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

MINDANAO BUS COMPANY vs. THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro
City,

LABRADOR, J.:

This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710 holding that the
petitioner Mindanao Bus Company is liable to the payment of the realty tax on its maintenance and repair equipment
hereunder referred to. Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-
mentioned equipment.

Petitioner appealed the assessment to the respondent Board of Tax Appeals on the ground that the same are not realty.
The Board of Tax Appeals of the City sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals
a petition for the review of the assessment.

In the Court of Tax Appeals the parties submitted the following stipulation of facts:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent City Assessor's power to assess
and levy real estate taxes on machineries is further restricted by section 31, paragraph (c) of Republic Act No. 521; and

4. The Tax Court erred in denying petitioner's motion for reconsideration. Respondents contend that said equipments,
tho movable, are immobilized by destination, in accordance with paragraph 5 of Article 415 of the New Civil Code which
provides:
Art. 415. — The following are immovable properties:

xxxxxxxxx

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

Note that the stipulation expressly states that the equipment are placed on wooden or cement platforms. They can be
moved around and about in petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the
Supreme Court said: Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real property to
"machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which are expressly adapted to meet the
requirements of such trade or industry." If the installation of the machinery and equipment in question in the central of
the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry, converted
them into real property by reason of their purpose, it cannot be said that their incorporation therewith was not
permanent in character because, as essential and principle elements of a sugar central, without them the sugar central
would be unable to function or carry on the industrial purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment installed for carrying on the sugar industry for which it
has been established must necessarily be permanent. (Emphasis ours.)

So that movable equipments to be immobilized in contemplation of the law must first be "essential and principal
elements" of an industry or works without which such industry or works would be "unable to function or carry on the
industrial purpose for which it was established." We may here distinguish, therefore, those movable which become
immobilized by destination because they are essential and principal elements in the industry for those which may not be
so considered immobilized because they are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentals and are not and
should not be considered immobilized by destination, for these businesses can continue or carry on their functions
without these equity comments. Airline companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc.
which are incidentals, not essentials, and thus retain their movable nature. On the other hand, machineries of breweries
used in the manufacture of liquor and soft drinks, though movable in nature, are immobilized because they are essential
to said industries; but the delivery trucks and adding machines which they usually own and use and are found within
their industrial compounds are merely incidental and retain their movablenature.

Similarly, the tools and equipments in question in this instant case are, by their nature, not essential and principle
municipal elements of petitioner's business of transporting passengers and cargoes by motor trucks. They are merely
incidentals — acquired as movables and used only for expediency to facilitate and/or improve its service. Even without
such tools and equipments, its business may be carried on, as petitioner has carried on, without such equipments,
before the war. The transportation business could be carried on without the repair or service shop if its rolling
equipment is repaired or serviced in another shop belonging to another.

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

Art. 415. The following are immovable property:

xxxxxxxxx

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

Aside from the element of essentiality the above-quoted provision also requires that the industry or works be carried on
in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the "machinery, liquid
containers, and instruments or implements" are found in a building constructed on the land. A sawmill would also be
installed in a building on land more or less permanently, and the sawing is conducted in the land or building. But in the
case at bar the equipments in question are destined only to repair or service the transportation business, which is not
carried on in a building or permanently on a piece of land, as demanded by the law. Said equipments may not, therefore,
be deemed real property. Resuming what we have set forth above, we hold that the equipments in question are not
absolutely essential to the petitioner's transportation business, and petitioner's business is not carried on in a building,
tenement or on a specified land, so said equipment may not be considered real estate within the meaning of Article 415
(c) of the Civil Code.

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

So ordered.
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G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION vs. WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF
APPEALS
DE CASTRO, J.:

Petition for review on certiorari

It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance
Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned several receivables with
the former under a Receivable Purchase Agreement. To secure the collection of the receivables assigned, private
respondent executed a Chattel Mortgage over certain raw materials inventory as well as a machinery described as
an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to
it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's
premises and was not able to effect the seizure of the aforedescribed machinery. Petitioner thereafter filed a
complaint for judicial foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No.
36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of which was
however subsequently restrained upon private respondent's filing of a motion for reconsideration. After several
incidents, the lower court finally issued on February 11, 1981, an order lifting the restraining order for the
enforcement of the writ of seizure and an order to break open the premises of private respondent to enforce said
writ. The lower court reaffirmed its stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private respondent and
removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private respondent, set
aside the Orders of the lower court and ordered the return of the drive motor seized by the sheriff pursuant to said
Orders, after ruling that the machinery in suit cannot be the subject of replevin, much less of a chattel mortgage,
because it is a real property pursuant to Article 415 of the new Civil Code, the same being attached to the ground by
means of bolts and the only way to remove it from respondent's plant would be to drill out or destroy the concrete
floor, the reason why all that the sheriff could do to enfore the writ was to take the main drive motor of said
machinery. The appellate court rejected petitioner's argument that private respondent is estopped from claiming that
the machine is real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has brought the
case to this Court for review by writ of certiorari. It is contended by private respondent, however, that the instant
petition was rendered moot and academic by petitioner's act of returning the subject motor drive of respondent's
machinery after the Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner returned the subject motor drive, it made itself
unequivocably clear that said action was without prejudice to a motion for reconsideration of the Court of Appeals
decision, as shown by the receipt duly signed by respondent's representative. 1

Considering that petitioner has

reserved its right to question the propriety of the Court of Appeals' decision, the contention of private respondent
that this petition has been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is whether the machinery in suit is real or
personal property from the point of view of the parties, with petitioner arguing that it is a personality, while the
respondent claiming the contrary, and was sustained by the appellate court, which accordingly held that the chattel
mortgage constituted thereon is null and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court, speaking through
Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personal property, yet by
ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only
have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject
house stood on a rented lot to which defendants-appellants merely had a temporary right as lessee,
and although this can not in itself alone determine the status of the property, it does so when combined
with other factors to sustain the interpretation that the parties, particularly the mortgagors, intended to
treat the house as personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre,
Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the validity of
the chattel mortgage, it is the defendants-appellants themselves, as debtors-mortgagors, who are
attacking the validity of the chattel mortgage in this case. The doctrine of estoppel therefore applies to
the herein defendants-appellants, having treated the subject house as personality.

Examining the records of the instant case, We find no logical justification to exclude the rule out, as the appellate
court did, the present case from the application of the abovequoted pronouncement. If a house of strong materials,
like what was involved in the above Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will
be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as such. This is really because one who has
so agreed is estopped from denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays stress on the
fact that the house involved therein was built on a land that did not belong to the owner of such house. But the law
makes no distinction with respect to the ownership of the land on which the house is built and We should not lay
down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is
indicative of intention and impresses upon the property the character determined by the parties. As stated in
Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be real property, as long as no interest of third
parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that
the machinery in suit be considered as personal property but was merely required and dictated on by herein
petitioner to sign a printed form of chattel mortgage which was in a blank form at the time of signing. This contention
lacks persuasiveness. As aptly pointed out by petitioner and not denied by the respondent, the status of the subject
machinery as movable or immovable was never placed in issue before the lower court and the Court of Appeals
except in a supplemental memorandum in support of the petition filed in the appellate court. Moreover, even
granting that the charge is true, such fact alone does not render a contract void ab initio, but can only be a ground
for rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action
in court. There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that steps
were taken to nullify the same. On the other hand, as pointed out by petitioner and again not refuted by respondent,
the latter has indubitably benefited from said contract. Equity dictates that one should not benefit at the expense of
another. Private respondent could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after
it has benefited therefrom,
From what has been said above, the error of the appellate court in ruling that the questioned machinery is real, not
personal property, becomes very apparent. Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA,
96 Phil. 70, heavily relied upon by said court is not applicable to the case at bar, the nature of the machinery and
equipment involved therein as real properties never having been disputed nor in issue, and they were not the
subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case
to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set aside,
and the Orders of the lower court are hereby reinstated, with costs against the private respondent.
SO ORDERED.