Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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

MINDANAO BUS COMPANY, petitioner,

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

Binamira, Barria and Irabagon for petitioner.

Vicente E. Sabellina for respondents.

LABRADOR, J.:

This is a petition for the review of the decision of the Court of Tax Appeals in
C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is liable
to the payment of the realty tax on its maintenance and repair equipment
hereunder referred to.

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

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

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

Petitioner and respondents, thru their respective counsels agreed to the

following stipulation of facts:

1. That petitioner is a public utility solely engaged in transporting

passengers and cargoes by motor trucks, over its authorized lines in the
Island of Mindanao, collecting rates approved by the Public Service
Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It
maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province;

3. That the machineries sought to be assessed by the respondent as real

properties are the following:

(a) Hobart Electric Welder Machine, appearing in the attached

photograph, marked Annex "A";

(b) Storm Boring Machine, appearing in the attached photograph,

marked Annex "B";

(c) Lathe machine with motor, appearing in the attached photograph,

marked Annex "C";

(d) Black and Decker Grinder, appearing in the attached photograph,

marked Annex "D";

(e) PEMCO Hydraulic Press, appearing in the attached photograph,

marked Annex "E";

(f) Battery charger (Tungar charge machine) appearing in the

attached photograph, marked Annex "F"; and

(g) D-Engine Waukesha-M-Fuel, appearing in the attached

photograph, marked Annex "G".

4. That these machineries are sitting on cement or wooden platforms as

may be seen in the attached photographs which form part of this agreed
stipulation of facts;

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

6. That these machineries have never been or were never used as

industrial equipments to produce finished products for sale, nor to repair
machineries, parts and the like offered to the general public
indiscriminately for business or commercial purposes for which petitioner
has never engaged in, to date.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city assessor's ruling,
and having denied a motion for reconsideration, petitioner brought the case to
this Court assigning the following errors:

1. The Honorable Court of Tax Appeals erred in upholding respondents'

contention that the questioned assessments are valid; and that said tools,
equipments or machineries are immovable taxable real properties.

2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of

the New Civil Code, and holding that pursuant thereto the movable
equipments are taxable realties, by reason of their being intended or
destined for use in an industry.

3. The Court of Tax Appeals erred in denying petitioner's contention that

the respondent City Assessor's power to assess and levy real estate taxes
on machineries is further restricted by section 31, paragraph (c) of
Republic Act No. 521; and

4. The Tax Court erred in denying petitioner's motion for reconsideration.

Respondents contend that said equipments, tho movable, are immobilized by

destination, in accordance with paragraph 5 of Article 415 of the New Civil Code
which provides:

Art. 415. — The following are immovable properties:

xxx     xxx     xxx

(5) Machinery, receptacles, instruments or implements intended by the

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

Note that the stipulation expressly states that the equipment are placed on
wooden or cement platforms. They can be moved around and about in
petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil.
663, the Supreme Court said:

Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the
character of real property to "machinery, liquid containers, instruments or
implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which
are expressly adapted to meet the requirements of such trade or industry."
 If the installation of the machinery and equipment in question in the central
of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity
existing therein, for its sugar and industry, converted them into real
property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as
essential and principle elements of a sugar central, without them the sugar
central would be unable to function or carry on the industrial purpose for
which it was established. Inasmuch as the central is permanent in
character, the necessary machinery and equipment installed for carrying
on the sugar industry for which it has been established must necessarily
be permanent. (Emphasis ours.)

So that movable equipments to be immobilized in contemplation of the law must

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

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

The law that governs the determination of the question at issue is as follows:
 Art. 415. The following are immovable property:

xxx     xxx     xxx

(5) Machinery, receptacles, instruments or implements intended by the

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

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

But in the case at bar the equipments in question are destined only to repair or
service the transportation business, which is not carried on in a building or
permanently on a piece of land, as demanded by the law. Said equipments may
not, therefore, be deemed real property.

Resuming what we have set forth above, we hold that the equipments in question
are not absolutely essential to the petitioner's transportation business, and
petitioner's business is not carried on in a building, tenement or on a specified
land, so said equipment may not be considered real estate within the meaning of
Article 415 (c) of the Civil Code.

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

So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and
Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.

ESCRA Notes:
Property; Immovable Property by Destination; Two requisites before movables may
be deemed to have immobilized; Tools and equipments merely incidental to business
not subject to real estate tax.—Movable equipments, to be immobilized in
contemplation of Article 415 of the Civil Code, must be the essential and principal
elements of an industry or works which are carried on in a building or on a piece of land.
Thus, where the business is one of transportation, which is carried on without a repair
or service shop, and its rolling equipment is repaired or serviced in a shop belonging to
another, the tools and equipments in its repair shop which appear movable are merely
incidentals and may not be considered immovables, and, hence, not subject to
assessment as real estate for purposes of the real estate tax. Mindanao Bus Co. vs. City
Assessor and Treasurer, 6 SCRA 197, No. L-17870 September 29, 1962
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

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 defendants-appellants could only have
meant to convey the house as chattel, or at least, intended to treat
the same as such, so that they should not now be allowed to make
an inconsistent stand by claiming otherwise. Moreover, the subject
house stood on a rented lot to which defendants-appellants merely
had a temporary right as lessee, and although this can not in itself
alone determine the status of the property, it does so when
combined with other factors to sustain the interpretation that the
parties, particularly the mortgagors, intended to treat the house as
personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. &
Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the chattel
mortgage, it is the defendants-appellants themselves, as debtors-
mortgagors, who are attacking the validity of the chattel mortgage in
this case. The doctrine of estoppel therefore applies to the herein
defendants-appellants, having treated the subject house as
personality.

Examining the records of the instant case, We find no logical justification to

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

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

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

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

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

Private respondent contends that estoppel cannot apply against it because it had
never represented nor agreed that the machinery in suit be considered as
personal property but was merely required and dictated on by herein petitioner to
sign a printed form of chattel mortgage which was in a blank form at the time of
signing. This contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery as
movable or immovable was never placed in issue before the lower court and the
Court of Appeals except in a supplemental memorandum in support of the
petition filed in the appellate court. Moreover, even granting that the charge is
true, such fact alone does not render a contract void ab initio, but can only be a
ground for rendering said contract voidable, or annullable pursuant to Article
1390 of the new Civil Code, by a proper action in court. There is nothing on
record to show that the mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has indubitably
benefited from said contract. Equity dictates that one should not benefit at the
expense of another. Private respondent could not now therefore, be allowed to
impugn the efficacy of the chattel mortgage after it has benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the
questioned machinery is real, not personal property, becomes very apparent.
Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil.
70, heavily relied upon by said court is not applicable to the case at bar, the
nature of the machinery and equipment involved therein as real properties never
having been disputed nor in issue, and they were not the subject of a Chattel
Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with
the instant case to be the more controlling jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals

are hereby reversed and set aside, and the Orders of the lower court are hereby
reinstated, with costs against the private respondent.
SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.

Abad Santos, J., concurs in the result.

ESCRA Notes:

Moot and Academic; Return by mortgage creditor of property seized on replevin does
not make moot and academic the action for judicial foreclosure where the return was
expressly made to be “without prejudice”.—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. 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.

Property, Mortgage; Replevin; Where a chattel mortgage is constituted on machinery

permanently attached to the ground the machinery is to be considered as personal
property and the chattel mortgage constituted thereon is not null and void, regardless
of who owns the land.—Examining the records of the instant case, We find no logical
justification to exclude and 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.
Same; Same; Same; Same.—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.

Same: Same: Contracts: Equity; Execution of chattel mortgage on machinery

permanently attached to the ground is only an equitable ground for rendering the
contract voidable provided that the mortgagor has not been benefited by the
contract.—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. Makati Leasing and Finance
Corp. vs. Wearever Textile Mills, Inc., 122 SCRA 296, No. L-58469 May 16, 1983
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

SANTOS EVANGELISTA, petitioner,
vs.
ALTO SURETY & INSURANCE CO., INC., respondent.

Gonzalo D. David for petitioner.

Raul A. Aristorenas and Benjamin Relova for respondent.

CONCEPCION, J.:

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

Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista,
instituted Civil Case No. 8235 of the Court of First, Instance of Manila entitled "
Santos Evangelista vs. Ricardo Rivera," for a sum of money. On the same date,
he obtained a writ of attachment, which levied upon a house, built by Rivera on a
land situated in Manila and leased to him, by filing copy of said writ and the
corresponding notice of attachment with the Office of the Register of Deeds of
Manila, on June 8, 1949. In due course, judgment was rendered in favor of
Evangelista, who, on October 8, 1951, bought the house at public auction held in
compliance with the writ of execution issued in said case. The corresponding
definite deed of sale was issued to him on October 22, 1952, upon expiration of
the period of redemption. When Evangelista sought to take possession of the
house, Rivera refused to surrender it, upon the ground that he had leased the
property from the Alto Surety & Insurance Co., Inc. — respondent herein — and
that the latter is now the true owner of said property. It appears that on May 10,
1952, a definite deed of sale of the same house had been issued to respondent,
as the highest bidder at an auction sale held, on September 29, 1950, in
compliance with a writ of execution issued in Civil Case No. 6268 of the same
court, entitled "Alto Surety & Insurance Co., Inc. vs. Maximo Quiambao, Rosario
Guevara and Ricardo Rivera," in which judgment, for the sum of money, had
been rendered in favor respondent herein, as plaintiff therein. Hence, on June
13, 1953, Evangelista instituted the present action against respondent and
Ricardo Rivera, for the purpose of establishing his (Evangelista) title over said
house, securing possession thereof, apart from recovering damages.

In its answer, respondent alleged, in substance, that it has a better right to the
house, because the sale made, and the definite deed of sale executed, in its
favor, on September 29, 1950 and May 10, 1952, respectively, precede the sale
to Evangelista (October 8, 1951) and the definite deed of sale in his favor
(October 22, 1952). It, also, made some special defenses which are discussed
hereafter. Rivera, in effect, joined forces with respondent. After due trial, the
Court of First Instance of Manila rendered judgment for Evangelista, sentencing
Rivera and respondent to deliver the house in question to petitioner herein and to
pay him, jointly and severally, forty pesos (P40.00) a month from October, 1952,
until said delivery, plus costs.

On appeal taken by respondent, this decision was reversed by the Court of

Appeals, which absolved said respondent from the complaint, upon the ground
that, although the writ of attachment in favor of Evangelista had been filed with
the Register of Deeds of Manila prior to the sale in favor of respondent,
Evangelista did not acquire thereby a preferential lien, the attachment having
been levied as if the house in question were immovable property, although in the
opinion of the Court of Appeals, it is "ostensibly a personal property." As such,
the Court of Appeals held, "the order of attachment . . . should have been served
in the manner provided in subsection (e) of section 7 of Rule 59," of the Rules of
Court, reading:

The property of the defendant shall be attached by the officer executing

the order in the following manner:

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

However, the Court of Appeals seems to have been of the opinion, also, that the
house of Rivera should have been attached in accordance with subsection (c) of
said section 7, as "personal property capable of manual delivery, by taking and
safely keeping in his custody", for it declared that "Evangelists could not have . . .
validly purchased Ricardo Rivera's house from the sheriff as the latter was not in
possession thereof at the time he sold it at a public auction."

Evangelista now seeks a review, by certiorari, of this decision of the Court of

Appeals. In this connection, it is not disputed that although the sale to the
respondent preceded that made to Evangelists, the latter would have a better
right if the writ of attachment, issued in his favor before the sale to the
respondent, had been properly executed or enforced. This question, in turn,
depends upon whether the house of Ricardo Rivera is real property or not. In the
affirmative case, the applicable provision would be subsection (a) of section 7,
Rule 59 of the Rules of Court, pursuant to which the attachment should be made
"by filing with the registrar of deeds a copy of the order, together with a
description of the property attached, and a notice that it is attached, and by
leaving a copy of such order, description, and notice with the occupant of the
property, if any there be."

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

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

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

The question now before us, however, is: Does the fact that the parties
entering into a contract regarding a house gave said property the
consideration of personal property in their contract, bind the sheriff in
advertising the property's sale at public auction as personal property? It is
to be remembered that in the case at bar the action was to collect a loan
secured by a chattel mortgage on the house. It is also to be remembered
that in practice it is the judgment creditor who points out to the sheriff the
properties that the sheriff is to levy upon in execution, and the judgment
creditor in the case at bar is the party in whose favor the owner of the
house had conveyed it by way of chattel mortgage and, therefore, knew its
consideration as personal property.

These considerations notwithstanding, we hold that the rules on execution

do not allow, and, we should not interpret them in such a way as to allow,
the special consideration that parties to a contract may have desired to
impart to real estate, for example, as personal property, when they are, not
ordinarily so. Sales on execution affect the public and third persons. The
regulation governing sales on execution are for public officials to follow.
The form of proceedings prescribed for each kind of property is suited to its
character, not to the character, which the parties have given to it or desire
to give it. When the rules speak of personal property, property which is
ordinarily so considered is meant; and when real property is spoken of, it
means property which is generally known as real property. The regulations
were never intended to suit the consideration that parties may have
privately given to the property levied upon. Enforcement of regulations
would be difficult were the convenience or agreement of private parties to
determine or govern the nature of the proceedings. We therefore hold
that the mere fact that a house was the subject of the chattel mortgage
and was considered as personal property by the parties does not make
said house personal property for purposes of the notice to be given for its
sale of public auction. This ruling is demanded by the need for a definite,
orderly and well defined regulation for official and public guidance and
would prevent confusion and misunderstanding.

We, therefore, declare that the house of mixed materials levied upon on

execution, although subject of a contract of chattel mortgage between the
owner and a third person, is real property within the purview of Rule 39,
section 16, of the Rules of Court as it has become a permanent fixture of
the land, which, is real property. (42 Am. Jur. 199-200; Leung
Yee vs. Strong Machinery Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90
 Phil., 544; Ladera,, et al. vs. Hodges, et al., [C.A.] Off. Gaz. 5374.)"
(Emphasis ours.)

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

It is argued, however, that, even if the house in question were immovable

property, its attachment by Evangelista was void or ineffective, because, in the
language of the Court of Appeals, "after presenting a Copy of the order of
attachment in the Office of the Register of Deeds, the person who might then be
in possession of the house, the sheriff took no pains to serve Ricardo Rivera, or
other copies thereof." This finding of the Court of Appeals is neither conclusive
upon us, nor accurate.

The Record on Appeal, annexed to the petition for Certiorari, shows that
petitioner alleged, in paragraph 3 of the complaint, that he acquired the house in
question "as a consequence of the levy of an attachment and execution of the
judgment in Civil Case No. 8235" of the Court of First Instance of Manila. In his
answer (paragraph 2), Ricardo Rivera admitted said attachment execution of
judgment. He alleged, however, by way a of special defense, that the title of
respondent "is superior to that of plaintiff because it is based on a public
instrument," whereas Evangelista relied upon a "promissory note" which "is only
a private instrument"; that said Public instrument in favor of respondent
"is superior also to the judgment in Civil Case No. 8235"; and that plaintiff's claim
against Rivera amounted only to P866, "which is much below the real value" of
said house, for which reason it would be "grossly unjust to acquire the property
for such an inadequate consideration." Thus, Rivera impliedly admitted that his
house had been attached, that the house had been sold to Evangelista
in accordance with the requisite formalities, and that said attachment was valid,
although allegedly inferior to the rights of respondent, and the consideration for
the sale to Evangelista was claimed to be inadequate.

Respondent, in turn, denied the allegation in said paragraph 3 of the complaint,

but only " for the reasons stated in its special defenses" namely: (1) that by virtue
of the sale at public auction, and the final deed executed by the sheriff in favor of
respondent, the same became the "legitimate owner of the house" in question;
(2) that respondent "is a buyer in good faith and for value"; (3) that respondent
"took possession and control of said house"; (4) that "there was no valid
attachment by the plaintiff and/or the Sheriff of Manila of the property in question
as neither took actual or constructive possession or control of the property at any
time"; and (5) "that the alleged registration of plaintiff's attachment, certificate of
sale and final deed in the Office of Register of Deeds, Manila, if there was any, is
likewise, not valid as there is no registry of transactions covering houses erected
on land belonging to or leased from another." In this manner, respondent claimed
a better right, merely under the theory that, in case of double sale of immovable
property, the purchaser who first obtains possession in good faith, acquires title,
if the sale has not been "recorded . . . in the Registry of Property" (Art. 1544, Civil
Code of the Philippines), and that the writ of attachment and the notice of
attachment in favor of Evangelista should be considered unregistered, "as there
is no registry of transactions covering houses erected on land belonging to or
leased from another." In fact, said article 1544 of the Civil Code of the
Philippines, governing double sales, was quoted on page 15 of the brief for
respondent in the Court of Appeals, in support of its fourth assignment of error
therein, to the effect that it "has preference or priority over the sale of the same
property" to Evangelista.

In other words, there was no issue on whether copy of the writ and notice of
attachment had been served on Rivera. No evidence whatsoever, to the effect
that Rivera had not been served with copies of said writ and notice, was
introduced in the Court of First Instance. In its brief in the Court of
Appeals, respondent did not aver, or even, intimate, that no such copies were
served by the sheriff upon Rivera. Service thereof on Rivera had been impliedly
admitted by the defendants, in their respective answers, and by their behaviour
throughout the proceedings in the Court of First Instance, and, as regards
respondent, in the Court of Appeals. In fact, petitioner asserts in his brief herein
(p. 26) that copies of said writ and notice were delivered to Rivera,
simultaneously with copies of the complaint, upon service of summons, prior to
the filing of copies of said writ and notice with the register deeds, and the truth of
this assertion has not been directly and positively challenged or denied in the
brief filed before us by respondent herein. The latter did not dare therein to go
beyond making a statement — for the first time in the course of these
proceedings, begun almost five (5) years ago (June 18, 1953) — reproducing
substantially the aforementioned finding of the Court of Appeals and then quoting
the same.

Considering, therefore, that neither the pleadings, nor the briefs in the Court of
Appeals, raised an issue on whether or not copies of the writ of attachment and
notice of attachment had been served upon Rivera; that the defendants had
impliedly admitted-in said pleadings and briefs, as well as by their conduct during
the entire proceedings, prior to the rendition of the decision of the Court of
Appeals — that Rivera had received copies of said documents; and that, for this
reason, evidently, no proof was introduced thereon, we, are of the opinion, and
so hold that the finding of the Court of Appeals to the effect that said copies had
not been served upon Rivera is based upon a misapprehension of the specific
issues involved therein and goes beyond the range of such issues, apart from
being contrary to the aforementioned admission by the parties, and that,
accordingly, a grave abuse of discretion was committed in making said finding,
which is, furthermore, inaccurate.

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

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador,

Reyes, J.B.L., Endencia and Felix, JJ., concur.

ESCRA Notes:

PROPERTY; HOUSE is NOT PERSONAL BUT REAL PROPERTY FOR PURPOSES OF

ATTACHMENT.—A house is not personal property, much less a debt, credit or other
personal property capable of manual delivery, but immovable property. "A true building
(not merely superimposed on the soil), is immovable or real property, whether it is
erected by the owner of the land or by a usufructuary or lessee" (Laddera vs. Hodges, 48
Off. Gaz., 5374.) and the attachment of such building is subject to the provisions of
subsection (a) of section 7, Rule 59 of the Rules of Court. Evangelista vs. Alto Surety &
Ins. Co., Inc., 103 Phil. 401, No. L-11139 April 23, 1958
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 decision2 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 Machines-Tompkins made in

Hongkong:

Serial Numbers Size of Machines

xxx           xxx           xxx

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

xxx           xxx           xxx

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

xxx           xxx           xxx

D. Four (4) Winding Machines.

xxx           xxx           xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx           xxx           xxx

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. LP-3091-P before the defunct Court of
First Instance of Pasay City, Branch XXVIII. The CFI issued an order on
November 24, 1982 declaring the corporation insolvent. All its assets were taken
into the custody of the Insolvency Court, including the collateral, real and
personal, securing the two mortgages as abovementioned.

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the
latter commenced extrajudicial foreclosure proceedings against EVERTEX under
Act 3135, otherwise known as "An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real Estate Mortgages" and Act 1506
or "The Chattel Mortgage Law". A Notice of Sheriff's Sale was issued on
December 1, 1982.

On December 15, 1982, the first public auction was held where petitioner PBCom
emerged as the highest bidder and a Certificate of Sale was issued in its favor on
the same date. On December 23, 1982, another public auction was held and
again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale on
the same day.

On March 7, 1984, PBCom consolidated its ownership over the lot and all the
properties in it. In November 1986, it leased the entire factory premises to
petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold
the factory, lock, stock and barrel to Tsai for P9,000,000.00, including the
contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale,
reconveyance, and damages with the Regional Trial Court against PBCom,
alleging inter alia that the extrajudicial foreclosure of subject mortgage was in
violation of the Insolvency Law. EVERTEX claimed that no rights having been
transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai
acquired no rights over such assets sold to her, and should reconvey the assets.

Further, EVERTEX averred that PBCom, without any legal or factual basis,
appropriated the contested properties, which were not included in the Real and
Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23,
1979, and neither were those properties included in the Notice of Sheriff's Sale
dated December 1, 1982 and Certificate of Sale . . . dated December 15, 1982.

The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock

Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin
Equipment and 1 Heatset Equipment.

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

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation

and against the defendants:

1. Ordering the annulment of the sale executed by defendant Philippine

Bank of Communications in favor of defendant Ruby L. Tsai on May 3,
1988 insofar as it affects the personal properties listed in par. 9 of the
complaint, and their return to the plaintiff corporation through its assignee,
plaintiff Mamerto R. Villaluz, for disposition by the Insolvency Court, to be
done within ten (10) days from finality of this decision;

2. Ordering the defendants to pay jointly and severally the plaintiff

corporation the sum of P5,200,000.00 as compensation for the use and
possession of the properties in question from November 1986 to February
1991 and P100,000.00 every month thereafter, with interest thereon at the
legal rate per annum until full payment;

3. Ordering the defendants to pay jointly and severally the plaintiff

corporation the sum of P50,000.00 as and for attorney's fees and
expenses of litigation;
 4. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P200,000.00 by way of exemplary damages;

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

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

SO ORDERED.4

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

WHEREFORE, except for the deletion therefrom of the award; for exemplary
damages, and reduction of the actual damages, from P100,000.00 to P20,000.00
per month, from November 1986 until subject personal properties are restored to
appellees, the judgment appealed from is hereby AFFIRMED, in all other
respects. No pronouncement as to costs.5

Motion for reconsideration of the above decision having been denied in the
resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for
review with this Court.

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

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.

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 to chattels. The inventory list of the
mortgaged properties is an itemization of sixty-three (63) individually
described machineries while the schedule listed only machines and
2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16

In the absence of any showing that this conclusion is baseless, erroneous or

uncorroborated by the evidence on record, we find no compelling reason to
depart therefrom.

Too, assuming arguendo that the properties in question are immovable by

nature, nothing detracts the parties from treating it as chattels to secure an
obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9
SCRA 631 (1963), an immovable may be considered a personal property if there
is a stipulation as when it is used as security in the payment of an obligation
where a chattel mortgage is executed over it, as in the case at bar.

In the instant case, the parties herein: (1) executed a contract styled as "Real
Estate Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" if
indeed their intention is to treat all properties included therein as immovable, and
(2) attached to the said contract a separate "LIST OF MACHINERIES &
EQUIPMENT". These facts, taken together, evince the conclusion that the
parties' intention is to treat these units of machinery as chattels. A fortiori, the
contested after-acquired properties, which are of the same description as the
units enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," must
also be treated as chattels.

Accordingly, we find no reversible error in the respondent appellate court's ruling

that inasmuch as the subject mortgages were intended by the parties to involve
chattels, insofar as equipment and machinery were concerned, the Chattel
Mortgage Law applies, which provides in Section 7 thereof that: "a chattel
mortgage shall be deemed to cover only the property described therein and not
like or substituted property thereafter acquired by the mortgagor and placed in
the same depository as the property originally mortgaged, anything in the
mortgage to the contrary notwithstanding."

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

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

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

To the contrary, however, are the factual findings and conclusions of the trial
court that she is not a purchaser in good faith. Well-settled is the rule that the
person who asserts the status of a purchaser in good faith and for value has the
burden of proving such assertion.18 Petitioner Tsai failed to discharge this burden
persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property
of another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time of purchase, or
before he has notice of the claims or interest of some other person in the
property.19 Records reveal, however, that when Tsai purchased the controverted
properties, she knew of respondent's claim thereon. As borne out by the records,
she received the letter of respondent's counsel, apprising her of respondent's
claim, dated February 27, 1987.20 She replied thereto on March 9,
1987.21 Despite her knowledge of respondent's claim, she proceeded to buy the
contested units of machinery on May 3, 1988. Thus, the RTC did not err in
finding that she was not a purchaser in good faith.

Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the
disputed properties are located is equally unavailing. This defense refers to sale
of lands and not to sale of properties situated therein. Likewise, the mere fact
that the lot where the factory and the disputed properties stand is in PBCom's
name does not automatically make PBCom the owner of everything found
therein, especially in view of EVERTEX's letter to Tsai enunciating its claim.

Finally, petitioners' defense of prescription and laches is less than convincing.

We find no cogent reason to disturb the consistent findings of both courts below
that the case for the reconveyance of the disputed properties was filed within the
reglementary period. Here, in our view, the doctrine of laches does not apply.
Note that upon petitioners' adamant refusal to heed EVERTEX's claim,
respondent company immediately filed an action to recover possession and
ownership of the disputed properties. There is no evidence showing any failure or
neglect on its part, for an unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should have been done earlier. The
doctrine of stale demands would apply only where by reason of the lapse of time,
it would be inequitable to allow a party to enforce his legal rights. Moreover,
except for very strong reasons, this Court is not disposed to apply the doctrine of
laches to prejudice or defeat the rights of an owner.22

As to the award of damages, the contested damages are the actual

compensation, representing rentals for the contested units of machinery, the
exemplary damages, and attorney's fees.

As regards said actual compensation, the RTC awarded P100,000.00

corresponding to the unpaid rentals of the contested properties based on the
testimony of John Chua, who testified that the P100,000.00 was based on the
accepted practice in banking and finance, business and investments that the
rental price must take into account the cost of money used to buy them. The
Court of Appeals did not give full credence to Chua's projection and reduced the
award to P20,000.00.

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

. . . In the award of actual damages under scrutiny, there is nothing on

record warranting the said award of P5,200,000.00, representing monthly
rental income of P100,000.00 from November 1986 to February 1991, and
the additional award of P100,000.00 per month thereafter.

As pointed out by appellants, the testimonial evidence, consisting of the

testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is
necessary to substantiate the actual damages allegedly sustained by
appellees, by way of unrealized rental income of subject machineries and
equipments.

The testimony of John Cua (sic) is nothing but an opinion or projection

based on what is claimed to be a practice in business and industry. But
such a testimony cannot serve as the sole basis for assessing the actual
damages complained of. What is more, there is no showing that had
appellant Tsai not taken possession of the machineries and equipments in
question, somebody was willing and ready to rent the same for
P100,000.00 a month.

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.

ESCRA Notes:

Appeals: 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.—
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. This rule is applied more stringently when the findings of fact of the RTC is
affirmed by the Court of Appeals.

Property; Mortgages; The nature of the disputed machineries, i.e., that they were
heavy, bolted or cemented on the real property mortgaged, does not make them ipso
facto immovable under Article 415 (3) and (5) of the New Civil Code, as the parties’
intent has to be looked into.—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.

______________

* SECOND DIVISION.

325

VOL. 366, OCTOBER 2, 2001

325

Tsai vs. Court of Appeals

Same; Same; Estoppel; Even if the properties are immovable by nature, nothing detracts
the parties from treating them as chattels to secure an obligation under the principle of
estoppel.—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.
Same; Same; Same; Where the facts, taken together, evince the conclusion that the
parties’ intention is to treat the units of machinery as chattels, a fortiori, the after-
acquired properties, which are of the same description as the units referred to earlier,
must also be treated as chattels.—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.

Same; Same; Chattel Mortgage; 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.—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.

Sales; 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.—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. Petitioner Tsai failed
to discharge this burden persuasively.

Same; Same; 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.—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. Records reveal, however, that
when Tsai purchased the controverted properties, she knew of respondent’s claim
thereon. As borne out by the records, she received the letter of respondent’s counsel,
apprising her of respondent’s claim, dated February 27, 1987. She replied thereto on
March 9, 1987. 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.

Same; Land Titles; Torrens System; The defense of indefeasibility of Torrens Title
refers to sale of lands and not to sale of properties situated therein; The mere fact
that the lot where a factory and disputed properties stand in a person’s name does
not automatically make such person the owner of everything found therein.—
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.

Laches; Doctrine of Stale Demands; 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.—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.

Damages; 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.—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. 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. Tsai vs.
Court of Appeals, 366 SCRA 324, G.R. No. 120098, G.R. No. 120109 October 2, 2001
G.R. No. 137705               August 22, 2000

SERG'S 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

Decision1 of the Court of Appeals (CA)2 in CA-GR SP No. 47332 and its February
26, 1999 Resolution3 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 Resolution8 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
petitioner’s 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 SERG’S 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 Court’s 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 defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent stand by claiming otherwise."

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever

Textile Mills20 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 Court’s 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 respondent’s
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 Tondeña 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 plaintiff’s 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 Corporation30 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.1âwphi1 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 counter-bond.
The provision states:

"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of

the applicant’s 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 applicant’s
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.

ESCRA Notes:

Civil Law; Property; The machines 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 of petitioners chocolate-making industry.—
In the present case, the machines that were the subjects of the Writ of Seizure were
placed by petitioners in the factory built on their own land. Indisputably, they were
essential and principal elements of their chocolate-making industry. Hence, although
each of them was movable or personal property on its own, all of them have become
immobilized by destination because they are essential and principal elements in the
industry. In that sense, petitioners are correct in arguing that the said machines are real,
not personal, property pursuant to Article 415 (5) of the Civil Code.
Same; Same; Contracting parties may validly stipulate that a real property be
considered as personal.—The Court has held that contracting parties may validly
stipulate that a real property be considered as personal. After agreeing to such
stipulation, they are consequently estopped from claiming otherwise. Under the
principle of estoppel, a party to a contract is ordinarily precluded from denying the truth
of any material fact found therein.

Same; Same; The Lease Agreement clearly provides that the machinesin question are
to be considered as personal property; Under the circumstances they are proper
subjects of the writ of seizure.—In the present case, the Lease Agreement clearly
provides that the machines in question are to be considered as personal property. x x x
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.

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

Remedial Law; Replevin; Policy under Rule 60 is that questions involving title to the
subject property should be determined in the trial; Remedy of defendants under Rule
60 is either to post a counterbond or to question the sufficiency of the plaintiff’s bond.
—Indeed, in La Tondeña Distillers v. CA, 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 plaintiff’s bond. They were not allowed, however, to
invoke the title to the subject property. Serg’s Products, Inc. vs. PCI Leasing and Finance,
Inc., 338 SCRA 499, G.R. No. 137705 August 22, 2000

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-64261 December 26, 1984

JOSE BURGOS, SR., JOSE BURGOS, JR., BAYANI SORIANO and J.

BURGOS MEDIA SERVICES, INC., petitioners,
vs.
THE CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES, THE CHIEF,
PHILIPPINE CONSTABULARY, THE CHIEF LEGAL OFFICER,
PRESIDENTIAL SECURITY COMMAND, THE JUDGE ADVOCATE GENERAL,
ET AL., respondents.

Lorenzo M. Tañada, Wigberto E. Tañada, Martiniano Vivo, Augusto Sanchez,

Joker P. Arroyo, Jejomar Binay and Rene Saguisag for petitioners.

The Solicitor General for respondents.

ESCOLIN, J.:

Assailed in this petition for certiorari prohibition and mandamus with preliminary
mandatory and prohibitory injunction is the validity of two [2] search warrants
issued on December 7, 1982 by respondent Judge Ernani Cruz-Pano, Executive
Judge of the then Court of First Instance of Rizal [Quezon City], under which the
premises known as No. 19, Road 3, Project 6, Quezon City, and 784 Units C &
D, RMS Building, Quezon Avenue, Quezon City, business addresses of the
"Metropolitan Mail" and "We Forum" newspapers, respectively, were searched,
and office and printing machines, equipment, paraphernalia, motor vehicles and
other articles used in the printing, publication and distribution of the said
newspapers, as well as numerous papers, documents, books and other written
literature alleged to be in the possession and control of petitioner Jose Burgos,
Jr. publisher-editor of the "We Forum" newspaper, were seized.

Petitioners further pray that a writ of preliminary mandatory and prohibitory

injunction be issued for the return of the seized articles, and that respondents,
"particularly the Chief Legal Officer, Presidential Security Command, the Judge
Advocate General, AFP, the City Fiscal of Quezon City, their representatives,
assistants, subalterns, subordinates, substitute or successors" be enjoined from
using the articles thus seized as evidence against petitioner Jose Burgos, Jr. and
the other accused in Criminal Case No. Q- 022782 of the Regional Trial Court of
Quezon City, entitled People v. Jose Burgos, Jr. et al. 1

In our Resolution dated June 21, 1983, respondents were required to answer the
petition. The plea for preliminary mandatory and prohibitory injunction was set for
hearing on June 28, 1983, later reset to July 7, 1983, on motion of the Solicitor
General in behalf of respondents.

At the hearing on July 7, 1983, the Solicitor General, while opposing petitioners'
prayer for a writ of preliminary mandatory injunction, manifested that respondents
"will not use the aforementioned articles as evidence in the aforementioned case
until final resolution of the legality of the seizure of the aforementioned
articles. ..." 2 With this manifestation, the prayer for preliminary prohibitory
injunction was rendered moot and academic.

Respondents would have this Court dismiss the petition on the ground that
petitioners had come to this Court without having previously sought the quashal
of the search warrants before respondent judge. Indeed, petitioners, before
impugning the validity of the warrants before this Court, should have filed a
motion to quash said warrants in the court that issued them. 3 But this procedural
flaw notwithstanding, we take cognizance of this petition in view of the
seriousness and urgency of the constitutional issues raised not to mention the
public interest generated by the search of the "We Forum" offices, which was
televised in Channel 7 and widely publicized in all metropolitan dailies. The
existence of this special circumstance justifies this Court to exercise its inherent
power to suspend its rules. In the words of the revered Mr. Justice Abad Santos
in the case of C. Vda. de Ordoveza v. Raymundo, 4 "it is always in the power of
the court [Supreme Court] to suspend its rules or to except a particular case from
its operation, whenever the purposes of justice require it...".

Respondents likewise urge dismissal of the petition on ground of laches.

Considerable stress is laid on the fact that while said search warrants were
issued on December 7, 1982, the instant petition impugning the same was filed
only on June 16, 1983 or after the lapse of a period of more than six [6] months.

Laches is failure or negligence for an unreasonable and unexplained length of

time to do that which, by exercising due diligence, could or should have been
done earlier. It is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it. 5

Petitioners, in their Consolidated Reply, explained the reason for the delay in the
filing of the petition thus:

Respondents should not find fault, as they now do [p. 1, Answer, p.

3, Manifestation] with the fact that the Petition was filed on June 16,
1983, more than half a year after the petitioners' premises had been
raided.

The climate of the times has given petitioners no other choice. If

they had waited this long to bring their case to court, it was because
they tried at first to exhaust other remedies. The events of the past
eleven fill years had taught them that everything in this country, from
release of public funds to release of detained persons from custody,
has become a matter of executive benevolence or largesse

Hence, as soon as they could, petitioners, upon suggestion of

persons close to the President, like Fiscal Flaminiano, sent a letter
to President Marcos, through counsel Antonio Coronet asking the
return at least of the printing equipment and vehicles. And after such
a letter had been sent, through Col. Balbino V. Diego, Chief
Intelligence and Legal Officer of the Presidential Security Command,
they were further encouraged to hope that the latter would yield the
desired results.

After waiting in vain for five [5] months, petitioners finally decided to
come to Court. [pp. 123-124, Rollo]

Although the reason given by petitioners may not be flattering to our judicial
system, We find no ground to punish or chastise them for an error in judgment.
On the contrary, the extrajudicial efforts exerted by petitioners quite evidently
negate the presumption that they had abandoned their right to the possession of
the seized property, thereby refuting the charge of laches against them.

Respondents also submit the theory that since petitioner Jose Burgos, Jr. had
used and marked as evidence some of the seized documents in Criminal Case
No. Q- 022872, he is now estopped from challenging the validity of the search
warrants. We do not follow the logic of respondents. These documents lawfully
belong to petitioner Jose Burgos, Jr. and he can do whatever he pleases with
them, within legal bounds. The fact that he has used them as evidence does not
and cannot in any way affect the validity or invalidity of the search warrants
assailed in this petition.

Several and diverse reasons have been advanced by petitioners to nullify the
search warrants in question.

1. Petitioners fault respondent judge for his alleged failure to conduct an

examination under oath or affirmation of the applicant and his witnesses, as
mandated by the above-quoted constitutional provision as wen as Sec. 4, Rule
126 of the Rules of Court .6 This objection, however, may properly be considered
moot and academic, as petitioners themselves conceded during the hearing on
August 9, 1983, that an examination had indeed been conducted by respondent
judge of Col. Abadilla and his witnesses.

2. Search Warrants No. 20-82[a] and No. 20- 82[b] were used to search two
distinct places: No. 19, Road 3, Project 6, Quezon City and 784 Units C & D,
RMS Building, Quezon Avenue, Quezon City, respectively. Objection is
interposed to the execution of Search Warrant No. 20-82[b] at the latter address
on the ground that the two search warrants pinpointed only one place where
petitioner Jose Burgos, Jr. was allegedly keeping and concealing the articles
listed therein, i.e., No. 19, Road 3, Project 6, Quezon City. This assertion is
based on that portion of Search Warrant No. 20- 82[b] which states:

Which have been used, and are being used as instruments and
means of committing the crime of subversion penalized under P.D.
885 as amended and he is keeping and concealing the same at 19
Road 3, Project 6, Quezon City.

The defect pointed out is obviously a typographical error. Precisely, two search
warrants were applied for and issued because the purpose and intent were to
search two distinct premises. It would be quite absurd and illogical for respondent
judge to have issued two warrants intended for one and the same place.
Besides, the addresses of the places sought to be searched were specifically set
forth in the application, and since it was Col. Abadilla himself who headed the
team which executed the search warrants, the ambiguity that might have arisen
by reason of the typographical error is more apparent than real. The fact is that
the place for which Search Warrant No. 20- 82[b] was applied for was 728 Units
C & D, RMS Building, Quezon Avenue, Quezon City, which address appeared in
the opening paragraph of the said warrant. 7 Obviously this is the same place that
respondent judge had in mind when he issued Warrant No. 20-82 [b].

In the determination of whether a search warrant describes the premises to be

searched with sufficient particularity, it has been held "that the executing officer's
prior knowledge as to the place intended in the warrant is relevant. This would
seem to be especially true where the executing officer is the affiant on whose
affidavit the warrant had issued, and when he knows that the judge who issued
the warrant intended the building described in the affidavit, And it has also been
said that the executing officer may look to the affidavit in the official court file to
resolve an ambiguity in the warrant as to the place to be searched." 8

3. Another ground relied upon to annul the search warrants is the fact that
although the warrants were directed against Jose Burgos, Jr. alone, articles b
belonging to his co-petitioners Jose Burgos, Sr., Bayani Soriano and the J.
Burgos Media Services, Inc. were seized.

Section 2, Rule 126 of the Rules of Court, enumerates the personal properties
that may be seized under a search warrant, to wit:

Sec. 2. Personal Property to be seized. — A search warrant may be

issued for the search and seizure of the following personal property:

[a] Property subject of the offense;

[b] Property stolen or embezzled and other proceeds or

fruits of the offense; and

[c] Property used or intended to be used as the means

of committing an offense.

The above rule does not require that the property to be seized should be owned
by the person against whom the search warrant is directed. It may or may not be
owned by him. In fact, under subsection [b] of the above-quoted Section 2, one of
the properties that may be seized is stolen property. Necessarily, stolen property
must be owned by one other than the person in whose possession it may be at
the time of the search and seizure. Ownership, therefore, is of no consequence,
and it is sufficient that the person against whom the warrant is directed has
control or possession of the property sought to be seized, as petitioner Jose
Burgos, Jr. was alleged to have in relation to the articles and property seized
under the warrants.

4. Neither is there merit in petitioners' assertion that real properties were seized
under the disputed warrants. Under Article 415[5] of the Civil Code of the
Philippines, "machinery, receptables, 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" are considered immovable property. In Davao Sawmill
Co. v. Castillo9 where this legal provision was invoked, this Court ruled that
machinery which is movable by nature becomes immobilized when placed by the
owner of the tenement, property or plant, but not so when placed by a tenant,
usufructuary, or any other person having only a temporary right, unless such
person acted as the agent of the owner.

In the case at bar, petitioners do not claim to be the owners of the land and/or
building on which the machineries were placed. This being the case, the
machineries in question, while in fact bolted to the ground remain movable
property susceptible to seizure under a search warrant.

5. The questioned search warrants were issued by respondent judge upon

application of Col. Rolando N. Abadilla Intelligence Officer of the P.C.
Metrocom.10 The application was accompanied by the Joint Affidavit of Alejandro
M. Gutierrez and Pedro U. Tango, 11 members of the Metrocom Intelligence and
Security Group under Col. Abadilla which conducted a surveillance of the
premises prior to the filing of the application for the search warrants on
December 7, 1982.

It is contended by petitioners, however, that the abovementioned documents

could not have provided sufficient basis for the finding of a probable cause upon
which a warrant may validly issue in accordance with Section 3, Article IV of the
1973 Constitution which provides:

SEC. 3. ... and no search warrant or warrant of arrest shall issue

except upon probable cause to be determined by the judge, or such
other responsible officer as may be authorized by law, after
examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to
be searched and the persons or things to be seized.

We find petitioners' thesis impressed with merit. Probable cause for a search is
defined as such facts and circumstances which would lead a reasonably discreet
and prudent man to believe that an offense has been committed and that the
objects sought in connection with the offense are in the place sought to be
searched. And when the search warrant applied for is directed against a
newspaper publisher or editor in connection with the publication of subversive
materials, as in the case at bar, the application and/or its supporting affidavits
must contain a specification, stating with particularity the alleged subversive
material he has published or is intending to publish. Mere generalization will not
suffice. Thus, the broad statement in Col. Abadilla's application that petitioner "is
in possession or has in his control printing equipment and other paraphernalia,
news publications and other documents which were used and are all
continuously being used as a means of committing the offense of subversion
punishable under Presidential Decree 885, as amended ..." 12 is a mere
conclusion of law and does not satisfy the requirements of probable cause.
Bereft of such particulars as would justify a finding of the existence of probable
cause, said allegation cannot serve as basis for the issuance of a search warrant
and it was a grave error for respondent judge to have done so.

Equally insufficient as basis for the determination of probable cause is the

statement contained in the joint affidavit of Alejandro M. Gutierrez and Pedro U.
Tango, "that the evidence gathered and collated by our unit clearly shows that
the premises above- mentioned and the articles and things above-described
were used and are continuously being used for subversive activities in
conspiracy with, and to promote the objective of, illegal organizations such as the
Light-a-Fire Movement, Movement for Free Philippines, and April 6
Movement." 13

In mandating that "no warrant shall issue except upon probable cause to be
determined by the judge, ... after examination under oath or affirmation of the
complainant and the witnesses he may produce; 14 the Constitution requires no
less than personal knowledge by the complainant or his witnesses of the facts
upon which the issuance of a search warrant may be justified. In Alvarez v. Court
of First Instance, 15 this Court ruled that "the oath required must refer to the truth
of the facts within the personal knowledge of the petitioner or his witnesses,
because the purpose thereof is to convince the committing magistrate, not the
individual making the affidavit and seeking the issuance of the warrant, of the
existence of probable cause." As couched, the quoted averment in said joint
affidavit filed before respondent judge hardly meets the test of sufficiency
established by this Court in Alvarez case.

Another factor which makes the search warrants under consideration

constitutionally objectionable is that they are in the nature of general warrants.
The search warrants describe the articles sought to be seized in this wise:
 1] All printing equipment, paraphernalia, paper, ink, photo
(equipment, typewriters, cabinets, tables, communications/recording
equipment, tape recorders, dictaphone and the like used and/or
connected in the printing of the "WE FORUM" newspaper and any
and all documents communication, letters and facsimile of prints
related to the "WE FORUM" newspaper.

2] Subversive documents, pamphlets, leaflets, books, and other

publication to promote the objectives and piurposes of the
subversive organization known as Movement for Free Philippines,
Light-a-Fire Movement and April 6 Movement; and,

3] Motor vehicles used in the distribution/circulation of the "WE

FORUM" and other subversive materials and propaganda, more
particularly,

1] Toyota-Corolla, colored yellow with Plate No. NKA

892;

2] DATSUN pick-up colored white with Plate No. NKV

969

3] A delivery truck with Plate No. NBS 524;

4] TOYOTA-TAMARAW, colored white with Plate No.

PBP 665; and,

5] TOYOTA Hi-Lux, pick-up truck with Plate No. NGV

427 with marking "Bagong Silang."

In Stanford v. State of Texas 16 the search warrant which authorized the search

for "books, records, pamphlets, cards, receipts, lists, memoranda, pictures,
recordings and other written instruments concerning the Communist Party in
Texas," was declared void by the U.S. Supreme Court for being too general. In
like manner, directions to "seize any evidence in connectionwith the violation of
SDC 13-3703 or otherwise" have been held too general, and that portion of a
search warrant which authorized the seizure of any "paraphernalia which could
be used to violate Sec. 54-197 of the Connecticut General Statutes [the statute
dealing with the crime of conspiracy]" was held to be a general warrant, and
therefore invalid. 17 The description of the articles sought to be seized under the
search warrants in question cannot be characterized differently.
In the Stanford case, the U.S. Supreme Courts calls to mind a notable chapter in
English history: the era of disaccord between the Tudor Government and the
English Press, when "Officers of the Crown were given roving commissions to
search where they pleased in order to suppress and destroy the literature of
dissent both Catholic and Puritan Reference herein to such historical episode
would not be relevant for it is not the policy of our government to suppress any
newspaper or publication that speaks with "the voice of non-conformity" but
poses no clear and imminent danger to state security.

As heretofore stated, the premises searched were the business and printing
offices of the "Metropolitan Mail" and the "We Forum newspapers. As a
consequence of the search and seizure, these premises were padlocked and
sealed, with the further result that the printing and publication of said newspapers
were discontinued.

Such closure is in the nature of previous restraint or censorship abhorrent to the

freedom of the press guaranteed under the fundamental law, 18 and constitutes
a virtual denial of petitioners' freedom to express themselves in print. This state
of being is patently anathematic to a democratic framework where a free, alert
and even militant press is essential for the political enlightenment and growth of
the citizenry.

Respondents would justify the continued sealing of the printing machines on the
ground that they have been sequestered under Section 8 of Presidential Decree
No. 885, as amended, which authorizes "the sequestration of the property of any
person, natural or artificial, engaged in subversive activities against the
government and its duly constituted authorities ... in accordance with
implementing rules and regulations as may be issued by the Secretary of
National Defense." It is doubtful however, if sequestration could validly be
effected in view of the absence of any implementing rules and regulations
promulgated by the Minister of National Defense.

Besides, in the December 10, 1982 issue of the Daily Express, it was reported
that no less than President Marcos himself denied the request of the military
authorities to sequester the property seized from petitioners on December 7,
1982. Thus:

The President denied a request flied by government prosecutors for

sequestration of the WE FORUM newspaper and its printing
presses, according to Information Minister Gregorio S. Cendana.
 On the basis of court orders, government agents went to the We
Forum offices in Quezon City and took a detailed inventory of the
equipment and all materials in the premises.

Cendaña said that because of the denial the newspaper and its
equipment remain at the disposal of the owners, subject to the
discretion of the court. 19

That the property seized on December 7, 1982 had not been sequestered is
further confirmed by the reply of then Foreign Minister Carlos P. Romulo to the
letter dated February 10, 1983 of U.S. Congressman Tony P. Hall addressed to
President Marcos, expressing alarm over the "WE FORUM " case. 20 In this reply
dated February 11, 1983, Minister Romulo stated:

2. Contrary to reports, President Marcos turned down the

recommendation of our authorities to close the paper's printing
facilities and confiscate the equipment and materials it uses. 21

IN VIEW OF THE FOREGOING, Search Warrants Nos. 20-82[a] and 20-82[b]

issued by respondent judge on December 7, 1982 are hereby declared null and
void and are accordingly set aside. The prayer for a writ of mandatory injunction
for the return of the seized articles is hereby granted and all articles seized
thereunder are hereby ordered released to petitioners. No costs.

SO ORDERED.

Fernando, C.J., Teehankee, Makasiar, Concepcion, Jr., Melencio-Herrera,

Plana, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.

Aquino, J., took no part.

Separate Opinions

ABAD SANTOS, J., concurring

I am glad to give my concurrence to the ponencia of Mr. Justice Escolin At the

same time I wish to state my own reasons for holding that the search warrants
which are the subject of the petition are utterly void.
The action against "WE FORUM" was a naked suppression of press freedom for
the search warrants were issued in gross violation of the Constitution.

The Constitutional requirement which is expressed in Section 3, Article IV,

stresses two points, namely: "(1) that no warrant shall issue but upon probable
cause, to be determined by the judge in the manner set forth in said provision;
and (2) that the warrant shall particularly describe the things to be seized."
(Stonehill vs. Diokno, 126 Phil. 738, 747: 20 SCRA 383 [1967].)

Any search warrant is conducted in disregard of the points mentioned above will
result in wiping "out completely one of the most fundamental rights guaranteed in
our Constitution, for it would place the sanctity of the domicile and the privacy of
communication and correspondence at the mercy of the whims caprice or
passion of peace officers." (Ibid, p. 748.)

The two search warrants were issued without probable cause. To satisfy the
requirement of probable cause a specific offense must be alleged in the
application; abstract averments will not suffice. In the case at bar nothing
specifically subversive has been alleged; stated only is the claim that certain
objects were being used as instruments and means of committing the offense of
subversion punishable under P.D. No. 885, as amended. There is no mention of
any specific provision of the decree. I n the words of Chief Justice C Concepcion,
" It would be legal heresy of the highest order, to convict anybody" of violating the
decree without reference to any determinate provision thereof.

The search warrants are also void for lack of particularity. Both search warrants
authorize Col. Rolando Abadilla to seize and take possession, among other
things, of the following:

Subversive documents, pamphlets, leaflets, books and other

publication to promote the objectives and purposes of the subversive
organizations known as Movement for Free Philippines, Light-a-Fire
Movement and April 6 Movement.

The obvious question is: Why were the documents, pamphlets, leaflets, books,
etc. subversive? What did they contain to make them subversive? There is
nothing in the applications nor in the warrants which answers the questions. I
must, therefore, conclude that the warrants are general warrants which are
obnoxious to the Constitution.

In point of fact, there was nothing subversive published in the WE FORUM just
as there is nothing subversive which has been published in MALAYA which has
replaced the former and has the same content but against which no action has
been taken.

Conformably with existing jurisprudence everything seized pursuant to the

warrants should be returned to the owners and all of the items are subject to the
exclusionary rule of evidence.

Teehankee, J., concur.

Separate Opinions

ABAD SANTOS, J., concurring

I am glad to give my concurrence to the ponencia of Mr. Justice Escolin At the

same time I wish to state my own reasons for holding that the search warrants
which are the subject of the petition are utterly void.

The action against "WE FORUM" was a naked suppression of press freedom for
the search warrants were issued in gross violation of the Constitution.

The Constitutional requirement which is expressed in Section 3, Article IV,

stresses two points, namely: "(1) that no warrant shall issue but upon probable
cause, to be determined by the judge in the manner set forth in said provision;
and (2) that the warrant shall particularly describe the things to be seized."
(Stonehill vs. Diokno, 126 Phil. 738, 747: 20 SCRA 383 [1967].)

Any search warrant is conducted in disregard of the points mentioned above will
result in wiping "out completely one of the most fundamental rights guaranteed in
our Constitution, for it would place the sanctity of the domicile and the privacy of
communication and correspondence at the mercy of the whims caprice or
passion of peace officers." (Ibid, p. 748.)

The two search warrants were issued without probable cause. To satisfy the
requirement of probable cause a specific offense must be alleged in the
application; abstract averments will not suffice. In the case at bar nothing
specifically subversive has been alleged; stated only is the claim that certain
objects were being used as instruments and means of committing the offense of
subversion punishable under P.D. No. 885, as amended. There is no mention of
any specific provision of the decree. I n the words of Chief Justice C Concepcion,
" It would be legal heresy of the highest order, to convict anybody" of violating the
decree without reference to any determinate provision thereof.

The search warrants are also void for lack of particularity. Both search warrants
authorize Col. Rolando Abadilla to seize and take possession, among other
things, of the following:

Subversive documents, pamphlets, leaflets, books and other

publication to promote the objectives and purposes of the subversive
organizations known as Movement for Free Philippines, Light-a-Fire
Movement and April 6 Movement.

The obvious question is: Why were the documents, pamphlets, leaflets, books,
etc. subversive? What did they contain to make them subversive? There is
nothing in the applications nor in the warrants which answers the questions. I
must, therefore, conclude that the warrants are general warrants which are
obnoxious to the Constitution.

In point of fact, there was nothing subversive published in the WE FORUM just
as there is nothing subversive which has been published in MALAYA which has
replaced the former and has the same content but against which no action has
been taken.

Conformably with existing jurisprudence everything seized pursuant to the

warrants should be returned to the owners and all of the items are subject to the
exclusionary rule of evidence.

Teehankee, J., concur.

ESCRA Notes:

Criminal Procedure; Constitutional Law; Appeal; While recourse to the Supreme Court
should not be made without first asking for quashal of the search warrant from the
court that issued it, case at bar is being exempted due to serious and urgent
constitutional issues raised and the public interest generated by the said search
warrants.—Respondents would have this Court dismiss the petition on the ground that
petitioners had come to this Court without having previously sought the quashal of the
search warrants before respondent judge. Indeed, petitioners, before impugning the
validity of the warrants before this Court, should have filed a motion to quash said
warrants in the court that issued them. But this procedural flaw notwithstanding, we
take cognizance of this petition in view of the seriousness and urgency of the
constitutional issued raised, not to mention the public interest generated by the search
of the “We Forum” offices, which was televised in Channel 7 and widely publicized in all
metropolitan dailies. The existence of this special circumstance justifies this Court to
exercise its inherent power to suspend its rules. In the words of the revered Mr. Justice
Abad Santos in the case of C. Vda. de Ordoveza v. Raymundo, “it is always in the power
of the court [Supreme Court] to suspend its rules or to except a particular case from its
operation, whenever the purposes of justice require it x x x”.

Same; Laches; Laches defined.—Laches is failure or negligence for an unreasonable and

unexplained length of time to do that which, by exercising due diligence, could or should
have been done earlier. It is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has abandoned
it or declined to assert it.

Same; Same; Laches may not be imputed to a party who tried to exhaust all
extrajudicial efforts before going to court to ask for quashal of search warrant.—
Although the reason given by petitioners may not be flattering to our judicial system,
We find no ground to punish or chastise them for an error in judgment. On the contrary,
the extrajudicial efforts exerted by petitioners quite evidently negate the presumption
that they had abandoned their right to the possession of the seized property, thereby
refuting the charge of laches against them.

Same; Estoppel; Evidence; Use of some documents seized as evidence by person from
same were seized, in the case filed against him, does not estop him from questioning
validity of their seizure.—Respondents also submit the theory that since petitioner Jose
Burgos, Jr. had used and marked as evidence some of the seized documents in Criminal
Case No. Q-022872, he is now estopped from challenging the validity of the search
warrants. We do not follow the logic of respondents. These documents lawfully belong
to petitioner Jose Burgos, Jr. and he can do whatever he pleases with them, within legal
abounds. The fact that he has used them as evidence does not and cannot in any way
affect the validity or invalidity of the search warrants assailed in this petition.

Same; Typographical error in specifying the address to be search not sufficient to

invalidate a search warrant where the address intended to be searched also appears
on the face of the warrant.—The defect pointed out is obviously a typographical error.
Precisely, two search warrants were applied for and issued because the purpose and
intent were to search two distinct premises. It would be quite absurd and illogical for
respondent judge to have issued two warrants intended for one and the same place.
Besides, the addresses of the places sought to be searched were specifically set forth in
the application, and since it was Col. Abadilla himself who headed the team which
executed the search warrants, the ambiguity that might have arisen by reason of the
typographical error is more apparent than real. The fact is that the place for which
Search Warrant No. 20-82[b] was applied for was 728 Units C & D, RMS Building,
Quezon Avenue, Quezon City, which address appeared in the opening paragraph of the
said warrant. Obviously, this is the same place that respondent judge had in mind when
he issued Warrant No. 20-82 [b].

Same; Constitutional Law; Fact that some of the personal properties seized do not
belong to the person against whom a search warrant was directed, not a sufficient
ground to annul the same.—The above rule (Sec. 1, Rule 126) does not require that the
property to be seized should be owned by the person against whom the search warrant
is directed. It may or may not be owned by him. In fact, under subsection [b] of the
above-quoted Section 2, one of the properties that may be seized is stolen property.
Necessarily, stolen property must be owned by one other than the person in whose
possession it may be at the time of the search and seizure. Ownership, therefore, is of
no consequence, and it is sufficient that the person against whom the warrant is
directed has control or possession of the property sought to be seized, as petitioner Jose
Burgos, Jr. was alleged to have in relation to the articles and property seized under the
warrants.
Same; Same; Property; Machinery bolted to the ground may be seized under a search
warrant if its owner is not the owner of the land on which it has been placed for then
it is classified as movable property.—Neither is there merit in petitioners’ assertion that
real properties were seized under the disputed warrants. Under Article 415[5] of the
Civil Code of the Philippines, “machinery, receptables, 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” are considered immovable property. In Davao Sawmill Co. v.
Castillo where this legal provision was invoked, this Court ruled that machinery which is
movable by nature becomes immobilized when placed by the owner of the tenement,
property or plant, but not so when placed by a tenant, usufructuary, or any other
person having only a temporary right, unless such person acted as the agent of the
owner. In the case at bar, petitioners do not claim to be the owners of the land and/or
building on which the machineries were placed. This being the case, the machineries in
question, while in fact bolted to the ground remain movable property susceptible to
seizure under a search warrant.

Same; Same; Words & Phrases; “Probable cause for search” defined.—We find
petitioners’ thesis impressed with merit. Probable cause for a search is defined as such
facts and circumstances which would lead a reasonably discreet and prudent man to
believe that an offense has been committed and that the objects sought in connection
with the offense are in the place sought to be searched.

Same; Same; Same; A search warrant against a publisher must particularize the
alleged criminal or subversive material to be seized.—And when the search warrant
applied for is directed against a newspaper publisher or editor in connection with the
publication of subversive materials, as in the case at bar, the application and/or its
supporting affidavits must contain a specification, stating with particularity the alleged
subversive material he has published or is intending to publish. Mere generalization will
not suffice. Thus, the broad statement in Col. Abadilla’s application that petitioner “is in
possession or has in his control printing equipment and other paraphernalia, news
publications and other documents which were used and are all continuously being used
as a means of committing the offense of subversion punishable under Presidential
Decree 885, as amended x x x” is a mere conclusion of law and does not satisfy the
requirements of probable cause. Bereft of such particulars as would justify a finding of
the existence of probable cause, said allegation cannot serve as basis for the issuance of
a search warrant and it was a grave error for respondent judge to have done so.

Same; Same, Same; Same.—Equally insufficient as basis for the determination of

probable cause is the statement contained in the joint affidavit of Alejandro M.
Gutierrez and Pedro U. Tango, “that the evidence gathered and collated by our unit
clearly shows that the premises above-mentioned and the articles and things above-
described were used and are continuously being used for subversive activities in
conspiracy with, and to promote the objective of, illegal organizations such as the Light-
a-Fire Movement, Movement for Free Philippines, and April 6 Movement.”

Same; Same; The persons wearing to or supporting the application for search warrants
must know personally the facts.—In mandating that “no warrant shall issue except
upon probable cause to be determined by the judge, x x x after examination under oath
or affirmation of the complainant and the witnesses he may produce; the Constitution
requires no less than personal knowledge by the com-plainant or his witnesses of the
facts upon which the issuance of a search warrant may be justified. In Alvarez v. Court of
First Instance, this Court ruled that “the oath required must refer to the truth of the
facts within the personal knowledge of the petitioner or his witnesses, because the
purpose thereof is to convince the committing magistrate, not the individual making the
affidavit and seeking the issuance of the warrant, of the existence of probable cause.”
As couched, the quoted averment in said joint affidavit filed before respondent judge
hardly meets the test of sufficiency established by this Court in Alvarez case.

Same; Same; A search warrant in the nature of a general warrant is constitutionally

objectionable.—In Stanford v. State of Texas, the search warrant which authorized the
search for ‘books, records, pamphlets, cards, receipts, lists, memoranda, pictures,
recordings and other written instruments concerning the Communist Parties of Texas,
and the operation of the Communist Party in Texas,” was declared void by the U.S.
Supreme Court for being too general. In like manner, directions to “seize any evidence
in connection with the violation of SDC 13-3703 or otherwise” have been held too
general, and that portion of a search warrant which authorized the seizure of any
“paraphernalia which could be used to violate Sec. 54-197 of the Connecticut General
Statutes [the statute dealing with the crime of conspiracy]” was held to be a general
warrant, and therefore invalid. The description of the articles sought to be seized under
the search warrants in question cannot be characterized differently.

Same; Same; Closure of the premises of a news publishing house constitutes a virtual
denial of press freedom.—Such closure is in the nature of previous restraint or
censorship abhorrent to the freedom of the press guaranteed under the fundamental
law, and constitutes a virtual denied of petitioners’ freedom to express themselves in
print. This state of being is patently anathematic to a democratic framework where a
free, alert and even militant press is essential for the political enlightment and growth of
the citizenry.

Same; Same.—Respondents would justify the continued sealing of the printing

machines on the ground that they have been sequestered under Section 8 of
Presidential Decree No. 885, as amended, which authorizes “the sequestration of the
property of any person, natural or artificial, engaged in subversive activities against the
government and its duly constituted authorities x x x in accordance with implementing
rules and regulations as may be issued by the Secretary of National Defense.” It is
doubtful, however, if sequestration could validly be effected in view of the absence of
any implementing rules and regulations promulgated by the Minister of National
Defense.

Same; Same; Property; President Marcos denied the request of the military to
sequester property.—Besides, in the December 10, 1982 issue of the Daily Express, it
was reported that no less than President Marcos himself denied the request of the
military authorities to sequester the property seized from petitioners on December 7,
1982.
ABAD SANTOS, concurring:

Criminal Procedure; Constitutional Law; The warrants at bar were issued without
probable cause.—The two search warrants were issued without probable cause. To
satisfy the requirement of probable cause a specific offense must be alleged in the
application; abstract averments will not suffice. In the case at bar nothing specifically
subversive has been alleged; stated only is the claim that certain objects were being
used as instruments and means of committing the offense of subversion punishable
under P.D. No. 885, as amended. There is no mention of any specific provision of the
decree. In the words of Chief Justice Concepcion, “It would be legal heresy, of the
highest order, to convict anybody” of violating the decree without reference to any
determinate provision thereof.

Same; Same; The warrants at bar are void for lack of particularity.—The obvious
question is: Why were the documents, pamphlets, leaflets, books, etc. subversive? What
did they contain to make them subversive? There is nothing in the applications nor in
the warrants which answers the questions. I must, therefore, conclude that the
warrants are general warrants which are obnoxious to the Constitution.

Same; Same; There was nothing subversive in the seized publications.—In point of
fact, there was nothing subversive published in the WE FORUM just as there is nothing
subversive which has been published in MALAYA which has replaced the former and has
the same content but against which no action has been taken. Conformably with
existing jurisprudence everything seized pursuant to the warrants should be returned to
the owners and all of the items are subject to the exclusionary rule of evidence. Burgos,
Sr. vs. Chief of Staff, AFP, 133 SCRA 800, No. L-64261 December 26, 1984
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. Nos. L-10817-18             February 28, 1958

ENRIQUE LOPEZ, petitioner,
vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.

Nicolas Belmonte and Benjamin T. de Peralta for petitioner.

Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B.
Macatangay for respondent Plaza Theatre, Inc.

FELIX, J.:

Enrique Lopez is a resident of Balayan, Batangas, doing business under the

trade name of Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa,
Jr., also a resident of the same province, dropped at Lopez' house and invited
him to make an investment in the theatre business. It was intimated that Orosa,
his family and close friends were organizing a corporation to be known as Plaza
Theatre, Inc., that would engage in such venture. Although Lopez expressed his
unwillingness to invest of the same, he agreed to supply the lumber necessary
for the construction of the proposed theatre, and at Orosa's behest and
assurance that the latter would be personally liable for any account that the said
construction might incur, Lopez further agreed that payment therefor would be on
demand and not cash on delivery basis. Pursuant to said verbal agreement,
Lopez delivered the lumber which was used for the construction of the Plaza
Theatre on May 17, 1946, up to December 4 of the same year. But of the total
cost of the materials amounting to P62,255.85, Lopez was paid only P20,848.50,
thus leaving a balance of P41,771.35.

We may state at this juncture that the Plaza Theatre was erected on a piece of
land with an area of 679.17 square meters formerly owned by Vicente Orosa, Jr.,
and was acquired by the corporation on September 25, 1946, for P6,000. As
Lopez was pressing Orosa for payment of the remaining unpaid obligation, the
latter and Belarmino Rustia, the president of the corporation, promised to obtain
a bank loan by mortgaging the properties of the Plaza Theatre., out of which said
amount of P41,771.35 would be satisfied, to which assurance Lopez had to
accede. Unknown to him, however, as early as November, 1946, the corporation
already got a loan for P30,000 from the Philippine National Bank with the Luzon
Surety Company as surety, and the corporation in turn executed a mortgage on
the land and building in favor of said company as counter-security. As the land at
that time was not yet brought under the operation of the Torrens System, the
mortgage on the same was registered on November 16, 1946, under Act No.
3344. Subsequently, when the corporation applied for the registration of the land
under Act 496, such mortgage was not revealed and thus Original Certificate of
Title No. O-391 was correspondingly issued on October 25, 1947, without any
encumbrance appearing thereon.

Persistent demand from Lopez for the payment of the amount due him caused
Vicente Orosa, Jr. to execute on March 17, 1947, an alleged "deed of
assignment" of his 420 shares of stock of the Plaza Theater, Inc., at P100 per
share or with a total value of P42,000 in favor of the creditor, and as the
obligation still remained unsettled, Lopez filed on November 12, 1947, a
complaint with the Court of First Instance of Batangas (Civil Case No. 4501
which later became R-57) against Vicente Orosa, Jr. and Plaza Theater, Inc.,
praying that defendants be sentenced to pay him jointly and severally the sum of
P41,771.35, with legal interest from the firing of the action; that in case
defendants fail to pay the same, that the building and the land covered by OCT
No. O-391 owned by the corporation be sold at public auction and the proceeds
thereof be applied to said indebtedness; or that the 420 shares of the capital
stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff
be sold at public auction for the same purpose; and for such other remedies as
may be warranted by the circumstances. Plaintiff also caused the annotation of a
notice of lis pendens on said properties with the Register of Deeds.

Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers,
the first denying that the materials were delivered to him as a promoter and later
treasurer of the corporation, because he had purchased and received the same
on his personal account; that the land on which the movie house was constructed
was not charged with a lien to secure the payment of the aforementioned unpaid
obligation; and that the 420 shares of stock of the Plaza Theatre, Inc., was not
assigned to plaintiff as collaterals but as direct security for the payment of his
indebtedness. As special defense, this defendant contended that as the 420
shares of stock assigned and conveyed by the assignor and accepted by Lopez
as direct security for the payment of the amount of P41,771.35 were personal
properties, plaintiff was barred from recovering any deficiency if the proceeds of
the sale thereof at public auction would not be sufficient to cover and satisfy the
obligation. It was thus prayed that he be declared exempted from the payment of
any deficiency in case the proceeds from the sale of said personal properties
would not be enough to cover the amount sought to be collected.

Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line
of defense by alleging that the building materials delivered to Orosa were on the
latter's personal account; and that there was no understanding that said materials
would be paid jointly and severally by Orosa and the corporation, nor was a lien
charged on the properties of the latter to secure payment of the same obligation.
As special defense, defendant corporation averred that while it was true that the
materials purchased by Orosa were sold by the latter to the corporation, such
transactions were in good faith and for valuable consideration thus when plaintiff
failed to claim said materials within 30 days from the time of removal thereof from
Orosa, lumber became a different and distinct specie and plaintiff lost whatever
rights he might have in the same and consequently had no recourse against the
Plaza Theatre, Inc., that the claim could not have been refectionary credit, for
such kind of obligation referred to an indebtedness incurred in the repair or
reconstruction of something already existing and this concept did not include an
entirely new work; and that the Plaza Theatre, Inc., having been incorporated on
October 14, 1946, it could not have contracted any obligation prior to said date. It
was, therefore, prayed that the complaint be dismissed; that said defendant be
awarded the sum P 5,000 for damages, and such other relief as may be just and
proper in the premises.

The surety company, in the meantime, upon discovery that the land was already
registered under the Torrens System and that there was a notice of lis
pendens thereon, filed on August 17, 1948, or within the 1-year period after the
issuance of the certificate of title, a petition for review of the decree of the land
registration court dated October 18, 1947, which was made the basis of OCT No.
O-319, in order to annotate the rights and interests of the surety company over
said properties (Land Registration Case No. 17 GLRO Rec. No. 296). Opposition
thereto was offered by Enrique Lopez, asserting that the amount demanded by
him constituted a preferred lien over the properties of the obligors; that the surety
company was guilty of negligence when it failed to present an opposition to the
application for registration of the property; and that if any violation of the rights
and interest of said surety would ever be made, same must be subject to the lien
in his favor.

The two cases were heard jointly and in a decision dated October 30, 1952, the
lower Court, after making an exhaustive and detailed analysis of the respective
stands of the parties and the evidence adduced at the trial, held that defendants
Vicente Orosa, Jr., and the Plaza Theatre, Inc., were jointly liable for the unpaid
balance of the cost of lumber used in the construction of the building and the
plaintiff thus acquired the materialman's lien over the same. In making the
pronouncement that the lien was merely confined to the building and did not
extend to the land on which the construction was made, the trial judge took into
consideration the fact that when plaintiff started the delivery of lumber in May,
1946, the land was not yet owned by the corporation; that the mortgage in favor
of Luzon Surety Company was previously registered under Act No. 3344; that the
codal provision (Art. 1923 of the old Spanish Civil Code) specifying that refection
credits are preferred could refer only to buildings which are also classified as real
properties, upon which said refection was made. It was, however, declared that
plaintiff's lien on the building was superior to the right of the surety company. And
finding that the Plaza Theatre, Inc., had no objection to the review of the decree
issued in its favor by the land registration court and the inclusion in the title of the
encumbrance in favor of the surety company, the court a quo granted the petition
filed by the latter company. Defendants Orosa and the Plaza Theatre, Inc., were
thus required to pay jointly the amount of P41,771.35 with legal interest and
costs within 90 days from notice of said decision; that in case of default, the 420
shares of stock assigned by Orosa to plaintiff be sold at public auction and the
proceeds thereof be applied to the payment of the amount due the plaintiff, plus
interest and costs; and that the encumbrance in favor of the surety company be
endorsed at the back of OCT No. O-391, with notation I that with respect to the
building, said mortgage was subject to the materialman's lien in favor of Enrique
Lopez.

Plaintiff tried to secure a modification of the decision in so far as it declared that

the obligation of therein defendants was joint instead of solidary, and that the lien
did not extend to the land, but same was denied by order the court of December
23, 1952. The matter was thus appealed to the Court of appeals, which affirmed
the lower court's ruling, and then to this Tribunal. In this instance, plaintiff-
appellant raises 2 issues: (1) whether a materialman's lien for the value of the
materials used in the construction of a building attaches to said structure alone
and does not extend to the land on which the building is adhered to; and (2)
whether the lower court and the Court of Appeals erred in not providing that the
material mans liens is superior to the mortgage executed in favor surety
company not only on the building but also on the land.

It is to be noted in this appeal that Enrique Lopez has not raised any question
against the part of the decision sentencing defendants Orosa and Plaza Theatre,
Inc., to pay jointly the sum of P41,771.35, so We will not take up or consider
anything on that point. Appellant, however, contends that the lien created in favor
of the furnisher of the materials used for the construction, repair or refection of a
building, is also extended to the land which the construction was made, and in
support thereof he relies on Article 1923 of the Spanish Civil Code, pertinent law
on the matter, which reads as follows:
 ART. 1923. With respect to determinate real property and real rights of the
debtor, the following are preferred:

xxx     xxx     xxx

5. Credits for refection, not entered or recorded, with respect to the estate

upon which the refection was made, and only with respect to other credits
different from those mentioned in four preceding paragraphs.

It is argued that in view of the employment of the phrase real estate, or

immovable property, and inasmuch as said provision does not contain any
specification delimiting the lien to the building, said article must be construed as
to embrace both the land and the building or structure adhering thereto. We
cannot subscribe to this view, for while it is true that generally, real estate
connotes the land and the building constructed thereon, it is obvious that the
inclusion of the building, separate and distinct from the land, in the enumeration
of what may constitute real properties1 could mean only one thing — that a
building is by itself an immovable property, a doctrine already pronounced by this
Court in the case of Leung Yee vs. Strong Machinery Co., 37 Phil., 644.
Moreover, and in view of the absence of any specific provision of law to the
contrary, a building is an immovable property, irrespective of whether or not said
structure and the land on which it is adhered to belong to the same owner.

A close examination of the provision of the Civil Code invoked by appellant

reveals that the law gives preference to unregistered refectionary credits only
with respect to the real estate upon which the refection or work was made. This
being so, the inevitable conclusion must be that the lien so created attaches
merely to the immovable property for the construction or repair of which the
obligation was incurred. Evidently, therefore, the lien in favor of appellant for the
unpaid value of the lumber used in the construction of the building attaches only
to said structure and to no other property of the obligors.

Considering the conclusion thus arrived at, i.e., that the materialman's lien could
be charged only to the building for which the credit was made or which received
the benefit of refection, the lower court was right in, holding at the interest of the
mortgagee over the land is superior and cannot be made subject to the said
materialman's lien.

Wherefore, and on the strength of the foregoing considerations, the decision

appealed from is hereby affirmed, with costs against appellant. It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo,

Labrador, Concepcion, Reyes, J.B.L. and Endencia, JJ., concur.
ESCRA Notes:

1.PROPERTY; REAL ESTATE; MATERIALMAN'S LIEN; DOES NOT EXTEND TO THE LAND;
BUILDING SEPARATE AND DISTINCT FROM LAND.—Appellant's contention that the lien
executed in favor of the furnisher of the materials used for the construction, repair or
refection of a building is also extended to land on which the construction was made is
without merit, because while it is true that generally, real estate connotes the land and
the building constructed thereon, it is obvious that the inclusion of the building,
separate and distinct from the land, in the enumeration of what constitute real
properties (Art. 415 of the New Civil Code [Art. 334 of the old]) could mean only one
thing, that a building is by itself an immovable property. (Leung Yee vs. Strong
Machinery Co., 37 Phil., 644.)

2.ID.; ID.; ID.; BUILDING AS IMMOVABLE PROPERTY; IRRESPECTIVE OF OWNERSHIP OF

LAND AND BUILDING.—A building is an immovable property irrespective of whether or
not said structure and the land on which it is adhered to belong to the same owner.

3.PREFERENCE AND PRIORITIES; MATERIALMAN'S LIEN AND MORTGAGE CREDIT ON

LAND WHERE BUILDING CONSTRUCTED.—Materialman's lien attaches merely to the
immovable property for the construction or repair of which the obligation was incurred
and in the case at bar, the lien in favor of appellant for the unpaid value of the lumber
used in the construction of the building attaches only to said structure and to no other
property of the obligor. Thus, the interest of the mortgagee over the land is superior to
and cannot be made subject to the said materialman's lien. Lopez vs. Orosa, Jr., and
Plaza Theatre, Inc., 103 Phil. 98, No. L-10817-18 February 28, 1958
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-32917 July 18, 1988

JULIAN S. YAP, petitioner,
vs.
HON. SANTIAGO O. TAÑADA, etc., and GOULDS PUMPS INTERNATIONAL
(PHIL.), INC., respondents.

Paterno P. Natinga for private respondent.

NARVASA, J.:

The petition for review on certiorari at bar involves two (2) Orders of respondent
Judge Tañada 1 in Civil Case No. 10984. The first, dated September 16, 1970,
denied petitioner Yap's motion to set aside execution sale and to quash alias writ
of execution. The second, dated November 21, 1970, denied Yap's motion for
reconsideration. The issues concerned the propriety of execution of a judgment
claimed to be "incomplete, vague and non-final," and the denial of petitioner's
application to prove and recover damages resulting from alleged irregularities in
the process of execution.

The antecedents will take some time in the telling. The case began in the City
Court of Cebu with the filing by Goulds Pumps International (Phil.), Inc. of a
complaint 2 against Yap and his wife 3 seeking recovery of P1,459.30
representing the balance of the price and installation cost of a water pump in the
latter's premises. 4 The case resulted in a judgment by the City Court on
November 25, 1968, reading as follows:

When this case was called for trial today, Atty. Paterno Natinga
appeared for the plaintiff Goulds and informed the court that he is
ready for trial. However, none of the defendants appeared despite
notices having been served upon them.

Upon petition Atty. Natinga, the plaintiff is hereby allowed to present

its evidence ex-parte.

After considering the evidence of the plaintiff, the court hereby

renders judgment in favor of the plaintiff and against the defendant
(Yap), ordering the latter to pay to the former the sum of Pl,459.30
with interest at the rate of 12% per annum until fully paid, computed
from August 12, 1968, date of the filing of the complaint; to pay the
sum of P364.80 as reasonable attorney's fees, which is equivalent "
to 25% of the unpaid principal obligation; and to pay the costs, if
any.

Yap appealed to the Court of First Instance. The appeal was assigned to
the sala of respondent Judge Tañada. For failure to appear for pre-trial on
August 28, 1968, this setting being intransferable since the pre-trial had already
been once postponed at his instance, 5 Yap was declared in default by Order of
Judge Tañada dated August 28, 1969, 6 reading as follows:

When this case was called for pre-trial this morning, the plaintiff and
counsel appeared, but neither the defendants nor his counsel
appeared despite the fact that they were duly notified of the pre-trial
set this morning. Instead he filed an Ex-Parte Motion for
Postponement which this Court received only this morning, and on
petition of counsel for the plaintiff that the Ex-Parte Motion for
Postponement was not filed in accordance with the Rules of Court
 he asked that the same be denied and the defendants be declared
in default; .. the motion for the plaintiff being well- grounded, the
defendants are hereby declared in default and the Branch Clerk of
Court ..is hereby authorized to receive evidence for the plaintiff
and .. submit his report within ten (10) days after reception of
evidence.

Goulds presented evidence ex parte and judgment by default was rendered the

following day by Judge Tañada requiring Yap to pay to Goulds (1) Pl,459.30
representing the unpaid balance of the pump purchased by him; (2) interest of
12% per annum thereon until fully paid; and (3) a sum equivalent to 25% of the
amount due as attorney's fees and costs and other expenses in prosecuting the
action. Notice of the judgment was served on Yap on September 1, 1969. 7

On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he insisted

that his motion for postponement should have been granted since it expressed
his desire to explore the possibility of an amicable settlement; that the court
should give the parties time to arrive at an amicable settlement failing which, he
should be allowed to present evidence in support of his defenses (discrepancy as
to the price and breach of warranty). The motion was not verified or accompanied
by any separate affidavit. Goulds opposed the motion. Its opposition 9 drew
attention to the eleventh-hour motion for postponement of Yap which had
resulted in the cancellation of the prior hearing of June 30, 1969 despite Goulds'
vehement objection, and the re-setting thereof on August 28, 1969 with
intransferable character; it averred that Yap had again sought postponement of
this last hearing by another eleventh-hour motion on the plea that an amicable
settlement would be explored, yet he had never up to that time ever broached the
matter, 10 and that this pattern of seeking to obtain last-minute postponements
was discernible also in the proceedings before the City Court. In its opposition,
Goulds also adverted to the examination made by it of the pump, on instructions
of the City Court, with a view to remedying the defects claimed to exist by Yap;
but the examination had disclosed the pump's perfect condition. Yap's motion for
reconsideration was denied by Order dated October 10, 1969, notice of which
was received by Yap on October 4, 1969. 11

On October 15, 1969 Judge Tañada issued an Order granting Goulds' Motion for
Issuance of Writ of Execution dated October 14, 1969, declaring the reasons
therein alleged to be meritorious. 12 Yap forthwith filed an "Urgent Motion for
Reconsideration of Order" dated October 17, 1969, 13 contending that the
judgment had not yet become final, since contrary to Goulds' view, his motion for
reconsideration was not pro forma for lack of an affidavit of merit, this not being
required under Section 1 (a) of Rule 37 of the Rules of Court upon which his
motion was grounded. Goulds presented an opposition dated October 22,
1969. 14 It pointed out that in his motion for reconsideration Yap had claimed to
have a valid defense to the action, i.e., ".. discrepancy as to price and breach of
seller's warranty," in effect, that there was fraud on Goulds' paint; Yap's motion
for reconsideration should therefore have been supported by an affidavit of merit
respecting said defenses; the absence thereof rendered the motion for
reconsideration fatally defective with the result that its filing did not interrupt the
running of the period of appeal. The opposition also drew attention to the failure
of the motion for reconsideration to specify the findings or conclusions in the
judgment claimed to be contrary to law or not supported by the evidence, making
it a pro forma motion also incapable of stopping the running of the appeal period.
On October 23, 1969, Judge Tañada denied Yap's motion for reconsideration
and authorized execution of the judgment.15 Yap sought reconsideration of this
order, by another motion dated October 29, 1969. 16 This motion was denied by
Order dated January 26, 1970. 17 Again Yap moved for reconsideration, and
again was rebuffed, by Order dated April 28, 1970. 18

In the meantime the Sheriff levied on the water pump in question, 19 and by notice
dated November 4, 1969, scheduled the execution sale thereof on November 14,
1969. 20 But in view of the pendency of Yap's motion for reconsideration of
October 29, 1969, suspension of the sale was directed by Judge Tañada in an
order dated November 6, 1969.21

Counsel for the plaintiff is hereby given 10 days time to answer the
Motion, dated October 29, 1969, from receipt of this Order and in the
meantime, the Order of October 23, 1969, insofar as it orders the
sheriff to enforce the writ of execution is hereby suspended.

It appears however that a copy of this Order was not transmitted to the Sheriff
"through oversight, inadvertence and pressure of work" of the Branch Clerk of
Court. 22 So the Deputy Provincial Sheriff went ahead with the scheduled auction
sale and sold the property levied on to Goulds as the highest bidder. 23 He later
submitted the requisite report to the Court dated November 17, 1969, 24 as well
as the "Sheriffs Return of Service" dated February 13, 1970, 25 in both of which it
was stated that execution had been "partially satisfied." It should be observed
that up to this time, February, 1970, Yap had not bestirred himself to take an
appeal from the judgment of August 29, 1969.

On May 9, 1970 Judge Tañada ordered the issuance of an alias writ of execution
on Gould's ex parte motion therefor. 26 Yap received notice of the Order on June
11. Twelve (1 2) days later, he filed a "Motion to Set Aside Execution Sale and to
Quash Alias Writ of Execution." 27 As regards the original, partial execution of the
judgment, he argued that —
1) "the issuance of the writ of execution on October 16, 1969 was contrary to law,
the judgment sought to be executed not being final and executory;" and

2) "the sale was made without the notice required by Sec. 18, Rule 39, of the
New Rules of Court," i.e., notice by publication in case of execution sale of real
property, the pump and its accessories being immovable because attached to the
ground with character of permanency (Art. 415, Civil Code).

And with respect to the alias writ, he argued that it should not have issued
because —

1) "the judgment sought to be executed is null and void" as "it deprived the
defendant of his day in court" and "of due process;"

2) "said judgment is incomplete and vague" because there is no starting point for
computation of the interest imposed, or a specification of the "other expenses
incurred in prosecuting this case" which Yap had also been ordered to pay;

3) "said judgment is defective because it contains no statement of facts but a

mere recital of the evidence; and

4) "there has been a change in the situation of the parties which makes execution
unjust and inequitable" because Yap suffered damages by reason of the illegal
execution.

Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter denied
by Order dated September 16, 1970. Judge Tañada pointed out that the motion
had "become moot and academic" since the decision of August 29, 1969,
"received by the defendant on September 1, 1969 had long become final when
the Order for the Issuance of a Writ of Execution was promulgated on October
15, 1969." His Honor also stressed that —

The defendant's Motion for Reconsideration of the Courts decision

was in reality one for new trial. Regarded as motion for new trial it
should allege the grounds for new trial, provided for in the Rules of
Court, to be supported by affidavit of merits; and this the defendant
failed to do. If the defendant sincerely desired for an opportunity to
submit to an amicable settlement, which he failed to do extra
judicially despite the ample time before him, he should have
appeared in the pre- trial to achieve the same purpose.

Judge Tañada thereafter promulgated another Order dated September 21, 1970
granting a motion of Goulds for completion of execution of the judgment of
August 29, 1969 to be undertaken by the City Sheriff of Cebu. Once more, Yap
sought reconsideration. He submitted a "Motion for Reconsideration of Two
Orders" dated October 13, 1970, 28 seeking the setting aside not only of this
Order of September 21, 1970 but also that dated September 16, 1970, denying
his motion to set aside execution dated June 23, 1970. He contended that the
Order of September 21, 1970 (authorizing execution by the City Sheriff) was
premature, since the 30-day period to appeal from the earlier order of September
16, 1970 (denying his motion to set aside) had not yet expired. He also reiterated
his view that his motion for reconsideration dated September 15, 1969 did not
require that it be accompanied by an affidavit of merits. This last motion was also
denied for "lack of merits," by Order dated November 21, 1970. 29

On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his intention to

appeal to the Supreme Court on certiorari only on questions of law, "from the
Order ... of September 16, 1970 ... and from the Order ... of November 21,
1970, ... pursuant to sections 2 and 3 of Republic Act No. 5440." He filed his
petition for review with this Court on January 5, 1971, after obtaining an
extension therefor. 30

The errors of law he attributes to the Court a quo are the following: 31

1) refusing to invalidate the execution pursuant to its Order of October 16, 1969
although the judgment had not then become final and executory and despite its
being incomplete and vague;

2) ignoring the fact that the execution sale was carried out although it (the Court)
had itself ordered suspension of execution on November 6, 1969;

3) declining to annul the execution sale of the pump and accessories subject of
the action although made without the requisite notice prescribed for the sale of
immovables; and

4) refusing to allow the petitioner to prove irregularities in the process of

execution which had resulted in damages to him.

Notice of the Trial Court's judgment was served on Yap on September 1, 1969.
His motion for reconsideration thereof was filed 15 days thereafter, on
September 16, 1969. Notice of the Order denying the motion was received by
him on October 14, 1969. The question is whether or not the motion for
reconsideration — which was not verified, or accompanied by an affidavit of
merits (setting forth facts constituting his meritorious defenses to the suit) or
other sworn statement (stating facts excusing his failure to appear at the pre-trial
was pro forma and consequently had not interrupted the running of the period of
appeal. It is Yap's contention that his motion was not pro forma for lack of an
affidavit of merits, such a document not being required by Section 1 (a) of Rule
37 of the Rules of Court upon which his motion was based. This is incorrect.

Section 2, Rule 37 precisely requires that when the motion for new trial is
founded on Section 1 (a), it should be accompanied by an affidavit of merit.

xxx xxx xxx

When the motion is made for the causes mentioned in subdivisions

(a) and (b) of the preceding section, it shall be proved in the manner
provided for proof of motions. Affidavit or affidavits of merits shall
also be attached to a motion for the cause mentioned in subdivision
(a) which may be rebutted by counter-affidavits.

xxx xxx xxx 32

Since Yap himself asserts that his motion for reconsideration is grounded on
Section 1 (a) of Rule 37, 33 i.e., fraud, accident, mistake or excusable negligence
which ordinary prudence could not have guarded against and by reason of
which ... (the) aggrieved party has probably been impaired in his rights" — this
being in any event clear from a perusal of the motion which theorizes that he had
"been impaired in his rights" because he was denied the right to present
evidence of his defenses (discrepancy as to price and breach of warranty) — it
was a fatal omission to fail to attach to his motion an affidavit of merits, i.e., an
affidavit "showing the facts (not conclusions) constituting the valid x x defense
which the movant may prove in case a new trial is granted." 34 The requirement of
such an affidavit is essential because obviously "a new trial would be a waste of
the court's time if the complaint turns out to be groundless or the defense
ineffective." 35

In his motion for reconsideration, Yap also contended that since he had
expressed a desire to explore the possibility of an amicable settlement, the Court
should have given him time to do so, instead of declaring him in default and
thereafter rendering judgment by default on Gould's ex parte evidence.

The bona fides of this desire to compromise is however put in doubt by the

attendant circumstances. It was manifested in an eleventh-hour motion for
postponement of the pre-trial which had been scheduled with intransferable
character since it had already been earlier postponed at Yap's instance; it had
never been mentioned at any prior time since commencement of the litigation;
such a possible compromise (at least in general or preliminary terms) was
certainly most appropriate for consideration at the pre-trial; in fact Yap was aware
that the matter was indeed a proper subject of a pre-trial agenda, yet he sought
to avoid appearance at said pre-trial which he knew to be intransferable in
character. These considerations and the dilatory tactics thus far attributable to
him-seeking postponements of hearings, or failing to appear therefor despite
notice, not only in the Court of First Instance but also in the City Court —
proscribe belief in the sincerity of his avowed desire to negotiate a compromise.
Moreover, the disregard by Yap of the general requirement that "(n)otice of a
motion shall be served by the applicant to all parties concerned at least three (3)
days before the hearing thereof, together with a copy of the motion, and of any
affidavits and other papers accompanying it," 36 for which no justification
whatever has been offered, also militates against the bona fides of Yap's
expressed wish for an amicable settlement. The relevant circumstances do not
therefore justify condemnation, as a grave abuse of discretion, or a serious
mistake, of the refusal of the Trial Judge to grant postponement upon this
proferred ground.

The motion for reconsideration did not therefore interrupt the running of the
period of appeal. The time during which it was pending before the court — from
September 16, 1969 when it was filed with the respondent Court until October
14, 1969 when notice of the order denying the motion was received by the
movant — could not be deducted from the 30-day period of appeal. 37 This is the
inescapable conclusion from a consideration of Section 3 of Rule 41 which in part
declares that, "The "time during which a motion to set aside the judgment or
order or for a new trial has been pending shall be deducted, unless such motion
fails to satisfy the requirements of Rule 37. 38

Notice of the judgment having been received by Yap on September 1, 1969, and
the period of appeal therefrom not having been interrupted by his motion for
reconsideration filed on September 16, 1969, the reglementary period of appeal
expired thirty (30) days after September 1, 1969, or on October 1, 1969, without
an appeal being taken by Yap. The judgment then became final and executory;
Yap could no longer take an appeal therefrom or from any other subsequent
orders; and execution of judgment correctly issued on October 15, 1969, "as a
matter of right." 39

The next point discussed by Yap, that the judgment is incomplete and vague, is
not well taken. It is true that the decision does not fix the starting time of the
computation of interest on the judgment debt, but this is inconsequential since
that time is easily determinable from the opinion, i.e., from the day the buyer
(Yap) defaulted in the payment of his obligation, 40 on May 31, 1968. 41 The
absence of any disposition regarding his counterclaim is also immaterial and
does not render the judgment incomplete. Yap's failure to appear at the pre-trial
without justification and despite notice, which caused the declaration of his
default, was a waiver of his right to controvert the plaintiff s proofs and of his right
to prove the averments of his answer, inclusive of the counterclaim therein
pleaded. Moreover, the conclusion in the judgment of the merit of the plaintiff s
cause of action was necessarily and at the same time a determination of the
absence of merit of the defendant's claim of untenability of the complaint and of
malicious prosecution.

Yap's next argument that the water pump had become immovable property by its
being installed in his residence is also untenable. The Civil Code considers as
immovable property, among others, anything "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." 42 The pump does not fit this
description. It could be, and was in fact separated from Yap's premises without
being broken or suffering deterioration. Obviously the separation or removal of
the pump involved nothing more complicated than the loosening of bolts or
dismantling of other fasteners.

Yap's last claim is that in the process of the removal of the pump from his house,
Goulds' men had trampled on the plants growing there, destroyed the shed over
the pump, plugged the exterior casings with rags and cut the electrical and
conduit pipes; that he had thereby suffered actual-damages in an amount of not
less than P 2,000.00, as well as moral damages in the sum of P 10,000.00
resulting from his deprivation of the use of his water supply; but the Court had
refused to allow him to prove these acts and recover the damages rightfully due
him. Now, as to the loss of his water supply, since this arose from acts
legitimately done, the seizure on execution of the water pump in enforcement of
a final and executory judgment, Yap most certainly is not entitled to claim moral
or any other form of damages therefor.

WHEREFORE, the petition is DENIED and the appeal DISMISSED, and the
Orders of September 16, 1970 and November 21, 1970 subject thereof,
AFFIRMED in toto. Costs against petitioner.

Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

ESCRA Notes:
Remedial Law; Judgments; Finale and executory judgment—Once a judgment has
become final and executory, no appeal can be taken therefrom or from any other
subsequent orders and the execution thereof becomes a matter of right.

Same; Same; New Trial; Motion for new trial must be accompanied by an affidavit of
merits.—When a motion for new trial is founded on Section l(a), Rule 37 of the Rules of
Court, i.e., fraud, accident, mistake or excusable negligence which ordinary prudence
could not have guarded against and by reason of which the aggrieved party has
probably been impaired in his rights, it should be accompanied by an affidavit of merits.
The requirement of such affidavit is essential because obviously a new trial would be a
waste of the court's time if the complaint turns out to be groundless or the defense
ineffective.

Same; Same; Postponement; Refusal of judge to grant postponement.—The refusal of

a trial judge to grant postponement on the ground of exploring possibility of an
amicable settlement does not constitute grave abuse of discretion or serious mistake,
there having been dilatory tactics attributable to the movant. A possible compromise (at
least in general or preliminary terms) is certainly most appropriate for consideration at
the pre-trial.

Same; Same;Appeals; Period of Appeal.—The time during which a motion to set aside
the judgment or order or for a new trial has been pending shall be deducted from the
pei'iod of appeal, unless such motion fails to satisfy the requirements of Rule 37.

Same; Same; Default; Failure to appear at the pretrial.—Defendant's faiiure to appear

at the pre-trial without justification and despite notice, which caused the declaration of
his default, is a waiver of his right to controvert the plaintiffs proof and of his right to
prove the averments of his answer, inclusive of the counterclaim therein pleaded. Yap
vs. Tanada, 163 SCRA 464, No. L-32917 July. 18, 1988
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-7057           October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON,
JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA, IPO LIMESTONE
CO., INC., and ANTONIO VILLARAMA, respondents.

Vicente J. Francisco for petitioner.

Capistrano and Capistrano for respondents.

CONCEPCION, J.:

This is an appeal by certiorari, taken by petitioner Machinery and Engineering

Supplies Inc., from a decision of the Court of Appeals denying an original petition
for certiorari filed by said petitioner against Hon. Potenciano Pecson, Ipo
Limestone Co., Inc., and Antonio Villarama, the respondents herein.

The pertinent facts are set forth in the decision of the Court of Appeals, from
which we quote:

On March 13, 1953, the herein petitioner filed a complaint for replevin in
the Court of First Instance of Manila, Civil Case No. 19067, entitled
"Machinery and Engineering Supplies, Inc., Plaintiff, vs. Ipo Limestone Co.,
Inc., and Dr. Antonio Villarama, defendants", for the recovery of the
machinery and equipment sold and delivered to said defendants at their
factory in barrio Bigti, Norzagaray, Bulacan. Upon application ex-parte of
the petitioner company, and upon approval of petitioner's bond in the sum
of P15,769.00, on March 13,1953, respondent judge issued an order,
commanding the Provincial Sheriff of Bulacan to seize and take immediate
possession of the properties specified in the order (Appendix I, Answer).
On March 19, 1953, two deputy sheriffs of Bulacan, the said Ramon S.
Roco, and a crew of technical men and laborers proceeded to Bigti, for the
purpose of carrying the court's order into effect. Leonardo Contreras,
Manager of the respondent Company, and Pedro Torres, in charge
thereof, met the deputy sheriffs, and Contreras handed to them a letter
addressed to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of
Bulacan, signed by Atty. Adolfo Garcia of the defendants therein,
protesting against the seizure of the properties in question, on the ground
that they are not personal properties. Contending that the Sheriff's duty is
merely ministerial, the deputy sheriffs, Roco, the latter's crew of
technicians and laborers, Contreras and Torres, went to the factory. Roco's
attention was called to the fact that the equipment could not possibly be
dismantled without causing damages or injuries to the wooden frames
attached to them. As Roco insisted in dismantling the equipment on his
own responsibility, alleging that the bond was posted for such eventuality,
the deputy sheriffs directed that some of the supports thereof be cut
(Appendix 2). On March 20, 1953, the defendant Company filed an urgent
motion, with a counter-bond in the amount of P15,769, for the return of the
properties seized by the deputy sheriffs. On the same day, the trial court
issued an order, directing the Provincial Sheriff of Bulacan to return the
machinery and equipment to the place where they were installed at the
time of the seizure (Appendix 3). On March 21, 1953, the deputy sheriffs
returned the properties seized, by depositing them along the road, near the
quarry, of the defendant Company, at Bigti, without the benefit of inventory
and without re-installing hem in their former position and replacing the
destroyed posts, which rendered their use impracticable. On March 23,
1953, the defendants' counsel asked the provincial Sheriff if the machinery
and equipment, dumped on the road would be re-installed tom their former
position and condition (letter, Appendix 4). On March 24, 1953, the
Provincial Sheriff filed an urgent motion in court, manifesting that Roco had
been asked to furnish the Sheriff's office with the expenses, laborers,
technical men and equipment, to carry into effect the court's order, to
return the seized properties in the same way said Roco found them on the
day of seizure, but said Roco absolutely refused to do so, and asking the
court that the Plaintiff therein be ordered to provide the required aid or
relieve the said Sheriff of the duty of complying with the said order dated
March 20, 1953 (Appendix 5). On March 30, 1953, the trial court ordered
the Provincial Sheriff and the Plaintiff to reinstate the machinery and
equipment removed by them in their original condition in which they were
found before their removal at the expense of the Plaintiff (Appendix 7). An
urgent motion of the Provincial Sheriff dated April 15, 1953, praying for an
extension of 20 days within which to comply with the order of the Court
(appendix 10) was denied; and on May 4, 1953, the trial court ordered the
Plaintiff therein to furnish the Provincial Sheriff within 5 days with the
necessary funds, technical men, laborers, equipment and materials to
effect the repeatedly mentioned re-installation (Appendix 13). (Petitioner's
brief, Appendix A, pp. I-IV.)
Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-
R, entitled "Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano
Pecson, Provincial Sheriff of Bulacan, Ipo Limestone Co., Inc., and Antonio
Villarama." In the petition therein filed, it was alleged that, in ordering the
petitioner to furnish the provincial sheriff of Bulacan "with necessary funds,
technical men, laborers, equipment and materials, to effect the installation of the
machinery and equipment" in question, the Court of Firs Instance of Bulacan had
committed a grave abuse if discretion and acted in excess of its jurisdiction, for
which reason it was prayed that its order to this effect be nullified, and that,
meanwhile, a writ of preliminary injunction be issued to restrain the enforcement
o said order of may 4, 1953. Although the aforementioned writ was issued by the
Court of Appeals, the same subsequently dismissed by the case for lack of merit,
with costs against the petitioner, upon the following grounds:

While the seizure of the equipment and personal properties was ordered
by the respondent Court, it is, however, logical to presume that said court
did not authorize the petitioner or its agents to destroy, as they did, said
machinery and equipment, by dismantling and unbolting the same from
their concrete basements, and cutting and sawing their wooden supports,
thereby rendering them unserviceable and beyond repair, unless those
parts removed, cut and sawed be replaced, which the petitioner, not
withstanding the respondent Court's order, adamantly refused to do. The
Provincial Sheriff' s tortious act, in obedience to the insistent proddings of
the president of the Petitioner, Ramon S. Roco, had no justification in law,
notwithstanding the Sheriffs' claim that his duty was ministerial. It was the
bounden duty of the respondent Judge to give redress to the respondent
Company, for the unlawful and wrongful acts committed by the petitioner
and its agents. And as this was the true object of the order of March 30,
1953, we cannot hold that same was within its jurisdiction to issue. The
ministerial duty of the Sheriff should have its limitations. The Sheriff knew
or must have known what is inherently right and inherently wrong, more so
when, as in this particular case, the deputy sheriffs were shown a letter of
respondent Company's attorney, that the machinery were not personal
properties and, therefore, not subject to seizure by the terms of the order.
While it may be conceded that this was a question of law too technical to
decide on the spot, it would not have costs the Sheriff much time and
difficulty to bring the letter to the court's attention and have the equipment
and machinery guarded, so as not to frustrate the order of seizure issued
by the trial court. But acting upon the directives of the president of the
Petitioner, to seize the properties at any costs, in issuing the order sought
to be annulled, had not committed abuse of discretion at all or acted in an
arbitrary or despotic manner, by reason of passion or personal hostility; on
the contrary, it issued said order, guided by the well known principle that of
 the property has to be returned, it should be returned in as good a
condition as when taken (Bachrach Motor Co., Inc., vs. Bona, 44 Phil.,
378). If any one had gone beyond the scope of his authority, it is the
respondent Provincial Sheriff. But considering that fact that he acted under
the pressure of Ramon S. Roco, and that the order impugned was issued
not by him, but by the respondent Judge, We simply declare that said
Sheriff' act was most unusual and the result of a poor judgment. Moreover,
the Sheriff not being an officer exercising judicial functions, the writ may
not reach him, for certiorari lies only to review judicial actions.

The Petitioner complains that the respondent Judge had completely

disregarded his manifestation that the machinery and equipment seized
were and still are the Petitioner's property until fully paid for and such
never became immovable. The question of ownership and the applicability
of Art. 415 of the new Civil Code are immaterial in the determination of the
only issue involved in this case. It is a matter of evidence which should be
decided in the hearing of the case on the merits. The question as to
whether the machinery or equipment in litigation are immovable or not is
likewise immaterial, because the only issue raised before the trial court
was whether the Provincial Sheriff of Bulacan, at the Petitioner's instance,
was justified in destroying the machinery and in refusing to restore them to
their original form , at the expense of the Petitioner. Whatever might be the
legal character of the machinery and equipment, would not be in any way
justify their justify their destruction by the Sheriff's and the said Petitioner's.
(Petitioner's brief, Appendix A, pp. IV-VII.)

A motion for reconsideration of this decision of the Court of Appeals having been
denied , petitioner has brought the case to Us for review by writ of certiorari.
Upon examination of the record, We are satisfied, however that the Court of
Appeals was justified in dismissing the case.

The special civil action known as replevin, governed by Rule 62 of Court, is

applicable only to "personal property".

Ordinarily replevin may be brought to recover any specific personal

property unlawfully taken or detained from the owner thereof, provided
such property is capable of identification and delivery; but replevin will not
lie for the recovery of real property or incorporeal personal property. (77 C.
J. S. 17) (Emphasis supplied.)

When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc.,
machinery and equipment in question appeared to be attached to the land,
particularly to the concrete foundation of said premises, in a fixed manner, in
such a way that the former could not be separated from the latter "without
breaking the material or deterioration of the object." Hence, in order to remove
said outfit, it became necessary, not only to unbolt the same, but , also, to cut
some of its wooden supports. Moreover, said machinery and equipment were
"intended by the owner of the tenement for an industry" carried on said
immovable and tended." For these reasons, they were already immovable
property pursuant to paragraphs 3 and 5 of Article 415 of Civil Code of the
Philippines, which are substantially identical to paragraphs 3 and 5 of Article 334
of the Civil Code of Spain. As such immovable property, they were not subject to
replevin.

In so far as an article, including a fixture annexed by a tenant, is regarded

as part of the realty, it is not the subject for personality; . . . .

. . . the action of replevin does not lie for articles so annexed to the realty
as to be part as to be part thereof, as, for example, a house or a turbine
pump constituting part of a building's cooling system; . . . (36 C. J. S. 1000
& 1001)

Moreover, as the provincial sheriff hesitated to remove the property in question,

petitioner's agent and president, Mr. Ramon Roco, insisted "on the dismantling
at his own responsibility," stating that., precisely, "that is the reason why plaintiff
posted a bond ." In this manner, petitioner clearly assumed the corresponding
risks.

Such assumption of risk becomes more apparent when we consider that,

pursuant to Section 5 of Rule 62 of the Rules of Court, the defendant in an action
for replevin is entitled to the return of the property in dispute upon the filing of a
counterbond, as provided therein. In other words, petitioner knew that the
restitution of said property to respondent company might be ordered under said
provision of the Rules of Court, and that, consequently, it may become necessary
for petitioner to meet the liabilities incident to such return.

Lastly, although the parties have not cited, and We have not found, any authority
squarely in point — obviously real property are not subject to replevin — it is well
settled that, when the restitution of what has been ordered, the goods in question
shall be returned in substantially the same condition as when taken (54 C.J.,
590-600, 640-641). Inasmuch as the machinery and equipment involved in this
case were duly installed and affixed in the premises of respondent company
when petitioner's representative caused said property to be dismantled and then
removed, it follows that petitioner must also do everything necessary to the
reinstallation of said property in conformity with its original condition.
Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs
against the petitioner. So ordered.

Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo and
Reyes, J.B.L., JJ., concur.
Paras, C.J., concurs in the result.

ESCRA Notes:

1.REPLEVIN; DUTY OF SHERIFF IS MINISTERIAL IN CARRYING OUT THE COURT'S ORDER

BUT NOT TO DESTROY; POWER OF COURT TO ISSUE ORDER OF REINSTALLATION OF
EQUIPMENTS DESTROYED.—While the seizure of the equipments and personal
properties was ordered by the respondent court, it is however, logical to presume that
the same did not authorize the petitioner or its agents to destroy, said machineries and
equipments. The Provincial Sheriff's tortious act has no justification in law,
notwithstanding- the Sheriff's claim that his duty was ministerial. It was the bounden
duty of the respondent judge to give redress to the respondent company for the
unlawful and wrongful acts committed by the petitioner and its agents. And as this was
the true object of the order we can not but hold that same was within its jurisdiction to
issue.

2.ID.; ID.; SCOPE OF SHERIFF'S DUTY.—The ministerial duty of the sheriff should have its
limitations. The sheriff knew and must have known what is inherently right and
inherently wrong, more so when a letter was shown to him that the machineries and
equipments were not personal properties and therefore, not subject to seizure by the
terms of the order. While it may be conceded that this was a question of law too
technical to decide on the spot, it would not have cost the sheriff much time and
difficulty to bring the letter to the court's attention and have the equipments guarded so
as not to frustrate the order of seizure issued by the trial court.

3.ID.; APPLICABLE ONLY TO RECOVER PERSONAL PROPERTY.—Ordinarily replevin may

be brought to recover any specific personal property unlawfully taken or detained from
the owner thereof, provided such property is capable of identification and delivery; but
replevin will not lie for the recovery of real property or incorporeal personal property.

4.ID.; MACHINERY AND EQUIPMENT, WHEN IMMOVABLE.—The machinery and

equipment in question appeared to be attached to the land, particularly to the concrete
foundation of a building, in a fixed manner, in such a way that the former could not be
separated from the latter without breaking the material or deterioration of the object.
Hence, in order to remove said outfit, it became necessary not only to unbolt the same,
but to also cut some of its wooden supports. Said machinery and equipment were
"intended by the owner of the tenement for an industry" carried on said immovable and
tended "directly to meet the needs of said industry." For these reasons, they were
already immovable pursuant to paragraph 3 and 5 of Article 415 of Civil Code of the
Philippines.

5.ID.; RESTITUTION; REINSTALLATION OF DISMANTLED AND REMOVED PROPERTY IN

ITS ORIGINAL CONDITION.—When the restitution .of what has been taken by way of
replevin has been ordered, the goods in question shall be returned in substantially the
same condition as when taken (54 C. J., 599-600, 640-.641). Inasmuch as the machinery
and equipment involved in this case were duly installed and affixed in the premises of
respondent company when petitioner's representative caused said property to be
dismantled and then removed, it follows that petitioner must also do everything
necessary to the reinstallation of said property in conformity with its original condition.
Machinery & Engineering Supplies, Inc. vs. Court of Appeals, et al., 96 Phil. 70, No. L-
7057 October 29, 1954

DIVISION

[ GR No. 166102, Aug 05, 2015 ]

MANILA ELECTRIC COMPANY v. CITY ASSESSOR +

DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court filed by Manila Electric Company (MERALCO), seeking the reversal of
the Decision[1] dated May 13, 2004 and Resolution[2] dated November 18, 2004 of
the Court of Appeals in CA-G.R. SP No. 67027. The appellate court affirmed the
Decision[3] dated May 3, 2001 of the Central Board of Assessment Appeals
(CBAA) in CBAA Case No. L-20-98, which, in turn, affirmed with modification
the Decision[4] dated June 17, 1998[5] of the Local Board of Assessment Appeals
(LBAA) of Lucena City, Quezon Province, as regards Tax Declaration Nos. 019-
6500 and 019-7394, ruling that MERALCO is liable for real property tax on its
transformers, electric posts (or poles), transmission lines, insulators, and electric
meters, beginning 1992.

MERALCO is a private corporation organized and existing under Philippine laws

to operate as a public utility engaged in electric distribution. MERALCO has been
successively granted franchises to operate in Lucena City beginning 1922 until
present time, particularly, by: (1) Resolution No. 36[6] dated May 15, 1922 of the
Municipal Council of Lucena; (2) Resolution No. 108 [7] dated July 1, 1957 of the
Municipal Council of Lucena; (3) Resolution No. 2679 [8] dated June 13, 1972 of
the Municipal Board of Lucena City;[9] (4) Certificate of Franchise[10] dated
October 28, 1993 issued by the National Electrification Commission; and (5)
Republic Act No. 9209[11] approved on June 9, 2003 by Congress.[12]

On February 20, 1989, MERALCO received from the City Assessor of Lucena a
copy of Tax Declaration No. 019-6500[13] covering the following electric facilities,
classified as capital investment, of the company: (a) transformer and electric
post; (b) transmission line; (c) insulator; and (d) electric meter, located in
Quezon Ave. Ext., Brgy. Gulang-Gulang, Lucena City. Under Tax Declaration No.
019-6500, these electric facilities had a market value of P81,811,000.00 and an
assessed value of P65,448,800.00, and were subjected to real property tax as of
1985.

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena
City, which was docketed as LBAA-89-2. MERALCO claimed that its capital
investment consisted only of its substation facilities, the true and correct value of
which was only P9,454,400.00; and that MERALCO was exempted from
payment of real property tax on said substation facilities.

The LBAA rendered a Decision[14] in LBAA-89-2 on July 5, 1989, finding that

under its franchise, MERALCO was required to pay the City Government of
Lucena a tax equal to 5% of its gross earnings, and "[s]aid tax shall be due and
payable quarterly and shall be in lieu of any and all taxes of any kind, nature, or
description levied, established, or collected x x x, on its poles, wires, insulators,
transformers and structures, installations, conductors, and accessories, x x x,
from which taxes the grantee (MERALCO) is hereby expressly exempted." [15] As
regards the issue of whether or not the poles, wires, insulators, transformers, and
electric meters of MERALCO were real properties, the LBAA cited the 1964 case
of Board of Assessment Appeals v. Manila Electric Company [16] (1964
MERALCO case) in which the Court held that: (1) the steel towers fell within the
term "poles" expressly exempted from taxes under the franchise of MERALCO;
and (2) the steel towers were personal properties under the provisions of the Civil
Code and, hence, not subject to real property tax. The LBAA lastly ordered that
Tax Declaration No. 019-6500 would remain and the poles, wires, insulators,
transformers, and electric meters of MERALCO would be continuously assessed,
but the City Assessor would stamp on the said Tax Declaration the word
"exempt." The LBAA decreed in the end:

WHEREFORE, from the evidence adduced by the parties, the Board overrules the
claim of the [City Assessor of Lucena] and sustain the claim of [MERALCO].

Further, the Appellant (Meralco) is hereby ordered to render an accounting to the

City Treasurer of Lucena and to pay the City Government of Lucena the amount
corresponding to the Five (5%) per centum of the gross earnings in compliance
with paragraph 13 both Resolutions 108 and 2679, respectively, retroactive from
November 9, 1957 to date, if said tax has not yet been paid. [17]

The City Assessor of Lucena filed an appeal with the CBAA, which was docketed
as CBAA Case No. 248. In its Decision[18] dated April 10, 1991, the CBAA
affirmed the assailed LBAA judgment. Apparently, the City Assessor of Lucena no
longer appealed said CBAA Decision and it became final and executory.

Six years later, on October 29, 1997, MERALCO received a letter19 dated October
16, 1997 from the City Treasurer of Lucena, which stated that the company was
being assessed real property tax delinquency on its machineries beginning 1990,
in the total amount of P17,925,117.34, computed as follows:

TAX ASSESSED COVERED

TAX DUE PENALTY TOTAL
DEC. # VALUE PERIOD
019-6500P65,448,800.00 1990-94 P3,272,440.00P2,356,156.80P5,628,596.80
019-7394 78,538,560.00 1995 785,385.60 534,062.21 1,319,447.81
1996 785,385.60 345,569.66 1,130,955.26
l -3 /1997
st rd
589,039.20 117,807.84 706,847.04
4  1997
th
196,346.40 (19,634.64) 176,711.76
BASIC---- P8,962,558.67
SEF---- 8,962,558.67
 TOTAL TAX DELINQUENCY----P17,925,117.34

The City Treasurer of Lucena requested that MERALCO settle the payable
amount soon to avoid accumulation of penalties. Attached to the letter were the
following documents: (a) Notice of Assessment[20] dated October 20, 1997 issued
by the City Assessor of Lucena, pertaining to Tax Declaration No. 019-7394,
which increased the market value and assessed value of the machinery; (b)
Property Record Form;[21] and (c) Tax Declaration No. 019-6500.[22]

MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the
LBAA of Lucena City on December 23, 1997 and posted a surety bond [23] dated
December 10, 1997 to guarantee payment of its real property tax delinquency.
MERALCO asked the LBAA to cancel and nullify the Notice of Assessment dated
October 20, 1997 and declare the properties covered by Tax Declaration Nos.
019-6500 and 019-7394 exempt from real property tax.

In its Decision dated June 17, 1998 regarding Tax Declaration Nos. 019-6500 and
019-7394, the LBAA declared that Sections 234 and 534(f) of the Local
Government Code repealed the provisions in the franchise of MERALCO and
Presidential Decree No. 551[24] pertaining to the exemption of MERALCO from
payment of real property tax on its poles, wires, insulators, transformers, and
meters. The LBAA refused to apply as res judicata its earlier judgment in LBAA-
89-2, as affirmed by the CBAA, because it involved collection of taxes from 1985
to 1989, while the present case concerned the collection of taxes from 1989 to
1997; and LBAA is only an administrative body, not a court or quasi-judicial
body. The LBAA though instructed that the computation of the real property tax
for the machineries should be based on the prevailing 1991 Schedule of Market
Values, less the depreciation cost allowed by law. The LBAA ultimately disposed:

WHEREFORE, in view of the foregoing, it is hereby ordered that:

1) MERALCO's appeal be dismissed for lack of merit;

2) MERALCO be required to pay the realty tax on the questioned properties,

because they are not exempt by law, same to be based on the 1991 level of
assessment, less depreciation cost allowed by law.[25]

MERALCO went before the CBAA on appeal, which was docketed as CBAA Case
No. L-20-98. The CBAA, in its Decision dated May 3, 2001, agreed with the
LBAA that MERALCO could no longer claim exemption from real property tax on
its machineries with the enactment of Republic Act No. 7160, otherwise known as
the Local Government Code of 1991, thus:

Indeed, the Central Board of Assessment Appeals has had the opportunity of
ruling in [MERALCO's] favor in connection with this very same issue. The matter
was settled on April 10, 1991 where this Authority ruled that "wires, insulators,
transformers and electric meters which are mounted on poles and can be
separated from the poles and moved from place to place without breaking the
material or causing [the] deterioration of the object, are deemed movable or
personal property". The same position of MERALCO would have been tenable
and that decision may have stood firm prior to the enactment of R.A. 7160 but
not anymore in this jurisdiction. The Code provides and now sets a more
stringent yet broadened concept of machinery, x x x:

xxxx

The pivotal point where the difference lie between the former and the current
case is that by the very wordings of [Section 199(0)], the ground being anchored
upon by MERALCO concerning the properties in question being personal in
nature does not hold anymore for the sole reason that these come now within the
purview and new concept of Machineries. The new law has treated these in an
unequivocal manner as machineries in the sense that they are instruments,
mechanical contrivances or apparatus though not attached permanently to the
real properties of [MERALCO] are actually, directly and exclusively used to meet
their business of distributing electricity.

xxxx

Clearly, [Section 234 of the Local Government Code] lists down the instances of
exemption in real property taxation and very apparent is the fact that the
enumeration is exclusive in character in view of the wordings in the last
paragraph. Applying the maxim "Expressio Unius est Exclusio Alterius", we can
say that "Where the statute enumerates those who can avail of the exemption, it
is construed as excluding all others not mentioned therein". Therefore, the above-
named company [had] lost its previous exemptions under its franchise because of
non-inclusion in the enumeration in Section 234. Furthermore, all tax
exemptions being enjoyed by all persons, whether natural or juridical, including
all government-owned or controlled corporations are expressly withdrawn, upon
effectivity of R.A. 7160.

In the given facts, it has been manifested that the Municipal Board of Lucena
passed Resolution No. 108 on July 1, 1957 extending the franchise of MERALCO
to operate in Lucena city an electric light system for thirty-five years, which
should have expired on November 9, 1992 and under Resolution No. 2679 passed
on June 13, 1972 by the City Council of Lucena City awarding [MERALCO] a
franchise to operate for twenty years an electric light, heat and power system in
Lucena City, also to expire in the year 1992. Under those franchises, they were
only bound to pay franchise taxes and nothing more.

Now, granting arguendo that there is no express revocation of the exemption

under the franchise of [MERALCO] since, unquestionably [MERALCO] is a
recipient of another franchise granted this time by the National Electrification
Commission as evidenced by a certificate issued on October 28, 1993, such
conferment does not automatically include and/or award exemption from taxes,
nor does it impliedly give the franchisee the right to continue the privileges like
exemption granted under its previous franchise. It is just a plain and simple
franchise. In countless times, the Supreme Court has ruled that exemption must
be clear in the language of the law granting such exemption for it is strictly
construed and favored against the person invoking it. In addition, a franchise
though in the form of a contract is also a privilege that must yield to the sublime
yet inherent powers of the state, one of these is the power of taxation.

Looking into the law creating the National Electrification Administration

(Commission), P.D. 269 as amended by P.D. 1645, nowhere in those laws can we
find such authority to bestow upon the grantee any tax exemption of whatever
nature except those of cooperatives. This we believe is basically in consonance
with the provisions of the Local Government Code more particularly Section 234.

Furthermore, Section 534(f) of R.A. 7160 which is taken in relation to Section 234
thereof states that "All general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative regulations or part or parts
thereof which are inconsistent with any of the provisions of this Code are hereby
repealed or modified accordingly". Anent this unambiguous mandate, P.D. 551 is
mandatorily repealed due to its contradictory and irreconcilable provisions with
R.A. 7160.[26]

Yet, the CBAA modified the ruling of the LBAA by excluding from the real
property tax deficiency assessment the years 1990 to 1991, considering that:

In the years 1990 and 1991, the exemption granted to MERALCO under its
franchise which incidentally expired upon the effectivity of the Local Government
Code of 1991 was very much in effect and the decision rendered by the Central
Board of Assessment Appeals (CBAA) classifying its poles, wires, insulators,
transformers and electric meters as personal property was still controlling as the
law of the case. So, from 1990 to 1991, it would be inappropriate and illegal to
make the necessary assessment on those properties, much more to impose any
penalty for nonpayment of such.

But, assessments made beginning 1992 until 1997 by the City Government of
Lucena is legal, both procedurally and substantially. When R.A. 7160, which
incorporated amended provisions of the Real Property Tax Code, took effect on
January 1, 1992, as already discussed, the nature of the aforecited questioned
properties considered formerly as personal metamorphosed to machineries and
the exemption being invoked by [MERALCO] was automatically withdrawn
pursuant to the letter and spirit of the law. x x x.[27]

Resultantly, the decretal portion of said CBAA Decision reads:

WHEREFORE, in view of the foregoing, the Decision appealed from is hereby

modified. The City Assessor of Lucena City is hereby directed to make a new
assessment on the subject properties to retroact from the year 1992 and the City
Treasurer to collect the tax liabilities in accordance with the provisions of the
cited Section 222 of the Local Government Code.[28]

The CBAA denied the Motion for Reconsideration of MERALCO in a

Resolution[29] dated August 16, 2001.

Disgruntled, MERALCO sought recourse from the Court of Appeals by filing a

Petition for Review under Rule 43 of the Rules of Court, which was docketed as
CA-G.R. SP No. 67027.

The Court of Appeals rendered a Decision on May 13, 2004 rejecting all
arguments proffered by MERALCO. The appellate court found no deficiency in
the Notice of Assessment issued by the City Assessor of Lucena:

It was not disputed that [MERALCO] failed to provide the [City Assessor and City
Treasurer of Lucena] with a sworn statement declaring the true value of each of
the subject transformer and electric post, transmission line, insulator and electric
meter which should have been made the basis of the fair and current market
value of the aforesaid property and which would enable the assessor to identify
the same for assessment purposes. [MERALCO] merely claims that the
assessment made by the [City Assessor and City Treasurer of Lucena] was
incorrect but did not even mention in their pleading the true and correct
assessment of the said properties. Absent any sworn statement given by
[MERALCO], [the City Assessor and City Treasurer of Lucena] were constrained
to make an assessment based on the materials within [their reach]. [30]
The Court of Appeals further ruled that there was no more basis for the real
property tax exemption of MERALCO under the Local Government Code and that
the withdrawal of said exemption did not violate the non-impairment clause of
the Constitution, thus:

Although it could not be denied that [MERALCO] was previously granted a

Certificate of Franchise by the National Electrification Commission on October
28, 1993 x x x, such conferment does not automatically include an exemption
from the payment of realty tax, nor does it impliedly give the franchisee the right
to continue the privileges granted under its previous franchise considering that
Sec. 534(f) of the Local Government Code of 1991 expressly repealed those
provisions which are inconsistent with the Code.

At the outset, the Supreme Court has held that "Section 193 of the LGC prescribes
the general rule, viz., tax exemptions or incentives granted to or presently
enjoyed by natural or juridical persons are withdrawn upon the effectivity of the
LGC except with respect to those entities expressly enumerated. In the same vein,
We must hold that the express withdrawal upon effectivity of the LGC of all
exemptions except only as provided therein, can no longer be invoked by
MERALCO to disclaim liability for the local tax." (City Government of San Pablo,
Laguna vs. Reyes, 305 SCRA 353, 362-363)

In fine, [MERALCO's] invocation of the non-impairment clause of the

Constitution is accordingly unavailing. The LGC was enacted in pursuance of the
constitutional policy to ensure autonomy to local governments and to enable
them to attain fullest development as self-reliant communities. The power to tax
is primarily vested in Congress. However, in our jurisdiction, it may be exercised
by local legislative bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to [a] direct authority conferred by Section 5, Article X of
the Constitution. The important legal effect of Section 5 is that henceforth, in
interpreting statutory provisions on municipal fiscal powers, doubts will be
resolved in favor of the municipal corporations. (Ibid. pp. 363-365) [31]

MERALCO similarly failed to persuade the Court of Appeals that the

transformers, transmission lines, insulators, and electric meters mounted on the
electric posts of MERALCO were not real properties. The appellate court invoked
the definition of "machinery" under Section 199(o) of the Local Government Code
and then wrote that:
We firmly believe and so hold that the wires, insulators, transformers and electric
meters mounted on the poles of [MERALCO] may nevertheless be considered as
improvements on the land, enhancing its utility and rendering it useful in
distributing electricity. The said properties are actually, directly and exclusively
used to meet the needs of [MERALCO] in the distribution of electricity.

In addition, "improvements on land are commonly taxed as realty even though

for some purposes they might be considered personalty. It is a familiar personalty
phenomenon to see things classed as real property for purposes of taxation which
on general principle might be considered personal property." (Caltex (Phil) Inc.
vs. Central Board of Assessment Appeals, 114 SCRA 296, 301-302) [32]

Lastly, the Court of Appeals agreed with the CBAA that the new assessment of the
transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO shall retroact to 1992.

Hence, the Court of Appeals adjudged:

WHEREFORE, premises considered, the assailed Decision [dated] May 3,

2001 and Resolution dated August 16, 2001 are hereby AFFIRMED in
toto and the present petition is hereby DENIED DUE COURSE and
accordingly DISMISSED for lack of merit.[33]

In a Resolution dated November 18, 2004, the Court of Appeals denied the
Motion for Reconsideration of MERALCO.

MERALCO is presently before the Court via the instant Petition for Review
on Certiorari grounded on the following lone assignment of error:

THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN

AFFIRMING IN TOTO THE DECISION OF THE CENTRAL BOARD OF
ASSESSMENT APPEALS WHICH HELD THAT THE SUBJECT PROPERTIES
ARE REAL PROPERTIES SUBJECT TO REAL PROPERTY TAX; AND THAT
ASSESSMENT ON THE SUBJECT PROPERTIES SHOULD BE MADE TO TAKE
EFFECT RETROACTIVELY FROM 1992 UNTIL 1997, WITH PENALTIES; THE
SAME BEING UNJUST, WHIMSICAL AND NOT IN ACCORD WITH THE
LOCAL GOVERNMENT CODE.[34]

MERALCO argues that its transformers, electric posts, transmission lines,

insulators, and electric meters are not subject to real property tax, given that: (1)
the definition of "machinery" under Section 199(o) of the Local Government
Code, on which real property tax is imposed, must still be within the
contemplation of real or immovable property under Article 415 of the Civil Code
because it is axiomatic that a statute should be construed to harmonize with other
laws on the same subject matter as to form a complete, coherent, and intelligible
system; (2) the Decision dated April 10, 1991 of the CBAA in CBAA Case No. 248,
which affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-89-2, ruling
that the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO are movable or personal properties, is conclusive and
binding; and (3) the electric poles are not exclusively used to meet the needs of
MERALCO alone since these are also being utilized by other entities such as cable
and telephone companies.

MERALCO further asserts that even if it is assumed for the sake of argument that
the transformers, electric posts, transmission lines, insulators, and electric
meters are real properties, the assessment of said properties by the City Assessor
in 1997 is a patent nullity. The collection letter dated October 16, 1997 of the City
Treasurer of Lucena, Notice of Assessment dated October 20, 1997 of the City
Assessor of Lucena, the Property Record Form dated October 20, 1997, and Tax
Declaration No. 019-6500 simply state a lump sum market value for all the
transformers, electric posts, transmission lines, insulators, and electric meters
covered and did not provide an inventory/list showing the actual number of said
properties, or a schedule of values presenting the fair market value of each
property or type of property, which would have enabled MERALCO to verify the
correctness and reasonableness of the valuation of its properties. MERALCO was
not furnished at all with a copy of Tax Declaration No. 019-7394, and while it
received a copy of Tax Declaration No. 019-6500, said tax declaration did not
contain the requisite information regarding the date of operation of MERALCO
and the original cost, depreciation, and market value for each property covered.
For the foregoing reasons, the assessment of the properties of MERALCO in 1997
was arbitrary, whimsical, and without factual basis - in patent violation of the
right to due process of MERALCO. MERALCO additionally explains that it
cannot be expected to make a declaration of its transformers, electric posts,
transmission lines, insulators, and electric meters, because all the while, it was of
the impression that the said properties were personal properties by virtue of the
Decision dated July 5, 1989 of the LBAA in LBAA-89-2 and the Decision dated
April 10, 1991 of the CBAA in CBAA Case No. 248.

Granting that the assessment of its transformers, electric posts, transmission

lines, insulators, and electric meters by the City Assessor of Lucena in 1997 is
valid, MERALCO alternatively contends that: (1) under Sections 221 [35] and
222[36] of the Local Government Code, the assessment should take effect only on
January 1, 1998 and not retroact to 1992; (2) MERALCO should not be held liable
for penalties and interests since its nonpayment of real property tax on its
properties was in good faith; and (3) if interest may be legally imposed on
MERALCO, it should only begin to run on the date it received the Notice of
Assessment on October 29, 1997 and not all the way back to 1992.

At the end of its Petition, MERALCO prays:

WHEREFORE, it is respectfully prayed of this Honorable Court that the appealed

Decision dated May 13, 2004 of the Court of Appeals, together with its Resolution
dated November 18, 2004 be reversed and set aside, and judgment be rendered x
x x nullifying and cancel[l]ing the Notice of Assessment, dated October 20, 1997,
issued by respondent City Assessor, and the collection letter dated October 16,
1997 of respondent City Treasurer.

Petitioner also prays for such other relief as may be deemed just and equitable in
the premises.[37]

The City Assessor and City Treasurer of Lucena counter that: (1) MERALCO was
obliged to pay the real property tax due, instead of posting a surety bond, while
its appeal was pending, because Section 231 of the Local Government Code
provides that the appeal of an assessment shall not suspend the collection of the
real property taxes; (2) the cases cited by MERALCO can no longer be applied to
the case at bar since they had been decided when Presidential Decree No. 464,
otherwise known as the Real Property Tax Code, was still in effect; (3) under the
now prevailing Local Government Code, which expressly repealed the Real
Property Tax Code, the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO fall within the new definition of
"machineries," deemed as real properties subject to real property tax; and (4) the
Notice of Assessment dated October 20, 1997 covering the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO only
retroacts to 1992, which is less than 10 years prior to the date of initial
assessment, so it is in compliance with Section 222 of the Local Government
Code, and since MERALCO has yet to pay the real property taxes due on said
assessment, then it is just right and appropriate that it also be held liable to pay
for penalties and interests from 1992 to present time. Ultimately, the City
Assessor and City Treasurer of Lucena seek judgment denying the instant
Petition and ordering MERALCO to pay the real property taxes due.

The Petition is partly meritorious.

The Court finds that the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO are no longer exempted from real
property tax and may qualify as "machinery" subject to real property tax under
the Local Government Code. Nevertheless, the Court declares null and void the
appraisal and assessment of said properties of MERALCO by the City Assessor in
1997 for failure to comply with the requirements of the Local Government Code
and, thus, violating the right of MERALCO to due process.

By posting a surety bond before

filing its appeal of the assessment with
the LBAA, MERALCO substantially complied
with the requirement of payment under
protest in Section 252 of the Local
Government Code.

Section 252 of the Local Government Code mandates that "[n]o protest shall be
entertained unless the taxpayer first pays the tax." It is settled that the
requirement of "payment under protest" is a condition sine qua non before an
appeal may be entertained.[38] Section 231 of the same Code also dictates that
"[a]ppeal on assessments of real property x x x shall, in no case, suspend the
collection of the corresponding realty taxes on the property involved as assessed
by the provincial or city assessor, without prejudice to subsequent adjustment
depending upon the final outcome of the appeal." Clearly, under the Local
Government Code, even when the assessment of the real property is appealed, the
real property tax due on the basis thereof should be paid to and/or collected by
the local government unit concerned.

In the case at bar, the City Treasurer of Lucena, in his letter dated October 16,
1997, sought to collect from MERALCO the amount of P17,925,l 17.34 as real
property taxes on its machineries, plus penalties, for the period of 1990 to 1997,
based on Tax Declaration Nos. 019-6500 and 019-7394 issued by the City
Assessor of Lucena. MERALCO appealed Tax Declaration Nos. 019-6500 and
019-7394 with the LBAA, but instead of paying the real property taxes and
penalties due, it posted a surety bond in the amount of PI 7,925,117.34.

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

complied with Section 252 of the Local Government Code for the said bond
already guarantees the payment to the Office of the City Treasurer of Lucena of
the total amount of real property taxes and penalties due on Tax Declaration Nos.
019-6500 and 019-7394. This is not the first time that the Court allowed a surety
bond as an alternative to cash payment of the real property tax before
protest/appeal as required by Section 252 of the Local Government Code.
In Camp John Hay Development Corporation v. Central Board of Assessment
Appeals[39] the Court affirmed the ruling of the CBAA and the Court of Tax
Appeals en bane applying the "payment under protest" requirement in Section
252 of the Local Government Code and remanding the case to the LBAA for
"further proceedings subject to a full and up-to-date payment, either in cash or
surety, of realty tax on the subject properties x x x."

Accordingly, the LBAA herein correctly took cognizance of and gave due course to
the appeal of Tax Declaration Nos. 019-6500 and 019-7394 filed by MERALCO.

Beginning January 1, 1992,

MERALCO can no longer claim
exemption from real property tax of
its transformers, electric posts,
transmission lines, insulators, and
electric meters based on its
franchise.

MERALCO relies heavily on the Decision dated April 10, 1991 of the CBAA in
CBAA Case No. 248, which affirmed the Decision dated July 5, 1989 of the LBAA
in LBAA-89-2. Said decisions of the CBAA and the LBAA, in turn, cited Board of
Assessment Appeals v. Manila Electric Co.,[40] which was decided by the Court
way back in 1964 (1964 MERALCO case). The decisions in CBAA Case No. 248
and the 1964 MERALCO case recognizing the exemption from real property tax
of the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO are no longer applicable because of subsequent
developments that changed the factual and legal milieu for MERALCO in the
present case.

In the 1964 MERALCO case, the City Assessor of Quezon City considered the

steel towers of MERALCO as real property and required MERALCO to pay real
property taxes for the said steel towers for the years 1952 to 1956. MERALCO was
operating pursuant to the franchise granted under Ordinance No. 44 dated
March 24, 1903 of the Municipal Board of Manila, which it acquired from the
original grantee, Charles M. Swift. Under its franchise, MERALCO was expressly
granted the following tax exemption privilege:

Par 9. The grantee shall be liable to pay the same taxes upon its real estate,
buildings, plant (not including poles, wires, transformers, and insulators),
machinery and personal property as other persons are or may be hereafter
required by law to pay. x x x Said percentage shall be due and payable at the times
stated in paragraph nineteen of Part One hereof, x x x and shall be in lieu of all
taxes and assessments of whatsoever nature, and by whatsoever authority
upon the privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee from which taxes and assessments
the grantee is hereby expressly exempted, x x x.[41]
Given the express exemption from taxes and assessments of the "poles, wires,
transformers, and insulators" of MERALCO in the aforequoted paragraph, the
sole issue in the 1964 MERALCO case was whether or not the steel towers of
MERALCO qualified as "poles" which were exempted from real property tax. The
Court ruled in the affirmative, ratiocinating that:

Along the streets, in the City of Manila, may be seen cylindrical metal poles,
cubical concrete poles, and poles of the PLDT Co. which are made of two steel
bars joined together by an interlacing metal rod. They are called "poles"
notwithstanding the fact that they are not made of wood. It must be noted from
paragraph 9, above quoted, that the concept of the "poles" for which exemption is
granted, is not determined by their place or location, nor by the character of the
electric current it carries, nor the material or form of which it is made, but the use
to which they are dedicated. In accordance with the definitions, a pole is not
restricted to a long cylindrical piece of wood or metal, but includes "upright
standards to the top of which something is affixed or by which something is
supported." As heretofore described, respondent's steel supports consist of a
framework of four steel bars or strips which are bound by steel cross-arms atop of
which are cross-arms supporting five high voltage transmission wires (See Annex
A) and their sole function is to support or carry such wires.

The conclusion of the CTA that the steel supports in question are embraced in the
term "poles" is not a novelty. Several courts of last resort in the United States
have called these steel supports "steel towers", and they have denominated these
supports or towers, as electric poles. In their decisions the words "towers" and
"poles" were used interchangeably, and it is well understood in that jurisdiction
that a transmission tower or pole means the same thing.

xxxx

It is evident, therefore, that the word "poles", as used in Act No. 484 and
incorporated in the petitioner's franchise, should not be given a restrictive and
narrow interpretation, as to defeat the very object for which the franchise was
granted. The poles as contemplated thereon, should be understood and taken as a
part of the electric power system of the respondent Meralco, for the conveyance
of electric current from the source thereof to its consumers, x x x.[42]

Similarly, it was clear that under the 20-year franchise granted to MERALCO by
the Municipal Board of Lucena City through Resolution No. 2679 dated June 13,
1972, the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO were exempt from real property tax. Paragraph 13 of
Resolution No. 2679 is quoted in full below:

13. The grantee shall be liable to pay the same taxes upon its real estate, building,
machinery, and personal property (not including poles, wires,
transformers, and insulators) as other persons are now or may hereafter be
required by law to pay. In consideration of the franchise and rights hereby
granted, the grantee shall pay into the City Treasury of Lucena a tax equal to
FIVE (5%) PER CENTUM of the gross earnings received from electric
current sold or supplied under this franchise. Said tax shall be due and payable
quarterly and shall be in lieu of any and all taxes of any kind, nature or
description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national, now or in the future, on its poles, wires,
insulators, switches, transformers and structures, installations,
conductors, and accessories, placed in and over and under all the private
and/or public property, including public streets and highways, provincial roads,
bridges, and public squares, and on its franchise rights, privileges, receipts,
revenues and profits, from which taxes the grantee is hereby expressly
exempted. (Emphases supplied.)

In CBAA Case No. 248 (and LBAA-89-2), the City Assessor assessed the
transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO located in Lucena City beginning 1985 under Tax Declaration No.
019-6500. The CBAA in its Decision dated April 10, 1991 in CBAA Case No. 248
sustained the exemption of the said properties of MERALCO from real property
tax on the basis of paragraph 13 of Resolution No. 2679 and the 1964 MERALCO
case.

Just when the franchise of MERALCO in Lucena City was about to expire, the
Local Government Code took effect on January 1, 1992, Sections 193 and 234 of
which provide:

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise

provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and nonprofit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.

Section 234. Exemptions from Real Property Tax. - The following are exempted
from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant

thereto, mosques, nonprofit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used
by local water districts and government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under
R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental
protection.

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.

The Local Government Code, in addition, contains a general repealing clause

under Section 534(f) which states that "[a]ll general and special laws, acts, city
charters, decrees, executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified accordingly."

Taking into account the above-mentioned provisions, the evident intent of the
Local Government Code is to withdraw/repeal all exemptions from local taxes,
unless otherwise provided by the Code. The limited and restrictive nature of the
tax exemption privileges under the Local Government Code is consistent with the
State policy to ensure autonomy of local governments and the objective of the
Local Government Code to grant genuine and meaningful autonomy to enable
local government units to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of national
goals. The obvious intention of the law is to broaden the tax base of local
government units to assure them of substantial sources of revenue. [43]

Section 234 of the Local Government Code particularly identifies the exemptions
from payment of real property tax, based on the ownership, character, and use of
the property, viz.:

(a) Ownership Exemptions. Exemptions from real property taxes on the basis of

ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a
city, (iv) a municipality, (v) a barangay, and (vi) registered cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of

their character are: (i) charitable institutions, (ii) houses and temples of prayer
like churches, parsonages or convents appurtenant thereto, mosques, and (iii)
nonprofit or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the
actual, direct and exclusive use to which they are devoted are: (i) all lands,
buildings and improvements which are actually directly and exclusively used for
religious, charitable or educational purposes; (ii) all machineries and equipment
actually, directly and exclusively used by local water districts or by government-
owned or controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (iii) all machinery and
equipment used for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the

country, all machinery and equipment for pollution control and environmental
protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to

natural or juridical persons including government-owned or controlled
corporations are withdrawn upon the effectivity of the Code. [44]

The last paragraph of Section 234 had unequivocally withdrawn, upon the
effectivity of the Local Government Code, exemptions from payment of real
property taxes granted to natural or juridical persons, including government-
owned or controlled corporations, except as provided in the same section.

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

transformers, electric posts, transmission lines, insulators, and electric meters
used commercially do not qualify under any of the ownership, character, and
usage exemptions enumerated in Section 234 of the Local Government Code. It is
a basic precept of statutory construction that the express mention of one person,
thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius.[45] Not being among the recognized
exemptions from real property tax in Section 234 of the Local Government Code,
then the exemption of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO from real property tax granted
under its franchise was among the exemptions withdrawn upon the effectivity of
the Local Government Code on January 1, 1998.

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

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

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

claiming a tax exemption must point to a specific provision of law conferring on
the taxpayer, in clear and plain terms, exemption from a common burden. Any
doubt whether a tax exemption exists is resolved against the taxpayer.
[46]
 MERALCO has failed to present herein any express grant of exemption from
real property tax of its transformers, electric posts, transmission lines, insulators,
and electric meters that is valid and binding even under the Local Government
Code.

The transformers, electric posts,

transmission lines, insulators, and electric
meters of MERALCO may qualify as
"machinery" under the Local Government
Code subject to real property tax.

Through the years, the relevant laws have consistently considered "machinery" as
real property subject to real property tax. It is the definition of "machinery" that
has been changing and expanding, as the following table will show:

Real Property Incidence of Real Property

Definition of Machinery[47]
Tax Law Tax
The Assessment Section 2. Incidence of real Section 3. Property exempt
Law property tax. - Except in from tax. - The exemptions
(Commonwealt chartered cities, there shall be shall be as follows:
h Act No. 470) levied, assessed, and collected, x x x x
an annual ad valorem tax on (f) Machinery, which term shall
Effectivity: real property, including land, embrace machines, mechanical
January 1, 1940 buildings, machinery, and other contrivances, instruments,
improvements not hereinafter appliances, and apparatus
specifically exempted. attached to the real estate, used
for industrial agricultural or
manufacturing purposes, during
 the first five years of the
operation of the machinery.
Section 3. Definition of Terms. -
When used in this Code -

Section 38. Incidence of Real
Property Tax. - There shall be
levied, assessed and collected in
all provinces, cities and
Real Property
municipalities an annual ad
Tax Code
valorem tax on real property,
such as land, buildings,
Effectivity: June
machinery and other
1, 1974
improvements affixed or
attached to real property not
hereinafter specifically
exempted.
Real Property Section 38. Incidence of Real Section 3. Definition of Terms.
Tax Code, as Property Tax. - There shall be   When used in this Code -
amended by levied, assessed and collected in x x x x
Presidential all provinces, cities and
Decree No. 1383 municipalities an annual ad
valorem tax on real property,
Effectivity: May such as land, buildings,
25, 1978 machinery and other
improvements affixed or
attached to real property not
hereinafter specifically
exempted.
xxxx
(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.
(m) Machinery - shall embrace
machines, equipment,
mechanical contrivances,
instruments, appliances and
apparatus attached to the real
estate. It shall include the
physical facilities available for
production, as well as the
installations and appurtenant
service facilities, together with
all those not permanently
attached to the real estate but
are actually, directly and
essentially used to meet the
needs of the particular industry,
business, or works, which by
their very nature and purpose
are designed for, or essential to
 manufacturing, commercial,
mining, industrial or
agricultural purposes.
Section 199. Definitions. - When
used in this Title:
xxxx

(o) "Machinery" embraces

machines, equipment,
mechanical contrivances,
instruments, appliances or
apparatus which may or may
not be attached,
Section 232. Power to Levy
permanently or
Real Property Tax. — A
temporarily, to the real
province or city or a
Local property. It includes the
municipality within the
Government physical facilities for
Metropolitan Manila Area may
  Code production, the installations
levy an annual ad valorem
and appurtenant service
tax on real property such as
Effectivity: facilities, those which are
land, building, machinery,
January 1, 1992 mobile, self-powered or
and other improvement not
self- propelled, and those not
hereinafter specifically
permanently attached to the
exempted.
real property which are actually,
directly, and exclusively used to
meet the needs of the particular
industry, business or activity
and which by their very nature
and purpose are designed for, or
necessary to its manufacturing,
mining, logging, commercial,
industrial or agricultural 
purposes[.]

MERALCO is a public utility engaged in electric distribution, and its

transformers, electric posts, transmission lines, insulators, and electric meters
constitute the physical facilities through which MERALCO delivers electricity to
its consumers. Each may be considered as one or more of the following: a
"machine,"[48] "equipment,"[49] "contrivance,"[50] "instrument,"[51] "appliance,"[52] "a
pparatus,"[53] or "installation."[54]

The Court highlights that under Section 199(o) of the Local Government Code,
machinery, to be deemed real property subject to real property tax, need no
longer be annexed to the land or building as these "may or may not be attached,
permanently or temporarily to the real property," and in fact, such machinery
may even be "mobile."[55] The same provision though requires that to be
machinery subject to real property tax, the physical facilities for production,
installations, and appurtenant service facilities, those which are mobile, self-
powered or self-propelled, or not permanently attached to the real property (a)
must be actually, directly, and exclusively used to meet the needs of the particular
industry, business, or activity; and (2) by their very nature and purpose, are
designed for, or necessary for manufacturing, mining, logging, commercial,
industrial, or agricultural purposes. Thus, Article 290(o) of the Rules and
Regulations Implementing the Local Government Code of 1991 recognizes the
following exemption:

Machinery which are of general purpose use including but not limited to

office equipment, typewriters, telephone equipment, breakable or easily damaged
containers (glass or cartons), microcomputers, facsimile machines, telex
machines, cash dispensers, furnitures and fixtures, freezers, refrigerators, display
cases or racks, fruit juice or beverage automatic dispensing machines which are
not directly and exclusively used to meet the needs of a particular industry,
business or activity shall not be considered within the definition of machinery
under this Rule. (Emphasis supplied.)

The 1964 MERALCO case was decided when The Assessment Law was still in
effect and Section 3(f) of said law still required that the machinery be attached to
the real property. Moreover, as the Court pointed out earlier, the ruling in
the 1964 MERALCO case - that the electric poles (including the steel towers) of
MERALCO are not subject to real property tax - was primarily based on the
express exemption granted to MERALCO under its previous franchise. The
reference in said case to the Civil Code definition of real property was only an
alternative argument:

Granting for the purpose of argument that the steel supports or

towers in question are not embraced within the term poles, the logical
question posited is whether they constitute real properties, so that
they can be subject to a real property tax. The tax law does not provide for
a definition of real property; but Article 415 of the Civil Code does, by stating
the following are immovable property:

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
xxxx

(3) 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;

xxxx

(5) Machinery, receptacles, instruments or implements intended by the owner of

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

xxxx
The steel towers or supports in question, do not come within the objects
mentioned in paragraph 1, because they do not constitute buildings or
constructions adhered to the soil. They are not constructions analogous to
buildings nor adhering to the soil. As per description, given by the lower court,
they are removable and merely attached to a square metal frame by means of
bolts, which when unscrewed could easily be dismantled and moved from place
to place. They can not be included under paragraph 3, as they are not attached to
an immovable in a fixed manner, and they can be separated without breaking the
material or causing deterioration upon the object to which they are attached.
Each of these steel towers or supports consists of steel bars or metal strips, joined
together by means of bolts, which can be disassembled by unscrewing the bolts
and reassembled by screwing the same. These steel towers or supports do not
also fall under paragraph 5, for they are not machineries or receptacles,
instruments or implements, and even if they were, they are not intended for
industry or works on the land. Petitioner is not engaged in an industry or works
on the land in which the steel supports or towers are constructed. [56] (Emphases
supplied.)

The aforequoted conclusions of the Court in the 1964 MERALCO case do not hold

true anymore under the Local Government Code.

While the Local Government Code still does not provide for a specific definition
of "real property," Sections 199(o) and 232 of the said Code, respectively, gives an
extensive definition of what constitutes "machinery" and unequivocally subjects
such machinery to real property tax. The Court reiterates that the machinery
subject to real property tax under the Local Government Code "may or may not
be attached, permanently or temporarily to the real property;" and the physical
facilities for production, installations, and appurtenant service facilities, those
which are mobile, self-powered or self-propelled, or are not permanently
attached must (a) be actually, directly, and exclusively used to meet the needs of
the particular industry, business, or activity; and (2) by their very nature and
purpose, be designed for, or necessary for manufacturing, mining, logging,
commercial, industrial, or agricultural purposes.

Article 415, paragraph (1) of the Civil Code declares as immovables or real
properties "[l]and, buildings, roads and constructions of all kinds adhered to the
soil." The land, buildings, and roads are immovables by nature "which cannot be
moved from place to place," whereas the constructions adhered to the soil are
immovables by incorporation "which are essentially movables, but are attached to
an immovable in such manner as to be an integral part thereof." [57] Article 415,
paragraph (3) of the Civil Code, referring to "[ejverything 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," are
likewise immovables by incorporation. In contrast, the Local Government Code
considers as real property machinery which "may or may not be attached,
permanently or temporarily to the real property," and even those which are
"mobile."

Article 415, paragraph (5) of the Civil Code considers as immovables or real
properties "[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." The Civil Code, however, does not define "machinery."

The properties under Article 415, paragraph (5) of the Civil Code are immovables
by destination, or "those which are essentially movables, but by the purpose for
which they have been placed in an immovable, partake of the nature of the latter
because of the added utility derived therefrom."[58] These properties, including
machinery, become immobilized if the following requisites concur: (a) they are
placed in the tenement by the owner of such tenement; (b) they are destined for
use in the industry or work in the tenement; and (c) they tend to directly meet the
needs of said industry or works.[59] The first two requisites are not found
anywhere in the Local Government Code.

MERALCO insists on harmonizing the aforementioned provisions of the Civil

Code and the Local Government Code. The Court disagrees, however, for this
would necessarily mean imposing additional requirements for classifying
machinery as real property for real property tax purposes not provided for, or
even in direct conflict with, the provisions of the Local Government Code.

As between the Civil Code, a general law governing property and property
relations, and the Local Government Code, a special law granting local
government units the power to impose real property tax, then the latter shall
prevail. As the Court pronounced in Disomangcop v. The Secretary of the
Department of Public Works and Highways Simeon A. Datumanong [60]:

It is a finely-imbedded principle in statutory construction that a special provision

or law prevails over a general one. Lex specialis derogant generali. As this Court
expressed in the case of Leveriza v. Intermediate Appellate Court, "another basic
principle of statutory construction mandates that general legislation must give
way to special legislation on the same subject, and generally be so interpreted as
to embrace only cases in which the special provisions are not applicable, that
specific statute prevails over a general statute and that where two statutes are of
equal theoretical application to a particular case, the one designed therefor
specially should prevail." (Citations omitted.)

The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco

Corporation[61] that:

A general law and a special law on the same subject are statutes in pah
materia and should, accordingly, be read together and harmonized, if possible,
with a view to giving effect to both. The rule is that where there are two acts, one
of which is special and particular and the other general which, if standing alone,
would include the same matter and thus conflict with the special act, the special
law must prevail since it evinces the legislative intent more clearly than that of a
general statute and must not be taken as intended to affect the more particular
and specific provisions of the earlier act, unless it is absolutely necessary so to
construe it in order to give its words any meaning at all.

The circumstance that the special law is passed before or after the general act
does not change the principle. Where the special law is later, it will be regarded as
an exception to, or a qualification of, the prior general act; and where the general
act is later, the special statute will be construed as remaining an exception to its
terms, unless repealed expressly or by necessary implication. (Citations omitted.)

Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment

Appeals,[62] the Court acknowledged that "[i]t is a familiar phenomenon to see
things classed as real property for purposes of taxation which on general
principle might be considered personal property[.]"

Therefore, for determining whether machinery is real property subject to real

property tax, the definition and requirements under the Local Government Code
are controlling.
MERALCO maintains that its electric posts are not machinery subject to real
property tax because said posts are not being exclusively used by MERALCO;
these are also being utilized by cable and telephone companies. This, however, is
a factual issue which the Court cannot take cognizance of in the Petition at bar as
it is not a trier of facts. Whether or not the electric posts of MERALCO are
actually being used by other companies or industries is best left to the
determination of the City Assessor or his deputy, who has been granted the
authority to take evidence under Article 304 of the Rules and Regulations
Implementing the Local Government Code of 1991.

Nevertheless, the appraisal and

assessment of the transformers, electric
posts, transmission lines, insulators, and
electric meters of MERALCO as machinery
under Tax Declaration Nos. 019-6500 and
019-7394 were not in accordance with the
Local Government Code and in violation of
the right to due process of MERALCO and,
therefore, null and void.

The Local Government Code defines "appraisal" as the "act or process of

determining the value of property as of a specific date for a specific purpose."
"Assessment" is "the act or process of determining the value of a property, or
proportion thereof subject to tax, including the discovery, listing, classification,
and appraisal of the properties[.]"[63] When it comes to machinery, its appraisal
and assessment are particularly governed by Sections 224 and 225 of the Local
Government Code, which read:

Section 224. Appraisal and Assessment of Machinery. - (a) The fair market value
of a brand-new machinery shall be the acquisition cost. In all other cases, the fair
market value shall be determined by dividing the remaining economic life of the
machinery by its estimated economic life and multiplied by the replacement or
reproduction cost.

(b) If the machinery is imported, the acquisition cost includes freight, insurance,
bank and other charges, brokerage, arrastre and handling, duties and taxes, plus
cost of inland transportation, handling, and installation charges at the present
site. The cost in foreign currency of imported machinery shall be converted to
peso cost on the basis of foreign currency exchange rates as fixed by the Central
Bank.
Section 225. Depreciation Allowance for Machinery. - For purposes of
assessment, a depreciation allowance shall be made for machinery at a rate not
exceeding five percent (5%) of its original cost or its replacement or reproduction
cost, as the case may be, for each year of use: Provided, however, That the
remaining value for all kinds of machinery shall be fixed at not less than twenty
percent (20%) of such original, replacement, or reproduction cost for so long as
the machinery is useful and in operation.

It is apparent from these two provisions that every machinery must be

individually appraised and assessed depending on its acquisition cost, remaining
economic life, estimated economic life, replacement or reproduction cost, and
depreciation.

Article 304 of the Rules and Regulations Implementing the Local Government
Code of 1991 expressly authorizes the local assessor or his deputy to receive
evidence for the proper appraisal and assessment of the real property:

Article 304. Authority of Local Assessors to Take Evidence. - For the purpose of

obtaining information on which to base the market value of any real property, the
assessor of the province, city, or municipality or his deputy may summon the
owners of the properties to be affected or persons having legal interest therein
and witnesses, administer oaths, and take deposition concerning the property, its
ownership, amount, nature, and value.

The Local Government Code further mandates that the taxpayer be given a notice
of the assessment of real property in the following manner:

Section 223. Notification of New or Revised Assessment. - When real property is

assessed for the first time or when an existing assessment is increased or
decreased, the provincial, city or municipal assessor shall within thirty (30) days
give written notice of such new or revised assessment to the person in whose
name the property is declared. The notice may be delivered personally or by
registered mail or through the assistance of the punong barangay to the last
known address of the person to served.

A notice of assessment, which stands as the first instance the taxpayer is officially
made aware of the pending tax liability, should be sufficiently informative to
apprise the taxpayer the legal basis of the tax.[64] In Manila Electric Company v.
Barlis,[65] the Court described the contents of a valid notice of assessment of real
property and differentiated the same from a notice of collection:
A notice of assessment as provided for in the Real Property Tax Code should
effectively inform the taxpayer of the value of a specific property, or proportion
thereof subject to tax, including the discovery, listing, classification, and
appraisal of properties. The September 3, 1986 and October 31, 1989 notices do
not contain the essential information that a notice of assessment must specify,
namely, the value of a specific property or proportion thereof which is being
taxed, nor does it state the discovery, listing, classification and appraisal of the
property subject to taxation. In fact, the tenor of the notices bespeaks an
intention to collect unpaid taxes, thus the reminder to the taxpayer that the
failure to pay the taxes shall authorize the government to auction off the
properties subject to taxes x x x.

Although the ruling quoted above was rendered under the Real Property Tax
Code, the requirement of a notice of assessment has not changed under the Local
Government Code.

A perusal of the documents received by MERALCO on October 29, 1997 reveals

that none of them constitutes a valid notice of assessment of the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO.

The letter dated October 16, 1997 of the City Treasurer of Lucena (which
interestingly precedes the purported Notice of Assessment dated October 20,
1997 of the City Assessor of Lucena) is a notice of collection, ending with the
request for MERALCO to settle the payable amount soon in order to avoid
accumulation of penalties. It only presented in table form the tax declarations
covering the machinery, assessed values in the tax declarations in lump sums for
all the machinery, the periods covered, and the taxes and penalties due again in
lump sums for all the machinery.

The Notice of Assessment dated October 20, 1997 issued by the City Assessor
gave a summary of the new/revised assessment of the "machinery" located in
"Quezon Avenue Ext., Brgy. Gulang-Gulang, Lucena City," covered by Tax
Declaration No. 019-7394, with total market value of P98,173,200.00 and total
assessed value of P78,538,560.00. The Property Record Form basically contained
the same information. Without specific description or identification of the
machinery covered by said tax declaration, said Notice of Assessment and
Property Record Form give the false impression that there is only one piece of
machinery covered.

In Tax Declaration No. 019-6500, the City Assessor reported its findings under
"Building and Improvements" and not "Machinery." Said tax declaration covered
"capital investment-commercial," specifically: (a) Transformer and Electric Post;
(b) Transmission Line, (c) Insulator, and (d) Electric Meter, with a total market
value of P81,811,000.00, assessment level of 80%, and assessed value of
£65,448,800.00. Conspicuously, the table for "Machinery" - requiring the
description, date of operation, replacement cost, depreciation, and market value
of the machinery - is totally blank.

MERALCO avers, and the City Assessor and the City Treasurer of Lucena do not
refute at all, that MERALCO has not been furnished the Owner's Copy of Tax
Declaration No. 019-7394, in which the total market value of the machinery of
MERALCO was increased by PI6,632,200.00, compared to that in Tax
Declaration No. 019-6500.

The Court cannot help but attribute the lack of a valid notice of assessment to the
apparent lack of a valid appraisal and assessment conducted by the City Assessor
of Lucena in the first place. It appears that the City Assessor of Lucena simply
lumped together all the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO located in Lucena City under Tax
Declaration Nos. 019-6500 and 019-7394, contrary to the specificity demanded
under Sections 224 and 225 of the Local Government Code for appraisal and
assessment of machinery. The City Assessor and the City Treasurer of Lucena did
not even provide the most basic information such as the number of transformers,
electric posts, insulators, and electric meters or the length of the transmission
lines appraised and assessed under Tax Declaration Nos. 019-6500 and 019-
7394. There is utter lack of factual basis for the assessment of the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO.

The Court of Appeals laid the blame on MERALCO for the lack of information
regarding its transformers, electric posts, transmission lines, insulators, and
electric meters for appraisal and assessment purposes because MERALCO failed
to file a sworn declaration of said properties as required by Section 202 of the
Local Government Code. As MERALCO explained, it cannot be expected to file
such a declaration when all the while it believed that said properties were
personal or movable properties not subject to real property tax. More
importantly, Section 204 of the Local Government Code exactly covers such a
situation, thus:

Section 204. Declaration of Real Property by the Assessor. -When any person,

natural or juridical, by whom real property is required to be declared under
Section 202 hereof, refuses or fails for any reason to make such declaration
within the time prescribed, the provincial, city or municipal assessor shall himself
declare the property in the name of the defaulting owner, if known, or against an
unknown owner, as the case may be, and shall assess the property for taxation in
accordance with the provision of this Title. No oath shall be required of a
declaration thus made by the provincial, city or municipal assessor.

Note that the only difference between the declarations of property made by the
taxpayer, on one hand, and the provincial/city/municipal assessor, on the other,
is that the former must be made under oath. After making the declaration of the
property himself for the owner, the provincial/city/municipal assessor is still
required to assess the property for taxation in accordance with the provisions of
the Local Government Code.

It is true that tax assessments by tax examiners are presumed correct and made
in good faith, with the taxpayer having the burden of proving otherwise. [66] In this
case, MERALCO was able to overcome the presumption because it has clearly
shown that the assessment of its properties by the City Assessor was baselessly
and arbitrarily done, without regard for the requirements of the Local
Government Code.

The exercise of the power of taxation constitutes a deprivation of property under

the due process clause, and the taxpayer's right to due process is violated when
arbitrary or oppressive methods are used in assessing and collecting taxes. [67] The
Court applies by analogy its pronouncements in Commissioner of Internal
Revenue v. United Salvage and Towage (Phils.), Inc.,[68] concerning an
assessment that did not comply with the requirements of the National Internal
Revenue Code:

On the strength of the foregoing observations, we ought to reiterate our earlier

teachings that "in balancing the scales between the power of the State to tax and
its inherent right to prosecute perceived transgressors of the law on one side, and
the constitutional rights of a citizen to due process of law and the equal
protection of the laws on the other, the scales must tilt in favor of the individual,
for a citizen's right is amply protected by the Bill of Rights under the
Constitution." Thus, while "taxes are the lifeblood of the government," the power
to tax has its limits, in spite of all its plenitude. Even as we concede the
inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed
procedure. (Citations omitted.)

The appraisal and assessment of the transformers, electric posts, transmission

lines, insulators, and electric meters of MERALCO under Tax Declaration Nos.
019-6500 and 019-7394, not being in compliance with the Local Government
Code, are attempts at deprivation of property without due process of law and,
therefore, null and void.
WHEREFORE, premises considered, the Court PARTLY GRANTS the instant
Petition and AFFIRMS with MODIFICATION the Decision dated May 13,
2004 of the Court of Appeals in CA-G.R. SP No. 67027, affirming in toto the
Decision dated May 3, 2001 of the Central Board of Assessment Appeals in CBAA
Case No. L-20-98. The Court DECLARES that the transformers, electric posts,
transmission lines, insulators, and electric meters of Manila Electric Company
are NOT EXEMPTED from real property tax under the Local Government
Code. However, the Court also DECLARES the appraisal and assessment of the
said properties under Tax Declaration Nos. 019-6500 and 019-7394
as NULL and VOID for not complying with the requirements of the Local
Government Code and violating the right to due process of Manila Electric
Company, and ORDERS the CANCELLATION of the collection letter dated
October 16, 1997 of the City Treasurer of Lucena and the Notice of Assessment
dated October 20, 1997 of the City Assessor of Lucena, but WITHOUT
PREJUDICE to the conduct of a new appraisal and assessment of the same
properties by the City Assessor of Lucena in accord with the provisions of the
Local Government Code and guidelines issued by the Bureau of Local
Government Financing.

SO ORDERED.

Sereno, CJ., (Chairperson), Bersamin, Perez, and Perlas-Bernabe, JJ., concur.

ESCRA Notes:

Taxation; Local Taxation; Real Property Tax; Local Government Code;

Section 252 of the Local Government Code (LGC) mandates that “[n]o
protest shall be entertained unless the taxpayer first pays the tax”;
Under the LGC, even when the assessment of the real property is
appealed, the real property tax due on the basis thereof should be
paid to and/or collected by the local government unit (LGU)
concerned.—Section 252 of the Local Government Code mandates that “[n]o
protest shall be entertained unless the taxpayer first pays the tax.” It is settled
that the requirement of “payment under protest” is a condition sine qua non
before an appeal may be entertained. Section 231 of the same Code also dictates
that “[a]ppeal on assessments of real property x x x shall, in no case, suspend the
collection of the corresponding realty taxes on the property involved as assessed
by the provincial or city assessor, without prejudice to subsequent adjustment
depending upon the final outcome of the appeal.” Clearly, under the Local
Government Code, even when the assessment of the real property is appealed, the
real property tax due on the basis thereof should be paid to and/or collected by
the local government unit concerned.

Same; Same; Same; Same; By posting the surety bond, Manila Electric
Company (MERALCO) may be considered to have substantially
complied with Section 252 of the Local Government Code (LGC) for
the said bond already guarantees the payment to the Office of the City
Treasurer of Lucena of the total amount of real property taxes and
penalties due on Tax Declaration Nos. 019-6500 and 019-7394.—By
posting the surety bond, MERALCO may be considered to have substantially
complied with Section 252 of the Local Government Code for the said bond
already guarantees the payment to the Office of the City Treasurer of Lucena of
the total amount of real property taxes and penalties due on Tax Declaration Nos.
019-6500 and 019-7394. This is not the first time that the Court allowed a surety
bond as an alternative to cash payment of the real property tax before
protest/appeal as required by Section 252 of the Local Government Code. In
Camp John Hay Development Corporation v. Central Board of Assessment
Appeals, 706 SCRA 547 (2013), the Court affirmed the ruling of the CBAA and the
Court of Tax Appeals En Banc applying the “payment under protest” requirement
in Section 252 of the Local Government Code and remanding the case to the
LBAA for “further proceedings subject to a full and up-to-date payment, either in
cash or surety, of realty tax on the subject properties x x x.”

Same; Same; Same; Same; Tax Exemptions; The evident intent of the
Local Government Code (LGC) is to withdraw/repeal all exemptions
from local taxes, unless otherwise provided by the Code.—The Local
Government Code, in addition, contains a general repealing clause under Section
534(f) which states that “[a]ll general and special laws, acts, city charters,
decrees, executive orders, proclamations and administrative regulations, or part
or parts thereof which are inconsistent with any of the provisions of this Code are
hereby repealed or modified accordingly.” Taking into account the above
mentioned provisions, the evident intent of the Local Government Code is to
withdraw/repeal all exemptions from local taxes, unless otherwise provided by
the Code. The limited and restrictive nature of the tax exemption privileges under
the Local Government Code is consistent with the State policy to ensure
autonomy of local governments and the objective of the Local Government Code
to grant genuine and meaningful autonomy to enable local government units to
attain their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals.

The obvious intention of the law is to broaden the tax base of local government
units to assure them of substantial sources of revenue.

Same; Same; Same; Same; Same; Not being among the recognized
exemptions from real property tax in Section 234 of the Local
Government Code (LGC), then the exemption of the transformers,
electric posts, transmission lines, insulators, and electric meters of
Manila Electric Company (MERALCO) from real property tax granted
under its franchise was among the exemptions withdrawn upon the
effectivity of the LGC on January 1, 1998.—The last paragraph of Section
234 had unequivocally withdrawn, upon the effectivity of the Local Government
Code, exemptions from payment of real property taxes granted to natural or
juridical persons, including government-owned or -controlled corporations,
except as provided in the same section. MERALCO, a private corporation
engaged in electric distribution, and its transformers, electric posts, transmission
lines, insulators, and electric meters used commercially do not qualify under any
of the ownership, character, and usage exemptions enumerated in Section 234 of
the Local Government Code. It is a basic precept of statutory construction that
the express mention of one person, thing, act, or consequence excludes all others
as expressed in the familiar maxim expressio unius est exclusio alterius. Not
being among the recognized exemptions from real property tax in Section 234 of
the Local Government Code, then the exemption of the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO from real
property tax granted under its franchise was among the exemptions withdrawn
upon the effectivity of the Local Government Code on January 1, 1998.

Same; Same; Same; Same; Same; A taxpayer claiming a tax exemption

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

Same; Same; Same; Same; The Court highlights that under Section
199(o) of the Local Government Code (LGC), machinery, to be deemed
real property subject to real property tax, need no longer be annexed
to the land or building as these “may or may not be attached,
permanently or temporarily to the real property,” and in fact, such
machinery may even be “mobile.”—The Court highlights that under Section
199(o) of the Local Government Code, machinery, to be deemed real property
subject to real property tax, need no longer be annexed to the land or building as
these “may or may not be attached, permanently or temporarily to the real
property,” and in fact, such machinery may even be “mobile.” The same provision
though requires that to be machinery subject to real property tax, the physical
facilities for production, installations, and appurtenant service facilities, those
which are mobile, self-powered or self-propelled, or not permanently attached to
the real property (a) must be actually, directly, and exclusively used to meet the
needs of the particular industry, business, or activity; and (b) by their very nature
and purpose, are designed for, or necessary for manufacturing, mining, logging,
commercial, industrial, or agricultural purposes. Thus, Article 290(o) of the
Rules and Regulations Implementing the Local Government Code of 1991
recognizes the following exemption: Machinery which are of general purpose use
including but not limited to office equipment, typewriters, telephone equipment,
breakable or easily damaged containers (glass or cartons), microcomputers,
facsimile machines, telex machines, cash dispensers, furnitures and fixtures,
freezers, refrigerators, display cases or racks, fruit juice or beverage automatic
dispensing machines which are not directly and exclusively used to meet the
needs of a particular industry, business or activity shall not be considered within
the definition of machinery under this Rule.

Same; Same; Same; Same; The machinery subject to real property tax
under the Local Government Code (LGC) “may or may not be
attached, permanently or temporarily to the real property”; and the
physical facilities for production, installations, and appurtenant
service facilities, those which are mobile, self-powered or self-
propelled, or are not permanently attached must (a) be actually,
directly, and exclusively used to meet the needs of the particular
industry, business, or activity; and (b) by their very nature and
purpose, be designed for, or necessary for manufacturing, mining,
logging, commercial, industrial, or agricultural purposes.—While the
Local Government Code still does not provide for a specific definition of “real
property,” Sections 199(o) and 232 of the said Code, respectively, gives an
extensive definition of what constitutes “machinery” and unequivocally subjects
such machinery to real property tax. The Court reiterates that the machinery
subject to real property tax under the Local Government Code “may or may not
be attached, permanently or temporarily to the real property”; and the physical
facilities for production, installations, and appurtenant service facilities, those
which are mobile, self-powered or self-propelled, or are not permanently
attached must (a) be actually, directly, and exclusively used to meet the needs of
the particular industry, business, or activity; and (b) by their very nature and
purpose, be designed for, or necessary for manufacturing, mining, logging,
commercial, industrial, or agricultural purposes.

Same; Same; Same; Same; Article 415, paragraph (5) of the Civil Code
considers as immovables or real properties “[m]achinery,
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.”—Article 415, paragraph (1) of the
Civil Code declares as immovables or real properties “[l]and, buildings, roads and
constructions of all kinds adhered to the soil.” The land, buildings, and roads are
immovables by nature “which cannot be moved from place to place,” whereas the
constructions adhered to the soil are immovables by incorporation “which are
essentially movables, but are attached to an immovable in such manner as to be
an integral part thereof.” Article 415, paragraph (3) of the Civil Code, referring to
“[e]verything 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,” are likewise immovables by incorporation. In contrast, the Local
Government Code considers as real property machinery which “may or may not
be attached, permanently or temporarily to the real property,” and even those
which are “mobile.” Article 415, paragraph (5) of the Civil Code considers as
immovables or real properties “[m]achinery, 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.” The Civil Code,
however, does not define “machinery.” The properties under Article 415,
paragraph (5) of the Civil Code are immovables by destination, or “those which
are essentially movables, but by the purpose for which they have been placed in
an immovable, partake of the nature of the latter because of the added utility
derived therefrom.” These properties, including machinery, become immobilized
if the following requisites concur: (a) they are placed in the tenement by the
owner of such tenement; (b) they are destined for use in the industry or work in
the tenement; and (c) they tend to directly meet the needs of said industry or
works. The first two requisites are not found anywhere in the Local Government
Code.

Same; Same; Same; Same; As between the Civil Code, a general law
governing property and property relations, and the Local
Government Code (LGC), a special law granting local government
units (LGUs) the power to impose real property tax, then the latter
shall prevail.—MERALCO insists on harmonizing the aforementioned
provisions of the Civil Code and the Local Government Code. The Court
disagrees, however, for this would necessarily mean imposing additional
requirements for classifying machinery as real property for real property tax
purposes not provided for, or even in direct conflict with, the provisions of the
Local Government Code. As between the Civil Code, a general law governing
property and property relations, and the Local Government Code, a special law
granting local government units the power to impose real property tax, then the
latter shall prevail. As the Court pronounced in Disomangcop v. The Secretary of
the Department of Public Works and Highways Simeon A. Datumanong, 444
SCRA 203 (2004): It is a finely-imbedded principle in statutory construction that
a special provision or law prevails over a general one. Lex specialis derogant
generali. As this Court expressed in the case of Leveriza v. Intermediate Appellate
Court, “another basic principle of statutory construction mandates that general
legislation must give way to special legislation on the same subject, and generally
be so interpreted as to embrace only cases in which the special provisions are not
applicable, that specific statute prevails over a general statute and that where two
statutes are of equal theoretical application to a particular case, the one designed
therefor specially should prevail.”

Same; Same; Same; Same; For determining whether machinery is

real property subject to real property tax, the definition and
requirements under the Local Government Code (LGC) are
controlling.—For determining whether machinery is real property subject to
real property tax, the definition and requirements under the Local Government
Code are controlling. MERALCO maintains that its electric posts are not
machinery subject to real property tax because said posts are not being
exclusively used by MERALCO; these are also being utilized by cable and
telephone companies. This, however, is a factual issue which the Court cannot
take cognizance of in the Petition at bar as it is not a trier of facts. Whether or not
the electric posts of MERALCO are actually being used by other companies or
industries is best left to the determination of the City Assessor or his deputy, who
has been granted the authority to take evidence under Article 304 of the Rules
and Regulations Implementing the Local Government Code of 1991.

Same; Same; Same; Same; “Appraisal” and “Assessment,” Defined.—

The Local Government Code defines “appraisal” as the “act or process of
determining the value of property as of a specific date for a specific purpose.”
“Assessment” is “the act or process of determining the value of a property, or
proportion thereof subject to tax, including the discovery, listing, classification,
and appraisal of the properties[.]”

Same; Same; Same; Same; Every machinery must be individually

appraised and assessed depending on its acquisition cost, remaining
economic life, estimated economic life, replacement or reproduction
cost, and depreciation.—Every machinery must be individually appraised and
assessed depending on its acquisition cost, remaining economic life, estimated
economic life, replacement or reproduction cost, and depreciation. Article 304 of
the Rules and Regulations Implementing the Local Government Code of 1991
expressly authorizes the local assessor or his deputy to receive evidence for the
proper appraisal and assessment of the real property: Article 304. Authority of
Local Assessors to Take Evidence.—For the purpose of obtaining information on
which to base the market value of any real property, the assessor of the province,
city, or municipality or his deputy may summon the owners of the properties to
be affected or persons having legal interest therein and witnesses, administer
oaths, and take deposition concerning the property, its ownership, amount,
nature, and value.

Same; Same; Same; Same; A notice of assessment, which stands as

the first instance the taxpayer is officially made aware of the pending
tax liability, should be sufficiently informative to apprise the taxpayer
the legal basis of the tax.—The Local Government Code further mandates
that the taxpayer be given a notice of the assessment of real property in the
following manner: Section 223. Notification of New or Revised Assessment.—
When real property is assessed for the first time or when an existing assessment
is increased or decreased, the provincial, city or municipal assessor shall within
thirty (30) days give written notice of such new or revised assessment to the
person in whose name the property is declared. The notice may be delivered
personally or by registered mail or through the assistance of the punong barangay
to the last known address of the person to served. A notice of assessment, which
stands as the first instance the taxpayer is officially made aware of the pending
tax liability, should be sufficiently informative to apprise the taxpayer the legal
basis of the tax.

Same; Due Process; The exercise of the power of taxation constitutes

a deprivation of property under the due process clause, and the
taxpayer’s right to due process is violated when arbitrary or
oppressive methods are used in assessing and collecting taxes.—The
exercise of the power of taxation constitutes a deprivation of property under the
due process clause, and the taxpayer’s right to due process is violated when
arbitrary or oppressive methods are used in assessing and collecting taxes. The
Court applies by analogy its pronouncements in Commissioner of Internal
Revenue v. United Salvage and Towage (Phils.), Inc., 729 SCRA 113 (2014),
concerning an assessment that did not comply with the requirements of the
National Internal Revenue Code: On the strength of the foregoing observations,
we ought to reiterate our earlier teachings that “in balancing the scales between
the power of the State to tax and its inherent right to prosecute perceived
transgressors of the law on one side, and the constitutional rights of a citizen to
due process of law and the equal protection of the laws on the other, the scales
must tilt in favor of the individual, for a citizen’s right is amply protected by the
Bill of Rights under the Constitution.” Thus, while “taxes are the lifeblood of the
government,” the power to tax has its limits, in spite of all its plenitude. Even as
we concede the inevitability and indispensability of taxation, it is a requirement
in all democratic regimes that it beexercised reasonably and in accordance with
the prescribed procedure.

Manila Electric Company vs. The City Assessor, 765 SCRA 52, G.R. No. 166102
August 5, 2015
G.R. No. 180110

CAPITOL WIRELESS, INC., Petitioner,

vs.
THE PROVINCIAL TREASURER OF BATANGAS, THE PROVINCIAL
ASSESSOR OF BATANGAS, THE MUNICIPAL TREASURER AND
ASSESSOR OF NASUGBU, BATANGAS, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court seeking to annul and set aside the Court of Appeals’ Decision1 dated
May 30, 2007 and Resolution2 dated October 8, 2007 in CA-G.R. SP No. 82264,
which both denied the appeal of petitioner against the decision of the Regional
Trial Court.

Below are the acts of the case.

Petitioner Capitol Wireless Inc. (Capwire) is a Philippine corporation in the

business of providing international telecommunications services. 3 As such
provider, Capwire has signed agreements with other local and foreign
telecommunications companies covering an international network of

submarine cable systems such as the Asia Pacific Cable Network System
(APCN) (which connects Australia, Thailand, Malaysia, Singapore, Hong Kong,
Taiwan, Korea, Japan, Indonesia and the Philippines); the BruneiMalaysia-
Philippines Cable Network System (BMP-CNS), the PhilippinesItaly

(SEA-ME-WE-3 CNS), and the Guam Philippines (GP-CNS) systems. 4 The

agreements provide for co-ownership and other rights among the parties over the
network. 5

Petitioner Capwire claims that it is co-owner only of the so-called "Wet Segment"
of the APCN, while the landing stations or terminals and Segment E of APCN
located in Nasugbu, Batangas are allegedly owned by the Philippine Long
Distance Telephone Corporation (PLDT). 6 Moreover, it alleges that the Wet
Segment is laid in inten1ational, and not Philippine, waters. 7

Capwire claims that as co-owner, it does not own any particular physical part of
the cable system but, consistent with its financial contributions, it owns the right
to use a certain capacity of the said systern. 8 This property right is allegedly
reported in its financial books as "Indefeasible Rights in Cable Systems."9

However, for loan restructuring purposes, Capwire claims that "it was required to
register the value of its right," hence, it engaged an appraiser to "assess the
market value of the international submarine cable system and the cost to
Capwire." 10 On May 15, 2000, Capwire submitted a Sworn Statement of True
Value of Real Properties at the Provincial Treasurer's Office, Batangas City,
Batangas Province, for the Wet Segment of the system, stating:

System Sound Value

APCN P203,300,000.00

BMP-CNS p 65,662,000.00

SEA-ME-WE-3 CNSP P7,540,000.00

GP-CNS P1,789,000.00

Capwire claims that it also reported that the system "interconnects at the PLDT
Landing Station in Nasugbu, Batangas," which is covered by a transfer certificate
of title and tax declarations in the name of PLDT. 11

As a result, the respondent Provincial Assessor of Batangas (Provincial

Assessor) issued the following Assessments of Real Property (ARP) against
Capwire:

ARP Cable System Assessed Value

019-00967 BMP-CNS P52,529,600.00

019-00968 APCN P162,640,000.00

019-00969 SEA-ME-WE3-CNS P: 6,032,000.00

019-00970 GP-CNS P: 1,431,200.00

In essence, the Provincial Assessor had determined that the submarine cable
systems described in Capwire's Sworn Statement of True Value of Real
Properties are taxable real property, a determination that was contested by
Capwire in an exchange of letters between the company and the public
respondent. 12 The reason cited by Capwire is that the cable system lies outside
of Philippine territory, i.e., on international waters. 13

On February 7, 2003 and March 4, 2003, Capwire received a Warrant of Levy

and a Notice of Auction Sale, respectively, from the respondent Provincial
Treasurer of Batangas (Provincial Treasurer). 14

On March I 0, 2003, Capwire filed a Petition for Prohibition and Declaration of

Nullity of Warrant of Levy, Notice of Auction Sale and/or Auction Sale with the
Regional Trial Court (RTC) of Batangas City. 15

After the filing of the public respondents' Comment, 16 on May 5, 2003, the RTC
issued an Order dismissing the petition for failure of the petitioner Capwire to
follow the requisite of payment under protest as well as failure to appeal to the
Local Board of Assessment Appeals (LBAA), as provided for in Sections 206 and
226 of Republic Act (R.A.) No. 7160, or the Local Government Code. 17

Capwire filed a Motion for Reconsideration,18 but the same was likewise

dismissed by the RTC in an Order19 dated August 26, 2003. It then filed an
appeal to the Court of Appeals. 20

On May 30, 2007, the Court of Appeals promulgated its Decision dismissing the
appeal filed by Capwire and affirming the order of the trial court.1âwphi1 The
dispositive portion of the CA's decision states:

WHEREFORE, premises considered, the assailed Orders dated May 5, 2003

and August 26, 2003 of the Regional Trial Court, Branch II of Batangas City, are
AFFIRMED.

SO ORDERED.21

The appellate court held that the trial court correctly dismissed Capwire's petition
because of the latter's failure to comply with the requirements set in Sections 226
and 229 of the Local Government Code, that is, by not availing of remedies
before administrative bodies like the LBAA and the Central Board of Assessment
Appeals (CBAA). 22 Although Capwire claims that it saw no need to undergo
administrative proceedings because its petition raises purely legal questions, the
appellate comi did not share this view and noted that the case raises questions of
fact, such as the extent to which parts of the submarine cable system lie within
the territorial jurisdiction of the taxing authorities, the public
respondents.23 Further, the CA noted that Capwire failed to pay the tax assessed
against it under protest, another strict requirement under Section 252 of the Local
Government Code24

Hence, the instant petition for review of Capwire.

Petitioner Capwire asserts that recourse to the Local Board of Assessment

Appeals, or payment of the tax under protest, is inapplicable to the case at bar
since there is no question of fact involved, or that the question involved is not the
reasonableness of the amount assessed but, rather, the authority and power of
the assessor to impose the tax and of the treasurer to collect it.25 It contends that
there is only a pure question of law since the issue is whether its submarine
cable system, which it claims lies in international waters, is taxable.26 Capwire
holds the position that the cable system is not subject to tax.27

Respondents assessors and treasurers of the Province of Batangas and

Municipality of Nasugbu, Batangas disagree with Capwire and insist that the
case presents questions of fact such as the extent and portion of the submarine
cable system that lies within the jurisdiction of the said local governments, as well
as the nature of the so-called indefeasible rights as property of Capwire.28 Such
questions are allegedly resolvable only before administrative agencies like the
Local Board of Assessment Appeals. 29

The Court confronts the following issues: Is the case cognizable by the
administrative agencies and covered by the requirements in Sections 226 and
229 of the Local Government Code which makes the dismissal of

Capwire's petition by the RTC proper? May submarine communications cables

be classified as taxable real property by the local governments?

The petition is denied. No error attended the ruling of the appellate court that the
case involves factual questions that should have been resolved before the
appropriate administrative bodies.

In disputes involving real property taxation, the general rule is to require the
taxpayer to first avail of administrative remedies and pay the tax under protest
before allowing any resort to a judicial action, except when the assessment itself
is alleged to be illegal or is made without legal authority.30

For example, prior resort to administrative action is required when among the
issues raised is an allegedly erroneous assessment, like when the
reasonableness of the amount is challenged, while direct court action is
permitted when only the legality, power, validity or authority of the; assessment
itself is in question.JI Stated differently, the general rule of a prerequisite
recourse to administrative remedies applies when questions of fact are raised,
but the exception of direct court action is allowed when purely questions of law
are involved.32

This Court has previously and rather succinctly discussed the difference between
a question of fact and a question of law. In Cosmos Bottling Corporation v.
Nagrama, Jr., 33 it held:

The Court has made numerous dichotomies between questions of law and fact.
A reading of these dichotomies shows that labels attached to law and fact are
descriptive rather than definitive. We are not alone in Our difficult task of clearly
distinguishing questions of fact from questions of law. The United States
Supreme Court has ruled that: "we [do not] yet know of any other rule or principle
that will unerringly distinguish a factual finding from a legal conclusion."

In Ramos v. Pepsi-Cola Bottling Co. of the PI., the Court ruled:

There is a question of law in a given case when the doubt or difference arises as
to what the law is on a certain state of facts; there is a question of fact when the
doubt or difference arises as to the truth or the falsehood of alleged facts.

We shall label this the doubt dichotomy.

In Republic v. Sandiganbayan, the Court ruled:

x x x A question of law exists when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain set of facts; or when the issue
does not call for an examination of the probative value of the evidence
presented, the truth or falsehood of facts being admitted. In contrast, a question
of fact exists when the doubt or difference arises as to the truth or falsehood of
facts or when the query invites calibration of the whole evidence considering
mainly the credibility of the witnesses, the existence and relevancy of specific
surrounding circumstances as well as their relation to each other and to the
whole, and the probability of the situation.

For the sake of brevity, We shall label this the law application and calibration
dichotomy.

In contrast, the dynamic legal scholarship in the United States has birthed many
commentaries on the question of law and question of fact dichotomy. As early as
1944, the law was described as growing downward toward "roots of fact" which
grew upward to meet it. In 1950, the late Professor Louis Jaffe saw fact and law
as a spectrum, with one shade blending imperceptibly into the other. Others have
defined questions of law as those that deal with the general body of legal
principles; questions of fact deal with "all other phenomena xx x." Kenneth Culp
Davis also weighed in and noted that the difference between fact and law has
been characterized as that between "ought" questions and "is" questions.34

Guided by the quoted pronouncement, the Court sustains the CA's finding that
petitioner's case is one replete with questions of fact instead of pure questions of
law, which renders its filing in a judicial forum improper because it is instead
cognizable by local administrative bodies like the Board of Assessment Appeals,
which are the proper venues for trying these factual issues. Verily, what is
alleged by Capwire in its petition as "the crux of the controversy," that is,
"whether or not an indefeasible right over a submarine cable system that lies in
international waters can be subject to real property tax in the Philippines,"35 is
not the genuine issue that the case presents - as it is already obvious and
fundamental that real property that lies outside of Philippine territorial jurisdiction
cannot be subjected to its domestic and sovereign power of real property taxation
- but, rather, such factual issues as the extent and status of Capwire's ownership
of the system, the actual length of the cable/s that lie in Philippine territory, and
the corresponding assessment and taxes due on the same, because the public
respondents imposed and collected the assailed real property tax on the finding
that at least a portion or some portions of the submarine cable system that
Capwire owns or co-owns lies inside Philippine territory. Capwire's disagreement
with such findings of the administrative bodies presents little to no legal question
that only the courts may directly resolve.

Instead, Capwire argues and makes claims on mere assumptions of certain facts
as if they have been already admitted or established, when they have not, since
no evidence of such have yet been presented in the proper agencies and even in
the current petition. As such, it remains unsettled whether Capwire is a mere co-
owner, not full owner, of the subject submarine cable and, if the former, as to
what extent; whether all or certain portions of the cable are indeed submerged in
water; and whether the waters wherein the cable/s is/are laid are entirely outside
of Philippine territorial or inland waters, i.e., in international waters. More simply,
Capwire argues based on mere legal conclusions, culminating on its claim of
illegality of respondents' acts, but the conclusions are yet unsupported by facts
that should have been threshed out quasi-judicially before the administrative
agencies. It has been held that "a bare characterization in a petition of
unlawfulness, is merely a legal conclusion and a wish of the pleader, and such a
legal conclusion unsubstantiated by facts which could give it life, has no standing
in any court where issues must be presented and determined by facts in ordinary
and concise language."36 Therefore, Capwire's resort to judicial action, premised
on its legal conclusion that its cables (the equipment being taxed) lie entirely on
international waters, without first administratively substantiating such a factual
premise, is improper and was rightly denied. Its proposition that the cables lie
entirely beyond Philippine territory, and therefore, outside of Philippine
sovereignty, is a fact that is not subject to judicial notice since, on the contrary,
and as will be explained later, it is in fact certain that portions of the cable would
definitely lie within Philippine waters. Jurisprudence on the Local Government
Code is clear that facts such as these must be threshed out administratively, as
the courts in these types of cases step in at the first instance only when pure
questions of law are involved.

Nonetheless, We proceed to decide on whether submarine wires or cables used

for communications may be taxed like other real estate.

We hold in the affirmative.

Submarine or undersea communications cables are akin to electric transmission

lines which this Court has recently declared in Manila Electric Company v. City
Assessor and City Treasurer of Lucena City, 37 as "no longer exempted from real
prope1iy tax" and may qualify as "machinery" subject to real property tax under
the Local Government Code. To the extent that the equipment's location is
determinable to be within the taxing authority's jurisdiction, the Court sees no
reason to distinguish between submarine cables used for communications and
aerial or underground wires or lines used for electric transmission, so that both
pieces of property do not merit a different treatment in the aspect of real property
taxation. Both electric lines and communications cables, in the strictest sense,
are not directly adhered to the soil but pass through posts, relays or landing
stations, but both may be classified under the term "machinery" as real property
under Article 415(5)38 of the Civil Code for the simple reason that such pieces of
equipment serve the owner's business or tend to meet the needs of his industry
or works that are on real estate. Even objects in or on a body of water may be
classified as such, as "waters" is classified as an immovable under Article
415(8)39 of the Code. A classic example is a boathouse which, by its nature, is a
vessel and, therefore, a personal property but, if it is tied to the shore and used
as a residence, and since it floats on waters which is immovable, is considered
real property.40 Besides, the Court has already held that "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."41

Thus, absent any showing from Capwire of any express grant of an exemption
for its lines and cables from real property taxation, then this interpretation applies
and Capwire's submarine cable may be held subject to real property tax.
Having determined that Capwire is liable, and public respondents have the right
to impose a real property tax on its submarine cable, the issue that is unresolved
is how much of such cable is taxable based on the extent of Capwire's ownership
or co-ownership of it and the length that is laid within respondents' taxing
jurisdiction. The matter, however, requires a factual determination that is best
performed by the Local and Central Boards of Assessment Appeals, a remedy
which the petitioner did not avail of.

At any rate, given the importance of the issue, it is proper to lay down the other
legal bases for the local taxing authorities' power to tax portions of the submarine
cables of petitioner. It is not in dispute that the submarine cable system's Landing
Station in Nasugbu, Batangas is owned by PLDT and not by Capwire. Obviously,
Capwire is not liable for the real property tax on this Landing Station.
Nonetheless, Capwire admits that it co-owns the submarine cable system that is
subject of the tax assessed and being collected by public respondents. As the
Court takes judicial notice that Nasugbu is a coastal town and the surrounding
sea falls within what the United Nations Convention on the Law of the Sea (UN
CLOS) would define as the country's territorial sea (to the extent of 12 nautical
miles outward from the nearest baseline, under Part II, Sections 1 and 2) over
which the country has sovereignty, including the seabed and subsoil, it follows
that indeed a portion of the submarine cable system lies within Philippine territory
and thus falls within the jurisdiction of the said local taxing authorities.42 It easily
belies Capwire's contention that the cable system is entirely in international
waters. And even if such portion does not lie in the 12-nautical-mile vicinity of the
territorial sea but further inward, in Prof Magallona v. Hon. Ermita, et al.43 this
Court held that "whether referred to as Philippine 'internal waters' under A1iicle I
of the Constitution44 or as 'archipelagic waters' under UNCLOS Part III, Article
49(1, 2, 4),45 the Philippines exercises sovereignty over the body of water lying
landward of (its) baselines, including the air space over it and the submarine
areas underneath." Further, under Part VI, Article 7946 of the UNCLOS, the
Philippines clearly has jurisdiction with respect to cables laid in its territory that
are utilized in support of other installations and structures under its jurisdiction.

And as far as local government units are concerned, the areas described above
are to be considered subsumed under the term "municipal waters" which, under
the Local Government Code, includes "not only streams, lakes, and tidal waters
within the municipality, not being the subject of private ownership and not
comprised within the national parks, public forest, timber lands, forest reserves or
fishery reserves, but also marine waters included between two lines drawn
perpendicularly to the general coastline from points where the boundary lines of
the municipality or city touch the sea at low tide and a third line parallel with the
general coastline and fifteen (15) kilometers from it."47 Although the term
"municipal waters" appears in the Code in the context of the grant of quarrying
and fisheries privileges for a fee by local governments,48 its inclusion in the
Code's Book II which covers local taxation means that it may also apply as guide
in determining the territorial extent of the local authorities' power to levy real
property taxation.

Thus, the jurisdiction or authority over such part of the subject submarine cable
system lying within Philippine jurisdiction includes the authority to tax the same,
for taxation is one of the three basic and necessary attributes of
sovereignty,49 and such authority has been delegated by the national legislature
to the local governments with respect to real property.50 taxation.

As earlier stated, a way for Capwire to claim that its cable system is not covered
by such authority is by showing a domestic enactment or even contract, or an
international agreement or treaty exempting the same from real property taxation.
It failed to do so, however, despite the fact that the burden of proving exemption
from local taxation is upon whom the subject real property is declared. 51 Under
the Local Government Code, every person by or for whom real property is
declared, who shall claim tax exemption for such property from real property
taxation "shall file with the provincial, city or municipal assessor within thirty (30)
days from the date of the declaration of real property sufficient documentary
evidence in support of such claim."52 Capwire omitted to do so. And even under
Capwire's legislative franchise, RA 4387, which amended RA 2037, where it may
be derived that there was a grant of real property tax exemption for properties
that are part of its franchise, or directly meet the needs of its business,53 such
had been expressly withdrawn by the Local Government Code, which took effect
on January l, 1992, Sections 193 and 234 of which provide:54

Section 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise

provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-owned
or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, nonstock and nonprofit hospitals and
educational institutions, arc hereby withdrawn upon the effectivity of this Code.

xxxx

Section 234. Exemptions from Real Property Tax. - The following are exempted
from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration of otherwise, to a taxable person;
 (b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, nonprofit or religious cemeteries and all lands, buildings,
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental
protection.

Except as provided herein, any exemption from payment of real property

tax previously granted to, or presently enjoyed by, all persons, whether
natural or .iuridical, including all government-owned or controlled
corporations arc hereby withdrawn upon the cffectivity of this Code.55

Such express withdrawal had been previously held effective upon exemptions
bestowed by legislative franchises granted prior to the effectivity of the Local
Government Code.56 Capwire fails to allege or provide any other privilege or
exemption that were granted to it by the legislature after the enactment of the
Local Government Code. Therefore, the presumption stays that it enjoys no such
privilege or exemption. Tax exemptions arc strictly construed against the
taxpayer because taxes are considered the lifeblood of the nation.57

WHEREFORE, the petition is DENIED. The Court of Appeals’ Decision dated

May 30, 2007 and Resolution dated October 8. 2007 are AFFIRMED.

SO ORDERED

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
ESCRA Notes:

Taxation; Real Property Taxation; In disputes involving real property

taxation, the general rule is to require the taxpayer to first avail of
administrative remedies and pay the tax under protest before
allowing any resort to a judicial action, except when the assessment
itself is alleged to be illegal or is made without legal authority.—In
disputes involving real property taxation, the general rule is to require the
taxpayer to first avail of administrative remedies and pay the tax under protest
before allowing any resort to a judicial action, except when the assessment itself
is alleged to be illegal or is made without legal authority. For example, prior
resort to administrative action is required when among the issues raised is an
allegedly erroneous assessment, like when the reasonableness of the amount is
challenged, while direct court action is permitted when only the legality, power,
validity or authority of the assessment itself is in question. Stated differently, the
general rule of a prerequisite recourse to administrative remedies applies when
questions of fact are raised, but the exception of direct court action is allowed
when purely questions of law are involved.

Remedial Law; Civil Procedure; Questions of Fact; It has been held

that “a bare characterization in a petition of unlawfulness, is merely a
legal conclusion and a wish of the pleader, and such a legal conclusion
unsubstantiated by facts which could give it life, has no standing in
any court where issues must be presented and determined by facts in
ordinary and concise language.”—Capwire argues and makes claims on
mere assumptions of certain facts as if they have been already admitted or
established, when they have not, since no evidence of such have yet been
presented in the proper agencies and even in the current petition. As such, it
remains unsettled whether Capwire is a mere co-owner, not full owner, of the
subject submarine cable and, if the former, as to what extent; whether all or
certain portions of the cable are indeed submerged in water; and whether the
waters wherein the cable/s is/are laid are entirely outside of Philippine territorial
or inland waters, i.e., in international waters. More simply, Capwire argues based
on mere legal conclusions, culminating on its claim of illegality of respondents’
acts, but the conclusions are yet unsupported by facts that should have been
threshed out quasi-judicially before the administrative agencies. It has been held
that “a bare characterization in a petition of unlawfulness, is merely a legal
conclusion and a wish of the pleader, and such a legal conclusion unsubstantiated
by facts which could give it life, has no standing in any court where issues must
be presented and determined by facts in ordinary and concise language.”
Therefore, Capwire’s resort to judicial action, premised on its legal conclusion
that its cables (the equipment being taxed) lie entirely on international waters,
without first administratively substantiating such a factual premise, is improper
and was rightly denied. Its proposition that the cables lie entirely beyond
Philippine territory, and therefore, outside of Philippine sovereignty, is a fact that
is not subject to judicial notice since, on the contrary, and as will be explained
later, it is in fact certain that portions of the cable would definitely lie within
Philippine waters. Jurisprudence on the Local Government Code is clear that
facts such as these must be threshed out administratively, as the courts in these
types of cases step in at the first instance only when pure questions of law are
involved.

Civil Law; Property; Real Properties; Machineries; Both electric lines

and communications cables, in the strictest sense, are not directly
adhered to the soil but pass through posts, relays or landing stations,
but both may be classified under the term “machinery” as real
property under Article 415(5) of the Civil Code for the simple reason
that such pieces of equipment serve the owner’s business or tend to
meet the needs of his industry or works that are on real estate.—
Submarine or undersea communications cables are akin to electric transmission
lines which this Court has recently declared in Manila Electric Company v. City
Assessor and City Treasurer of Lucena City, 765 SCRA 52 (2015), as “no longer
exempted from real property tax” and may qualify as “machinery” subject to real
property tax under the Local Government Code. To the extent that the
equipment’s location is determinable to be within the taxing authority’s
jurisdiction, the Court sees no reason to distinguish between submarine cables
used for communications and aerial or underground wires or lines used for
electric transmission, so that both pieces of property do not merit a different
treatment in the aspect of real property taxation. Both electric lines and
communications cables, in the strictest sense, are not directly adhered to the soil
but pass through posts, relays or landing stations, but both may be classified
under the term “machinery” as real property under Article 415(5) of the Civil
Code for the simple reason that such pieces of equipment serve the owner’s
business or tend to meet the needs of his industry or works that are on real estate.
Even objects in or on a body of water may be classified as such, as “waters” is
classified as an immovable under Article 415(8) of the Code. A classic example is
a boathouse which, by its nature, is a vessel and, therefore, a personal property
but, if it is tied to the shore and used as a residence, and since it floats on waters
which is immovable, is considered real property. Besides, the Court has already
held that “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.”

Same; Same; Same; Absent any showing from Capwire of any express
grant of an exemption for its lines and cables from real property
taxation, then this interpretation applies and Capwire’s submarine
cable may be held subject to real property tax.—Thus, absent any showing
from Capwire of any express grant of an exemption for its lines and cables from
real property taxation, then this interpretation applies and Capwire’s submarine
cable may be held subject to real property tax. Having determined that Capwire is
liable, and public respondents have the right to impose a real property tax on its
submarine cable, the issue that is unresolved is how much of such cable is taxable
based on the extent of Capwire’s ownership or co-ownership of it and the length
that is laid within respondents’ taxing jurisdiction. The matter, however, requires
a factual determination that is best performed by the Local and Central Boards of
Assessment Appeals, a remedy which the petitioner did not avail of.

Taxation; Property; Real Properties; Constitutional Law; National

Territory; United Nations Convention on the Law of the Sea; Under
Part VI, Article 79 of the United Nations Convention on the Law of the
Sea (UNCLOS), the Philippines clearly has jurisdiction with respect to
cables laid in its territory that are utilized in support of other
installations and structures under its jurisdiction.—As the Court takes
judicial notice that Nasugbu is a coastal town and the surrounding sea falls within
what the United Nations Convention on the Law of the Sea (UNCLOS) would
define as the country’s territorial sea (to the extent of 12 nautical miles outward
from the nearest baseline, under Part II, Sections 1 and 2) over which the country
has sovereignty, including the seabed and subsoil, it follows that indeed a portion
of the submarine cable system lies within Philippine territory and thus falls
within the jurisdiction of the said local taxing authorities. It easily belies
Capwire’s contention that the cable system is entirely in international waters.
And even if such portion does not lie in the 12-nautical-mile vicinity of the
territorial sea but further inward, in Prof. Magallona v. Hon. Ermita, et al., 655
SCRA 476 (2011), this Court held that “whether referred to as Philippine ‘internal
waters’ under Article I of the Constitution or as ‘archipelagic waters’ under
UNCLOS Part III, Article 49(1, 2, 4), the Philippines exercises sovereignty over
the body of water lying landward of (its) baselines, including the air space over it
and the submarine areas underneath.” Further, under Part VI, Article 79 of the
UNCLOS, the Philippines clearly has jurisdiction with respect to cables laid in its
territory that are utilized in support of other installations and structures under its
jurisdiction.

Same; Same; Same; The jurisdiction or authority over such part of the
subject submarine cable system lying within Philippine jurisdiction
includes the authority to tax the same, for taxation is one (1) of the
three (3) basic and necessary attributes of sovereignty, and such
authority has been delegated by the national legislature to the local
governments with respect to real property taxation.—As far as local
government units are concerned, the areas described above are to be considered
subsumed under the term “municipal waters” which, under the Local
Government Code, includes “not only streams, lakes, and tidal waters within the
municipality, not being the subject of private ownership and not comprised
within the national parks, public forest, timber lands, forest reserves or fishery
reserves, but also marine waters included between two lines drawn
perpendicularly to the general coastline from points where the boundary lines of
the municipality or city touch the sea at low tide and a third line parallel with the
general coastline and fifteen (15) kilometers from it.” Although the term
“municipal waters” appears in the Code in the context of the grant of quarrying
and fisheries privileges for a fee by local governments, its inclusion in the Code’s
Book II which covers local taxation means that it may also apply as guide in
determining the territorial extent of the local authorities’ power to levy real
property taxation. Thus, the jurisdiction or authority over such part of the subject
submarine cable system lying within Philippine jurisdiction includes the
authority to tax the same, for taxation is one of the three basic and necessary
attributes of sovereignty, and such authority has been delegated by the national
legislature to the local governments with respect to real property taxation.

Same; Local Taxation; Real Property Taxation; Tax Exemptions;

Under the Local Government Code (LGC), every person by whom or
for whom real property is declared, who shall claim tax exemption for
such property from real property taxation “shall file with the
provincial, city or municipal assessor within thirty (30) days from the
date of the declaration of real property sufficient documentary
evidence in support of such claim.”—A way for Capwire to claim that its
cable system is not covered by such authority is by showing a domestic enactment
or even contract, or an international agreement or treaty exempting the same
from real property taxation. It failed to do so, however, despite the fact that the
burden of proving exemption from local taxation is upon whom the subject real
property is declared. Under the Local Government Code, every person by or for
whom real property is declared, who shall claim tax exemption for such property
from real property taxation “shall file with the provincial, city or municipal
assessor within thirty (30) days from the date of the declaration of real property
sufficient documentary evidence in support of such claim.” Capwire omitted to do
so. And even under Capwire’s legislative franchise, R.A. No. 4387, which
amended R.A. No. 2037, where it may be derived that there was a grant of real
property tax exemption for properties that are part of its franchise, or directly
meet the needs of its business, such had been expressly withdrawn by the Local
Government Code, which took effect on January 1, 1992, Sections 193 and 234.
Capitol Wireless, Inc. vs. Provincial Treasurer of Batangas, 791 SCRA 272, G.R.
No. 180110 May 30, 2016