G.R. No. L-55729 March 28, 1983 in its favor ...
in its favor ... only limited the sale to the land, hence, by
ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE
JUDGE RODOLFO A. ORTIZ, respondents.
The sole issue presented by petitioner for resolution is
whether or not respondent Court erred in denying the Motion
to Set Case for Pre-trial with respect to respondent Remedios
Vda. de Lacsamana as the case had been dismissed on the
ground of improper venue upon motion of co-respondent
Philippine National Bank (PNB).
It appears that petitioner, Antonio Punsalan, Jr., was the
former registered owner of a parcel of land consisting of 340
square meters situated in Bamban, Tarlac. In 1963, petitioner
mortgaged said land to respondent PNB (Tarlac Branch) in the
amount of P10,000.00, but for failure to pay said amount, the
property was foreclosed on December 16, 1970. Respondent
PNB (Tarlac Branch) was the highest bidder in said foreclosure
proceedings. However, the bank secured title thereto only on
December 14, 1977.
In the meantime, in 1974, while the properly was still in the
alleged possession of petitioner and with the alleged
acquiescence of respondent PNB (Tarlac Branch), and upon
securing a permit from the Municipal Mayor, petitioner
constructed a warehouse on said property. Petitioner
declared said warehouse for tax purposes for which he was
issued Tax Declaration No. 5619. Petitioner then leased the
warehouse to one Hermogenes Sibal for a period of 10 years
starting January 1975.
On July 26, 1978, a Deed of Sale was executed between
respondent PNB (Tarlac Branch) and respondent Lacsamana
over the property. This contract was amended on July 31,
1978, particularly to include in the sale, the building and
improvement thereon. By virtue of said instruments,
respondent - Lacsamana secured title over the property in her
name (TCT No. 173744) as well as separate tax declarations
for the land and building. 1
On November 22, 1979, petitioner commenced suit for
"Annulment of Deed of Sale with Damages" against herein
respondents PNB and Lacsamana before respondent Court of
First Instance of Rizal, Branch XXXI, Quezon City, essentially
impugning the validity of the sale of the building as embodied
in the Amended Deed of Sale. In this connection, petitioner
alleged:
xxx xxx xxx
22. That defendant, Philippine National Bank, through its
Branch Manager ... by virtue of the request of defendant ...
executed a document dated July 31, 1978, entitled
Amendment to Deed of Absolute Sale ... wherein said
defendant bank as Vendor sold to defendant Lacsamana the
building owned by the plaintiff under Tax Declaration No.
5619, notwithstanding the fact that said building is not owned
by the bank either by virtue of the public auction sale
conducted by the Sheriff and sold to the Philippine National
Bank or by virtue of the Deed of Sale executed by the bank
itself in its favor on September 21, 1977 ...;
23. That said defendant bank fraudulently mentioned ... that
the sale in its favor should likewise have included the building,
notwithstanding no legal basis for the same and despite full
knowledge that the Certificate of Sale executed by the sheriff
selling the building which never became the property of
defendant, they have violated the principle against 'pactum
commisorium'.
Petitioner prayed that the Deed of Sale of the building in favor
of respondent Lacsamana be declared null and void and that
damages in the total sum of P230,000.00, more or less, be
awarded to him.2
In her Answer filed on March 4, 1980,-respondent Lacsamana
averred the affirmative defense of lack of cause of action in
that she was a purchaser for value and invoked the principle
in Civil Law that the "accessory follows the principal".3
On March 14, 1980, respondent PNB filed a Motion to Dismiss
on the ground that venue was improperly laid considering
that the building was real property under article 415 (1) of the
New Civil Code and therefore section 2(a) of Rule 4 should
apply. 4
Opposing said Motion to Dismiss, petitioner contended that
the action for annulment of deed of sale with damages is in
the nature of a personal action, which seeks to recover not
the title nor possession of the property but to compel
payment of damages, which is not an action affecting title to
real property.
On April 25, 1980, respondent Court granted respondent
PNB's Motion to Dismiss as follows:
Acting upon the 'Motion to Dismiss' of the defendant
Philippine National Bank dated March 13, 1980, considered
against the plaintiff's opposition thereto dated April 1, 1980,
including the reply therewith of said defendant, this Court
resolves to DISMISS the plaintiff's complaint for improper
venue considering that the plaintiff's complaint which seeks
for the declaration as null and void, the amendment to Deed
of Absolute Sale executed by the defendant Philippine
National Bank in favor of the defendant Remedios T. Vda. de
Lacsamana, on July 31, 1978, involves a warehouse allegedly
owned and constructed by the plaintiff on the land of the
defendant Philippine National Bank situated in the
Municipality of Bamban, Province of Tarlac, which warehouse
is an immovable property pursuant to Article 415, No. 1 of the
New Civil Code; and, as such the action of the plaintiff is a real
action affecting title to real property which, under Section 2,
Rule 4 of the New Rules of Court, must be tried in the
province where the property or any part thereof lies.5
In his Motion for Reconsideration of the aforestated Order,
petitioner reiterated the argument that the action to annul
does not involve ownership or title to property but is limited
to the validity of the deed of sale and emphasized that the
case should proceed with or without respondent PNB as
respondent Lacsamana had already filed her Answer to the
Complaint and no issue on venue had been raised by the
latter.
On September 1, 1980,.respondent Court denied
reconsideration for lack of merit.
Petitioner then filed a Motion to Set Case for Pre-trial, in so
far as respondent Lacsamana was concerned, as the issues
had already been joined with the filing of respondent
Lacsamana's Answer.
In the Order of November 10, 1980 respondent Court denied
said Motion to Set Case for Pre-trial as the case was already
dismissed in the previous Orders of April 25, 1980 and
September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due

course.

We affirm respondent Court's Order denying the setting for

pre-trial.

The warehouse claimed to be owned by petitioner is an

immovable or real property as provided in article 415(l) of the
Civil Code. 6 Buildings are always immovable under the
Code. 7 A building treated separately from the land on which
it 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 in no wise changed its
character as immovable property. 8

While it is true that petitioner does not directly seek the

recovery of title or possession of the property in question, his
action for annulment of sale and his claim for damages are
closely intertwined with the issue of ownership of the
building which, under the law, is considered immovable
property, the recovery of which is petitioner's primary
objective. The prevalent doctrine is that an action for the
annulment or rescission of a sale of real property does not
operate to efface the fundamental and prime objective and
nature of the case, which is to recover said real property. It is
a real action. 9

Respondent Court, therefore, did not err in dismissing the

case on the ground of improper venue (Section 2, Rule 4) 10,
which was timely raised (Section 1, Rule 16) 11.

Petitioner's other contention that the case should proceed in

so far as respondent Lacsamana is concerned as she had
already filed an Answer, which did not allege improper venue
and, therefore, issues had already been joined, is likewise
untenable. Respondent PNB is an indispensable party as the
validity of the Amended Contract of Sale between the former
and respondent Lacsamana is in issue. It would, indeed, be
futile to proceed with the case against respondent Lacsamana
alone.

WHEREFORE, the petition is hereby denied without prejudice

to the refiling of the case by petitioner Antonio Punsalan, Jr. in
the proper forum.

Costs against petitioner.

SO ORDERED.
G.R. No. L-50008 August 31, 1987
PRUDENTIAL BANK, petitioner,
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch
III, Court of First Instance of Zambales and Olongapo City;
FERNANDO MAGCALE & TEODULA BALUYUT-
MAGCALE, respondents.
PARAS, J.:
This is a petition for review on certiorari of the November 13,
1978 Decision * of the then Court of First Instance of
Zambales and Olongapo City in Civil Case No. 2443-0 entitled
"Spouses Fernando A. Magcale and Teodula Baluyut-Magcale
vs. Hon. Ramon Y. Pardo and Prudential Bank" declaring that
the deeds of real estate mortgage executed by respondent
spouses in favor of petitioner bank are null and void.
The undisputed facts of this case by stipulation of the parties
are as follows:
... on November 19, 1971, plaintiffs-spouses Fernando A.
Magcale and Teodula Baluyut Magcale secured a loan in the
sum of P70,000.00 from the defendant Prudential Bank. To
secure payment of this loan, plaintiffs executed in favor of
defendant on the aforesaid date a deed of Real Estate
Mortgage over the following described properties:
l. A 2-STOREY, SEMI-CONCRETE, residential building with
warehouse spaces containing a total floor area of 263 sq.
meters, more or less, generally constructed of mixed hard
wood and concrete materials, under a roofing of cor. g. i.
sheets; declared and assessed in the name of FERNANDO
MAGCALE under Tax Declaration No. 21109, issued by the
Assessor of Olongapo City with an assessed value of
P35,290.00. This building is the only improvement of the lot.
2. THE PROPERTY hereby conveyed by way of MORTGAGE
includes the right of occupancy on the lot where the above
property is erected, and more particularly described and
bounded, as follows:
A first class residential land Identffied as Lot No. 720, (Ts-308,
Olongapo Townsite Subdivision) Ardoin Street, East Bajac-
Bajac, Olongapo City, containing an area of 465 sq. m. more or
less, declared and assessed in the name of FERNANDO
MAGCALE under Tax Duration No. 19595 issued by the
Assessor of Olongapo City with an assessed value of
P1,860.00; bounded on the
NORTH: By No. 6, Ardoin Street SOUTH: By No. 2, Ardoin
Street EAST: By 37 Canda Street, and WEST: By Ardoin Street.
All corners of the lot marked by conc. cylindrical monuments
of the Bureau of Lands as visible limits. ( Exhibit "A, " also
Exhibit "1" for defendant).
Apart from the stipulations in the printed portion of the
aforestated deed of mortgage, there appears a rider typed at
the bottom of the reverse side of the document under the
lists of the properties mortgaged which reads, as follows:
AND IT IS FURTHER AGREED that in the event the Sales Patent
on the lot applied for by the Mortgagors as herein stated is
released or issued by the Bureau of Lands, the Mortgagors
hereby authorize the Register of Deeds to hold the
Registration of same until this Mortgage is cancelled, or to
annotate this encumbrance on the Title upon authority from
the Secretary of Agriculture and Natural Resources, which
title with annotation, shall be released in favor of the herein
Mortgage.
From the aforequoted stipulation, it is obvious that the
mortgagee (defendant Prudential Bank) was at the outset
aware of the fact that the mortgagors (plaintiffs) have already
filed a Miscellaneous Sales Application over the lot,
possessory rights over which, were mortgaged to it.
Exhibit "A" (Real Estate Mortgage) was registered under the
Provisions of Act 3344 with the Registry of Deeds of Zambales
on November 23, 1971.
On May 2, 1973, plaintiffs secured an additional loan from
defendant Prudential Bank in the sum of P20,000.00. To
secure payment of this additional loan, plaintiffs executed in
favor of the said defendant another deed of Real Estate
Mortgage over the same properties previously mortgaged in
Exhibit "A." (Exhibit "B;" also Exhibit "2" for defendant). This
second deed of Real Estate Mortgage was likewise registered
with the Registry of Deeds, this time in Olongapo City, on May
2,1973.
On April 24, 1973, the Secretary of Agriculture issued
Miscellaneous Sales Patent No. 4776 over the parcel of land,
possessory rights over which were mortgaged to defendant
Prudential Bank, in favor of plaintiffs. On the basis of the
aforesaid Patent, and upon its transcription in the Registration
Book of the Province of Zambales, Original Certificate of Title
No. P-2554 was issued in the name of Plaintiff Fernando
Magcale, by the Ex-Oficio Register of Deeds of Zambales, on
May 15, 1972.
For failure of plaintiffs to pay their obligation to defendant
Bank after it became due, and upon application of said
defendant, the deeds of Real Estate Mortgage (Exhibits "A"
and "B") were extrajudicially foreclosed. Consequent to the
foreclosure was the sale of the properties therein mortgaged
to defendant as the highest bidder in a public auction sale
conducted by the defendant City Sheriff on April 12, 1978
(Exhibit "E"). The auction sale aforesaid was held despite
written request from plaintiffs through counsel dated March
29, 1978, for the defendant City Sheriff to desist from going
with the scheduled public auction sale (Exhibit "D")."
(Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).
Respondent Court, in a Decision dated November 3, 1978
declared the deeds of Real Estate Mortgage as null and void
(Ibid., p. 35).
On December 14, 1978, petitioner filed a Motion for
Reconsideration (Ibid., pp. 41-53), opposed by private
respondents on January 5, 1979 (Ibid., pp. 54-62), and in an
Order dated January 10, 1979 (Ibid., p. 63), the Motion for
Reconsideration was denied for lack of merit. Hence, the
instant petition (Ibid., pp. 5-28).
The first Division of this Court, in a Resolution dated March 9,
1979, resolved to require the respondents to comment (Ibid.,
p. 65), which order was complied with the Resolution dated
May 18,1979, (Ibid., p. 100), petitioner filed its Reply on June
2,1979 (Ibid., pp. 101-112).
Thereafter, in the Resolution dated June 13, 1979, the petition
was given due course and the parties were required to submit
simultaneously their respective memoranda. (Ibid., p. 114).
On July 18, 1979, petitioner filed its Memorandum (Ibid., pp.
116-144), while private respondents filed their Memorandum
on August 1, 1979 (Ibid., pp. 146-155).
In a Resolution dated August 10, 1979, this case was
considered submitted for decision (Ibid., P. 158).
In its Memorandum, petitioner raised the following issues:
1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE
ARE VALID; AND
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR
OF PRIVATE RESPONDENTS OF MISCELLANEOUS SALES
PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730
AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-
2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING
THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for
Petitioner, Rollo, p. 122).
This petition is impressed with merit.
The pivotal issue in this case is whether or not a valid real
estate mortgage can be constituted on the building erected
on the land belonging to another.
The answer is in the affirmative.
In the enumeration of properties under Article 415 of the Civil
Code of the Philippines, this Court ruled that, "it is obvious
that the inclusion of "building" separate and distinct from the
land, in said provision of law can only mean that a building is
by itself an immovable property." (Lopez vs. Orosa, Jr., et al.,
L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc.
vs. Iya, et al., L-10837-38, May 30,1958).
Thus, while it is true that a mortgage of land necessarily
includes, in the absence of stipulation of the improvements
thereon, buildings, still a building by itself may be mortgaged
apart from the land on which it has been built. Such a
mortgage would be still a real estate mortgage for the
building would still be considered immovable property even if
dealt with separately and apart from the land (Leung Yee vs.
Strong Machinery Co., 37 Phil. 644). In the same manner, this
Court has also established that possessory rights over said
properties before title is vested on the grantee, may be validly
transferred or conveyed as in a deed of mortgage (Vda. de
Bautista vs. Marcos, 3 SCRA 438 [1961]).
Coming back to the case at bar, the records show, as
aforestated that the original mortgage deed on the 2-storey
semi-concrete residential building with warehouse and on the
right of occupancy on the lot where the building was erected,
was executed on November 19, 1971 and registered under
the provisions of Act 3344 with the Register of Deeds of
Zambales on November 23, 1971. Miscellaneous Sales Patent
No. 4776 on the land was issued on April 24, 1972, on the
basis of which OCT No. 2554 was issued in the name of
private respondent Fernando Magcale on May 15, 1972. It is
therefore without question that the original mortgage was
executed before the issuance of the final patent and before
the government was divested of its title to the land, an event
which takes effect only on the issuance of the sales patent
and its subsequent registration in the Office of the Register of
Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of
Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado,
L-14702, May 23, 1961; Pena "Law on Natural Resources", p.
49). Under the foregoing considerations, it is evident that the
mortgage executed by private respondent on his own building
which was erected on the land belonging to the government
is to all intents and purposes a valid mortgage.
As to restrictions expressly mentioned on the face of
respondents' OCT No. P-2554, it will be noted that Sections
121, 122 and 124 of the Public Land Act, refer to land already
acquired under the Public Land Act, or any improvement
thereon and therefore have no application to the assailed
mortgage in the case at bar which was executed before such
eventuality. Likewise, Section 2 of Republic Act No. 730, also a
restriction appearing on the face of private respondent's title
has likewise no application in the instant case, despite its
reference to encumbrance or alienation before the patent is
issued because it refers specifically to encumbrance or
alienation on the land itself and does not mention anything
regarding the improvements existing thereon.
But it is a different matter, as regards the second mortgage
executed over the same properties on May 2, 1973 for an
additional loan of P20,000.00 which was registered with the
Registry of Deeds of Olongapo City on the same date. Relative
thereto, it is evident that such mortgage executed after the
issuance of the sales patent and of the Original Certificate of
Title, falls squarely under the prohibitions stated in Sections
121, 122 and 124 of the Public Land Act and Section 2 of
Republic Act 730, and is therefore null and void.
Petitioner points out that private respondents, after physically
possessing the title for five years, voluntarily surrendered the
same to the bank in 1977 in order that the mortgaged may be
annotated, without requiring the bank to get the prior
approval of the Ministry of Natural Resources beforehand,
thereby implicitly authorizing Prudential Bank to cause the
annotation of said mortgage on their title.
However, the Court, in recently ruling on violations of Section
124 which refers to Sections 118, 120, 122 and 123 of
Commonwealth Act 141, has held:
... Nonetheless, we apply our earlier rulings because we
believe that as in pari delicto may not be invoked to defeat
the policy of the State neither may the doctrine of estoppel
give a validating effect to a void contract. Indeed, it is
generally considered that as between parties to a contract,
validity cannot be given to it by estoppel if it is prohibited by
law or is against public policy (19 Am. Jur. 802). It is not within
the competence of any citizen to barter away what public
policy by law was to preserve (Gonzalo Puyat & Sons, Inc. vs.
De los Amas and Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54
[1986]).
This pronouncement covers only the previous transaction
already alluded to and does not pass upon any new contract
between the parties (Ibid), as in the case at bar. It should not
preclude new contracts that may be entered into between
petitioner bank and private respondents that are in
accordance with the requirements of the law. After all, private
respondents themselves declare that they are not denying the
legitimacy of their debts and appear to be open to new
negotiations under the law (Comment; Rollo, pp. 95-96). Any
new transaction, however, would be subject to whatever
steps the Government may take for the reversion of the land
in its favor.
PREMISES CONSIDERED, the decision of the Court of First
Instance of Zambales & Olongapo City is hereby MODIFIED,
declaring that the Deed of Real Estate Mortgage for
P70,000.00 is valid but ruling that the Deed of Real Estate
Mortgage for an additional loan of P20,000.00 is null and
void, without prejudice to any appropriate action the
Government may take against private respondents.

SO ORDERED.
G.R. No. 189061 August 6, 2014
MIDWAY MARITIME AND TECHNOLOGICAL FOUNDATION,
represented by its Chairman/President PhD in Education DR.
SABINO M. MANGLICMOT, Petitioner,
vs.
MARISSA E. CASTRO, ET AL., Respondents.
The petitioner Midway Maritime and Technological
Foundation (petitioner) is the lessee of two parcels of land in
Cabanatuan City. Its president, Dr. Sabino Manglicmot
(Manglicmot), is married to Adoracion Cloma (Adoracion),
who is the registered owner of the property under Transfer
Certificate of Title (TCT) Nos. T-71321 and T-71322. Inside said
property stands a residential building, which is now the
subject matter of the dispute, owned by the respondents.
The two parcels of land, on a portion of which the residential
building stand, were originally owned by the respondents
father Louis Castro, Sr. The elder Castro was also the president
of Cabanatuan City Colleges (CCC). On August 15, 1974,
Castro mortgaged the property to Bancom Development
Corporation (Bancom) to secure a loan. During the
subsistence of the mortgage, CCCs board of directors agreed
to a 15-year lease of a portion of the property to the
Castrochildren, herein respondents, who subsequently built
the residential house nowin dispute. The lease was to expire
in 1992.
When CCC failed to pay its obligation, Bancom foreclosed the
mortgage and the property was sold at public auction in 1979,
with Bancom as the highest bidder. Bancom thereafter
assigned the credit to Union Bank of the Philippines (Union
Bank), and later on, Union Bank consolidated its ownership
over the properties in 1984 due to CCCs failure to redeem the
property. When Union Bank sought the issuance of a writ of
possession over the properties, which included the residential
building, respondents opposed the same. The case reached
the Court in G.R. No. 97401 entitled, Castro, Jr. v. CA, 1 and in a
Decision dated December 6, 1995, the Court ruled that the
residential house owned by the respondents should not have
been included in the writ of possession issued by the trial
court as CCC has no title over it.
In the meantime, Adoracions father, Tomas Cloma (Tomas),
bought the two parcels of land from Union Bank in an auction
sale conducted on July 13, 1993. Tomas subsequently leased
the property to the petitioner and thereafter, sold the same
to Adoracion.Several suits were brought by the respondents
against the petitioner, including the case at bench, which is an
action for Ownership, Recovery of Possession and Damages,
docketed as Civil Case No. 3700 (AF).
In their Amended Complaint2 dated April 19, 2000, the
respondents alleged that: (1) they are the owners ofthe
residential building subject of the dispute, which they used
from 1977 to 1985 when they left for the United States of
America and instituted their uncle, Josefino C. Castro
(Josefino), as the caretaker; (2) Manglicmot, who was the
President of the petitioner Midway Maritime and
Technological Foundation, leased the building (except for
the portion occupied by Josefino) from Lourdes Castro,
mother of the respondents, in June 1993 withmonthly rent
of 6,000.00, which was later to be increased to 10,000.00
in October 1995 after Josefino vacates his occupied portion;
(3) the petitioner failed to pay rent starting August 1995,
thus prompting the respondents to file the action. The
respondents prayed that they be declared as the owners of
the residential building, and that the petitioner be ordered
to vacate the same and pay rent arrearages and damages. 3
The petitioner, however, denied respondents ownership of
the residential building and claimed that Adoracion owns the
building, having bought the same together with the land on
which it stands.4
In a Decision5 dated July 2, 2001, the Regional Trial Court
(RTC) of Cabanatuan City, Branch 28, rendered judgment in
favor of the respondents, declared them as the absolute
owners of the residential building and ordered petitioner to
pay the respondents unpaidrentals from August 1995 until
fully paid. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the [respondents] asthe absolute owners of the
building in question described as follows:
2. Ordering the [petitioner] topay the [respondents] the sum
of [P]672,000.00 by way of unpaid rentals from August 1995
at [P]6,000.00 and from October 1995 at [P]10,000.00 until
fully paid.
3. The claim for moral damages,other litigation expenses and
attorneys fees are dismissed for lack of merit.
SO ORDERED.6
The Court of Appeals (CA) dismissed the petitioners appeal
and affirmed the RTC decision in the assailed Decision7 dated
October 29, 2008 and Resolution8 dated August 3, 2009.
Hence, this petition.
The petitioner contests the award ofrentals made by the RTC,
which was affirmed by the CA, contending that when Tomas
bought the two parcels of land from Union Bank in 1993, the
sale included the improvements thereon, one of which was
the residential house in dispute. The petitioner also argues
that the lease between CCC and the respondents already
expired at the time of the sale and they are now the current
lessees of the property, albeit the residential house is still
standing inside the school compound. 9 The petitioner relies
on a decision rendered by the RTC of Cabanatuan City, Branch
26, in Civil Case No. 2939 (AF),which was an appeal from the
trial courts dismissal of the complaint for Ejectment with
Damages filed by the respondents against the petitioner. In
said decision, the RTC stated that "in the advertised sale of
the lots covered by TCT Nos. T-45816 and [T-45817] of the
land records of Cabanatuan City, all improvements were
included, hence, the instant case has no factual and legal
basis."10 Ruling of the Court
The first issue to be resolved iswhether there was a lease
agreement between the petitioner and the respondents as
regards the residential building. Such issue, it must
beemphasized, is a question of fact11 that has been resolved
by the RTC in the affirmative, towit: "from June 1993 to July
25, 1995 or for a period of 26 months, the [petitioner] has
been paying rentals for the building in question and paid a
rental of [P]156,000.00 which rental was increasedto
10,000.00 beginning October 1995 when the caretaker of
the [respondents] Mr. Josefino Castro was ejected therefrom
and the entire building was leased to the [petitioner],
represented by Dr. Sabino Manglicmot." 12 Such finding is
borne by the records of this case. Exhibit "J" 13 for the
respondents is a cash disbursement voucher issued by the
petitioner to Mrs. Lourdes Castro. The voucher contained the
statement "payment of building rentals x x x from June 01 to
December 01, 1993" in the total amount of 36,000.00. The
petitioners payment of the foregoing rentals confirms the
existence of its agreement to lease the residential building
from the respondents.
Given the existence of the lease,the petitioners claim
denying the respondents ownership of the residential
house must be rejected.1wphi1 According to the petitioner,
it is Adoracion who actually owns the residential building
having bought the same, together withthe two parcels of
land, from her father Tomas, who, in turn, bought it in an
auction sale.
It is settled that "[o]nce a contact of lease is shown to exist
between the parties, the lessee cannot by any proof, however
strong, overturn the conclusive presumption that the lessor
has a valid title to or a better right of possession to the
subject premises than the lessee." 14 Section 2(b), Rule 131 of
the Rules of Court prohibits a tenant from denying the title of
his landlord at the time of the commencement of the relation
of landlord and tenant between them. 15 In Santos v. National
Statistics Office,16 the Court expounded on the rule on
estoppel against a tenant and further clarified that what a
tenant is estopped from denying is the title of his landlord at
the time of the commencement of the landlord-tenant
relation. If the title asserted is one that is alleged to have
been acquired subsequent to the commencement of that
relation, the presumption will not apply. 17
In this case, the petitioners basis for insisting on Adoracions
ownership dates back to the latters purchase of the two
parcels of land from her father, Tomas. It was Tomas who
bought the property in an auction sale by Union Bank in 1993
and leased the same to the petitioner in the same year. Note
must be madethat the petitioners president, Manglicmot, is
the husband of Adoracion and son-in-law of Tomas. It is not
improbable that at the time the petitioner leased the
residential building from the respondents mother in 1993, it
was aware of the circumstances surrounding the sale of the
two parcels of land and the natureof the respondents claim
over the residential house. Yet, the petitioner still chose to
lease the building. Consequently, the petitioner is now
estopped from denying the respondents title over the
residential building.
More importantly, the respondentsownership of the
residential building is already an established fact.
"Nemo dat quod non habet. One can sell only what one
owns or is authorized to sell, and the buyer can acquire no
more right than what the seller can transfer legally." 18 It
must be pointed out that what Tomas bought from Union
Bank in the auction sale werethe two parcels of land
originally owned and mortgaged by CCC to Bancom, and
which mortgage was later assigned by Bancom to Union
Bank. Contrary to the petitioners assertion, the property
subject of the mortgage and consequently the auction sale
pertains only to these two parcels of land and did not
include the residential house. This was precisely the tenor of
Castro, Jr. v. CA19 where the Court nullified the writ of
possession issued by the trial court insofar as it affected the
residential house constructed by the respondents on the
mortgaged property as it was not owned by CCC, which was
the mortgagor. The Court ruled:
[Article 2127 of the Civil Code] extends the effects of the real
estate mortgage to accessions and accessories found on the
hypothecated property when the secured obligation becomes
due. The law is predicated on an assumption that the
ownership of such accessions and accessories also belongs to
the mortgagor as the owner of the principal. The provision
has thus been seen by the Court, x x x, to mean that all
improvements subsequently introduced or owned by the
mortgagor on the encumbered property are deemed to form
part of the mortgage. That the improvements are to be
considered so incorporated only if so owned by the
mortgagor is a rule that can hardly be debated since a
contract of security, whether real or personal, needs as an
indispensable element thereof the ownership by the pledgor
ormortgagor of the property pledged or mortgaged. The
rationale shouldbe clear enough in the event of default on
the secured obligation, the foreclosure sale of the property
would naturally be the next step that can expectedly follow. A
sale would result in the transmission of title to the buyer
which is feasible only if the seller can be in a position to
convey ownership of the thing sold (Article 1458, Civil Code).
It is to say, in the instant case, that a foreclosure would be
ineffective unless the mortgagor has title to the property to
be foreclosed.20(Citations omitted and emphasis ours) The
rule is that "when a decision becomes final and executory, it
becomes valid and binding upon the parties and their
successors in interest."21 Such being the case, Castro, which
already determined with finality the respondents ownership
of the residential house in question, is applicable and binding
in this case and the petitioner cannotbe allowed to challenge
the same. Thus, as correctlyruled by the CA, "[t]o our mind,
the pronouncement resolving the said issue necessarily
touches also the issue on the ownership of the building. x x x
The finding of the Court [in Castro], now being final and
executory, is no longer open for inquiry and therefore, has
attained its immutability."22
As regards the ruling of the RTC of Cabanatuan City, Branch
26, in Civil Case No. 2939 (AF) that the advertised sale of the
property included allthe improvements thereon, 23 suffice it to
say that said case involved an action for ejectment and any
resolution by the RTC on the matter of the ownership of the
improvements of the property is merely provisional and
cannot surpass the Courts pronouncement in Castro and in
the present case. The petitioner should be reminded that "in
ejectment suits, the only issue for resolution is the physical or
materialpossession of the property involved, independent of
any claim of ownership by any of the party litigants. However,
the issue of ownership may be provisionally ruled upon for
the sole purpose of determining who is entitled to possession
de facto."24 The MTC and RTCs adjudication of ownership is
merely provisionaland would not bar or prejudice an action
between the same parties involving title to the property. 25
Also, Adoracions subsequent acquisition of the two parcels of
land from her father does not necessarily entail the
acquisition of the residential building. "A building by itself is a
realor immovable property distinct from the land on which it
is constructed and therefore can be a separate subject of
contracts."26 Whatever Adoracion acquired from her father is
still subject to the limitation pronounced by the Court in
Castro, and the sale between Adoracion and Tomas is
confined only to the two parcels of land and excluded the
residential building owned by the respondents. It is beyond
question that Tomas, and subsequently, Adoracion, could
nothave acquired a right greater than what their
predecessors-in-interest CCC and later, Union Bank had.27
The petitioner also insists thatthe lease between CCC and the
respondents already expired whenAdoracion bought the
property from Tomas. The foregoing issue, however, cannot WHEREFORE, the petition is DENIED for lack of merit.
be considered in the present action. As established from the
facts ofthis case, the residential house is located on a portion SO ORDERED.
of the property that was leased by CCC to the respondents.
Disputing the lease between CCC and the respondents, in
effect, goes into the right of the respondents to maintain the
residential house in question and eventually, their right to
have the same leased to the petitioner. Such argument,
obviously, is a disguised effort to contest the title of the
respondents over the residential house leased to the
petitioner, which, as the Court previously discussed, cannot
be allowed since they are estopped from denying the same.

There is also nothing on record that will prove the petitioners

claim that the lease between CCC and the respondents
already expired. The fact that Adoracion subsequently bought
the property did not ipso facto terminate the lease. Also,
Adoracions subsequent acquisition of the two parcels of land
from her father does not necessarily entail the acquisition of
the residential building. "A building by itself is a realor
immovable property distinct from the land on which it is
constructedr, Adoracion, acquired the property in 1993.

Article 1676 of the Civil Code provides:

The purchaser of a piece of land which is under a lease that is

not recorded in the Registry of property may terminate the
lease, save when there is a stipulation to the contrary in the
contract of sale, or when the purchaser knows of the
existence of the lease.

x x x x.

It cannot be denied that the transferors/purchasers of the

property all had knowledge of the lease between CCC and
the respondents; yet, not any of the transferors/purchasers
moved to terminate the lease. In Bernabe v. Judge Luna, 28 the
Court stated:

[P]etitioners are in error when they say that because they are
the buyers of the lot involved herein, they ipso facto have the
right to terminate an existing lease. They can do so but only if
the lease itself is not recorded, and they, as buyers, are not
aware of the lease's existence and duration, thus Art. 1676 of
the Civil Code says:

xxxx

In the present case, the lease is not recorded, and although

petitioner knew of its existence, there was no fixed period for
its duration - hence the lease was generally terminable at the
will of the buyerspetitioners. But of course they had to make
a demand for its termination. x x x. 29 (Citation omitted and
emphasis ours)

This was, in fact, the significance of the Court's statement in

Castro, that

[I]n respect of the lease on the foreclosed property, the buyer

at the foreclosure sale merely succeeds to the rights and
obligations of the pledgor-mortgagor subject, however, to the
fcrovisions of Article 1676 of the Civil Code on its possible
termination.30 (Citation omitted, emphasis and underscoring
ours)

Given, however, the lack of substantiation, the petitioner's

insistence on the expiry of the lease between CCC and the
respondents, at this point, must fail.

G.R. No. 120098 October 2, 2001
RUBY L. TSAI, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and
MAMERTO R VILLALUZ, 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 decision of the Court of 1
Appeals in CA-G.R. CV No. 32986, affirming the decision 2 of
the Regional Trial Court of Manila, Branch 7, in Civil Case No.
89-48265. Also assailed is respondent court's resolution
denying petitioners' motion for reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc.
(EVERTEX) obtained a three million peso (P3,000,000.00) loan
from petitioner Philippine Bank of Communications (PBCom).
As security for the loan, EVERTEX executed in favor of PBCom,
a deed of Real and Chattel Mortgage over the lot under TCT
No. 372097, where its factory stands, and the chattels located
therein as enumerated in a schedule attached to the
mortgage contract. The pertinent portions of the Real and
Chattel Mortgage are quoted below:
MORTGAGE
(REAL AND CHATTEL)
The MORTGAGOR(S) hereby transfer(s) and convey(s), by way
of First Mortgage, to the MORTGAGEE, . . . certain parcel(s) of
land, together with all the buildings and improvements now
existing or which may hereafter exist thereon, situated in . . .
"Annex A"
(Real and Chattel Mortgage executed by Ever Textile Mills in
favor 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
B. Sixteen (16) sets of Vayrow Knitting Machines
made in Taiwan.
C. Two (2) Circular Knitting Machines made in West Germany.
D. Four (4) Winding Machines.
SCHEDULE "A"
I. TCT # 372097 - RIZAL
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 above properties.
On April 23, 1979, PBCom granted a second loan of
P3,356,000.00 to EVERTEX. The loan was secured 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 corporation insolvent. All its assets were
taken into the custody of the Insolvency Court, including the
collateral, real and personal, securing the two mortgages as
abovementioned.
In the meantime, upon EVERTEX's failure to meet its
obligation to PBCom, the latter commenced extrajudicial
foreclosure proceedings against EVERTEX under Act 3135,
otherwise known 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 of Sheriff'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. On
December 23, 1982, another public auction was held and
again, PBCom was the highest bidder. 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. In November 1986, it
leased the entire factory premises to petitioner Ruby L. Tsai
for P50,000.00 a month. On May 3, 1988, PBCom sold the
factory, lock, stock and barrel to Tsai for P9,000,000.00,
including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment
of sale, reconveyance, and damages with the Regional Trial
Court against PBCom, alleging inter alia that the extrajudicial
foreclosure of subject mortgage was in violation of the
Insolvency Law. EVERTEX claimed that no rights having been
transmitted to PBCom over the assets of insolvent EVERTEX,
therefore Tsai 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 the contested properties, which
were not included in the Real and Chattel Mortgage of
November 26, 1975 nor in the Chattel Mortgage of April 23,
1979, and neither were those properties included in the
Notice of Sheriff's 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 Knitting Machines, 1 Jet Drying
Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1
Heatset Equipment.
The RTC found that the lease and sale of said personal
properties were irregular and illegal because they were not
duly foreclosed nor sold at the December 15, 1982 auction
sale since these were not included in the schedules attached
to the mortgage contracts. The trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff
corporation and against the defendants:
1. Ordering the annulment of the sale executed by defendant
Philippine Bank of Communications in favor of defendant
Ruby L. Tsai on May 3, 1988 insofar as it affects the personal
properties listed in par. 9 of the complaint, and their return to
the plaintiff corporation through its assignee, plaintiff
Mamerto R. Villaluz, for disposition by the Insolvency 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 of P5,200,000.00 as
compensation for the use and possession of the properties in
question from November 1986 to February 1991 and
P100,000.00 every month thereafter, with interest thereon at
the legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the
plaintiff corporation the sum of P50,000.00 as and for
attorney's fees and expenses of litigation;
4. Ordering the defendants to pay jointly and severally the
plaintiff corporation the sum of P200,000.00 by way of
exemplary damages;
5. Ordering the dismissal of the counterclaim of the
defendants; and
6. Ordering the defendants to proportionately pay the costs of
suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of
Appeals, which issued its decision dated August 31, 1994, the
dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award;
for exemplary damages, and reduction of the actual damages,
from P100,000.00 to P20,000.00 per month, from November
1986 until subject personal properties are restored to
appellees, the judgment appealed from is hereby 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 EFFECT MAKING A CONTRACT FOR THE PARTIES BY
TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS
INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975
DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF
CHATTEL MORTGAGE.
II THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
ERRED IN HOLDING THAT THE DISPUTED 1981 MACHINERIES
ARE NOT REAL PROPERTIES DEEMED PART 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 DEEMING PETITIONER A PURCHASER IN BAD FAITH.
IV THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES,
ATTORNEY'S FEES AND EXPENSES OF LITIGATION FOR
WANT OF VALID FACTUAL AND LEGAL BASIS.
V THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
ERRED IN HOLDING AGAINST 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 UNDER PARAGRAPH 9 OF THE
COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF
THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED
THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY
FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE 1975
DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE
LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF,
AND DESPITE THE UNDISPUTED FACT THAT SAID
MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED
ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE MILLS
TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX
PURPOSES?
II CAN PBCOM, WHO TOOK POSSESSION OF THE
MACHINERIES IN QUESTION IN GOOD FAITH, EXTENDED
CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982
TOTALLED P9,547,095.28, WHO HAD SPENT FOR
MAINTENANCE AND SECURITY ON THE DISPUTED
MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER
TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER
THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED
DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF
UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or not the
inclusion of the questioned properties in the foreclosed
properties is proper. The secondary issue is whether or not
the sale of these properties to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect
made a contract for the parties by treating the 1981 acquired
units of machinery as chattels instead of real properties
within their earlier 1975 deed of Real and Chattel Mortgage
or 1979 deed of Chattel Mortgage.8 Additionally, Tsai argues
that respondent court erred in holding that the disputed 1981
machineries are not real properties. 9 Finally, she contends
that the Court of Appeals erred in holding against petitioner's
arguments on prescription and laches 10 and in assessing
petitioner actual damages, attorney's fees and expenses of
litigation, for want of valid factual and legal basis. 11
Essentially, PBCom contends that respondent court erred in
affirming the lower court's judgment decreeing that the
pieces of machinery in dispute were not duly foreclosed and
could not be legally leased nor sold to Ruby Tsai. It further
argued that the Court of Appeals' pronouncement that the
pieces of machinery in question were personal properties
have no factual and legal basis. Finally, it asserts that the
Court of Appeals erred in assessing damages and attorney's
fees against PBCom.
In opposition, private respondents argue that the
controverted units of machinery are not "real properties"
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 devoid of merit and ought to
be denied.
Well settled is the rule that the jurisdiction of the Supreme
Court in a petition for review on certiorari 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 on record or the
assailed judgment is based on misapprehension of
facts.13 This rule is applied more 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 are decisive of the issues: (1) the
"controverted machineries" are not covered by, or included
in, either of the two mortgages, the Real Estate and Chattel
Mortgage, and the pure Chattel Mortgage; (2) the said
machineries were not included in the list of properties
appended to the Notice of Sale, and neither were they
included in the Sheriff's Notice of Sale of the foreclosed
properties.15
Petitioners contend that the nature of the disputed
machineries, i.e., that they were heavy, bolted or cemented
on the real property mortgaged by EVERTEX to PBCom, make
them ipso facto immovable 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 look at the parties' intent.
While it is true that the controverted properties appear to
be immobile, a perusal of the contract of Real and Chattel
Mortgage executed by the parties herein gives us a contrary
indication. In the case at bar, both the trial and the
appellate courts reached the same finding that the true
intention 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 chattel
mortgage, militates against appellants' posture. It should be
noted that the printed form used by appellant bank was
mainly for real estate mortgages. But reflective of the true
intention of appellant PBCOM and appellee EVERTEX was the
typing in capital letters, immediately following the printed
caption of mortgage, of the phrase "real and chattel." So also,
the "machineries and equipment" in the printed form of the
bank had to be inserted in the blank space of the printed
contract and connected with the word "building" by
typewritten slash marks. Now, then, if the machineries in
question were contemplated to be included in the real estate
mortgage, there would have been no necessity to ink a chattel
mortgage specifically 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 the land and building involved.
As regards the 1979 contract, the intention of the parties is
clear and beyond question. It refers solely to chattels. The
inventory list of the mortgaged properties is an itemization of
sixty-three (63) individually described machineries while the
schedule listed only machines and 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 by the evidence on record, we
find no compelling reason to depart therefrom.
Too, assuming arguendo that the properties in question are
immovable by nature, nothing detracts the parties from
treating it as chattels to secure an obligation under the
principle of estoppel. As far back as Navarro v. Pineda, 9
SCRA 631 (1963), an immovable may be considered a
personal property if 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.
In the instant case, the parties herein: (1) executed a contract
styled as "Real Estate Mortgage and Chattel Mortgage,"
instead of just "Real Estate Mortgage" if indeed their
intention is to treat all properties included therein as
immovable, and (2) attached to the said contract a separate
"LIST OF MACHINERIES & EQUIPMENT". These facts, taken
together, evince the conclusion that the parties' intention is
to treat these units of machinery as chattels. A fortiori, the
contested after-acquired properties, which are of the same
description as the units enumerated under the title "LIST OF
MACHINERIES & EQUIPMENT," must also be treated as
chattels.
Accordingly, we find no reversible error in the respondent
appellate court's ruling that inasmuch as the subject
mortgages were intended by the parties to involve chattels,
insofar as equipment and 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 therein and not like or
substituted property thereafter acquired by the mortgagor
and placed in the same depository as the property originally
mortgaged, anything in the mortgage to the contrary
notwithstanding."
And, since the disputed machineries were acquired in 1981
and could not have been involved in the 1975 or 1979 chattel
mortgages, it was consequently an error on the part of the
Sheriff to include 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 nemo dat 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 a nullity, she is nevertheless a
purchaser in good faith and for value who now has a better
right than EVERTEX.
To the contrary, however, are the factual findings and
conclusions of the trial court that she is not a purchaser in
good faith. Well-settled is the rule that the person who
asserts the status of a purchaser in good faith and for value
has the burden of proving such assertion. 18 Petitioner Tsai
failed 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 property and pays a
full and fair price for the same, at the time of purchase, or
before he has notice of the claims or interest of some other
person in the property.19 Records reveal, however, that when
Tsai purchased the controverted properties, she knew of
respondent's claim thereon. As borne out by the records,
she received the letter of respondent's counsel, apprising
her of respondent's claim, dated February 27, 1987. 20 She
replied thereto on March 9, 1987. 21 Despite her knowledge
of respondent's claim, she proceeded to buy the contested
units of machinery on May 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 disputed properties are located is equally
unavailing. This defense refers to sale of lands and not to sale
of 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
owner of 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 no cogent reason to disturb the
consistent findings of both courts below that the case for the
reconveyance of the disputed properties was filed within the
reglementary period. Here, in our view, the doctrine of laches
does not apply. Note that upon petitioners' adamant refusal
to heed EVERTEX's claim, respondent company immediately
filed an action to recover possession and ownership of the
disputed properties. There is no evidence showing any failure
or neglect on its part, for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence,
could or should have been done earlier. The doctrine of stale
demands would apply only where by reason of the lapse of
time, it would be inequitable to allow a party to enforce his
legal rights. Moreover, except for very strong reasons, this
Court is not disposed to apply the doctrine 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, representing rentals 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 the unpaid rentals of the
contested properties based on the testimony of John Chua,
who testified that the P100,000.00 was based on the
accepted practice in banking and finance, business and
investments 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
to P20,000.00.
Basic is the rule that to recover actual damages, the amount
of loss must not only be capable of proof but must actually be
proven with reasonable degree of certainty, premised upon
competent proof or best evidence obtainable of the actual
amount thereof.23 However, the allegations of respondent
company as to the amount of unrealized rentals due them as
actual damages remain mere assertions unsupported by
documents and other competent evidence. In determining
actual damages, the court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend on
competent proof and on the best evidence obtainable
regarding the actual amount of loss. 24 However, we are not
prepared to disregard the following dispositions of the
respondent appellate court:
. . . In the award of actual damages under scrutiny, there is
nothing on record warranting the said award of
P5,200,000.00, representing monthly rental income of
P100,000.00 from November 1986 to February 1991, and the
additional award of P100,000.00 per month thereafter.
As pointed out by appellants, the testimonial evidence,
consisting of the testimonies of Jonh (sic) Chua and Mamerto
Villaluz, is shy of what is necessary to substantiate the actual
damages allegedly sustained by appellees, by way of
unrealized rental income of subject machineries and
equipments.
The testimony of John Cua (sic) is nothing but an opinion or
projection based on what is claimed to be a practice in
business and industry. But such a testimony cannot serve as
the sole basis for assessing the actual damages complained
of. What is more, there is no showing that had appellant Tsai
not taken possession of the machineries and equipments in
question, somebody was willing and ready to rent the same
for P100,000.00 a month.
Then, too, even assuming arguendo that the said machineries
and equipments could have generated 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 actual damages or unrealized rental income sued upon,
there is a good basis to calculate that at least four months in a
year, the machineries in dispute would have been idle due to
absence of a lessee or while being repaired. In the light of the
foregoing rationalization and computation, We believe that a
net unrealized rental income of P20,000.00 a month, since
November 1986, is more realistic and fair. 25
As to exemplary damages, the RTC awarded P200,000.00 to
EVERTEX which the Court of Appeals deleted. But according
to the CA, there was no clear showing that petitioners acted
malevolently, wantonly and oppressively. The evidence,
however, shows otherwise.It is a requisite to award exemplary
damages that the wrongful act must be accompanied by bad
faith,26 and the guilty acted in a wanton, fraudulent,
oppressive, reckless or malevolent manner. 27 As previously
stressed, petitioner Tsai's act of purchasing the controverted
properties despite her knowledge of EVERTEX's claim was
oppressive and subjected the already insolvent respondent to
gross disadvantage. Petitioner PBCom also received the same
letters of Atty. Villaluz, responding thereto on March 24,
1987.28 Thus, PBCom's act of taking all the properties found in
the factory of the financially handicapped respondent,
including those properties not covered 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 the Civil 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 accordance with the
circumstances of each case.29 While the imposition of
exemplary damages is justified in this 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 discretion granted to the courts
in the assessment of damages must always be exercised
with balanced restraint and measured objectivity. Thus, here
the award of exemplary damages by way of example 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 when exemplary damages are
awarded.30 In our view, RTC's award of P50,000.00 as
attorney's fees and expenses of litigation is reasonable, given
the circumstances in these cases.

WHEREFORE, the petitions are DENIED. The assailed decision

and resolution of the Court of Appeals in CA-G.R. CV No.
32986 are AFFIRMED WITH MODIFICATIONS. Petitioners
Philippine Bank of Communications and Ruby L. Tsai are
hereby ordered to pay jointly and severally Ever Textile Mills,
Inc. the following: (1) P20,000.00 per month, as
compensation for the use and possession of the properties in
question from November 198631 until subject personal
properties are restored to respondent corporation; (2)
P100,000.00 by way of exemplary damages, and (3)
P50,000.00 as attorney's fees and litigation expenses. Costs
against petitioners.

SO ORDERED.

G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of
Manila, respondent.
.This cause is before us upon demurrer interposed by the
respondent, Joaquin Jaramillo, register of deeds of the City of
Manila, to an original petition of the Standard Oil Company of
New York, seeking a peremptory mandamus to compel the
respondent to record in the proper register a document
purporting to be a chattel mortgage executed in the City of
Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the
Standard Oil Company of New York.
It appears from the petition that on November 27, 1922,
Gervasia de la Rosa, Vda. de Vera, was the lessee of a parcel
of land situated in the City of Manila and owner of the house
of strong materials built thereon, upon which date she
executed a document in the form of a chattel mortgage,
purporting to convey to the petitioner by way of mortgage
both the leasehold interest in said lot and the building which
stands thereon.
The clauses in said document describing the property
intended to be thus mortgage are expressed in the following
words:
Now, therefore, the mortgagor hereby conveys and transfer to
the mortgage, by way of mortgage, the following described
personal property, situated in the City of Manila, and now in
possession of the mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and
to the contract of lease hereinabove referred to, and in and to
the premises the subject of the said lease;
(2) The building, property of the mortgagor, situated on the
aforesaid leased premises.
After said document had been duly acknowledge and
delivered, the petitioner caused the same to be presented to
the respondent, Joaquin Jaramillo, as register of deeds of the
City of Manila, for the purpose of having the same recorded in
the book of record of chattel mortgages. Upon examination of
the instrument, the respondent was of the opinion that it was
not a chattel mortgage, for the reason that the interest
therein mortgaged did not appear to be personal property,
within the meaning of the Chattel Mortgage Law, and
registration was refused on this ground only.
We are of the opinion that the position taken by the
respondent is untenable; and it is his duty to accept the
proper fee and place the instrument on record. The duties of
a register of deeds in respect to the registration of chattel
mortgage are of a purely ministerial character; and no
provision of law can be cited which confers upon him any
judicial or quasi-judicial power to determine the nature of any
document of which registration is sought as a chattel
mortgage.
The original provisions touching this matter are contained in
section 15 of the Chattel Mortgage Law (Act No. 1508), as
amended by Act No. 2496; but these have been transferred to
section 198 of the Administrative Code, where they are now
found. There is nothing in any of these provisions conferring
upon the register of deeds any authority whatever in respect
to the "qualification," as the term is used in Spanish law, of
chattel mortgage. His duties in respect to such instruments
are ministerial only. The efficacy of the act of recording a
chattel mortgage consists in the fact that it operates as
constructive notice of the existence of the contract, and the
legal effects of the contract must be discovered in the
instrument itself in relation with the fact of notice.
Registration adds nothing to the instrument, considered as a
source of title, and affects nobody's rights except as a
specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute
criterion for discriminating between real property and
personal property for purpose of the application of the
Chattel Mortgage Law. Those articles state rules which,
considered as a general doctrine, are law in this jurisdiction;
but it must not be forgotten that under given conditions
property may have character different from that imputed to it
in said articles. It is undeniable that the parties to a contract
may by agreement treat as personal property that which by
nature would be real property; and 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. Other situations are constantly
arising, and from time to time are presented to this court, in
which the proper classification of one thing or another as real
or personal property may be said to be doubtful.
The point submitted to us in this case was determined on
September 8, 1914, in an administrative ruling promulgated
by the Honorable James A. Ostrand, now a Justice of this
Court, but acting at that time in the capacity of Judge of the
fourth branch of the Court of First Instance of the Ninth
Judicial District, in the City of Manila; and little of value can be
here added to the observations contained in said ruling. We
accordingly quote therefrom as follows:
It is unnecessary here to determine whether or not the
property described in the document in question is real or
personal; the discussion may be confined to the point as to
whether a register of deeds has authority to deny the
registration of a document purporting to be a chattel
mortgage and executed in the manner and form prescribed by
the Chattel Mortgage Law.
Then, after quoting section 5 of the Chattel Mortgage Law
(Act No. 1508), his Honor continued:
Based principally upon the provisions of section quoted the
Attorney-General of the Philippine Islands, in an opinion
dated August 11, 1909, held that a register of deeds has no
authority to pass upon the capacity of the parties to a chattel
mortgage which is presented to him for record. A fortiori a
register of deeds can have no authority to pass upon the
character of the property sought to be encumbered by a
chattel mortgage. Of course, if the mortgaged property is real
instead of personal the chattel mortgage would no doubt be
held ineffective as against third parties, but this is a question
to be determined by the courts of justice and not by the
register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and
Williamson (37 Phil., 644), this court held that where the
interest conveyed is of the nature of real, property, the
placing of the document on record in the chattel mortgage
register is a futile act; but that decision is not decisive of the
question now before us, which has reference to the function
of the register of deeds in placing the document on record.
In the light of what has been said it becomes unnecessary for
us to pass upon the point whether the interests conveyed in
the instrument now in question are real or personal; and we
declare it to be the duty of the register of deeds to accept the
estimate placed upon the document by the petitioner and to
register it, upon payment of the proper fee.

The demurrer is overruled; and unless within the period of

five days from the date of the notification hereof, the
respondent shall interpose a sufficient answer to the petition,
the writ of mandamus will be issued, as prayed, but without
costs. So ordered.

G.R. No. L-11139 April 23, 1958
SANTOS EVANGELISTA, petitioner,
vs.
ALTO SURETY & INSURANCE CO., INC., respondent.
This is an appeal by certiorari from a decision of the Court of
Appeals.
Briefly, the facts are: On June 4, 1949, petitioner herein,
Santos Evangelista, instituted Civil Case No. 8235 of the Court
of First, Instance of Manila entitled " Santos
Evangelista vs. Ricardo Rivera," for a sum of money. On the
same date, he obtained a writ of attachment, which levied
upon a house, built by Rivera on a land situated in Manila and
leased to him, by filing copy of said writ and the
corresponding notice of attachment with the Office of the
Register of Deeds of Manila, on June 8, 1949. In due course,
judgment was rendered in favor of Evangelista, who, on
October 8, 1951, bought the house at public auction held in
compliance with the writ of execution issued in said case. The
corresponding definite deed of sale was issued to him on
October 22, 1952, upon expiration of the period of
redemption. When Evangelista sought to take possession of
the house, Rivera refused to surrender it, upon the ground
that he had leased the property from the Alto Surety &
Insurance Co., Inc. respondent herein and that the latter
is now the true owner of said property. It appears that on
May 10, 1952, a definite deed of sale of the same house had
been issued to respondent, as the highest bidder at an
auction sale held, on September 29, 1950, in compliance with
a writ of execution issued in Civil Case No. 6268 of the same
court, entitled "Alto Surety & Insurance Co., Inc. vs. Maximo
Quiambao, Rosario Guevara and Ricardo Rivera," in which
judgment, for the sum of money, had been rendered in favor
respondent herein, as plaintiff therein. Hence, on June 13,
1953, Evangelista instituted the present action against
respondent and Ricardo Rivera, for the purpose of
establishing his (Evangelista) title over said house, securing
possession thereof, apart from recovering damages.
In its answer, respondent alleged, in substance, that it has a
better right to the house, because the sale made, and the
definite deed of sale executed, in its favor, on September 29,
1950 and May 10, 1952, respectively, precede the sale to
Evangelista (October 8, 1951) and the definite deed of sale in
his favor (October 22, 1952). It, also, made some special
defenses which are discussed hereafter. Rivera, in effect,
joined forces with respondent. After due trial, the Court of
First Instance of Manila rendered judgment for Evangelista,
sentencing Rivera and respondent to deliver the house in
question to petitioner herein and to pay him, jointly and
severally, forty pesos (P40.00) a month from October, 1952,
until said delivery, plus costs.
On appeal taken by respondent, this decision was reversed by
the Court of Appeals, which absolved said respondent from
the complaint, upon the ground that, although the writ of
attachment in favor of Evangelista had been filed with the
Register of Deeds of Manila prior to the sale in favor of
respondent, Evangelista did not acquire thereby a preferential
lien, the attachment having been levied as if the house in
question were immovable property, although in the opinion
of the Court of Appeals, it is "ostensibly a personal property."
As such, the Court of Appeals held, "the order of attachment .
. . should have been served in the manner provided in
subsection (e) of section 7 of Rule 59," of the Rules of Court,
reading:
The property of the defendant shall be attached by the officer
executing the order in the following manner:
(e) Debts and credits, and other personal property not
capable of manual delivery, by leaving with the person owing
such debts, or having in his possession or under his control,
such credits or other personal property, or with, his agent, a
copy of the order, and a notice that the debts owing by him to
the defendant, and the credits and other personal property in
his possession, or under his control, belonging to the
defendant, are attached in pursuance of such order.
(Emphasis ours.)
However, the Court of Appeals seems to have been of the
opinion, also, that the house of Rivera should have been
attached in accordance with subsection (c) of said section 7,
as "personal property capable of manual delivery, by taking
and safely keeping in his custody", for it declared that
"Evangelists could not have . . . validly purchased Ricardo
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 this connection, it is not disputed
that although the sale to the respondent preceded that made
to Evangelists, the latter would have a better right if the writ
of attachment, issued in his favor before the sale to the
respondent, had been properly executed or enforced. This
question, in turn, depends upon whether the house of
Ricardo Rivera is real property or not. In the affirmative
case, the applicable provision would be subsection (a) of
section 7, Rule 59 of the Rules of Court, pursuant to which
the attachment should be made "by filing with the registrar
of deeds a copy of the order, together with a description of
the property attached, and a notice that it is attached, and
by leaving a copy of such order, description, and notice with
the occupant of the property, if any there be."
Respondent maintains, however, and the Court of Appeals
held, that Rivera's house is personal property, the levy upon
which must be made in conformity with subsections (c) and
(e) of said section 7 of Rule 59. Hence, the main issue before
us is whether a house, constructed the lessee of the land on
which it is built, should be dealt with, for purpose, of
attachment, as immovable property, or as personal property.
It is, our considered opinion that said house is not personal
property, much less a debt, credit or other personal property
not capable of manual delivery, but immovable property. As
explicitly held, in Laddera vs. Hodges (48 Off. Gaz., 5374), "a
true building (not merely superimposed on the soil) is
immovable or real property, whether it is erected by the
owner of the land or by usufructuary or lessee. This is the
doctrine of our Supreme Court in Leung Yee vs. Strong
Machinery Company, 37 Phil., 644. And it is amply supported
by the rulings of the French Court. . . ."
It is true that the parties to a deed of chattel mortgage may
agree to consider a house as personal 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., 72 Phil., 464). However, this view
is good only insofar as the contracting parties are concerned.
It is based, partly, upon the principle of estoppel. Neither this
principle, nor said view, is applicable to strangers to said
contract. Much less is it in point where there has been no
contract whatsoever, with respect to the status of the house
involved, as in the case at bar. Apart from this, in Manarang
vs. Ofilada (99 Phil., 108; 52 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 their
contract, bind the sheriff in advertising the property's sale at
public auction as personal property? It is to be remembered
that in the case at bar the action was to collect a loan
secured by a chattel mortgage on the house. It is also to be
remembered that in practice it is the judgment creditor who
points out to the sheriff the properties that the sheriff is to
levy upon in execution, and the judgment creditor in the
case at bar is the party in whose favor the owner of the
house had conveyed it by way of chattel mortgage and,
therefore, knew its consideration as personal property.
These considerations notwithstanding, we hold that the rules
on execution do not allow, and, we should not interpret them
in such a way as to allow, the special consideration that
parties to a contract may have desired to impart to real
estate, for example, as personal property, when they are, not
ordinarily so. Sales on execution affect the public and third
persons. The regulation governing sales on execution are for
public officials to follow. The form of proceedings prescribed
for each kind of property is suited to its character, not to the
character, which the parties have given to it or desire to give
it. When the rules speak of personal property, property which
is ordinarily so considered is meant; and when real property is
spoken of, it means property which is generally known as real
property. The regulations were never intended to suit the
consideration that parties may have privately given to the
property levied upon. Enforcement of regulations would be
difficult were the convenience or agreement of private parties
to determine or govern the nature of the proceedings. We
therefore hold that the mere fact that a house was the
subject of the chattel mortgage and was considered as
personal property by the parties does not make said house
personal property for purposes of the notice to be given for its
sale of public auction. This ruling is demanded by the need for
a definite, orderly and well defined regulation for official and
public guidance and would prevent confusion and
misunderstanding.
We, therefore, declare that the house of mixed materials
levied upon on execution , although subject of a contract of
chattel mortgage between the owner and a third person, is
real property within the purview of Rule 39, section 16, of the
Rules of Court as it has become a permanent fixture of the
land, which, is real property. (42 Am. Jur. 199-200; Leung
Yee vs. Strong Machinery Co., 37 Phil., 644;
Republic vs. Ceniza, et al., 90 Phil., 544; Ladera,, et
al. vs. Hodges, et al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.)
The foregoing considerations apply, with equal force, to the
conditions for the levy of attachment, for it similarly affects
the public and third persons.
It is argued, however, that, even if the house in question were
immovable property, its attachment by Evangelista was void
or ineffective, because, in the language of the Court of
Appeals, "after presenting a Copy of the order of attachment
in the Office of the Register of Deeds, the person who might
then be in possession of the house, the sheriff took no pains to
serve Ricardo Rivera, or other copies thereof." This finding of
the Court of Appeals is neither conclusive upon us, nor
accurate.
The Record on Appeal, annexed to the petition for Certiorari,
shows that petitioner alleged, in paragraph 3 of the
complaint, that he acquired the house in question "as a
consequence of the levy of an attachment and execution of
the judgment in Civil Case No. 8235" of the Court of First
Instance of Manila. In his answer (paragraph 2), Ricardo
Rivera admitted said attachment execution of judgment. He
alleged, however, by way a of special defense, that the title of
respondent "is superior to that of plaintiff because it is based
on a public instrument," whereas Evangelista relied upon a
"promissory note" which "is only a private instrument"; that
said Public instrument in favor of respondent "is superior also
to the judgment in Civil Case No. 8235"; and that 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 an
inadequate consideration." Thus, Rivera impliedly admitted
that his house had been attached, that the house had been
sold to Evangelista in accordance with the requisite
formalities, and that said attachment was valid, although
allegedly inferior to the rights of respondent, and the
consideration for the sale to Evangelista was claimed to
be inadequate.
Respondent, in turn, denied the allegation in said paragraph 3
of the complaint, but only " for the reasons stated in its
special defenses" namely: (1) that by virtue of the sale at
public auction, and the final deed executed by the sheriff in
favor of respondent, the same became the "legitimate owner
of the house" in question; (2) that respondent "is a buyer in
good faith and for value"; (3) that respondent "took
possession and control of said house"; (4) that "there was no
valid attachment by the plaintiff and/or the Sheriff of Manila
of the property in question as neither took actual or
constructive possession or control of the property at any
time"; and (5) "that the alleged registration of plaintiff's
attachment, certificate of sale and final deed in the Office of
Register of Deeds, Manila, if there was any, is likewise, not
valid as there is no registry of transactions covering houses
erected on land belonging to or leased from another." In this
manner, respondent claimed a better right, merely under the
theory that, in case of double sale of immovable property, the
purchaser who first obtains possession in good faith, acquires
title, if the sale has not been "recorded . . . in the Registry of
Property" (Art. 1544, Civil Code of the Philippines), and that
the writ of attachment and the notice of attachment in favor
of Evangelista should be considered unregistered, "as there
is no registry of transactions covering houses erected on land
belonging to or leased from another." In fact, said article 1544
of the Civil Code of the Philippines, governing double sales,
was quoted on page 15 of the brief for respondent in the
Court of Appeals, in support of its fourth assignment of error
therein, to the effect that it "has preference or priority over
the sale of the same property" to Evangelista.
In other words, there was no issue on whether copy of the
writ and notice of attachment had been served on Rivera. No
evidence whatsoever, to the effect that Rivera had not been
served with copies of said writ and notice, was introduced in
the Court of First Instance. In its brief in the Court of
Appeals, respondent did not aver, or even, intimate, that no
such copies were served by the sheriff upon Rivera. Service
thereof on Rivera had been impliedly admitted by the
defendants, in their respective answers, and by their
behaviour throughout the proceedings in the Court of First
Instance, and, as regards respondent, in the Court of Appeals.
In fact, petitioner asserts in his brief herein (p. 26) that copies
of said writ and notice were delivered to Rivera,
simultaneously with copies of the complaint, upon service of
summons, prior to the filing of copies of said writ and notice
with the register deeds, and the truth of this assertion has not
been directly and positively challenged or denied in the brief
filed before us by respondent herein. The latter did not dare
therein to go beyond making a statement for the first time
in the course of these proceedings, begun almost five (5)
years ago (June 18, 1953) reproducing substantially the
aforementioned finding of the Court of Appeals and then
quoting the same.

Considering, therefore, that neither the pleadings, nor the

briefs in the Court of Appeals, raised an issue on whether or
not copies of the writ of attachment and notice of attachment
had been served upon Rivera; that the defendants had
impliedly admitted-in said pleadings and briefs, as well as by
their conduct during the entire proceedings, prior to the
rendition of the decision of the Court of Appeals that
Rivera had received copies of said documents; and that, for
this reason, evidently, no proof was introduced thereon, we,
are of the opinion, and so hold that the finding of the Court of
Appeals to the effect that said copies had not been served
upon Rivera is based upon a misapprehension of the specific
issues involved therein and goes beyond the range of such
issues, apart from being contrary to the aforementioned
admission by the parties, and that, accordingly, a grave abuse
of discretion was committed in making said finding, which is,
furthermore, inaccurate.

Wherefore, the decision of the Court of Appeals is hereby

reversed, and another one shall be entered affirming that of
the Court of First Instance of Manila, with the costs of this
instance against respondent, the Alto Surety and Insurance
Co., Inc. It is so ordered.

G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and
The "Compaia Agricola Filipina" bought a considerable
quantity of rice-cleaning machinery company from the
defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchase price. It
included in the mortgage deed the building of strong
materials in which the machinery was installed, without any
reference to the land on which it stood. The indebtedness
secured by this instrument not having been paid when it fell
due, the mortgaged property was sold by the sheriff, in
pursuance of the terms of the mortgage instrument, and was
bought in by the machinery company. The mortgage was
registered in the chattel mortgage registry, and the sale of the
property to the machinery company in satisfaction of the
mortgage was annotated in the same registry on December
29, 1913.
A few weeks thereafter, on or about the 14th of January,
1914, the "Compaia Agricola Filipina" executed a deed of
sale of the land upon which the building stood to the
machinery company, but this deed of sale, although executed
in a public document, was not registered. This deed makes no
reference to the building erected on the land and would
appear to have been executed for the purpose of curing any
defects which might be found to exist in the machinery
company's title to the building under the sheriff's certificate of
sale. The machinery company went into possession of the
building at or about the time when this sale took place, that is
to say, the month of December, 1913, and it has continued in
possession ever since.
At or about the time when the chattel mortgage was executed
in favor of the machinery company, the mortgagor, the
"Compaia Agricola Filipina" executed another mortgage to
the plaintiff upon the building, separate and apart from the
land on which it stood, to secure payment of the balance of
its indebtedness to the plaintiff under a contract for the
construction of the building. Upon the failure of the
mortgagor to pay the amount of the indebtedness secured by
the mortgage, the plaintiff secured judgment for that amount,
levied execution upon the building, bought it in at the sheriff's
sale on or about the 18th of December, 1914, and had the
sheriff's certificate of the sale duly registered in the land
registry of the Province of Cavite.
At the time when the execution was levied upon the building,
the defendant machinery company, which was in possession,
filed with the sheriff a sworn statement setting up its claim of
title and demanding the release of the property from the levy.
Thereafter, upon demand of the sheriff, the plaintiff executed
an indemnity bond in favor of the sheriff in the sum of
P12,000, in reliance upon which the sheriff sold the property
at public auction to the plaintiff, who was the highest bidder
at the sheriff's sale.
This action was instituted by the plaintiff to recover
possession of the building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the
Civil Code, gave judgment in favor of the machinery
company, on the ground that the company had its title to
the building registered prior to the date of registry of the
plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees,
the ownership shall be transfer to the person who may have
the first taken possession thereof in good faith, if it should be
personal property.
Should it be real property, it shall belong to the person
acquiring it who first recorded it in the registry.
Should there be no entry, the property shall belong to the
person who first took possession of it in good faith, and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith.
The registry here referred to is of course the registry of real
property, and it must be apparent that 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. By its express
terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole
purpose and object of the chattel mortgage registry is to
provide for the registry of "Chattel mortgages," that is to say,
mortgages of personal property executed in the manner and
form prescribed in the statute. The building of strong
materials in which the rice-cleaning machinery was installed
by the "Compaia Agricola Filipina" was real property, and
the mere fact that the parties seem to have dealt with it
separate and apart from the land on which it stood in no
wise changed its character as real property. It follows that
neither the original registry in the chattel mortgage of the
building and the machinery installed therein, not the
annotation in that registry of the sale of the mortgaged
property, had any effect whatever so far as the building was
concerned.
We conclude that the ruling in favor of the machinery
company cannot be sustained on the ground assigned by the
trial judge. We are of opinion, however, that the judgment
must be sustained on the ground that the agreed statement
of facts in the court below discloses that neither the
purchase of the building by the plaintiff nor his inscription of
the sheriff's certificate of sale in his favor was made in good
faith, and that the machinery company must be held to be
the owner of the property under the third paragraph of the
above cited article of the code, it appearing that the
company first took possession of the property; and further,
that the building and the land were sold to the machinery
company long prior to the date of the sheriff's sale to the
plaintiff.
It has been suggested that since the provisions of article 1473
of the Civil Code require "good faith," in express terms, in
relation to "possession" and "title," but contain no express
requirement as to "good faith" in relation to the "inscription"
of the property on the registry, it must be presumed that
good faith is not an essential requisite of registration in order
that it may have the effect contemplated in this article. We
cannot agree with this contention. It could not have been the
intention of the legislator to base the preferential right
secured under this article of the code upon an inscription of
title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud
and collusion. The public records cannot be converted into
instruments of fraud and oppression by one who secures an
inscription therein in bad faith. The force and effect given by
law to an inscription in a public record presupposes the good
faith of him who enters such inscription; and rights created by
statute, which are predicated upon an inscription in a public
registry, do not and cannot accrue under an inscription "in
bad faith," to the benefit of the person who thus makes the
inscription.
Construing the second paragraph of this article of the code,
the supreme court of Spain held in its sentencia of the 13th of
May, 1908, that:
This rule is always to be understood on the basis of the good
faith mentioned in the first paragraph; therefore, it having
been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is
to be decided in accordance with the following paragraph.
(Note 2, art. 1473, Civ. Code, Medina and Maranon [1911]
edition.)
Although article 1473, in its second paragraph, provides that
the title of conveyance of ownership of the real property that
is first recorded in the registry shall have preference, this
provision must always be understood on the basis of the good
faith mentioned in the first paragraph; the legislator could not
have wished to strike it out and to sanction bad faith, just to
comply with a mere formality which, in given cases, does not
obtain even in real disputes between third persons. (Note 2,
art. 1473, Civ. Code, issued by the publishers of the La Revista
de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the
plaintiff, when he bought the building at the sheriff's sale and
inscribed his title in the land registry, was duly notified that
the machinery company had bought the building from
plaintiff's judgment debtor; that it had gone into possession
long prior to the sheriff's sale; and that it was in possession at
the time when the sheriff executed his levy. The execution of
an indemnity bond by the plaintiff in favor of the sheriff, after
the machinery company had filed its sworn claim of
ownership, leaves no room for doubt in this regard. Having
bought in the building at the sheriff's sale with full knowledge
that at the time of the levy and sale the building had already
been sold to the machinery company by the judgment debtor,
the plaintiff cannot be said to have been a purchaser in good
faith; and of course, the subsequent inscription of the sheriff's
certificate of title must be held to have been tainted with the
same defect.
Perhaps we should make it clear that in holding that the
inscription of the sheriff's certificate of sale to the plaintiff
was not made in good faith, we should not be understood as
questioning, in any way, the good faith and genuineness of
the plaintiff's claim against the "Compaia Agricola Filipina."
The truth is that both the plaintiff and the defendant
company appear to have had just and righteous claims against
their common debtor. No criticism can properly be made of
the exercise of the utmost diligence by the plaintiff in
asserting and exercising his right to recover the amount of his
claim from the estate of the common debtor. We are strongly
inclined to believe that in procuring the levy of execution
upon the factory building and in buying it at the sheriff's sale,
he considered that he was doing no more than he had a right
to do under all the circumstances, and it is highly possible and
even probable that he thought at that time that he would be
able to maintain his position in a contest with the machinery
company. There was no collusion on his part with the
common debtor, and no thought of the perpetration of a
fraud upon the rights of another, in the ordinary sense of the
word. He may have hoped, and doubtless he did hope, that
the title of the machinery company would not stand the test
of an action in a court of law; and if later developments had
confirmed his unfounded hopes, no one could question the
legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery
company's claim of ownership when he executed the
indemnity bond and bought in the property at the sheriff's
sale, and it appearing further that the machinery company's
claim of ownership was well founded, he cannot be said to
have been an innocent purchaser for value. He took the risk
and must stand by the consequences; and it is in this sense
that we find that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or
lack of title in his vendor cannot claim that he has acquired
title thereto in good faith as against the true owner of the
land or of an interest therein; and the same rule must be
applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his
vendor. A purchaser cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim
that he acted in good faith under the belief that there was no
defect in the title of the vendor. His mere refusal to believe
that such defect exists, or his willful closing of his eyes to the
possibility of the existence of a defect in his vendor's title, will
not make him an innocent purchaser for value, if afterwards
develops that the title was in fact defective, and it appears
that he had such notice of the defects as would have led to its
discovery had he acted with that measure of precaution
which may reasonably be acquired of a prudent man in a like
situation. Good faith, or lack of it, is in its analysis a question
of intention; but in ascertaining the intention by which one is
actuated on a given occasion, we are necessarily controlled by
the evidence as to the conduct and outward acts by which
alone the inward motive may, with safety, be determined. So
it is that "the honesty of intention," "the honest lawful
intent," which constitutes good faith implies a "freedom from
knowledge and circumstances which ought to put a person on
inquiry," and so it is that proof of such knowledge overcomes
the presumption of good faith in which the courts always
indulge in the absence of proof to the contrary. "Good faith,
or the want of it, is not a visible, tangible fact that can be seen
or touched, but rather a state or condition of mind which can
only be judged of by actual or fancied tokens or signs."
(Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros.
Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the
disposing part of the decision and judgment entered in the
court below should be affirmed with costs of this instance
against the appellant. So ordered.
G.R. No. L-16218 November 29, 1962

ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO

BICERRA, CAYETANO BICERRA, LINDA BICERRA, PIO BICERRA
and EUFRICINA BICERRA, plaintiffs-appellants,
vs.
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-
appellees.

MAKALINTAL, J.:

This case is before us on appeal from the order of the Court of

First Instance of Abra dismissing the complaint filed by
appellants, upon motion of defendants-appellate on the
ground that the action was within the exclude (original)
jurisdiction of the Justice of the Peace Court of Lagangilang,
of the same province.

The complaint alleges in substance that appellants were the

owners of the house, worth P200.00, built on and owned by
them and situated in the said municipality Lagangilang; that
sometime in January 1957 appealed forcibly demolished the
house, claiming to be the owners thereof; that the materials
of the house, after it was dismantled, were placed in the
custody of the barrio lieutenant of the place; and that as a
result of appellate's refusal to restore the house or to deliver
the material appellants the latter have suffered actual
damages the amount of P200.00, plus moral and
consequential damages in the amount of P600.00. The relief
prayed for is that "the plaintiffs be declared the owners of the
house in question and/or the materials that resulted in (sic)
its dismantling; (and) that the defendants be orders pay the
sum of P200.00, plus P600.00 as damages, the costs."

The issue posed by the parties in this appeal is whether the

action involves title to real property, as appellants contend,
and therefore is cognizable by the Court of First Instance (Sec.
44, par. [b], R.A. 296, as amended), whether it pertains to the
jurisdiction of the Justice of the Peace Court, as stated in the
order appealed from, since there is no real property litigated,
the house having ceased to exist, and the amount of the
demand does exceed P2,000.00 (Sec. 88, id.)1

The dismissal of the complaint was proper. A house is

classified as immovable property by reason of its adherence
to the soil on which it is built (Art. 415, par. 1, Civil Code). This
classification holds true regardless of the fact that the house
may be situated on land belonging to a different owner. But
once the house is demolished, as in this case, it ceases to
exist as such and hence its character as an immovable
likewise ceases. It should be noted that the complaint here is
for recovery of damages. This is the only positive relief prayed
for by appellants. To be sure, they also asked that they be
declared owners of the dismantled house and/or of the
materials. However, such declaration in no wise constitutes
the relief itself which if granted by final judgment could be
enforceable by execution, but is only incidental to the real
cause of action to recover damages.

The order appealed from is affirmed. The appeal having been

admitted in forma pauperis, no costs are adjudged.