recorded . . . in the Registry of Property" (Art. 1544, Civil Code of thePhilippines), and that the writ of attachment and the notice of attachment in favor of Evangelistashould be considered unregistered, "as there is no registry of transactions covering houseserected on land belonging to or leased from another." In fact, said article 1544 of the Civil Codeof the Philippines, governing double sales, was quoted on page 15 of the brief for respondent in

the Court of Appeals, in support of its fourth assignment of error therein, to the effect that it "haspreference or priority over the sale of the same property" to Evangelista.

In other words, there was no issue on whether copy of the writ and notice of attachment hadbeen served on Rivera. No evidence whatsoever, to the effect that Rivera had not been servedwith copies of said writ and notice, was introduced in the Court of First Instance. In its brief inthe Court of Appeals, respondent did not aver, or even, intimate, that no such copies wereserved by the sheriff upon Rivera. Service thereof on Rivera had been impliedly admitted by the

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defendants, in their respective answers, and by their behaviour throughout the proceedings inthe Court of First Instance, and, as regards respondent, in the Court of Appeals. In fact,petitioner asserts in his brief herein (p. 26) that copies of said writ and notice were delivered toRivera, simultaneously with copies of the complaint, upon service of summons, prior to the filingof copies of said writ and notice with the register deeds, and the truth of this assertion has notbeen directly and positively challenged or denied in the brief filed before us by respondent

herein. The latter did not dare therein to go beyond making a statement for the first time inthe course of these proceedings, begun almost five (5) years ago (June 18, 1953) reproducing substantially the aforementioned finding of the Court of Appeals and then quotingthe same.

Considering, therefore, that neither the pleadings, nor the briefs in the Court of Appeals, raisedan issue on whether or not copies of the writ of attachment and notice of attachment had beenserved upon Rivera; that the defendants had impliedly admitted-in said pleadings and briefs, aswell as by their conduct during the entire proceedings, prior to the rendition of the decision ofthe Court of Appealsthat Rivera had received copies of said documents; and that, for thisreason, evidently, no proof was introduced thereon, we, are of the opinion, and so hold that thefinding of the Court of Appeals to the effect that said copies had not been served upon Rivera is

based upon a misapprehension of the specific issues involved therein and goes beyond therange of such issues, apart from being contrary to the aforementioned admission by the parties,and that, accordingly, a grave abuse of discretion was committed in making said finding, whichis, furthermore, inaccurate.

Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall beentered affirming that of the Court of First Instance of Manila, with the costs of this instanceagainst respondent, the Alto Surety and Insurance Co., Inc. It is so ordered.

G.R. No. 120098 October 2, 2001

RUBY L. TSAI,petitioner,vs.HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO RVILLALUZ,respondents.

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

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

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

VILLALUZ,respondents.

QUISUMBING, J.:

These consolidated cases assail the decision1of the Court of Appeals in CA-G.R. CV No.32986, affirming the decision2of the Regional Trial Court of Manila, Branch 7, in Civil Case No.89-48265. Also assailed is respondent court's resolution denying petitioners' motion forreconsideration.

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On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three millionpeso (P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). Assecurity for the loan, EVERTEX executed in favor of PBCom, a deed of Real and ChattelMortgage over the lot under TCT No. 372097, where its factory stands, and the chattels locatedtherein as enumerated in a schedule attached to the mortgage contract. The pertinent portionsof the Real and Chattel Mortgage are quoted below:

MORTGAGE

(REAL AND CHATTEL)

xxx xxx xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to theMORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and improvementsnow existing or which may hereafter exist thereon, situated in . . .

"Annex A"

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

LIST OF MACHINERIES & EQUIPMENT

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

Serial Numbers Size of Machines

xxx xxx xxx

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

xxx xxx xxx

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

xxx xxx xxx

D. Four (4) Winding Machines.

xxx xxx xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx xxx xxx

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

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

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

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

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

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

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

IV. Any and all replacements, substitutions, additions, increases and accretions to aboveproperties.

xxx xxx xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan wassecured by a Chattel Mortgage over personal properties enumerated in a list attached thereto.These listed properties were similar to those listed in Annex A of the first mortgage deed.

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

On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings

docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City,Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporationinsolvent. All its assets were taken into the custody of the Insolvency Court, including thecollateral, real and personal, securing the two mortgages as abovementioned.

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the lattercommenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwiseknown as "An Act to Regulate the Sale of Property under Special Powers Inserted in or

Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice ofSheriff's Sale was issued on December 1, 1982.

On December 15, 1982, the first public auction was held where petitioner PBCom emerged as

the highest bidder and a Certificate of Sale was issued in its favor on the same date. OnDecember 23, 1982, another public auction was held and again, PBCom was the highestbidder. The sheriff issued a Certificate of Sale on the same day.

On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. InNovember 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 amonth. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai forP9,000,000.00, including the contested machineries.

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On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, anddamages with the Regional Trial Court against PBCom, alleging inter aliathat the extrajudicialforeclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed thatno rights having been transmitted to PBCom over the assets of insolvent EVERTEX, thereforeTsai acquired no rights over such assets sold to her, and should reconvey the assets.

Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated thecontested properties, which were not included in the Real and Chattel Mortgage of November26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those propertiesincluded in the Notice of Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . .dated December 15, 1982.

The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular KnittingMachines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 HeatsetEquipment.

The RTC found that the lease and sale of said personal properties were irregular and illegalbecause they were not duly foreclosed nor sold at the December 15, 1982 auction sale sincethese were not included in the schedules attached to the mortgage contracts. The trial courtdecreed:

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against thedefendants:

1. Ordering the annulment of the sale executed by defendant Philippine Bank ofCommunications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects thepersonal properties listed in par. 9 of the complaint, and their return to the plaintiffcorporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by theInsolvency Court, to be done within ten (10) days from finality of this decision;

2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum ofP5,200,000.00 as compensation for the use and possession of the properties in questionfrom November 1986 to February 1991 and P100,000.00 every month thereafter, withinterest thereon at the legal rate per annum until full payment;

3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum ofP50,000.00 as and for attorney's fees and expenses of litigation;

4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum ofP200,000.00 by way of exemplary damages;

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

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

SO ORDERED.4

Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decisiondated August 31, 1994, the dispositive portion of which reads:

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WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, andreduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November1986 until subject personal properties are restored to appellees, the judgment appealed from ishereby AFFIRMED, in all other respects. No pronouncement as to costs. 5

Motion for reconsideration of the above decision having been denied in the resolution of April

28, 1995, PBCom and Tsai filed their separate petitions for review with this Court.

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

I

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECTMAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIREDMACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIREARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OFCHATTEL MORTGAGE.

II

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDINGTHAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMEDPART OF THE MORTGAGE DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND

APPLICABLE RULINGS OF THE SUPREME COURT.

III

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

IV

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSINGPETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATIONFOR WANT OF VALID FACTUAL AND LEGAL BASIS.

V

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDINGAGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6

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

I.

DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDERPARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OFTHE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REALPROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION INTHE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF

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THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACTTHAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REALPROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSEDFOR REAL ESTATE TAX PURPOSES?

II

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOODFAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ONTHE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVERTEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAIDMACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATIONTANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7

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

For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties bytreating the 1981 acquired units of machinery as chattels instead of real properties within theirearlier 1975 deed of Real and Chattel Mortgage or 1979 deed of ChattelMortgage.8Additionally, Tsai argues that respondent court erred in holding that the disputed1981 machineries are not real properties.9Finally, she contends that the Court of Appeals erredin holding against petitioner's arguments on prescription and laches10and in assessingpetitioner actual damages, attorney's fees and expenses of litigation, for want of valid factualand legal basis.11

Essentially, PBCom contends that respondent court erred in affirming the lower court's judgmentdecreeing that the pieces of machinery in dispute were not duly foreclosed and could not belegally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals' pronouncementthat the pieces of machinery in question were personal properties have no factual and legalbasis. Finally, it asserts that the Court of Appeals erred in assessing damages and attorney'sfees against PBCom.

In opposition, private respondents argue that the controverted units of machinery are not "realproperties" but chattels, and, therefore, they were not part of the foreclosed real properties,rendering the lease and the subsequent sale thereof to Tsai a nullity.12

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

Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review oncertiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law,not of fact, unless the factual findings complained of are devoid of support by the evidence onrecord or the assailed judgment is based on misapprehension of facts.13This rule is appliedmore stringently when the findings of fact of the RTC is affirmed by the Court of Appeals.14

The following are the facts as found by the RTC and affirmed by the Court of Appeals that aredecisive of the issues: (1) the "controverted machineries" are not covered by, or included in,

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either of the two mortgages, the Real Estate and Chattel Mortgage, and the pure ChattelMortgage; (2) the said machineries were not included in the list of properties appended to theNotice of Sale, and neither were they included in the Sheriff's Notice of Sale of the foreclosedproperties.15

Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy,

bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipsofactoimmovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however,does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to lookat the parties' intent.

While it is true that the controverted properties appear to be immobile, a perusal of the contractof Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. Inthe case at bar, both the trial and the appellate courts reached the same finding that the trueintention of PBCOM and the owner, EVERTEX, is to treat machinery and equipment as chattels.The pertinent portion of respondent appellate court's ruling is quoted below:

As stressed upon by appellees, appellant bank treated the machineries as chattels; never as

real properties. Indeed, the 1975 mortgage contract, which was actually real and chattelmortgage, militates against appellants' posture. It should be noted that the printed form usedby appellant bank was mainly for real estate mortgages. But reflective of the true intention ofappellant PBCOM and appellee EVERTEX was the typing in capital letters, immediatelyfollowing the printed caption of mortgage, of the phrase "real and chattel." So also, the"machineries and equipment" in the printed form of the bank had to be inserted in the blankspace of the printed contract and connected with the word "building" by typewritten slashmarks. Now, then, if the machineries in question were contemplated to be included in thereal estate mortgage, there would have been no necessity to ink a chattel mortgagespecifically mentioning as part III of Schedule A a listing of the machineries covered thereby.It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of theland and building involved.

As regards the 1979 contract, the intention of the parties is clear and beyond question. Itrefers solely tochattels. The inventory list of the mortgaged properties is an itemization ofsixty-three (63) individually described machineries while the schedule listed only machinesand 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16

In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated bythe evidence on record, we find no compelling reason to depart therefrom.

Too, assuming arguendothat the properties in question are immovable by nature, nothingdetracts the parties from treating it as chattels to secure an obligation under the principle ofestoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be

considered a personal property if there is a stipulation as when it is used as security in thepayment of an obligation where a chattel mortgage is executed over it, as in the case at bar.

In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgageand Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treatall properties included therein as immovable, and (2) attached to the said contract a separate"LIST OF MACHINERIES & EQUIPMENT". These facts, taken together, evince the conclusionthat the parties' intention is to treat these units of machinery as chattels. A fortiori, the contested

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after-acquired properties, which are of the same description as the units enumerated under thetitle "LIST OF MACHINERIES & EQUIPMENT," must also be treated as chattels.

Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuchas the subject mortgages were intended by the parties to involve chattels, insofar as equipmentand machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7

thereof that: "a chattel mortgage shall be deemed to cover only the property described thereinand not like or substituted property thereafter acquired by the mortgagor and placed in the samedepository as the property originally mortgaged, anything in the mortgage to the contrarynotwithstanding."

And, since the disputed machineries were acquired in 1981 and could not have been involved inthe 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff toinclude subject machineries with the properties enumerated in said chattel mortgages.

As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor.Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemodat quod non habet, one cannot give what one does not have.17

Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is anullity, she is nevertheless a purchaser in good faith and for value who now has a better rightthan EVERTEX.

To the contrary, however, are the factual findings and conclusions of the trial court that she isnot a purchaser in good faith. Well-settled is the rule that the person who asserts the status of apurchaser in good faith and for value has the burden of proving such assertion.18Petitioner Tsaifailed to discharge this burden persuasively.

Moreover, a purchaser in good faith and for value is one who buys the property of

another without notice that some other person has a right to or interest in such propertyandpays a full and fair price for the same, at the time of purchase, or before he has notice of theclaims or interest of some other person in the property.19Records reveal, however, that whenTsai purchased the controverted properties, she knew of respondent's claim thereon. As borneout by the records, she received the letter of respondent's counsel, apprising her ofrespondent's claim, dated February 27, 1987.20She replied thereto on March 9, 1987.21Despiteher knowledge of respondent's claim, she proceeded to buy the contested units of machinery onMay 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.

Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputedproperties are located is equally unavailing. This defense refers to sale of lands and not to saleof properties situated therein. Likewise, the mere fact that the lot where the factory and the

disputed properties stand is in PBCom's name does not automatically make PBCom the ownerof everything found therein, especially in view of EVERTEX's letter to Tsai enunciating its claim.

Finally, petitioners' defense of prescription and laches is less than convincing. We find nocogent reason to disturb the consistent findings of both courts below that the case for thereconveyance of the disputed properties was filed within the reglementary period. Here, in ourview, the doctrine of laches does not apply. Note that upon petitioners' adamant refusal to heedEVERTEX's claim, respondent company immediately filed an action to recover possession andownership of the disputed properties. There is no evidence showing any failure or neglect on its

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part, for an unreasonable and unexplained length of time, to do that which, by exercising duediligence, could or should have been done earlier. The doctrine of stale demands would applyonly where by reason of the lapse of time, it would be inequitable to allow a party to enforce hislegal rights. Moreover, except for very strong reasons, this Court is not disposed to apply thedoctrine of laches to prejudice or defeat the rights of an owner.22

As to the award of damages, the contested damages are the actual compensation, representingrentals for the contested units of machinery, the exemplary damages, and attorney's fees.

As regards said actual compensation, the RTC awarded P100,000.00 corresponding to theunpaid rentals of the contested properties based on the testimony of John Chua, who testifiedthat the P100,000.00 was based on the accepted practice in banking and finance, business andinvestments that the rental price must take into account the cost of money used to buy them.The Court of Appeals did not give full credence to Chua's projection and reduced the award toP20,000.00.

Basic is the rule that to recover actual damages, the amount of loss must not only be capable ofproof but must actually be proven with reasonable degree of certainty, premised uponcompetent proof or best evidence obtainable of the actual amount thereof.23However, theallegations of respondent company as to the amount of unrealized rentals due them as actualdamages remain mere assertions unsupported by documents and other competent evidence. Indetermining actual damages, the court cannot rely on mere assertions, speculations,conjectures or guesswork but must depend on competent proof and on the best evidenceobtainable regarding the actual amount of loss.24However, we are not prepared to disregard thefollowing dispositions of the respondent appellate court:

. . . In the award of actual damages under scrutiny, there is nothing on record warranting thesaid award of P5,200,000.00, representing monthly rental income of P100,000.00 fromNovember 1986 to February 1991, and the additional award of P100,000.00 per monththereafter.

As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh(sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actualdamages allegedly sustained by appellees, by way of unrealized rental income of subjectmachineries and equipments.

The testimony of John Cua (sic) is nothing but an opinion or projection based on what isclaimed to be a practice in business and industry. But such a testimony cannot serve as thesole basis for assessing the actual damages complained of. What is more, there is noshowing that had appellant Tsai not taken possession of the machineries and equipments inquestion, somebody was willing and ready to rent the same for P100,000.00 a month.

xxx xxx xxx

Then, too, even assuming arguendothat the said machineries and equipments could havegenerated a rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz,the same would have been a gross income. Therefrom should be deducted or removed,expenses for maintenance and repairs . . . Therefore, in the determination of the actualdamages or unrealized rental income sued upon, there is a good basis to calculate that atleast four months in a year, the machineries in dispute would have been idle due to absenceof a lessee or while being repaired. In the light of the foregoing rationalization and

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

As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court ofAppeals deleted. But according to the CA, there was no clear showing that petitioners actedmalevolently, wantonly and oppressively. The evidence, however, shows otherwise.It is a

requisite to award exemplary damages that the wrongful act must be accompanied by badfaith,26and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolentmanner.27As previously stressed, petitioner Tsai's act of purchasing the controverted propertiesdespite her knowledge of EVERTEX's claim was oppressive and subjected the already insolventrespondent to gross disadvantage. Petitioner PBCom also received the same letters of Atty.Villaluz, responding thereto on March 24, 1987.28Thus, PBCom's act of taking all the propertiesfound in the factory of the financially handicapped respondent, including those properties notcovered by or included in the mortgages, is equally oppressive and tainted with bad faith. Thus,we are in agreement with the RTC that an award of exemplary damages is proper.

The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of theCivil Code provides that no proof of pecuniary loss is necessary for the adjudication of

exemplary damages, their assessment being left to the discretion of the court in accordancewith the circumstances of each case.29While the imposition of exemplary damages is justified inthis case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretiongranted to the courts in the assessment of damages must always be exercised with balancedrestraint and measured objectivity. Thus, here the award of exemplary damages by way ofexample for the public good should be reduced to P100,000.00.

By the same token, attorney's fees and other expenses of litigation may be recovered whenexemplary damages are awarded.30In our view, RTC's award of P50,000.00 as attorney's feesand expenses of litigation is reasonable, given the circumstances in these cases.

WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court ofAppeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. PetitionersPhilippine Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly andseverally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation forthe use and possession of the properties in question from November 198631until subjectpersonal properties are restored to respondent corporation; (2) P100,000.00 by way ofexemplary damages, and (3) P50,000.00 as attorney's fees and litigation expenses. Costsagainst petitioners.

SO ORDERED.

SERGS PRODUCTS, INC., and SERGIO T.GOQUIOLAY, pet i t ioners,vs.PCI LEASING AND FINANCE,INC., respondent.

D E C I S I O N

PANGANIBAN, J.:

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After agreeing to a contract stipulating that a real or immovable property beconsidered as personal or movable, a party is estopped from subsequentlyclaiming otherwise. Hence, such property is a proper subject of a writ ofreplevin obtained by the other contracting party.

The Case

Before us is a Petition for Review on Certiorari assailing the January 6,1999 Decision[1]of the Court of Appeals (CA)[2]in CA-GR SP No. 47332 and itsFebruary 26, 1999 Resolution[3]denying reconsideration. The decretal portion ofthe CA Decision reads as follows:

WHEREFORE, premises considered, the assailed Order dated February 18,1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are

hereby AFFIRMED. The writ of preliminary injunction issued on June 15,1998 is hereby LIFTED.[4]

In its February 18, 1998 Order,[5]the Regional Trial Court (RTC) of QuezonCity (Branch 218)[6]issued a Writ of Seizure.[7]The March 18, 1998Resolution [8]denied petitionersMotion for Special Protective Order, praying thatthe deputy sheriff be enjoined from seizing immobilized or other real propertiesin (petitioners) factory in Cainta, Rizal and to return to their original placewhatever immobilized machineries or equipments he may have removed.[9]

The Facts

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

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCILeasing for short) filed with the RTC-QC a complaint for [a] sum of money(Annex E), with an application for a writ of replevin docketed as Civil CaseNo. Q-98-33500.

On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent

judge issued a writ of replevin (Annex B) directing its sheriff to seize anddeliver the machineries and equipment to PCI Leasing after 5 days and uponthe payment of the necessary expenses.

On March 24, 1998, in implementation of said writ, the sheriff proceeded topetitioners factory, seized one machinery with [the] word that he [would]return for the other machineries.

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On March 25, 1998, petitioners filed a motion for special protective order(Annex C), invoking the power of the court to control the conduct of itsofficers and amend and control its processes, praying for a directive for thesheriff to defer enforcement of the writ of replevin.

This motion was opposed by PCI Leasing (Annex F), on the ground that theproperties [were] still personal and therefore still subject to seizure and a writof 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 partiesagreement to the contrary notwithstanding. They argued that to give effect tothe agreement would be prejudicial to innocent third parties. They furtherstated that PCI Leasing [was] estopped from treating these machineries aspersonal because the contracts in which the alleged agreement [were]

embodied [were] totally sham and farcical.

On April 6, 1998, the sheriff again sought to enforce the writ of seizure andtake possession of the remaining properties. He was able to take two more,but was prevented by the workers from taking the rest.

On April 7, 1998, they went to [the CA] via an original action for certiorari.

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the subjectmachines were personal property, and that they had only been leased, notowned, by petitioners. It also ruled that the words of the contract are clear andleave no doubt upon the true intention of the contracting parties. Observingthat Petitioner Goquiolay was an experienced businessman who was notunfamiliar with the ways of the trade, it ruled that he should have realized theimport of the document he signed. The CA further held:

Furthermore, to accord merit to this petition would be to preempt the trial

court in ruling upon the case below, since the merits of the whole matter arelaid down before us via a petition whose sole purpose is to inquire upon theexistence of a grave abuse of discretion on the part of the [RTC] in issuing theassailed Order and Resolution. The issues raised herein are proper subjectsof a full-blown trial, necessitating presentation of evidence by bothparties. The contract is being enforced by one, and [its] validity is attacked by

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the othera matter x x x which respondent court is in the best position todetermine.

Hence, this Petition.[11]

The Issues

In their Memorandum, petitioners submit the following issues for ourconsideration:

A. Whether or not the machineries purchased and imported by SERGSbecame real property by virtue of immobilization.

B. Whether or not the contract between the parties is a loan or a lease.

[12]

In the main, the Court will resolve whether the said machines are personal,not immovable, property which may be a proper subject of a writ of replevin. Asa preliminary matter, the Court will also address briefly the procedural pointsraised by respondent.

The Courts Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Quest ions

Respondent contends that the Petition failed to indicate expressly whether itwas being filed under Rule 45 or Rule 65 of the Rules of Court. It furtheralleges that the Petition erroneously impleaded Judge Hilario Laqui asrespondent.

There is no question that the present recourse is under Rule 45. Thisconclusion finds support in the very title of the Petition, which is Petition for

Review on Certiorari.

[13]

While Judge Laqui should not have been impleaded as arespondent,[14]substantial justice requires that such lapse by itself should notwarrant the dismissal of the present Petition. In this light, the Court deems itproper to remove, motu proprio, the name of Judge Laqui from the caption ofthe present case.

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Main Issue: Nature of the Sub ject Machinery

Petitioners contend that the subject machines used in their factory were notproper subjects of the Writ issued by the RTC, because they were in fact realproperty. Serious policy considerations, they argue, militate against a contrary

characterization.

Rule 60 of the Rules of Court provides that writs of replevin are issued forthe recovery of personal property only.[15]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 describingthe personal property alleged to be wrongfully detained and requiring thesheriff 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 ownerof the tenement for an industry or works which may be carried on in a buildingor on a piece of land, and which tend directly to meet the needs of the saidindustry or works;

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

In the present case, the machines that were the subjects of the Writ ofSeizure were placed by petitioners in the factory built on their ownland. Indisputably, they were essential and principal elements of theirchocolate-making industry. Hence, although each of them was movable orpersonal property on its own, all of them have become immobilized bydestination because they are essential and principal elements in theindustry.[16]In that sense, petitioners are correct in arguing that the saidmachines are real, not personal, property pursuant to Article 415 (5) of the CivilCode.[17]

Be that as it may, we disagree with the submission of the petitioners thatthe said machines are not proper subjects of the Writ of Seizure.

The Court has held that contracting parties may validly stipulate that a realproperty be considered as personal.[18]After agreeing to such stipulation, theyare consequently estopped from claiming otherwise. Under the principle ofestoppel, a party to a contract is ordinarily precluded from denying the truth ofany material fact found therein.

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Hence, in Tumalad v. Vicencio,[19]the Court upheld the intention of theparties to treat a houseas a personal property because it had been made thesubject of a chattel mortgage. The Court ruled:

x x x. Although there is no specific statement referring to the subject house

as personal property, yet by ceding, selling or transferring a property by wayof chattel mortgage defendants-appellants could only have meant to conveythe house as chattel, or at least, intended to treat the same as such, so thatthey should not now be allowed to make an inconsistent stand by claimingotherwise.

Applying Tumalad,the Court in Makati Leasing and Finance Corp. v.Wearever Textile Mills[20]also held that the machinery used in a factory andessential to the industry, as in the present case, was a proper subject of a writof replevin because it was treated as personal property in a contract. Pertinentportions of the Courts ruling are reproduced hereunder:

xx x. If a house of strong materials, like what was involved in the aboveTumalad case, may be considered as personal property for purposes ofexecuting a chattel mortgage thereon as long as the parties to the contract soagree and no innocent third party will be prejudiced thereby, there isabsolutely no reason why a machinery, which is movable in its nature andbecomes immobilized only by destination or purpose, may not be likewisetreated as such. This is really because one who has so agreed is estoppedfrom denying the existence of the chattel mortgage.

In the present case, the Lease Agreement clearly provides that themachines in question are to be considered as personal property. Specifically,Section 12.1 of the Agreement reads as follows:[21]

12.1 The PROPERTY is, and shall at all times be and remain, personalproperty notwithstanding that the PROPERTY or any part thereof may nowbe, or hereafter become, in any manner affixed or attached to or embeddedin, or permanently resting upon, real property or any building thereon, orattached in any manner to what is permanent.

Clearly then, petitioners are estopped from denying the characterization ofthe subject machines as personal property. Under the circumstances, they areproper subjects of the Writ of Seizure.

It should be stressed, however, that our holding -- that the machines shouldbe deemed personal property pursuant to the Lease Agreementis good onlyinsofar as the contracting parties are concerned.[22]Hence, while the parties arebound by the Agreement, third persons acting in good faith are not affected by

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