Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
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. 2931).
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., L10837-38, 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.
Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 169211
March 6, 2013
STAR TWO (SPV-AMC), INC.,1 Petitioner,
vs.
PAPER CITY CORPORATION OF THE
PHILIPPINES, Respondent.
DECISION
PEREZ, J.:
For review before this Court is a Petition for Review on
Certiorari filed by Rizal Commercial Banking Corporation
now substituted by Star Two (SPV-AMC), Inc. by virtue of
Republic Act No. 91822 otherwise known as the "Special
Purpose Vehicle Act of 2002," assailing the 8 March 2005
Decision and 8 August 2005 Resolution of the Special Fourth
Division of the Court of Appeals (CA) in CA-G.R. SP No.
82022 upholding the 15 August 2003 and 1 December 2003
Orders of the Valenzuela Regional Trial Court (RTC) ruling
that the subject machineries and equipments of Paper City
Corporation (Paper City) are movable properties by agreement
of the parties and cannot be considered as included in the
extrajudicial foreclosure sale of the mortgaged land and
building of Paper City.3
The facts as we gathered from the records are:
Rizal
Commercial
Banking
Corporation
(RCBC),
Metropolitan Bank and Trust Co. (Metrobank) and Union
Bank of the Philippines (Union Bank) are banking
corporations duly organized and existing under the laws of the
Philippines.
On the other hand, respondent Paper City is a domestic
corporation engaged in the manufacture of paper products
particularly cartons, newsprint and clay-coated paper.4
From 1990-1991, Paper City applied for and was granted the
following loans and credit accommodations in peso and dollar
denominations by RCBC: P10,000,000.00 on 8 January
1990,5 P14,000,000.00 on 19 July 1990,6P10,000,000.00 on 28
June 1991,7 and P16,615,000.00 on 28 November 1991.8 The
loans were secured by four (4) Deeds of Continuing Chattel
Mortgages on its machineries and equipments found inside its
paper plants.
On 25 August 1992, a unilateral Cancellation of Deed of
Continuing
Chattel
Mortgage
on
Inventory
of
Merchandise/Stocks-in-Trade was executed by RCBC through
its Branch Operation Head Joey P. Singh and Asst. Vice
President Anita O. Abad over the merchandise and stocks-intrade covered by the continuing chattel mortgages.9
On 26 August 1992, RCBC, Metrobank and Union Bank
(creditor banks with RCBC instituted as the trustee bank)
entered into a Mortgage Trust Indenture (MTI) with Paper
City. In the said MTI, Paper City acquired an additional loan
of One Hundred Seventy Million Pesos (P170,000,000.00)
from the creditor banks in addition to the previous loan from

RCBC amounting to P110,000,000.00 thereby increasing the

entire loan to a total of P280,000,000.00. The old loan
of P110,000,000.00 was partly secured by various parcels of
land covered by TCT Nos. T-157743, V-13515, V-1184, V1485, V-13518 and V-13516 situated in Valenzuela City
pursuant to five (5) Deeds of Real Estate Mortgage dated 8
January 1990, 27 February 1990, 19 July 1990, 20 February
1992 and 12 March 1992.10 The new loan obligation
of P170,000,000.00 would be secured by the same five (5)
Deeds of Real Estate Mortgage and additional real and
personal properties described in an annex to MTI, Annex
"B."11 Annex "B" of the said MTI covered the machineries and
equipments of Paper City.12
The MTI was later amended on 20 November 1992 to increase
the contributions of the RCBC and Union Bank
toP80,000,000.00 and P70,000,000.00, respectively. As a
consequence, they executed a Deed of Amendment to
MTI13 but still included as part of the mortgaged properties by
way of a first mortgage the various machineries and
equipments located in and bolted to and/or forming part of
buildings generally described as:
Annex "A"
A. Office Building
Building 1, 2, 3, 4, and 5
Boiler House
Workers Quarter/Restroom
Canteen
Guardhouse, Parking Shed, Elevated Guard
Post and other amenities
B. Pollution Tank Nos. 1 and 2.
Reserve Water Tank and Swimming Pool
Waste Water Treatment Tank
Elevated Concrete Water Tank
And other Improvements listed in Annex "A"
C. Power Plants Nos. 1 and 2
Fabrication Building
Various Fuel, Water Tanks and Pumps
Transformers
Annex "B"
D. D. Material Handling Equipment
Paper Plant No. 3
A Second Supplemental Indenture to the 26 August 1992 MTI
was executed on 7 June 1994 to increase the amount of the
loan from P280,000,000.00 to P408,900,000.00 secured
against the existing properties composed of land, building,
machineries and equipments and inventories described in
Annexes "A" and "B."14
Finally, a Third Supplemental Indenture to the 26 August 1992
MTI was executed on 24 January 1995 to increase the existing
loan obligation of P408,900,000.00 to P555,000,000.00 with
an additional security composed of a newly constructed twostorey building and other improvements, machineries and
equipments located in the existing plant site.15

Paper City was able to comply with its loan obligations until
July 1997. But economic crisis ensued which made it difficult
for Paper City to meet the terms of its obligations leading to
payment defaults.16 Consequently, RCBC filed a Petition for
Extrajudicial Foreclosure Under Act No. 3135 Against the
Real Estate Mortgage executed by Paper City on 21 October
1998.17 This petition was for the extra-judicial foreclosure of
eight (8) parcels of land including all improvements thereon
enumerated as TCT Nos. V-9763, V-13515, V-13516, V13518, V-1484, V-1485, V-6662 and V-6663 included in the
MTI dated 26 August 1992, Supplemental
MTI dated 20 November 1992, Second Supplemental
Indenture on the MTI dated 7 June 1994 and Third
Supplemental Indenture on the MTI dated 24 January
1995.18 Paper City then had an outstanding obligation with the
creditor banks adding up to Nine Hundred One Million Eight
Hundred One Thousand Four Hundred Eighty-Four and
10/100 Pesos (P901,801,484.10), inclusive of interest and
penalty charges.19
A Certificate of Sale was executed on 8 February 1999
certifying that the eight (8) parcels of land with improvements
thereon were sold on 27 November 1998 in the amount of
Seven Hundred Two Million Three Hundred Fifty-One
Thousand Seven Hundred Ninety-Six Pesos and 28/100
(P702,351,796.28) in favor of the creditor banks RCBC,
Union Bank and Metrobank as the highest bidders.20
This foreclosure sale prompted Paper City to file a
Complaint21 docketed as Civil Case No. 164-V-99 on 15 June
1999 against the creditor banks alleging that the extra-judicial
sale of the properties and plants was null and void due to lack
of prior notice and attendance of gross and evident bad faith
on the part of the creditor banks. In the alternative, it prayed
that in case the sale is declared valid, to render the whole
obligation of Paper City as fully paid and extinguished. Also
prayed for was the return of P5,000,000.00 as excessive
penalty and the payment of damages and attorneys fees.
In the meantime, Paper City and Union Bank entered into a
Compromise Agreement which was later approved by the trial
court on 19 November 2001. It was agreed that the share of
Union Bank in the proceeds of the foreclosure shall be up to
34.23% of the price and the remaining possible liabilities of
Paper City shall be condoned by the bank. Paper City likewise
waived all its claim and counter charges against Union Bank
and agreed to turn-over its proportionate share over the
property within 120 days from the date of agreement.22
On the other hand, the negotiations between the other creditor
banks and Paper City remained pending. During the interim,
Paper City filed with the trial court a Manifestation with
Motion to Remove and/or Dispose Machinery on 18
December 2002 reasoning that the machineries located inside
the foreclosed land and building were deteriorating. It posited
that since the machineries were not included in the foreclosure
of the real estate mortgage, it is appropriate that it be removed
from the building and sold to a third party.23

Acting on the said motion, the trial court, on 28 February 2003

issued an Order denying the prayer and ruled that the
machineries and equipments were included in the annexes and
form part of the MTI dated 26 August 1992 as well as its
subsequent amendments. Further, the machineries and
equipments are covered by the Certificate of Sale issued as a
consequence of foreclosure, the certificate stating that the
properties described therein with improvements thereon were
sold to creditor banks to the defendants at public auction.24
Paper City filed its Motion for Reconsideration 25 on 4 April
2003 which was favorably granted by the trial court in its
Order dated 15 August 2003. The court justified the reversal of
its order on the finding that the disputed machineries and
equipments are chattels by agreement of the parties through
their inclusion in the four (4) Deeds of Chattel Mortgage dated
28 January 1990, 19 July 1990, 28 June 1991 and 28
November 1991. It further ruled that the deed of cancellation
executed by RCBC on 25 August 1992 was not valid because
it was done unilaterally and without the consent of Paper City
and the cancellation only refers to the merchandise/stocks-intrade and not to machineries and equipments.26
RCBC in turn filed its Motion for Reconsideration to persuade
the court to reverse its 15 August 2003 Order. However, the
same was denied by the trial court through its 1 December
2003 Order reiterating the finding and conclusion of the
previous Order.27
Aggrieved, RCBC filed with the CA a Petition for Certiorari
under Rule 65 to annul the Orders dated 15 August 2003 and 1
December 2003 of the trial court,28 for the reasons that:
I. Paper City gave its conformity to consider the subject
machineries and equipment as real properties when the
president and Executive Vice President of Paper City signed
the Mortgage Trust Indenture as well as its subsequent
amendments and all pages of the annexes thereto which
itemized all properties that were mortgaged.29
II. Under Section 8 of Act No. 1508, otherwise known as "The
Chattel Mortgage Law" the consent of the mortgagor (Paper
City) is not required in order to cancel a chattel mortgage.
Thus the "Cancellation of Deed of Continuing Chattel
Mortgage on Inventory of Merchandise/Stocks-in-Trade"
dated August 25, 1992 is valid and binding on the Paper City
even assuming that it was executed unilaterally by petitioner
RCBC.30
III. The four (4) Deeds of Chattel Mortgage that were attached
as Annexes "A" to "D" to the December 18, 2003
"Manifestation with Motion to Remove and/or Dispose of
Machinery" were executed from January 8, 1990 until
November 28, 1991. On the other hand, the "Cancellation of
Deed of Continuing Chattel Mortgage" was executed on
August 25, 1992 while the MTI and the subsequent
supplemental amendments thereto were executed from August
26, 1992 until January 24, 1995. It is of the contention of
RCBC that Paper Citys unreasonable delay of ten

(10) years in assailing that the disputed machineries and

equipments were personal amounted to estoppel and
ratification of the characterization that the same were real
properties.31
IV. The removal of the subject machineries or equipment is
not among the reliefs prayed for by the Paper City in its June
11, 1999 Complaint. The Paper City sought the removal of the
subject machineries and equipment only when it filed its
December 18, 2002 Manifestation with Motion to Remove
and/or Dispose of Machinery.32
V. Paper City did not specify in its various motions filed with
the respondent judge the subject machineries and equipment
that are allegedly excluded from the extrajudicial foreclosure
sale.33
VI. The machineries and equipments mentioned in the four (4)
Deeds of Chattel Mortgage that were attached on the
Manifestation with Motion to Remove and/or Dispose of
Machinery are the same machineries and equipments included
in the MTI and supplemental amendments, hence, are treated
by agreement of the parties as real properties.34
In its Comment,35 Paper City refuted the claim of RCBC that it
gave its consent to consider the machineries and equipments
as real properties. It alleged that the disputed properties
remained within the purview of the existing chattel mortgages
which in fact were acknowledged by RCBC in the MTI
particularly in Section 11.07 which reads:
Section 11.07. This INDENTURE in respect of the
MORTGAGE OBLIGATIONS in the additional amount not
exceeding TWO HUNDRED TWENTY MILLION SIX
HUNDRED
FIFTEEN
THOUSAND
PESOS
(P220,615,000.00) shall be registered with the Register of
Deeds of Valenzuela, Metro Manila, apportioned based on the
corresponding loanable value of the MORTGAGED
PROPERTIES, viz:
a. Real Estate Mortgage P206,815,000.00
b. Chattel Mortgage P13,800,000.0036
Paper City argued further that the subject machineries and
equipments were not included in the foreclosure of the
mortgage on real properties particularly the eight (8) parcels of
land. Further, the Certificate of Sale of the Foreclosed
Property referred only to "lands and improvements" without
any specification and made no mention of the inclusion of the
subject properties.37
In its Reply,38 RCBC admitted that there was indeed a
provision in the MTI mentioning a chattel mortgage in the
amount of P13,800,000.00. However, it justified that its
inclusion in the MTI was merely for the purpose of
ascertaining the amount of the loan to be extended to Paper
City.39 It reiterated its position that the machineries and
equipments were no longer treated as chattels but already as
real properties following the MTI.40
On 8 March 2005, the CA affirmed41 the challenged orders of
the trial court. The dispositive portion reads:

WHEREFORE, finding no grave abuse of discretion

committed by public respondent, the instant petition is hereby
DISMISSED for lack of merit. The assailed Orders dated 15
August and 2 December 2003, issued by Hon. Judge Floro P.
Alejo are hereby AFFIRMED. No costs at this instance.42
The CA relied on the "plain language of the MTIs:
Undoubtedly, nowhere from any of the MTIs executed by the
parties can we find the alleged "express" agreement adverted
to by petitioner. There is no provision in any of the parties
MTI, which expressly states to the effect that the parties shall
treat the equipments and machineries as real property. On the
contrary, the plain and unambiguous language of the
aforecited MTIs, which described the same as personal
properties, contradicts petitioners claims.43
It was also ruled that the subject machineries and equipments
were not included in the extrajudicial foreclosure sale. The
claim of inclusion was contradicted by the very caption of the
petition itself, "Petition for Extra-Judicial Foreclosure of Real
Estate Mortgage Under Act No. 3135 As Amended." It opined
further that this inclusion was further stressed in the
Certificate of Sale which enumerated only the mortgaged real
properties bought by RCBC without the subject properties. 44
RCBC sought reconsideration but its motion was denied in the
CAs Resolution dated 8 August 2005.
RCBC before this Court reiterated all the issues presented
before the appellate court:
1. Whether the unreasonable delay of ten (10) years in
assailing that the disputed machineries and equipments were
personal properties amounted to estoppel on the part of Paper
City;
2. Whether the Cancellation of Deed of Continuing Mortgage
dated 25 August 1992 is valid despite the fact that it was
executed without the consent of the mortgagor Paper City;
3. Whether the subsequent contracts of the parties such as
Mortgage Trust Indenture dated 26 August 1992 as well as the
subsequent supplementary amendments dated 20 November
1992, 7 June 1992, and 24 January 1995 included in its
coverage of mortgaged properties the subject machineries and
equipment; and
4. Whether the subject machineries and equipments were
included in the extrajudicial foreclosure dated 21 October
1998 which in turn were sold to the creditor banks as
evidenced by the Certificate of Sale dated 8 February 1999.
We grant the petition.
By contracts, all uncontested in this case, machineries and
equipments are included in the mortgage in favor of RCBC, in
the foreclosure of the mortgage and in the consequent sale on
foreclosure also in favor of petitioner.
The mortgage contracts are the original MTI of 26 August
1992 and its amendments and supplements on 20 November
1992, 7 June 1994, and 24 January 1995. The clear agreements
between RCBC and Paper City follow:
The original MTI dated 26 August 1992 states that:
MORTGAGE TRUST INDENTURE

This MORTGAGE TRUST INDENTURE, executed on this

day of August 26, 1992, by and between:
PAPER CITY CORPORATION OF THE PHILIPPINES, x x x
hereinafter referred to as the "MORTGAGOR");
-andRIZAL COMMERCIAL BANKING CORPORATION, x x x
(hereinafter referred to as the "TRUSTEE").
xxxx
WHEREAS, against the same mortgaged properties and
additional real and personal properties more particularly
described in ANNEX "B" hereof, the MORTGAGOR desires
to increase their borrowings to TWO HUNDRED EIGHTY
MILLION PESOS (P280,000,000.00) or an increase of ONE
HUNDRED SEVENTY MILLION PESOS (P170,000,000.00)
xxx from various banks/financial institutions;
xxxx
GRANTING CLAUSE
NOW, THEREFORE, this INDENTURE witnesseth:
THAT the MORTGAGOR in consideration of the premises
and of the acceptance by the TRUSTEE of the trust hereby
created, and in order to secure the payment of the
MORTGAGE OBLIGATIONS which shall be incurred by the
MORTGAGOR pursuant to the terms hereof xxx hereby states
that with the execution of this INDENTURE it will assign,
transfer and convey as it has hereby ASSIGNED,
TRANSFERRED and CONVEYED by way of a registered
first mortgage unto RCBC x x x the various parcels of land
covered by several Transfer Certificates of Title issued by the
Registry of Deeds, including the buildings and existing
improvements thereon, as well as of the machinery and
equipment more particularly described and listed that is to say,
the real and personal properties listed in Annexes "A" and "B"
hereof of which the MORTGAGOR is the lawful and
registered owner.45(Emphasis and underlining ours)
The Deed of Amendment to MTI dated 20 November 1992
expressly provides:
NOW, THEREFORE, premises considered, the parties
considered have amended and by these presents do further
amend the Mortgage Trust Indenture dated August 26, 1992
including the Real Estate Mortgage as follows:
xxxx
2. The Mortgage Trust Indenture and the Real Estate Mortgage
are hereby amended to include as part of the Mortgage
Properties, by way of a first mortgage and for pari-passu and
pro-rata benefit of the existing and new creditors, various
machineries and equipment owned by the Paper City, located
in and bolted to and forming part of the following, generally
describes as x x x more particularly described and listed in
Annexes "A" and "B" which are attached and made integral
parts of this Amendment. The machineries and equipment
listed in Annexes "A" and "B" form part of the improvements
listed above and located on the parcels of land subject of the
Mortgage Trust Indenture and the Real Estate
Mortgage.46 (Emphasis and underlining ours)

A Second Supplemental Indenture to the 26 August 1992 MTI

executed on 7 June 1994 to increase the amount of loan
from P280,000,000.00 to P408,900,000.00 also contains a
similar provision in this regard:
WHEREAS, the Paper City desires to increase its borrowings
to be secured by the INDENTURE from PESOS: TWO
HUNDRED EIGHTY MILLION (P280,000,000.00) to
PESOS: FOUR HUNDRED EIGHT MILLION NINE
HUNDRED THOUSAND (P408,900,000.00) or an increase
of PESOS: ONE HUNDRED TWENTY EIGHT MILLION
NINE HUNDRED THOUSAND (P128,900,000.00) x x x
which represents additional loan/s granted to the Paper City to
be secured against the existing properties composed of land,
building, machineries and equipment and inventories more
particularly described in Annexes "A" and "B" of the
INDENTURE x x x.47
(Emphasis and underlining ours)
Finally, a Third Supplemental Indenture to the 26 August 1992
MTI executed on 24 January 1995 contains a similar
provision:
WHEREAS, in order to secure NEW/ADDITIONAL LOAN
OBLIGATION under the Indenture, there shall be added to the
collateral pool subject of the Indenture properties of the Paper
City composed of newly constructed two (2)-storey building,
other land improvements and machinery and equipment all of
which are located at the existing Plant Site in Valenzuela,
Metro Manila and more particularly described in Annex "A"
hereof x x x.48 (Emphasis and underlining ours)
Repeatedly, the parties stipulated that the properties
mortgaged by Paper City to RCBC are various parcels of land
including the buildings and existing improvements thereon as
well as the machineries and equipments, which as stated in the
granting clause of the original mortgage, are "more
particularly described and listed that is to say, the real and
personal properties listed in Annexes A and B x x x of
which the Paper City is the lawful and registered owner."
Significantly, Annexes "A" and "B" are itemized listings of the
buildings, machineries and equipments typed single spaced in
twenty-seven pages of the document made part of the records.
As held in Gateway Electronics Corp. v. Land Bank of the
Philippines,49 the rule in this jurisdiction is that the contracting
parties may establish any agreement, term, and condition they
may deem advisable, provided they are not contrary to law,
morals or public policy. The right to enter into lawful contracts
constitutes one of the liberties guaranteed by the Constitution.
It has been explained by the Supreme Court in Norton
Resources and Development Corporation v. All Asia Bank
Corporation50 in reiteration of the ruling in Benguet
Corporation v. Cabildo51 that:
x x x A court's purpose in examining a contract is to interpret
the intent of the contracting parties, as objectively manifested
by them. The process of interpreting a contract requires the
court to make a preliminary inquiry as to whether the contract
before it is ambiguous. A contract provision is ambiguous if it

is susceptible of two reasonable alternative interpretations.

Where the written terms of the contract are not ambiguous and
can only be read one way, the court will interpret the contract
as a matter of law. x x x
Then till now the pronouncement has been that if the language
used is as clear as day and readily understandable by any
ordinary reader, there is no need for construction.52
The case at bar is covered by the rule.
The plain language and literal interpretation of the MTIs must
be applied. The petitioner, other creditor banks and Paper City
intended from the very first execution of the indentures that
the machineries and equipments enumerated in Annexes "A"
and "B" are included. Obviously, with the continued increase
in the amount of the loan, totaling hundreds of millions of
pesos, Paper City had to offer all valuable properties
acceptable to the creditor banks.
The plain and obvious inclusion in the mortgage of the
machineries and equipments of Paper City escaped the
attention of the CA which, instead, turned to another "plain
language of the MTI" that "described the same as personal
properties." It was error for the CA to deduce from the
"description" exclusion from the mortgage.
1. The MTIs did not describe the equipments and machineries
as personal property. Had the CA looked into Annexes "A"
and "B" which were referred to by the phrase "real and
personal properties," it could have easily noted that the
captions describing the listed properties were "Buildings,"
"Machineries and Equipments," "Yard and Outside," and
"Additional Machinery and Equipment." No mention in any
manner was made in the annexes about "personal property."
Notably, while "personal" appeared in the granting clause of
the original MTI, the subsequent Deed of Amendment
specifically stated that:
x x x The machineries and equipment listed in Annexes "A"
and "B" form part of the improvements listed above and
located on the parcels of land subject of the Mortgage Trust
Indenture and the Real Estate Mortgage.
The word "personal" was deleted in the corresponding
granting clauses in the Deed of Amendment and in the First,
Second and Third Supplemental Indentures.
2. Law and jurisprudence provide and guide that even if not
expressly so stated, the mortgage extends to the
improvements.
Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to
the improvements, growing fruits, and the rents or income not
yet received when the obligation becomes due, and to the
amount of the indemnity granted or owing to the proprietor
from the insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the
estate remains in the possession of the mortgagor, or it passes
into the hands of a third person. (Underlining ours)

In the early case of Bischoff v. Pomar and Cia. General de

Tabacos,53 the Court ruled that even if the machinery in
question was not included in the mortgage expressly, Article
111 of the old Mortgage Law provides that chattels
permanently located in a building, either useful or ornamental,
or for the service of some industry even though they were
placed there after the creation of the mortgage shall be
considered as mortgaged with the estate, provided they belong
to the owner of said estate. The provision of the old Civil
Code was cited. Thus:
Article 1877 provides that a mortgage includes the natural
accessions, improvements, growing fruits, and rents not
collected when the obligation is due, and the amount of the
indemnities granted or due the owner by the underwriters of
the property mortgaged or by virtue of the exercise of eminent
domain by reason of public utility, with the declarations,
amplifications, and limitations established by law, in case the
estate continues in the possession of the person who
mortgaged it, as well as when it passes into the hands of a
third person.54
The case of Cu Unjieng e Hijos v. Mabalacat Sugar
Co.55 relied on this provision. The issue was whether the
machineries and accessories were included in the mortgage
and the subsequent sale during public auction. This was
answered in the affirmative by the Court when it ruled that the
machineries were integral parts of said sugar central hence
included following the principle of law that the accessory
follows the principal.
Further, in the case of Manahan v. Hon. Cruz, 56 this Court
denied the prayer of Manahan to nullify the order of the trial
court including the building in question in the writ of
possession following the public auction of the parcels of land
mortgaged to the bank. It upheld the inclusion by relying on
the principles laid upon in Bischoff v. Pomar and Cia. General
de Tabacos57 and Cu Unjieng e Hijos v. Mabalacat Sugar Co.58
In Spouses Paderes v. Court of Appeals,59 we reiterated once
more the Cu Unjieng e Hijos ruling and approved the
inclusion of machineries and accessories installed at the time
the mortgage, as well as all the buildings, machinery and
accessories belonging to the mortgagor, installed after the
constitution thereof.
3. Contrary to the finding of the CA, the Extra-Judicial
Foreclosure of Mortgage includes the machineries and
equipments of respondent. While captioned as a "Petition for
Extra-Judicial Foreclosure of Real Estate Mortgage Under Act
No. 3135 As Amended," the averments state that the petition is
based on "x x x the Mortgage Trust Indenture, the Deed of
Amendment to the Mortgage Trust Indenture, the Second
Supplemental Indenture to the Mortgage Trust Indenture, and
the Third Supplemental Indenture to the Mortgage Trust
Indenture (hereinafter collectively referred to as the Indenture)
duly notarized and entered as x x x." 60 Noting that herein
respondent has an outstanding obligation in the total amount
of Nine Hundred One Million Eight Hundred One Thousand

Four Hundred Eighty Four and 10/100 Pesos

(P901,801,484.10), the petition for foreclosure prayed that a
foreclosure proceedings "x x x on the aforesaid real properties,
including all improvements thereon covered by the real estate
mortgage be undertaken and the appropriate auction sale be
conducted x x x."61
Considering that the Indenture which is the instrument of the
mortgage that was foreclosed exactly states through the Deed
of Amendment that the machineries and equipments listed in
Annexes "A" and "B" form part of the improvements listed
and located on the parcels of land subject of the mortgage,
such machineries and equipments are surely part of the
foreclosure of the "real estate properties, including all
improvements thereon" as prayed for in the petition.
Indeed, the lower courts ought to have noticed the fact that the
chattel mortgages adverted to were dated 8 January 1990, 19
July 1990, 28 June 1991 and 28 November 1991. The real
estate mortgages which specifically included the machineries
and equipments were subsequent to the chattel mortgages
dated 26 August 1992, 20 November 1992, 7 June 1994 and
24 January 1995. Without doubt, the real estate mortgages
superseded the earlier chattel mortgages.1wphi1
The real estate mortgage over the machineries and equipments
is even in full accord with the classification of such properties
by the Civil Code of the Philippines as immovable property.
Thus:
Article 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds

adhered to the soil;
xxxx
(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;
WHEREFORE, the petition is GRANTED. Accordingly, the
Decision and Resolution of the Court of Appeals dated 8
March 2005 and 8 August 2005 upholding the 15 August 2003
and 1 December 2003 Orders of the Valenzuela Regional Trial
Court are hereby REVERSED and SET ASIDE and the
original Order of the trial court dated 28 February 2003
denying the motion of respondent to remove or dispose of
machinery is hereby REINSTATED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION
G.R. No. 168557

Footnotes
2
An Act Granting Tax Exemptions and Fee Privileges to
Special Purpose Vehicles which Acquire or Invest in NonPerforming Assets, Setting the Regulatory Framework
Therefor, and for Other Purposes. By virtue of this law. RCBC
sold the subject loan account to Star-Two (SPY -AMC); hence
the latter became subrogated to the rights of RCBC. Rollo. p.
177.

February 16, 2007

FELS ENERGY, INC., Petitioner,

vs.
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR OF
BATANGAS, Respondents.
x----------------------------------------------------x
G.R. No. 170628
February 16, 2007
NATIONAL POWER CORPORATION, Petitioner,
vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF
BATANGAS, LAURO C. ANDAYA, in his capacity as the
Assessor of the Province of Batangas, and the PROVINCE
OF BATANGAS represented by its Provincial
Assessor, Respondents.
DECISION
CALLEJO, SR., J.:
Before us are two consolidated cases docketed as G.R. No.
168557 and G.R. No. 170628, which were filed by petitioners
FELS Energy, Inc. (FELS) and National Power Corporation
(NPC), respectively. The first is a petition for review on
certiorari assailing the August 25, 2004 Decision 1 of the Court
of Appeals (CA) in CA-G.R. SP No. 67490 and its
Resolution2 dated June 20, 2005; the second, also a petition for
review on certiorari, challenges the February 9, 2005
Decision3 and November 23, 2005 Resolution4 of the CA in
CA-G.R. SP No. 67491. Both petitions were dismissed on the
ground of prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with
Polar Energy, Inc. over 3x30 MW diesel engine power barges
moored at Balayan Bay in Calaca, Batangas. The contract,
denominated
as
an
Energy
Conversion
Agreement5 (Agreement), was for a period of five years.
Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for
the payment of (a) all taxes, import duties, fees, charges and
other levies imposed by the National Government of the
Republic of the Philippines or any agency or instrumentality
thereof to which POLAR may be or become subject to or in
relation to the performance of their obligations under this
agreement (other than (i) taxes imposed or calculated on the
basis of the net income of POLAR and Personal Income Taxes
of its employees and (ii) construction permit fees,
environmental permit fees and other similar fees and charges)
and (b) all real estate taxes and assessments, rates and other
charges in respect of the Power Barges.6
Subsequently, Polar Energy, Inc. assigned its rights under the
Agreement to FELS. The NPC initially opposed the
assignment of rights, citing paragraph 17.2 of Article 17 of the
Agreement.
On August 7, 1995, FELS received an assessment of real
property taxes on the power barges from Provincial Assessor
Lauro C. Andaya of Batangas City. The assessed tax, which
likewise covered those due for 1994, amounted

to P56,184,088.40 per annum. FELS referred the matter to

NPC, reminding it of its obligation under the Agreement to
pay all real estate taxes. It then gave NPC the full power and
authority to represent it in any conference regarding the real
property assessment of the Provincial Assessor.
In a letter7 dated September 7, 1995, NPC sought
reconsideration of the Provincial Assessors decision to assess
real property taxes on the power barges. However, the motion
was denied on September 22, 1995, and the Provincial
Assessor advised NPC to pay the assessment. 8 This prompted
NPC to file a petition with the Local Board of Assessment
Appeals (LBAA) for the setting aside of the assessment and
the declaration of the barges as non-taxable items; it also
prayed that should LBAA find the barges to be taxable, the
Provincial Assessor be directed to make the necessary
corrections.9
In its Answer to the petition, the Provincial Assessor averred
that the barges were real property for purposes of taxation
under Section 199(c) of Republic Act (R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a
Manifestation, informing the LBAA that the Department of
Finance (DOF) had rendered an opinion10 dated May 20, 1996,
where it is clearly stated that power barges are not real
property subject to real property assessment.
On August 26, 1996, the LBAA rendered a
Resolution11 denying the petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby
ordered to pay the real estate tax in the amount
ofP56,184,088.40, for the year 1994.
SO ORDERED.12
The LBAA ruled that the power plant facilities, while they
may be classified as movable or personal property, are
nevertheless considered real property for taxation purposes
because they are installed at a specific location with a
character of permanency. The LBAA also pointed out that the
owner of the bargesFELS, a private corporationis the one
being taxed, not NPC. A mere agreement making NPC
responsible for the payment of all real estate taxes and
assessments will not justify the exemption of FELS; such a
privilege can only be granted to NPC and cannot be extended
to FELS. Finally, the LBAA also ruled that the petition was
filed out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central
Board of Assessment Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City
issued a Notice of Levy and Warrant by Distraint 13over the
power barges, seeking to collect real property taxes amounting
to P232,602,125.91 as of July 31, 1996. The notice and
warrant was officially served to FELS on November 8, 1996.
It then filed a Motion to Lift Levy dated November 14, 1996,
praying that the Provincial Assessor be further restrained by
the CBAA from enforcing the disputed assessment during the
pendency of the appeal.

On November 15, 1996, the CBAA issued an Order 14 lifting

the levy and distraint on the properties of FELS in order not to
preempt and render ineffectual, nugatory and illusory any
resolution or judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention15 dated
August 7, 1998 in the proceedings before the CBAA. This was
approved by the CBAA in an Order 16 dated September 22,
1998.
During the pendency of the case, both FELS and NPC filed
several motions to admit bond to guarantee the payment of
real property taxes assessed by the Provincial Assessor (in the
event that the judgment be unfavorable to them). The bonds
were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision 17 finding the
power barges exempt from real property tax. The dispositive
portion reads:
WHEREFORE, the Resolution of the Local Board of
Assessment Appeals of the Province of Batangas is hereby
reversed. Respondent-appellee Provincial Assessor of the
Province of Batangas is hereby ordered to drop subject
property under ARP/Tax Declaration No. 018-00958 from the
List of Taxable Properties in the Assessment Roll. The
Provincial Treasurer of Batangas is hereby directed to act
accordingly.
SO ORDERED.18
Ruling in favor of FELS and NPC, the CBAA reasoned that
the power barges belong to NPC; since they are actually,
directly and exclusively used by it, the power barges are
covered by the exemptions under Section 234(c) of R.A. No.
7160.19 As to the other jurisdictional issue, the CBAA ruled
that prescription did not preclude the NPC from pursuing its
claim for tax exemption in accordance with Section 206 of
R.A. No. 7160. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution 20 on
July 31, 2001 reversing its earlier decision. The fallo of the
resolution reads:
WHEREFORE, premises considered, it is the resolution of
this Board that:
(a) The decision of the Board dated 6 April 2000 is hereby
reversed.
(b) The petition of FELS, as well as the intervention of NPC,
is dismissed.
(c) The resolution of the Local Board of Assessment Appeals
of Batangas is hereby affirmed,
(d) The real property tax assessment on FELS by the
Provincial Assessor of Batangas is likewise hereby affirmed.
SO ORDERED.21
FELS and NPC filed separate motions for reconsideration,
which were timely opposed by the Provincial Assessor. The
CBAA denied the said motions in a Resolution 22 dated
October 19, 2001.

Dissatisfied, FELS filed a petition for review before the CA

docketed as CA-G.R. SP No. 67490. Meanwhile, NPC filed a
separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for
Consolidation in CA-G.R. SP No. 67490 praying for the
consolidation of its petition with CA-G.R. SP No. 67491. In a
Resolution23 dated February 12, 2002, the appellate court
directed NPC to re-file its motion for consolidation with CAG.R. SP No. 67491, since it is the ponente of the latter petition
who should resolve the request for reconsideration.
NPC failed to comply with the aforesaid resolution. On
August 25, 2004, the Twelfth Division of the appellate court
rendered judgment in CA-G.R. SP No. 67490 denying the
petition on the ground of prescription. The decretal portion of
the decision reads:
WHEREFORE, the petition for review is DENIED for lack of
merit and the assailed Resolutions dated July 31, 2001 and
October 19, 2001 of the Central Board of Assessment Appeals
are AFFIRMED.
SO ORDERED.24
On September 20, 2004, FELS timely filed a motion for
reconsideration seeking the reversal of the appellate courts
decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19,
2004 before this Court, docketed as G.R. No. 165113,
assailing the appellate courts decision in CA-G.R. SP No.
67490. The petition was, however, denied in this Courts
Resolution25 of November 8, 2004, for NPCs failure to
sufficiently show that the CA committed any reversible error
in the challenged decision. NPC filed a motion for
reconsideration, which the Court denied with finality in a
Resolution26 dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CAG.R. SP No. 67491. It held that the right to question the
assessment of the Provincial Assessor had already prescribed
upon the failure of FELS to appeal the disputed assessment to
the LBAA within the period prescribed by law. Since FELS
had lost the right to question the assessment, the right of the
Provincial Government to collect the tax was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005,
seeking reconsideration of the February 5, 2005 ruling of the
CA in CA-G.R. SP No. 67491. The motion was denied in a
Resolution27 dated November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP
No. 67490 had been earlier denied for lack of merit in a
Resolution28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R.
No. 168557 before this Court, raising the following issues:
A.
Whether power barges, which are floating and movable, are
personal properties and therefore, not subject to real property
tax.
B.

Assuming that the subject power barges are real properties,

whether they are exempt from real estate tax under Section
234 of the Local Government Code ("LGC").
C.
Assuming arguendo that the subject power barges are subject
to real estate tax, whether or not it should be NPC which
should be made to pay the same under the law.
D.
Assuming arguendo that the subject power barges are real
properties, whether or not the same is subject to depreciation
just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null
and void real property tax assessment on the petitioners
personal properties is imprescriptible.29
On January 13, 2006, NPC filed its own petition for review
before this Court (G.R. No. 170628), indicating the following
errors committed by the CA:
I
THE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT THE APPEAL TO THE LBAA WAS
FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT
HOLDING THAT THE POWER BARGES ARE NOT
SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT
HOLDING THAT THE ASSESSMENT ON THE POWER
BARGES WAS NOT MADE IN ACCORDANCE WITH
LAW.30
Considering that the factual antecedents of both cases are
similar, the Court ordered the consolidation of the two cases in
a Resolution31 dated March 8, 2006.1awphi1.net
In an earlier Resolution dated February 1, 2006, the Court had
required the parties to submit their respective Memoranda
within 30 days from notice. Almost a year passed but the
parties had not submitted their respective memoranda.
Considering that taxesthe lifeblood of our economyare
involved in the present controversy, the Court was prompted
to dispense with the said pleadings, with the end view of
advancing the interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal
before the LBAA was not time-barred. FELS argues that when
NPC moved to have the assessment reconsidered on
September 7, 1995, the running of the period to file an appeal
with the LBAA was tolled. For its part, NPC posits that the
60-day period for appealing to the LBAA should be reckoned
from its receipt of the denial of its motion for reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local
Government Code of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. Any
owner or person having legal interest in the property who is

not satisfied with the action of the provincial, city or

municipal assessor in the assessment of his property may,
within sixty (60) days from the date of receipt of the written
notice of assessment, appeal to the Board of Assessment
Appeals of the province or city by filing a petition under oath
in the form prescribed for the purpose, together with copies of
the tax declarations and such affidavits or documents
submitted in support of the appeal.
We note that the notice of assessment which the Provincial
Assessor sent to FELS on August 7, 1995, contained the
following statement:
If you are not satisfied with this assessment, you may, within
sixty (60) days from the date of receipt hereof, appeal to the
Board of Assessment Appeals of the province by filing a
petition under oath on the form prescribed for the purpose,
together with copies of ARP/Tax Declaration and such
affidavits or documents submitted in support of the appeal.32
Instead of appealing to the Board of Assessment Appeals (as
stated in the notice), NPC opted to file a motion for
reconsideration of the Provincial Assessors decision, a
remedy not sanctioned by law.
The remedy of appeal to the LBAA is available from an
adverse ruling or action of the provincial, city or municipal
assessor in the assessment of the property. It follows then that
the determination made by the respondent Provincial Assessor
with regard to the taxability of the subject real properties falls
within its power to assess properties for taxation purposes
subject to appeal before the LBAA.33
We fully agree with the rationalization of the CA in both CAG.R. SP No. 67490 and CA-G.R. SP No. 67491. The two
divisions of the appellate court cited the case of Callanta v.
Office of the Ombudsman,34 where we ruled that under
Section 226 of R.A. No 7160,35 the last action of the local
assessor on a particular assessment shall be the notice of
assessment; it is this last action which gives the owner of the
property the right to appeal to the LBAA. The procedure
likewise does not permit the property owner the remedy of
filing a motion for reconsideration before the local assessor.
The pertinent holding of the Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved
owners should have brought their appeals before the LBAA.
Unfortunately, despite the advice to this effect contained in
their respective notices of assessment, the owners chose to
bring their requests for a review/readjustment before the city
assessor, a remedy not sanctioned by the law. To allow this
procedure would indeed invite corruption in the system of
appraisal and assessment. It conveniently courts a graft-prone
situation where values of real property may be initially set
unreasonably high, and then subsequently reduced upon the
request of a property owner. In the latter instance, allusions of
a possible covert, illicit trade-off cannot be avoided, and in
fact can conveniently take place. Such occasion for mischief
must be prevented and excised from our system.36

For its part, the appellate court declared in CA-G.R. SP No.

67491:
x x x. The Court announces: Henceforth, whenever the local
assessor sends a notice to the owner or lawful possessor of real
property of its revised assessed value, the former shall no
longer have any jurisdiction to entertain any request for a
review or readjustment. The appropriate forum where the
aggrieved party may bring his appeal is the LBAA as provided
by law. It follows ineluctably that the 60-day period for
making the appeal to the LBAA runs without interruption.
This is what We held in SP 67490 and reaffirm today in SP
67491.37
To reiterate, if the taxpayer fails to appeal in due course, the
right of the local government to collect the taxes due with
respect to the taxpayers property becomes absolute upon the
expiration of the period to appeal.38 It also bears stressing that
the taxpayers failure to question the assessment in the LBAA
renders the assessment of the local assessor final, executory
and demandable, thus, precluding the taxpayer from
questioning the correctness of the assessment, or from
invoking any defense that would reopen the question of its
liability on the merits.39
In fine, the LBAA acted correctly when it dismissed the
petitioners appeal for having been filed out of time; the
CBAA and the appellate court were likewise correct in
affirming the dismissal. Elementary is the rule that the
perfection of an appeal within the period therefor is both
mandatory and jurisdictional, and failure in this regard renders
the decision final and executory.40
In the Comment filed by the Provincial Assessor, it is asserted
that the instant petition is barred by res judicata; that the final
and executory judgment in G.R. No. 165113 (where there was
a final determination on the issue of prescription), effectively
precludes the claims herein; and that the filing of the instant
petition after an adverse judgment in G.R. No. 165113
constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor
is completely misplaced since it was not a party to the
erroneous petition which the NPC filed in G.R. No. 165113. It
avers that it did not participate in the aforesaid proceeding,
and the Supreme Court never acquired jurisdiction over it. As
to the issue of forum shopping, petitioner claims that no forum
shopping could have been committed since the elements of
litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence
and is founded upon two grounds embodied in various maxims
of common law, namely: (1) public policy and necessity,
which makes it to the interest of the
State that there should be an end to litigation republicae ut
sit litium; and (2) the hardship on the individual of being
vexed twice for the same cause nemo debet bis vexari et
eadem causa. A conflicting doctrine would subject the public
peace and quiet to the will and dereliction of individuals and

prefer the regalement of the litigious disposition on the part of

suitors to the preservation of the public tranquility and
happiness.41 As we ruled in Heirs of Trinidad De Leon Vda. de
Roxas v. Court of Appeals:42
x x x An existing final judgment or decree rendered upon the
merits, without fraud or collusion, by a court of competent
jurisdiction acting upon a matter within its authority is
conclusive on the rights of the parties and their privies. This
ruling holds in all other actions or suits, in the same or any
other judicial tribunal of concurrent jurisdiction, touching on
the points or matters in issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided.
They will not allow the same parties or their privies to litigate
anew a question once it has been considered and decided with
finality. Litigations must end and terminate sometime and
somewhere. The effective and efficient administration of
justice requires that once a judgment has become final, the
prevailing party should not be deprived of the fruits of the
verdict by subsequent suits on the same issues filed by the
same parties.
This is in accordance with the doctrine of res judicata which
has the following elements: (1) the former judgment must be
final; (2) the court which rendered it had jurisdiction over the
subject matter and the parties; (3) the judgment must be on the
merits; and (4) there must be between the first and the second
actions, identity of parties, subject matter and causes of action.
The application of the doctrine of res judicata does not require
absolute identity of parties but merely substantial identity of
parties. There is substantial identity of parties when there is
community of interest or privity of interest between a party in
the first and a party in the second case even if the first case did
not implead the latter.43
To recall, FELS gave NPC the full power and authority to
represent it in any proceeding regarding real property
assessment. Therefore, when petitioner NPC filed its petition
for review docketed as G.R. No. 165113, it did so not only on
its behalf but also on behalf of FELS. Moreover, the assailed
decision in the earlier petition for review filed in this Court
was the decision of the appellate court in CA-G.R. SP No.
67490, in which FELS was the petitioner. Thus, the decision in
G.R. No. 165116 is binding on petitioner FELS under the
principle of privity of interest. In fine, FELS and NPC are
substantially "identical parties" as to warrant the application of
res judicata. FELSs argument that it is not bound by the
erroneous petition filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial
Assessor. Forum shopping exists when, as a result of an
adverse judgment in one forum, a party seeks another and
possibly favorable judgment in another forum other than by
appeal or special civil action or certiorari. There is also forum
shopping when a party institutes two or more actions or
proceedings grounded on the same cause, on the gamble that
one or the other court would make a favorable disposition.44

Petitioner FELS alleges that there is no forum shopping since

the elements of res judicata are not present in the cases at bar;
however, as already discussed, res judicata may be properly
applied herein. Petitioners engaged in forum shopping when
they filed G.R. Nos. 168557 and 170628 after the petition for
review in G.R. No. 165116. Indeed, petitioners went from one
court to another trying to get a favorable decision from one of
the tribunals which allowed them to pursue their cases.
It must be stressed that an important factor in determining the
existence of forum shopping is the vexation caused to the
courts and the parties-litigants by the filing of similar cases to
claim substantially the same reliefs. 45 The rationale against
forum shopping is that a party should not be allowed to pursue
simultaneous remedies in two different fora. Filing multiple
petitions or complaints constitutes abuse of court processes,
which tends to degrade the administration of justice, wreaks
havoc upon orderly judicial procedure, and adds to the
congestion of the heavily burdened dockets of the courts.46
Thus, there is forum shopping when there exist: (a) identity of
parties, or at least such parties as represent the same interests
in both actions, (b) identity of rights asserted and relief prayed
for, the relief being founded on the same facts, and (c) the
identity of the two preceding particulars is such that any
judgment rendered in the pending case, regardless of which
party is successful, would amount to res judicata in the other.47
Having found that the elements of res judicata and forum
shopping are present in the consolidated cases, a discussion of
the other issues is no longer necessary. Nevertheless, for the
peace and contentment of petitioners, we shall shed light on
the merits of the case.
As found by the appellate court, the CBAA and LBAA power
barges are real property and are thus subject to real property
tax. This is also the inevitable conclusion, considering that
G.R. No. 165113 was dismissed for failure to sufficiently
show any reversible error. Tax assessments by tax examiners
are presumed correct and made in good faith, with the
taxpayer having the burden of proving otherwise.48 Besides,
factual findings of administrative bodies, which have acquired
expertise in their field, are generally binding and conclusive
upon the Court; we will not assume to interfere with the
sensible exercise of the judgment of men especially trained in
appraising property. Where the judicial mind is left in doubt, it
is a sound policy to leave the assessment undisturbed. 49 We
find no reason to depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v.
The City of New York, et al.,50 a power company brought an
action to review property tax assessment. On the citys motion
to dismiss, the Supreme Court of New York held that the
barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges
which supplied fuel oil to the power plant barges, and the
accessory equipment mounted on the barges were subject to
real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that
"[d]ocks and structures which, though floating, are intended
by their nature and object to remain at a fixed place on a river,
lake, or coast" are considered immovable property. Thus,
power barges are categorized as immovable property by
destination, being in the nature of machinery and other
implements intended by the owner for an industry or work
which may be carried on in a building or on a piece of land
and which tend directly to meet the needs of said industry or
work.51
Petitioners maintain nevertheless that the power barges are
exempt from real estate tax under Section 234 (c) of R.A. No.
7160 because they are actually, directly and exclusively used
by petitioner NPC, a government- owned and controlled
corporation engaged in the supply, generation, and
transmission of electric power.
We affirm the findings of the LBAA and CBAA that the owner
of the taxable properties is petitioner FELS, which in fine, is
the entity being taxed by the local government. As stipulated
under Section 2.11, Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the
Power Barges and all the fixtures, fittings, machinery and
equipment on the Site used in connection with the Power
Barges which have been supplied by it at its own cost.
POLAR shall operate, manage and maintain the Power Barges
for the purpose of converting Fuel of NAPOCOR into
electricity.52
It follows then that FELS cannot escape liability from the
payment of realty taxes by invoking its exemption in Section
234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The
following are exempted from payment of the real property tax:
xxx
(c) All machineries and equipment that are actually, directly
and exclusively used by local water districts and governmentowned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of
electric power; x x x
Indeed, the law states that the machinery must be actually,
directly and exclusively used by the government owned or
controlled corporation; nevertheless, petitioner FELS still
cannot find solace in this provision because Section 5.5,
Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the
Lease Period, subject to the supply of the necessary Fuel
pursuant to Article 6 and to the other provisions hereof, it will
operate the Power Barges to convert such Fuel into electricity
in accordance with Part A of Article 7.53
It is a basic rule that obligations arising from a contract have
the force of law between the parties. Not being contrary to
law, morals, good customs, public order or public policy, the
parties to the contract are bound by its terms and conditions.54
Time and again, the Supreme Court has stated that taxation is
the rule and exemption is the exception. 55 The law does not

look with favor on tax exemptions and the entity that would
seek to be thus privileged must justify it by words too plain to
be mistaken and too categorical to be misinterpreted. 56 Thus,
applying the rule of strict construction of laws granting tax
exemptions, and the rule that doubts should be resolved in
favor of provincial corporations, we hold that FELS is
considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of
the Agreement, that it shall be responsible for the payment of
all real estate taxes and assessments, does not justify the
exemption. The privilege granted to petitioner NPC cannot be
extended to FELS. The covenant is between FELS and NPC
and does not bind a third person not privy thereto, in this case,
the Province of Batangas.
It must be pointed out that the protracted and circuitous
litigation has seriously resulted in the local governments
deprivation of revenues. The power to tax is an incident of
sovereignty and is unlimited in its magnitude, acknowledging
in its very nature no perimeter so that security against its abuse
is to be found only in the responsibility of the legislature
which imposes the tax on the constituency who are to pay for
it.57 The right of local government units to collect taxes due
must always be upheld to avoid severe tax erosion. This
consideration is consistent with the State policy to guarantee
the autonomy of local governments58 and the objective of the
Local Government Code that they enjoy genuine and
meaningful local autonomy to empower them to achieve their
fullest development as self-reliant communities and make
them effective partners in the attainment of national goals.59
In conclusion, we reiterate that the power to tax is the most
potent instrument to raise the needed revenues to finance and
support myriad activities of the local government units for the
delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and
prosperity of the people.60
WHEREFORE, the Petitions are DENIED and the assailed
Decisions and Resolutions AFFIRMED.

Facts: Two consolidated cases were filed by FELS Energy,

Inc. (FELS) and National Power Corporation (NPC),
respectively.
NPC entered into a lease contract with Polar Energy, Inc. over
diesel engine power barges moored at Batangas. The contract,
denominated as an Energy Conversion Agreement, was for a
period of five years wherein, NPC shall be responsible for the
payment of:
(a) all taxes, import duties, fees, charges and other levies
imposed by the National Government
(b) all real estate taxes and assessments, rates and other
charges in respect of the Power Barges
THIRD DIVISION

Subsequently, Polar Energy, Inc. assigned its rights under the

Agreement to FELS. Thereafter, FELS received an assessment
of real property taxes on the power barges. The assessed tax,
which likewise covered those due for 1994, amounted
to P56,184,088.40 per annum. FELS referred the matter to
NPC, reminding it of its obligation under the Agreement to
pay all real estate taxes. It then gave NPC the full power and
authority to represent it in any conference regarding the real
property assessment of the Provincial Assessor.
NPC sought reconsideration of the Provincial Assessors
decision to assess real property taxes on the power barges.
However, the motion was denied. The Local Board of
Assessment Appeals (LBAA) ruled that the power plant
facilities, while they may be classified as movable or personal
property, are nevertheless considered real property for taxation
purposes because they are installed at a specific location with
a character of permanency.
FELS appealed the LBAAs ruling to the Central Board of
Assessment Appeals (CBAA). The CBAA rendered a
Decision finding the power barges exempt from real property
tax.
It was later reversed by the cbaa upon reconsideration and
affirmed by the CA
Issue: Whether power barges, which are floating and
movable, are personal properties and therefore, not subject to
real property tax.
Ruling: No. Article 415 (9) of the New Civil Code provides
that "[d]ocks and structures which, though floating, are
intended by their nature and object to remain at a fixed place
on a river, lake, or coast" are considered immovable property.
Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other
implements intended by the owner for an industry or work
which may be carried on in a building or on a piece of land
and which tend directly to meet the needs of said industry or
work.
The findings of the LBAA and CBAA that the owner of the
taxable properties is petitioner FELS is the entity being taxed
by the local government. As stipulated under the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the
Power Barges and all the fixtures, fittings, machinery and
equipment on the Site used in connection with the Power
Barges which have been supplied by it at its own cost.
POLAR shall operate, manage and maintain the Power Barges
for the purpose of converting Fuel of NAPOCOR into
electricity.
It follows then that FELS cannot escape liability from the
payment of realty taxes by invoking its exemption in Section
234 (c) of R.A. No. 7160,
the law states that the machinery must be actually, directly
and exclusively used by the government owned or controlled
corporation;
The agreement POLAR undertakes that until the end of the
Lease Period, it will operate the Power Barges to convert such
Fuel into electricity. Therefore, FELS shall be liable for the
realty taxes and not the NPC who is not actually, directly and
exclusively using the same. It is a basic rule that obligations
arising from a contract have the force of law between the
parties
[G.R. No. 127316. October 12, 2000]

LIGHT RAIL TRANSIT AUTHORITY, petitioner,

vs. CENTRAL BOARD OF ASSESSMENT APPEALS,
BOARD OF ASSESSMENT APPEALS OF MANILA and
the CITY ASSESSOR OF MANILA, respondents.
DECISION
PANGANIBAN, J.:
The Light Rail Transit Authority and the Metro Transit
Organization function as service-oriented business entities,
which provide valuable transportation facilities to the paying
public. In the absence, however, of any express grant of
exemption in their favor, they are subject to the payment of
real property taxes.
The Case

In the Petition for Review before us, the Light Rail Transit
Authority (LRTA) challenges the November 15, 1996
Decision[1] of the Court of Appeals (CA) in CA-GR SP No.
38137, which disposed as follows:
"WHEREFORE, premises considered, the appealed decision
(dated October 15, 1994) of the Central Board of Assessment
Appeals is hereby AFFIRMED, with costs against the
petitioner."[2]
The affirmed ruling of the Central Board of Assessment
Appeals (CBAA) upheld the June 26, 1992 Resolution of the
Board of Assessment Appeals of Manila, which had declared
petitioner's carriageways and passenger terminals as
improvements subject to real property taxes.
The Facts

The undisputed facts are quoted by the Court of Appeals (CA)

from the CBAA ruling, as follows:[3]
"1. The LRTA is a government-owned and controlled
corporation created and organized under Executive Order No.
603, dated July 12, 1980 'x x x primarily responsible for the
construction, operation, maintenance and/or lease of light rail
transit system in the Philippines, giving due regard to the
[reasonable requirements] of the public transportation of the
country' (LRTA vs. The Hon. Commission on Audit, GR No.
No. 88365);
"2. x x x [B]y reason of x x x Executive Order 603, LRTA
acquired real properties x x x constructed structural
improvements, such as buildings, carriageways, passenger
terminal stations, and installed various kinds of machinery and
equipment and facilities for the purpose of its operations;
"3. x x x [F]or x x x an effective maintenance, operation and
management, it entered into a Contract of Management with
the Meralco Transit Organization (METRO) in which the latter
undertook to manage, operate and maintain the Light Rail
Transit System owned by the LRTA subject to the specific
stipulations contained in said agreement, including payments
of a management fee and real property taxes (Add'l Exhibit
"I", Records)
"4. That it commenced its operations in 1984, and that
sometime that year, Respondent-Appellee City Assessor of
Manila assessed the real properties of [petitioner], consisting
of lands, buildings, carriageways and passenger terminal
stations, machinery and equipment which he considered real
propert[y] under the Real Property Tax Code, to commence
with the year 1985;
"5. That [petitioner] paid its real property taxes on all its real
property holdings, except the carriageways and passenger
terminal stations including the land where it is constructed on
the ground that the same are not real properties under the Real
Property Tax Code, and if the same are real propert[y], these x

x x are for public use/purpose, therefore, exempt from realty

taxation, which claim was denied by the Respondent-Appellee
City Assessor of Manila; and
"6. x x x [Petitioner], aggrieved by the action of the
Respondent-Appellee City Assessor, filed an appeal with the
Local Board of Assessment Appeals of Manila x x
x. Appellee, herein, after due hearing, in its resolution dated
June 26, 1992, denied [petitioner's] appeal, and declared that
carriageways and passenger terminal stations are
improvements, therefore, are real propert[y] under the Code,
and not exempt from the payment of real property tax.
"A motion for reconsideration filed by [petitioner] was
likewise denied."
The CA Ruling

The Court of Appeals held that petitioner's carriageways and

passenger terminal stations constituted real property or
improvements thereon and, as such, were taxable under the
Real Property Tax Code. The appellate court emphasized that
such pieces of property did not fall under any of the
exemptions listed in Section 40 of the aforementioned
law. The reason was that they were not owned by the
government or any government-owned corporation which, as
such, was exempt from the payment of real property
taxes. True, the government owned the real property upon
which the carriageways and terminal stations were
built. However, they were still taxable, because beneficial use
had been transferred to petitioner, a taxable entity.
The CA debunked the argument of petitioner that carriageways
and terminals were intended for public use. The former
agreed, instead, with the CBAA. The CBAA had concluded
that since petitioner was not engaged in purely governmental
or public service, the latter's endeavors were
proprietary. Indeed, petitioner was deemed as a profit-oriented
endeavor, serving as it did, only the paying public.
Hence, this Petition.[4]
The Issues

In its Memorandum,[5] petitioner urges the Court to resolve the

following matters:
"I
The Honorable Court of Appeals erred in not holding that the
carriageways and terminal stations of petitioner are not
improvements for purposes of the Real Property Tax Code.
"II
The Honorable Court of Appeals erred in not holding that
being attached to national roads owned by the national
government, subject carriageways and terminal stations should
be considered property of the national government.
"III
The Honorable Court of Appeals erred in not holding that
payment of charges or fares in the operation of the light rail
transit system does not alter the nature of the subject
carriageways and terminal stations as devoted for public use.
"IV
The Honorable Court of Appeals erred in failing to consider
the view advanced by the Department of Finance, which takes
charge of the overall collection of taxes, that subject
carriageways and terminal stations are not subject to realty
taxes.
"V
The Honorable Court of Appeals erred in failing to consider
that payment of the realty taxes assessed is not warranted and
should the legality of the questioned assessment be upheld, the

amount of the realty taxes assessed would far exceed the

annual earnings of petitioner, a government corporation."
The foregoing all point to one main issue: whether petitioner's
carriageways and passenger terminal stations are subject to
real property taxes.
The Court's Ruling

The Petition has no merit.

Main

Issue:

May Real Property Taxes be Assessed and Collected?

The Real Property Tax Code, [6] the law in force at the time of
the assailed assessment in 1984, mandated that "there shall be
levied, assessed and collected in all provinces, cities and
municipalities an annual ad valorem tax on real property such
as lands, buildings, machinery and other improvements affixed
or attached to real property not hereinafter specifically
exempted."[7]
Petitioner does not dispute that its subject carriageways and
stations may be considered real property under Article 415 of
the Civil Code. However, it resolutely argues that the same are
improvements, not of its properties, but of the governmentowned national roads to which they are immovably
attached. They are thus not taxable as improvements under the
Real Property Tax Code. In essence, it contends that to impose
a tax on the carriageways and terminal stations would be to
impose taxes on public roads.
The argument does not persuade. We quote with approval the
solicitor general's astute comment on this matter:
"There is no point in clarifying the concept of industrial
accession to determine the nature of the property when what is
fundamentally important for purposes of tax classification is to
determine the character of the property subject [to] tax. The
character of tax as a property tax must be determined by its
incidents, and form the natural and legal effect thereof. It is
irrelevant to associate the carriageways and/or the passenger
terminals as accessory improvements when the view of
taxability is focused on the character of the property. The latter
situation is not a novel issue as it has already been resolved by
this Honorable Court in the case of City of Manila vs. IAC
(GR No. 71159, November 15, 1989) wherein it was held:
'The New Civil Code divides the properties into property for
public and patrimonial property (Art. 423), and further
enumerates the property for public use as provincial road, city
streets, municipal streets, squares, fountains, public waters,
public works for public service paid for by said [provinces],
cities or municipalities; all other property is
patrimonial without prejudice to provisions of special laws.
(Art. 424, Province of Zamboanga v. City of Zamboanga, 22
SCRA 1334 [1968])
xxx
'...while the following are corporate or proprietary property in
character, viz: 'municipal water works, slaughter houses,
markets, stables, bathing establishments, wharves, ferries and
fisheries.' Maintenance of parks, golf courses, cemeteries and
airports, among others, are also recognized as municipal or
city activities of a proprietary character (Dept. of Treasury v.
City of Evansville; 60 NE 2nd 952)'
"The foregoing enumeration in law does not specify or include
carriageway or passenger terminals as inclusive of properties
strictly for public use to exempt petitioner's properties from
taxes. Precisely, the properties of petitioner are not exclusively
considered as public roads being improvements placed
upon the public road, and this separability nature of the

structure in itself physically distinguishes it from a public

road. Considering further that carriageways or passenger
terminals are elevated structures which are not freely
accessible to the public, viz-a-viz roads which are public
improvements openly utilized by the public, the former are
entirely different from the latter.
"The character of petitioner's property, be it an improvements
as otherwise distinguished by petitioner, needs no further
classification when the law already classified it as patrimonial
property that can be subject to tax. This is in line with the old
ruling that if the public works is not for such free public
service, it is not within the purview of the first paragraph of
Art. 424 if the New Civil Code."[8]
Though the creation of the LRTA was impelled by public
service -- to provide mass transportation to alleviate the traffic
and transportation situation in Metro Manila -- its operation
undeniably partakes of ordinary business. Petitioner is clothed
with corporate status and corporate powers in the furtherance
of its proprietary objectives.[9] Indeed, it operates much like
any private corporation engaged in the mass transport
industry. Given that it is engaged in a service-oriented
commercial endeavor, its carriageways and terminal stations
are patrimonial property subject to tax, notwithstanding its
claim of being a government-owned or controlled corporation.
True, petitioner's carriageways and terminal stations are
anchored, at certain points, on public roads. However, it must
be emphasized that these structures do not form part of such
roads, since the former have been constructed over the latter in
such a way that the flow of vehicular traffic would not be
impeded. These carriageways and terminal stations serve a
function different from that of the public roads. The former are
part and parcel of the light rail transit (LRT) system which,
unlike the latter, are not open to use by the general public. The
carriageways are accessible only to the LRT trains, while the
terminal stations have been built for the convenience of LRTA
itself and its customers who pay the required fare.
Basis of Assessment Is Actual Use of Real Property

Under the Real Property Tax Code, real property is classified

for assessment purposes on the basis of actual use, [10] which is
defined as "the purpose for which the property is principally or
predominantly utilized by the person in possession of the
property."[11]
Petitioner argues that it merely operates and maintains the
LRT system, and that the actual users of the carriageways and
terminal stations are the commuting public. It adds that the
public-use character of the LRT is not negated by the fact that
revenue is obtained from the latter's operations.
We do not agree. Unlike public roads which are open for use
by everyone, the LRT is accessible only to those who pay the
required fare. It is thus apparent that petitioner does not exist
solely for public service, and that the LRT carriageways and
terminal stations are not exclusively for public use. Although
petitioner is a public utility, it is nonetheless profit-earning. It
actually uses those carriageways and terminal stations in its
public utility business and earns money therefrom.
Petitioner Not Exempt from Payment of Real Property Taxes

In any event, there is another legal justification for upholding

the assailed CA Decision. Under the Real Property Tax Code,
real property "owned by the Republic of the Philippines or any
of its political subdivisions and any government-owned or
controlled corporation so exempt by its charter, provided,
however, that this exemption shall not apply to real property

of the abovenamed entities the beneficial use of which has

been granted, for consideration or otherwise, to a taxable
person."[12]
Executive Order No. 603, the charter of petitioner, does
not provide for any real estate tax exemption in its favor. Its
exemption is limited to direct and indirect taxes, duties or fees
in connection with the importation of equipment not locally
available, as the following provision shows:
"ARTICLE 4
TAX AND DUTY EXEMPTIONS
Sec. 8. Equipment, Machineries, Spare Parts and Other
Accessories and Materials. - The importation of equipment,
machineries, spare parts, accessories and other materials,
including supplies and services, used directly in the operations
of the Light Rails Transit System, not obtainable locally on
favorable terms, out of any funds of the authority including, as
stated in Section 7 above, proceeds from foreign loans credits
or indebtedness, shall likewise be exempted from all direct
and indirect taxes, customs duties, fees, imposts, tariff duties,
compensating taxes, wharfage fees and other charges and
restrictions, the provisions of existing laws to the contrary
notwithstanding."
Even granting that the national government indeed owns the
carriageways and terminal stations, the exemption would not
apply because their beneficial use has been granted to
petitioner, a taxable entity.
Taxation is the rule and exemption is the exception. Any claim
for tax exemption is strictly construed against the claimant.
[13]
LRTA has not shown its eligibility for exemption; hence, it
is subject to the tax.
WHEREFORE, the Petition is hereby DENIED and the
assailed Decision of the Court of Appeals AFFIRMED. Costs
against the petitioner.
SO ORDERED.
Melo, (Chairman), Vitug, and Purisima, JJ., concur.
Gonzaga-Reyes, J., no part.
Ibid., 38. This is identical to 232 of the Local Government
Code (LGC), which reads:
"Section 232. Power to Levy Real Property Tax. A province or
city or a municipality within the Metropolitan Manila Area
may levy an annual ad valorem tax on real property such as
land, building, machinery, and other improvement not
hereinafter specifically exempted."
[9]
See Section 4 of Executive Order No. 603, the LRTA
charter, which provides:
"ARTICLE 2
CORPORATE POWERS
"Sec. 4. General Powers. - The Authority, through the Board
of Directors, may undertake such action as are expedient for or
conducive to the attainment of the purposes and objectives of
the Authority, or of any purpose reasonably incidental to or
consequential upon any of these purposes. As such, the
Authority shall have the following general powers:
(1) To have continuous succession under its corporate name,
until otherwise provided by law;
(2) To prescribe, amend, and/or repeal its by-laws;
(3) To adopt and use a seal and alter it at its pleasure;

(4) To sue and be sued;

(5) To contract any obligation or enter into, assign or accept
the assignment of, and vary or rescind any agreement, contract
of obligation necessary or incidental to the proper
management of the Authority;
(6) To borrow funds from any source, private or public,
foreign or domestic, and to issue bonds and other evidence of
indebtedness, the payment of which shall be guaranteed by the
National Government, subject to pertinent borrowing law;
(7) To acquire, receive, take, and hold by bequest, devise, gift,
purchase or lease, either absolutely or in trust for any of its
purposes, from foreign and domestic sources, any asset, grant
or property, real or personal, subject to such limitations as are
provided in existing laws; to convey or dispose of such assets,
grants, or properties, movable and immovable; and invest
and/or reinvest such proceeds and deal with and expand its
assets and income in such a manner as will best promote its
objectives;
(8) To improve, develop or alter any property held by it;
(9) To carry on any business, either alone or in partnership
with any other person or persons;
(10) To employ an agent or contractor or perform such things
as the Authority may perform;
(11) To exercise the right of eminent domain, whenever the
Authority deems it necessary for the attainment of its
objectives;
(12) To prescribe rules and regulations in the conduct of its
general business as well as to fix and implement the terms and
conditions of its related activities;
(13) To determine the fares payable by persons traveling on
the light rail system, in consultation with the Board of
Transportation;
(14) To establish, operate, and maintain branches or field
offices when required by the exigencies of its business;
(15) To determine its organizational structure and the number,
positions and salaries of its personnel, subject to pertinent
organization and compensation law; and
(16) To exercise such powers and perform such duties as may
be necessary to carry out the business and purposes for which
the Authority was established or which, from time to time may
be declared by the Board of Directors to be necessary, useful,
incidental or auxiliary to accomplish such purposes; and
generally, to exercise all powers of an Authority under the
Corporation Law that are not inconsistent with the provisions
of this Order, or with orders pertaining to government
corporate
budgeting,
organization,
borrowing,
or
compensation."
[10]
19 of the Real Property Tax Code reads: "Real property
shall be classified for assessment on the basis of its actual use,
regardless of where located and whoever uses it." See also 198
(b) of the LGC, an identical proviso which reads: "Real
property shall be classified for assessment purposes on the
basis of its actual use."
[11]
See 3 (a) of the Real Property Tax Code and 199 (b) of the
LGC.
[12]
Section 40 (a) of the Real Property Code and Section 234
(a) of the Local Government Code. Thus, petitioner will not
find solace under the Local Government Code either, for the
reasons discussed above.

Republic of the Philippines

SUPREME COURT

Manila
SECOND DIVISION

[7]

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

MAKATI LEASING and FINANCE
CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and
HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for
petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of
Appeals (now Intermediate Appellate Court) promulgated on
August 27, 1981 in CA-G.R. No. SP-12731, setting aside
certain Orders later specified herein, of Judge Ricardo J.
Francisco, as Presiding Judge of the Court of First instance of
Rizal Branch VI, issued in Civil Case No. 36040, as wen as
the resolution dated September 22, 1981 of the said appellate
court, denying petitioner's motion for reconsideration.
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 defendantsappellants 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 inStandard 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.
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and
Escolin JJ., concur.
Abad Santos, J., concurs in the result.

THIRD DIVISION
[G.R. No. 137705. August 22, 2000]
SERGS
PRODUCTS, INC.,
and
SERGIO T.
GOQUIOLAY, petitioners, vs. PCI
LEASING
AND
FINANCE, INC., respondent.
DECISION

PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or
immovable property be considered as personal or movable, a
party
is
estopped
from
subsequently
claiming
otherwise.Hence, such property is a proper subject of a writ of
replevin obtained by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the
January 6, 1999 Decision[1] of the Court of Appeals (CA) [2] in
CA-GR SP No. 47332 and its February 26, 1999
Resolution[3] denying reconsideration. The decretal portion of
the CA Decision reads as follows:
WHEREFORE, premises considered, the assailed Order dated
February 18, 1998 and Resolution dated March 31, 1998 in
Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ
of preliminary injunction issued on June 15, 1998 is
hereby LIFTED.[4]
In its February 18, 1998 Order,[5] the Regional Trial Court
(RTC) of Quezon City (Branch 218)[6] issued a Writ of
Seizure.[7] The March 18, 1998 Resolution[8] denied petitioners
Motion for Special Protective Order, praying that the deputy
sheriff be enjoined from seizing immobilized or other real
properties in (petitioners) factory in Cainta, Rizal and to return
to their original place whatever immobilized machineries or
equipments he may have removed.[9]
The Facts
The undisputed facts are summarized by the Court of Appeals
as follows:[10]
On February 13, 1998, respondent PCI Leasing and Finance,
Inc. (PCI Leasing for short) filed with the RTC-QC a
complaint for [a] sum of money (Annex E), with an
application for a writ of replevin docketed as Civil Case No.
Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI
Leasing, respondent judge issued a writ of replevin (Annex B)
directing its sheriff to seize and deliver the machineries and
equipment to PCI Leasing after 5 days and upon the payment
of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff
proceeded to petitioners factory, seized one machinery with
[the] word that he [would] return for the other machineries.
On March 25, 1998, petitioners filed a motion for special
protective order (Annex C), invoking the power of the court to
control the conduct of its officers and amend and control its
processes, praying for a directive for the sheriff to defer
enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the
ground that the properties [were] still personal and therefore
still subject to seizure and a writ of replevin.
In their Reply, petitioners asserted that the properties sought to
be seized [were] immovable as defined in Article 415 of the
Civil Code, the parties agreement to the contrary
notwithstanding. They argued that to give effect to the
agreement would be prejudicial to innocent third parties. They

further stated that PCI Leasing [was] estopped from treating

these machineries as personal because the contracts in which
the alleged agreement [were] embodied [were] totally sham
and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ
of seizure and take possession of the remaining properties. He
was able to take two more, but was prevented by the workers
from taking the rest.
On April 7, 1998, they went to [the CA] via an original action
for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held
that the subject machines were personal property, and that they
had only been leased, not owned, by petitioners. It also ruled
that the words of the contract are clear and leave no doubt
upon the true intention of the contracting parties. Observing
that Petitioner Goquiolay was an experienced businessman
who was not unfamiliar with the ways of the trade, it ruled that
he should have realized the import of the document he
signed. The CA further held:
Furthermore, to accord merit to this petition would be to
preempt the trial court in ruling upon the case below, since the
merits of the whole matter are laid down before us via a
petition whose sole purpose is to inquire upon the existence of
a grave abuse of discretion on the part of the [RTC] in issuing
the assailed Order and Resolution. The issues raised herein are
proper subjects of a full-blown trial, necessitating presentation
of evidence by both parties. The contract is being enforced by
one, and [its] validity is attacked by the other a matter x x x
which respondent court is in the best position to determine.
Hence, this Petition.[11]
The Issues
In their Memorandum, petitioners submit the following issues
for our consideration:
A. Whether or not the machineries purchased and imported by
SERGS became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or
a lease.[12]
In the main, the Court will resolve whether the said machines
are personal, not immovable, property which may be a proper
subject of a writ of replevin. As a preliminary matter, the
Court will also address briefly the procedural points raised by
respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate
expressly whether it was being filed under Rule 45 or Rule 65
of the Rules of Court. It further alleges that the Petition
erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule
45. This conclusion finds support in the very title of the
Petition, which is Petition for Review on Certiorari.[13]

While Judge Laqui should not have been impleaded as a

respondent,[14] substantial justice requires that such lapse by
itself should not warrant the dismissal of the present
Petition. In this light, the Court deems it proper to
remove, motu proprio, the name of Judge Laqui from the
caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their
factory were not proper subjects of the Writ issued by the
RTC, because they were in fact real property. Serious policy
considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin
are issued for the recovery of personal property only.
[15]
Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and
approval of the bond, the court shall issue an order and the
corresponding writ of replevin describing the personal
property alleged to be wrongfully detained and requiring the
sheriff forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates
immovable or real property as follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said
industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the
Writ of Seizure were placed by petitioners in the factory built
on their own land. Indisputably, they were essential and
principal elements of their chocolate-making industry. Hence,
although each of them was movable or personal property on
its own, all of them have become immobilized by destination
because they are essential and principal elements in the
industry.[16] In that sense, petitioners are correct in arguing that
the said machines are real, not personal, property pursuant to
Article 415 (5) of the Civil Code.[17]
Be that as it may, we disagree with the submission of the
petitioners that the said machines are not proper subjects of
the Writ of Seizure.
The Court has held that contracting parties may validly
stipulate that a real property be considered as personal.
[18]
After agreeing to such stipulation, they are consequently
estopped from claiming otherwise. Under the principle of
estoppel, a party to a contract is ordinarily precluded from
denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court upheld the
intention of the parties to treat a house as a personal
property because it had been made the subject of a chattel
mortgage. The Court ruled:

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

subject house as personal property, yet by ceding, selling or
transferring a property by way of chattel mortgage defendantsappellants 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.
Applying Tumalad, the Court in Makati Leasing and Finance
Corp. v. Wearever Textile Mills[20] also held that the machinery
used in a factory and essential to the industry, as in the present
case, was a proper subject of a writ of replevin because it was
treated as personal property in a contract. Pertinent portions of
the Courts ruling are reproduced hereunder:
x x x. 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 the present case, the Lease Agreement clearly provides that
the machines in question are to be considered as personal
property. Specifically, Section 12.1 of the Agreement reads as
follows:[21]
12.1 The PROPERTY is, and shall at all times be and remain,
personal property notwithstanding that the PROPERTY or any
part thereof may now be, or hereafter become, in any manner
affixed or attached to or embedded in, or permanently resting
upon, real property or any building thereon, or attached in any
manner to what is permanent.
Clearly then, petitioners are estopped from denying the
characterization of the subject machines as personal
property. Under the circumstances, they are proper subjects of
the Writ of Seizure.
It should be stressed, however, that our holding -- that the
machines should be deemed personal property pursuant to the
Lease Agreement is good only insofar as the contracting
parties are concerned.[22] Hence, while the parties are bound by
the Agreement, third persons acting in good faith are not
affected by its stipulation characterizing the subject machinery
as personal.[23] In any event, there is no showing that any
specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement
is a loan and not a lease. [24] Submitting documents supposedly
showing that they own the subject machines, petitioners also
argue in their Petition that the Agreement suffers from
intrinsic ambiguity which places in serious doubt the intention
of the parties and the validity of the lease agreement itself.

[25]

In their Reply to respondents Comment, they further allege

that the Agreement is invalid.[26]
These arguments are unconvincing. The validity and the
nature of the contract are the lis mota of the civil action
pending before the RTC. A resolution of these questions,
therefore, is effectively a resolution of the merits of the
case. Hence, they should be threshed out in the trial, not in the
proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the Court explained
that the policy under Rule 60 was that questions involving title
to the subject property questions which petitioners are now
raising -- should be determined in the trial. In that case, the
Court noted that the remedy of defendants under Rule 60 was
either to post a counter-bond or to question the sufficiency of
the plaintiffs bond. They were not allowed, however, to invoke
the title to the subject property. The Court ruled:
In other words, the law does not allow the defendant to file a
motion to dissolve or discharge the writ of seizure (or
delivery) on ground of insufficiency of the complaint or of the
grounds relied upon therefor, as in proceedings on preliminary
attachment or injunction, and thereby put at issue the matter of
the title or right of possession over the specific chattel being
replevied, the policy apparently being that said matter should
be ventilated and determined only at the trial on the merits.[28]
Besides, these questions require a determination of facts and a
presentation of evidence, both of which have no place in a
petition for certiorari in the CA under Rule 65 or in a petition
for review in this Court under Rule 45.[29]
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on
the Lease Agreement, for nothing on record shows that it has
been nullified or annulled. In fact, petitioners assailed it first
only in the RTC proceedings, which had ironically been
instituted by respondent. Accordingly, it must be presumed
valid and binding as the law between the parties.
Makati Leasing and Finance Corporation[30] is also instructive
on this point. In that case, the Deed of Chattel Mortgage,
which characterized the subject machinery as personal
property, was also assailed because respondent had allegedly
been required to sign a printed form of chattel mortgage which
was in a blank form at the time of signing. The Court rejected
the argument and relied on the Deed, ruling as follows:
x x x. 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. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries
to be seized, then its workers would be out of work and
thrown into the streets.[31] They also allege that the seizure
would nullify all efforts to rehabilitate the corporation.

Petitioners arguments do not preclude the implementation of

the Writ. As earlier discussed, law and jurisprudence support
its propriety. Verily, the above-mentioned consequences, if
they come true, should not be blamed on this Court, but on the
petitioners for failing to avail themselves of the remedy under
Section 5 of Rule 60, which allows the filing of a counterbond. The provision states:
SEC. 5. Return of property. -- If the adverse party objects to
the sufficiency of the applicants bond, or of the surety or
sureties thereon, he cannot immediately require the return of
the property, but if he does not so object, he may, at any time
before the delivery of the property to the applicant, require the
return thereof, by filing with the court where the action is
pending a bond executed to the applicant, in double the value
of the property as stated in the applicants affidavit for the
delivery thereof to the applicant, if such delivery be adjudged,
and for the payment of such sum to him as may be recovered
against the adverse party, and by serving a copy bond on the
applicant.
WHEREFORE, the Petition is DENIED and the assailed
Decision of the Court of Appeals AFFIRMED. Costs against
petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes,
JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
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 decision1 of the Court of
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)
xxx
xxx
xxx
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 MachinesTompkins made in Hongkong:
Serial Numbers Size of Machines
xxx
xxx
xxx
B. Sixteen (16) sets of Vayrow Knitting Machines made in
Taiwan.
xxx
xxx
xxx
C. Two (2) Circular Knitting Machines made in West
Germany.
xxx
xxx
xxx
D. Four (4) Winding Machines.
xxx
xxx
xxx
SCHEDULE "A"
I. TCT # 372097 - RIZAL
xxx
xxx
xxx
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.
xxx
xxx
xxx3
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. LP3091-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 laches10 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 tochattels. 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.19Records 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.
xxx
xxx
xxx
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.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
29

Art. 2216. Civil Code. No proof of pecuniary loss is

necessary in order that moral, nominal, temperate liquidated or
exemplary damages may be adjudicated. The assessment of
such damages, except liquidated ones, is left to the discretion
of the court, according to the circumstances of each case.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-46245 May 31, 1982
MERALCO SECURITIES INDUSTRIAL
CORPORATION, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS,
BOARD OF ASSESSMENT APPEALS OF LAGUNA and
PROVINCIAL ASSESSOR OF LAGUNA, respondents.
AQUINO, J.:
In this special civil action of certiorari, Meralco Securities
Industrial Corporation assails the decision of the Central
Board of Assessment Appeals (composed of the Secretary of
Finance as chairman and the Secretaries of Justice and Local
Government and Community Development as members) dated
May 6, 1976, holding that Meralco Securities' oil pipeline is
subject to realty tax.
The record reveals that pursuant to a pipeline concession
issued under the Petroleum Act of 1949, Republic Act No.
387, Meralco Securities installed from Batangas to Manila a
pipeline system consisting of cylindrical steel pipes joined
together and buried not less than one meter below the surface
along the shoulder of the public highway. The portion passing
through Laguna is about thirty kilometers long.
The pipes for white oil products measure fourteen inches in
diameter by thirty-six feet with a maximum capacity of 75,000
barrels daily. The pipes for fuel and black oil measure sixteen
inches by forty-eight feet with a maximum capacity of
100,000 barrels daily.
The pipes are embedded in the soil and are firmly and solidly
welded together so as to preclude breakage or damage thereto
and prevent leakage or seepage of the oil. The valves are
welded to the pipes so as to make the pipeline system one
single piece of property from end to end.
In order to repair, replace, remove or transfer segments of the
pipeline, the pipes have to be cold-cut by means of a rotary
hard-metal pipe-cutter after digging or excavating them out of
the ground where they are buried. In points where the pipeline
traversed rivers or creeks, the pipes were laid beneath the bed
thereof. Hence, the pipes are permanently attached to the land.
However, Meralco Securities notes that segments of the
pipeline can be moved from one place to another as shown in
the permit issued by the Secretary of Public Works and
Communications which permit provides that the government
reserves the right to require the removal or transfer of the
pipes by and at the concessionaire's expense should they be
affected by any road repair or improvement.
Pursuant to the Assessment Law, Commonwealth Act No. 470,
the provincial assessor of Laguna treated the pipeline as real
property and issued Tax Declarations Nos. 6535-6537, San
Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 98829885, Bian and 15806-15810, Calamba, containing the
assessed values of portions of the pipeline.
Meralco Securities appealed the assessments to the Board of
Assessment Appeals of Laguna composed of the register of
deeds as chairman and the provincial auditor as member. That
board in its decision of June 18, 1975 upheld the assessments
(pp. 47-49, Rollo).
Meralco Securities brought the case to the Central Board of
Assessment Appeals. As already stated, that Board, composed
of Acting Secretary of Finance Pedro M. Almanzor as
chairman and Secretary of Justice Vicente Abad Santos and
Secretary of Local Government and Community Development
Jose Roo as members, ruled that the pipeline is subject to
realty tax (p. 40, Rollo).
A copy of that decision was served on Meralco Securities'
counsel on August 27, 1976. Section 36 of the Real Property

Tax Code, Presidential Decree No. 464, which took effect on

June 1, 1974, provides that the Board's decision becomes final
and executory after the lapse of fifteen days from the date of
receipt of a copy of the decision by the appellant.
Under Rule III of the amended rules of procedure of the
Central Board of Assessment Appeals (70 O.G. 10085), a
party may ask for the reconsideration of the Board's decision
within fifteen days after receipt. On September 7, 1976 (the
eleventh day), Meralco Securities filed its motion for
reconsideration.
Secretary of Finance Cesar Virata and Secretary Roo
(Secretary Abad Santos abstained) denied the motion in a
resolution dated December 2, 1976, a copy of which was
received by appellant's counsel on May 24, 1977 (p. 4, Rollo).
On June 6, 1977, Meralco Securities filed the instant petition
for certiorari.
The Solicitor General contends that certiorari is not proper in
this case because the Board acted within its jurisdiction and
did not gravely abuse its discretion and Meralco Securities
was not denied due process of law.
Meralco Securities explains that because the Court of Tax
Appeals has no jurisdiction to review the decision of the
Central Board of Assessment Appeals and because no judicial
review of the Board's decision is provided for in the Real
Property Tax Code, Meralco Securities' recourse is to file a
petition for certiorari.
We hold that certiorari was properly availed of in this case. It
is a writ issued by a superior court to an inferior court, board
or officer exercising judicial or quasi-judicial functions
whereby the record of a particular case is ordered to be
elevated for review and correction in matters of law (14 C.J.S.
121-122; 14 Am Jur. 2nd 777).
The rule is that as to administrative agencies exercising quasijudicial power there is an underlying power in the courts to
scrutinize the acts of such agencies on questions of law and
jurisdiction even though no right of review is given by the
statute (73 C.J.S. 506, note 56).
"The purpose of judicial review is to keep the administrative
agency within its jurisdiction and protect substantial rights of
parties affected by its decisions" (73 C.J.S. 507, See. 165).
The review is a part of the system of checks and balances
which is a limitation on the separation of powers and which
forestalls arbitrary and unjust adjudications.
Judicial review of the decision of an official or administrative
agency exercising quasi-judicial functions is proper in cases of
lack of jurisdiction, error of law, grave abuse of discretion,
fraud or collusion or in case the administrative decision is
corrupt, arbitrary or capricious (Mafinco Trading Corporation
vs. Ople, L-37790, March 25, 1976, 70 SCRA 139, 158; San
Miguel Corporation vs. Secretary of Labor, L-39195, May 16,
1975, 64 SCRA 56, 60, Mun. Council of Lemery vs. Prov.
Board of Batangas, 56 Phil. 260, 268).
The Central Board of Assessment Appeals, in confirming the
ruling of the provincial assessor and the provincial board of
assessment appeals that Meralco Securities' pipeline is subject
to realty tax, reasoned out that the pipes are machinery or
improvements, as contemplated in the Assessment Law and
the Real Property Tax Code; that they do not fall within the
category of property exempt from realty tax under those laws;
that articles 415 and 416 of the Civil Code, defining real and
personal property, have no application to this case; that even
under article 415, the steel pipes can be regarded as realty

because they are constructions adhered to the soil and things

attached to the land in a fixed manner and that Meralco
Securities is not exempt from realty tax under the Petroleum
Law (pp. 36-40).
Meralco Securities insists that its pipeline is not subject to
realty tax because it is not real property within the meaning of
article 415. This contention is not sustainable under the
provisions of the Assessment Law, the Real Property Tax Code
and the Civil Code.
Section 2 of the Assessment Law provides that the realty tax is
due "on real property, including land, buildings, machinery,
and other improvements" not specifically exempted in section
3 thereof. This provision is reproduced with some
modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be
levied, assessed and collected in all provinces, cities and
municipalities an annual ad valorem tax on real property, such
as land, buildings, machinery and other improvements affixed
or attached to real property not hereinafter specifically
exempted. *
It is incontestable that the pipeline of Meralco Securities does
not fall within any of the classes of exempt real property
enumerated in section 3 of the Assessment Law and section 40
of the Real Property Tax Code.
Pipeline means a line of pipe connected to pumps, valves and
control devices for conveying liquids, gases or finely divided
solids. It is a line of pipe running upon or in the earth, carrying
with it the right to the use of the soil in which it is placed
(Note 21[10],54 C.J.S. 561).
Article 415[l] and [3] provides that real property may consist
of constructions of all kinds adhered to the soil and everything
attached to an immovable in a fixed manner, in such a way
that it cannot be separated therefrom without breaking the
material or deterioration of the object.
The pipeline system in question is indubitably a construction
adhering to the soil (Exh. B, p. 39, Rollo). It is attached to the
land in such a way that it cannot be separated therefrom
without dismantling the steel pipes which were welded to form
the pipeline.
Insofar as the pipeline uses valves, pumps and control devices
to maintain the flow of oil, it is in a sense machinery within
the meaning of the Real Property Tax Code.
It should be borne in mind that what are being characterized as
real property are not the steel pipes but the pipeline system as
a whole. Meralco Securities has apparently two pipeline
systems.
A pipeline for conveying petroleum has been regarded as real
property for tax purposes (Miller County Highway, etc., Dist.
vs. Standard Pipe Line Co., 19 Fed. 2nd 3; Board of Directors
of Red River Levee Dist. No. 1 of Lafayette County, Ark vs.
R. F. C., 170 Fed. 2nd 430; 50 C. J. 750, note 86).
The other contention of Meralco Securities is that the
Petroleum Law exempts it from the payment of realty taxes.
The alleged exemption is predicated on the following
provisions of that law which exempt Meralco Securities from
local taxes and make it liable for taxes of general application:
ART. 102. Work obligations, taxes, royalties not to be
changed. Work obligations, special taxes and royalties
which are fixed by the provisions of this Act or by the
concession for any of the kinds of concessions to which this
Act relates, are considered as inherent on such concessions
after they are granted, and shall not be increased or decreased

during the life of the concession to which they apply; nor shall
any other special taxes or levies be applied to such
concessions, nor shall 0concessionaires under this Act be
subject to any provincial, municipal or other local taxes or
levies;nor shall any sales tax be charged on any petroleum
produced from the concession or portion thereof,
manufactured by the concessionaire and used in the working
of his concession. All such concessionaires, however, shall be
subject to such taxes as are of general application in addition
to taxes and other levies specifically provided in this Act.
Meralco Securities argues that the realty tax is a local tax or
levy and not a tax of general application. This argument is
untenable because the realty tax has always been imposed by
the lawmaking body and later by the President of the
Philippines in the exercise of his lawmaking powers, as shown
in section 342 et seq. of the Revised Administrative Code, Act
No. 3995, Commonwealth Act No. 470 and Presidential
Decree No. 464.
The realty tax is enforced throughout the Philippines and not
merely in a particular municipality or city but the proceeds of
the tax accrue to the province, city, municipality and barrio
where the realty taxed is situated (Sec. 86, P.D. No. 464). In
contrast, a local tax is imposed by the municipal or city
council by virtue of the Local Tax Code, Presidential Decree
No. 231, which took effect on July 1, 1973 (69 O.G. 6197).
We hold that the Central Board of Assessment Appeals did not
act with grave abuse of discretion, did not commit any error of
law and acted within its jurisdiction in sustaining the holding
of the provincial assessor and the local board of assessment
appeals that Meralco Securities' pipeline system in Laguna is
subject to realty tax.
WHEREFORE, the questioned decision and resolution are
affirmed. The petition is dismissed. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ.,
concur.
Justice Abad Santos, Concepcion, Jr., JJ., took no part.
Footnotes
* The Real Property Tax Code contains the following
definitions in its section 3:
"k) Improvements - is a valuable addition made to property or
an amelioration in its condition, amounting to more than mere
repairs or replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or to adapt it
for new or further purposes. "
"m) Machinery - shall embrace machines, mechanical
contrivances, instruments, appliances and apparatus attached
to the real estate. It includes the physical facilities available
for production, as well as the installations and appurtenant
service facilities, together with all other equipment designed
for or essential to its manufacturing, industrial or agricultural
purposes." (See sec. 3[f], Assessment Law).
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.

CENTRAL BOARD OF ASSESSMENT APPEALS and

CITY ASSESSOR OF PASAY, respondents.
AQUINO, J.:
This case is about the realty tax on machinery and equipment
installed by Caltex (Philippines) Inc. in its gas stations located
on leased land.
The machines and equipment consists of underground tanks,
elevated tank, elevated water tanks, water tanks, gasoline
pumps, computing pumps, water pumps, car washer, car
hoists, truck hoists, air compressors and tireflators. The city
assessor described the said equipment and machinery in this
manner:
A gasoline service station is a piece of lot where a building or
shed is erected, a water tank if there is any is placed in one
corner of the lot, car hoists are placed in an adjacent shed, an
air compressor is attached in the wall of the shed or at the
concrete wall fence.
The controversial underground tank, depository of gasoline or
crude oil, is dug deep about six feet more or less, a few meters
away from the shed. This is done to prevent conflagration
because gasoline and other combustible oil are very
inflammable.
This underground tank is connected with a steel pipe to the
gasoline pump and the gasoline pump is commonly placed or
constructed under the shed. The footing of the pump is a
cement pad and this cement pad is imbedded in the pavement
under the shed, and evidence that the gasoline underground
tank is attached and connected to the shed or building through
the pipe to the pump and the pump is attached and affixed to
the cement pad and pavement covered by the roof of the
building or shed.
The building or shed, the elevated water tank, the car hoist
under a separate shed, the air compressor, the underground
gasoline tank, neon lights signboard, concrete fence and
pavement and the lot where they are all placed or erected, all
of them used in the pursuance of the gasoline service station
business formed the entire gasoline service-station.
As to whether the subject properties are attached and affixed
to the tenement, it is clear they are, for the tenement we
consider in this particular case are (is) the pavement covering
the entire lot which was constructed by the owner of the
gasoline station and the improvement which holds all the
properties under question, they are attached and affixed to the
pavement and to the improvement.
The pavement covering the entire lot of the gasoline service
station, as well as all the improvements, machines, equipments
and apparatus are allowed by Caltex (Philippines) Inc. ...
The underground gasoline tank is attached to the shed by the
steel pipe to the pump, so with the water tank it is connected
also by a steel pipe to the pavement, then to the electric motor
which electric motor is placed under the shed. So to say that
the gasoline pumps, water pumps and underground tanks are

outside of the service station, and to consider only the building

as the service station is grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas
station operators under an appropriate lease agreement or
receipt. It is stipulated in the lease contract that the operators,
upon demand, shall return to Caltex the machines and
equipment in good condition as when received, ordinary wear
and tear excepted.
The lessor of the land, where the gas station is located, does
not become the owner of the machines and equipment
installed therein. Caltex retains the ownership thereof during
the term of the lease.
The city assessor of Pasay City characterized the said items of
gas station equipment and machinery as taxable realty. The
realty tax on said equipment amounts to P4,541.10 annually
(p. 52, Rollo). The city board of tax appeals ruled that they are
personalty. The assessor appealed to the Central Board of
Assessment Appeals.
The Board, which was composed of Secretary of Finance
Cesar Virata as chairman, Acting Secretary of Justice Catalino
Macaraig, Jr. and Secretary of Local Government and
Community Development Jose Roo, held in its decision of
June 3, 1977 that the said machines and equipment are real
property within the meaning of sections 3(k) & (m) and 38 of
the Real Property Tax Code, Presidential Decree No. 464,
which took effect on June 1, 1974, and that the definitions of
real property and personal property in articles 415 and 416 of
the Civil Code are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente
Abad Santos took Macaraig's place) in its resolution of
January 12, 1978, denying Caltex's motion for reconsideration,
a copy of which was received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it
prayed for the setting aside of the Board's decision and for a
declaration that t he said machines and equipment are personal
property not subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax
Appeals has exclusive appellate jurisdiction over this case is
not correct. When Republic act No. 1125 created the Tax
Court in 1954, there was as yet no Central Board of
Assessment Appeals. Section 7(3) of that law in providing that
the Tax Court had jurisdiction to review by appeal decisions of
provincial or city boards of assessment appeals had in mind
the local boards of assessment appeals but not
the Central Board of Assessment Appeals which under the
Real Property Tax Code has appellate jurisdiction over
decisions of the said local boards of assessment appeals and is,
therefore, in the same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the
decision of the Central Board of Assessment Appeals shall
become final and executory after the lapse of fifteen days from
the receipt of its decision by the appellant. Within that fifteenday period, a petition for reconsideration may be filed. The

Code does not provide for the review of the Board's decision
by this Court.
Consequently, the only remedy available for seeking a review
by this Court of the decision of the Central Board of
Assessment Appeals is the special civil action of certiorari, the
recourse resorted to herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and
machinery already enumerated are subject to realty tax. This
issue has to be resolved primarily under the provisions of the
Assessment Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is
due "on real property, including land, buildings, machinery,
and other improvements" not specifically exempted in section
3 thereof. This provision is reproduced with some
modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be
levied, assessed and collected in all provinces, cities and
municipalities an annual ad valorem tax on real property, such
as land, buildings, machinery and other improvements affixed
or attached to real property not hereinafter specifically
exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition made to property or
an amelioration in its condition, amounting to more than mere
repairs or replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or to adapt it
for new or further purposes.
m) Machinery shall embrace machines, mechanical
contrivances, instruments, appliances and apparatus attached
to the real estate. It includes the physical facilities available
for production, as well as the installations and appurtenant
service facilities, together with all other equipment designed
for or essential to its manufacturing, industrial or agricultural
purposes (See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as
appurtenances to the gas station building or shed owned by
Caltex (as to which it is subject to realty tax) and which
fixtures are necessary to the operation of the gas station, for
without them the gas station would be useless, and which have
been attached or affixed permanently to the gas station site or
embedded therein, are taxable improvements and machinery
within the meaning of the Assessment Law and the Real
Property Tax Code.
Caltex invokes the rule that machinery which is movable in its
nature only becomes immobilized when placed in a plant by
the owner of the property or plant but not when so placed by a
tenant, a usufructuary, or any person having only a temporary
right, unless such person acted as the agent of the owner
(Davao Saw Mill Co. vs. Castillo, 61 Phil 709).

That ruling is an interpretation of paragraph 5 of article 415 of

the Civil Code regarding machinery that becomes real
property by destination. In the Davao Saw Mills case the
question was whether the machinery mounted on foundations
of cement and installed by the lessee on leased land should be
regarded as real property forpurposes of execution of a
judgment against the lessee. The sheriff treated the machinery
as personal property. This Court sustained the sheriff's action.
(Compare with Machinery & Engineering Supplies, Inc. vs.
Court of Appeals, 96 Phil. 70, where in a replevin case
machinery was treated as realty).
Here, the question is whether the gas station equipment and
machinery permanently affixed by Caltex to its gas station and
pavement (which are indubitably taxable realty) should be
subject to the realty tax. This question is different from the
issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even
though for some purposes they might be considered personalty
(84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar
phenomenon to see things classed as real property for
purposes of taxation which on general principle might be
considered personal property" (Standard Oil Co. of New York
vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of
Assessment Appeals vs. Manila Electric Co., 119 Phil. 328,
where Meralco's steel towers were considered poles within the
meaning of paragraph 9 of its franchise which exempts its
poles from taxation. The steel towers were considered
personalty because they were attached to square metal frames
by means of bolts and could be moved from place to place
when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the
same as tools and equipment in the repair shop of a bus
company which were held to be personal property not subject
to realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil.
501).
The Central Board of Assessment Appeals did not commit a
grave abuse of discretion in upholding the city assessor's is
imposition of the realty tax on Caltex's gas station and
equipment.
WHEREFORE, the questioned decision and resolution of the
Central Board of Assessment Appeals are affirmed. The
petition for certiorari is dismissed for lack of merit. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ.,
concur.
Concepcion, Jr. and Abad Santos, JJ., took no part.