LADERA VS. HODGES (G.R. NO. 8027-R, VOL. 48, NO. 12, O.G.

5374, SEPTEMBER
23, 1952)
APRIL 23, 2015 |
Hodges entered into a contract promising to sell a lot to Ladera under certain terms
and conditions. One of which is that the contract may be rescinded and annulled in
case Ladera failed to make the monthly payment 60 days after it is due.
After the execution of the contract, Ladera built a house on the lot assessed at 4,500
pesos. However, Ladera failed to pay the agreed installments so Hodges rescinded
the contract and filed an action for ejectment.
The MTC ruled in favor of Hodges and issued an alias writ of execution. Pursuant
thereto, the sheriff levied upon all rights, interests and participation over the house.
Notices of sale were posted, however, were not published in a newspaper of general
circulation.
An auction sale was then conducted but Ladera was not able to attend as she had
gone to Manila. The house was then sold to one Avelina Magno as the highest bidder.
Meanwhile, Ladera sold the same lot to one Manuel Villa and on the same day
purchased the house from Magno for 200 pesos. This, however, was not recorded.
Ladera then returned to Iloilo and learned what happened. She went to see the
sheriff and represented that the property can still be redeemed and so she gave him
230 pesos. It does not appear, however, that it was turned over to Hodges.
Thereupon, Ladera filed an action against Hodges, the sheriff, Magno and Villa to set
aside the sale and recover the house.
The lower court ruled in favor of Ladera on the ground of non-compliance based on
Rule 39 of the Rules of Court. On appeal, Hodges contends that the house, built on a
lot owned by another, should be regarded as movable or personal property. The sale
of the land was also made without proper publication required by law

ISSUE: Was the house movable or immovable?

RULING: Immovable.
As enumerated in the Civil Code, immovable property includes lands, buildings,
roads and constructions of all kinds adhered to the soil. The law does not make any
distinction whether or not the owner of the lot was the one who built the
construction.
Also, Ladera did not declare his house to be a chattel mortgage. The object of the
levy or sale was real property and its publication in a newspaper of general
circulation was indespensible. Without it, the execution sale was void.
In addition, Magno, the alleged purchaser at the auction sale, was a mere employee
of Hodges and the low bid made by her as well as the fact that she sold the house to
Villa on the same day Hodges sold him the land, proves that she was merely acting
for and in behalf of Hodges.
In the sale of immovables, the lack of title of the vendor taints the rights of the
subsequent purchasers. Possession in good faith is not equivalent to title.
The principles of accession regard buildings and constructions as mere accessories to
the land on which it is built, it is logical that said accessories should partake the
nature of the principal thing.
 Mindanao Bus Co. v. City Assessor and Treasurer, G.R. No.
L 17870, September 29, 1962
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax
Appeals in C.T.A. Case No. 710 holding that the petitioner
Mindanao Bus Company is liable to the payment of the realty tax
on its maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at
P4,400 petitioner's above-mentioned equipment. Petitioner
appealed the assessment to the respondent Board of Tax Appeals
on the ground that the same are not realty. The Board of Tax
Appeals of the City sustained the city assessor, so petitioner herein
filed with the Court of Tax Appeals a petition for the review of the
assessment.
In the Court of Tax Appeals the parties submitted the following
stipulation of facts:
"Petitioner and respondents, thru their respective
counsels agreed to the following stipulation of facts:
"1. That petitioner is a public utility solely engaged in
transporting passengers and cargoes by motor trucks,
over its authorized lines in the Island of Mindanao,
collecting rates approved by the Public Service
Commission;
"2. That petitioner has its main office and shop at
Cagayan de Oro City. It maintains Branch Offices
and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe, Bukidnon
Province;
"3. That the machineries sought to be assessed by the
respondent as real properties are the following:
"(a) Hobart Electric Welder Machine,
appearing in the attached photograph,
marked Annex 'A';
"(b) Storm Boring machine, appearing in
the attached photograph, marked Annex 'B';
"(c) Lathe machine with motor, appearing
in the attached photograph, marked Annex
'C';
 "(d) Black and Decker Grinder, appearing
in the attached photograph, marked Annex
'D';
"(e) PEMCO Hydraulic Press, appearing in
the attached photograph, marked Annex 'E';
"(f) Battery charger (Tungar charge
machine) appearing in the attached
photograph, marked Annex 'F'; and
"(g) D-Engine Waukesha-M-Fuel,
appearing in the attached photograph,
marked Annex 'G'.
"4. That these machineries are sitting on cement or
wooden platforms as may be seen in the attached
photographs which form part of this agreed stipulation
of facts;
"5. That petitioner is the owner of the land where it
maintains and operates a garage for its TPU motor
trucks; a repair shop; blacksmith and carpentry shops,
and with these machineries which are placed therein,
its TPU trucks are made; body constructed; and same
are repaired in a condition to be serviceable in the TPU
land transportation business it operates;
"6. That these machineries have never been or were
never used as industrial equipments to produce
finished products for sale, nor to repair machineries,
parts and the like offered to the general public
indiscriminately for business or commercial purposes
for which petitioner has never engaged in, to date."
The Court of Tax Appeals having sustained the respondent city
assessor's ruling, and having denied a motion for reconsideration,
petitioner brought the case to this Court assigning the following
errors:
"1. The Honorable Court of Tax Appeals erred in
upholding respondents' contention that the questioned
assessments are valid; and that said tools, equipments
or machineries are immovable taxable real properties.

"2. The Tax Court erred in its interpretation of

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

"3. The Court of Tax Appeals erred in denying

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

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

for reconsideration."
Respondents contend that said equipments, the
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:

*******
"(5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement for
an industry or works which maybe 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."
(Italics ours.)
*******
Note that the stipulation expressly states that the equipment are
pllaced 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 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 principal 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." (Italics 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
movables which become immobilized by destination because they
are essential and principal elements in the industry from 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
equipments. Airline companies use forklifts, jeep-wagons, pressure
pumps, IMB 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 incidentals and
retain their movable nature.
Similarly, the tools and equipments in question in this instant case
are, by their nature, not essential and principal 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:

"(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
saw-mill would also be installed in a buillding 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.
 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.

 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.
 FIRST DIVISION

G.R. No. 120098 October 2, 2001

RUBY L. TSAI, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R
VILLALUZ, respondents.

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

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

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R
VILLALUZ, respondents.

QUISUMBING, J.:

These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No.
32986, affirming the 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.
 V

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING

AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6

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

I.

DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED

UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY
OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED
THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM
DESPITE THE PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED
PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL FORM PART
THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE
BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY
MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR
REAL ESTATE TAX PURPOSES?

II

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN

GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS
OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND
SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK
TAXES OF EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER
THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT
SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7

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

For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties
by treating the 1981 acquired units of machinery as chattels instead of real properties
within their earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel
Mortgage.8 Additionally, Tsai argues that respondent court erred in holding that the
disputed 1981 machineries are not real properties.9 Finally, she contends that the Court
of Appeals erred in holding against petitioner's arguments on prescription and
laches10 and in assessing petitioner actual damages, attorney's fees and expenses of
litigation, for want of valid factual and legal basis.11

Essentially, PBCom contends that respondent court erred in affirming the lower court's
judgment decreeing that the pieces of machinery in dispute were not duly foreclosed and
could not be legally leased nor sold to Ruby Tsai. It further argued that the Court of
Appeals' pronouncement that the pieces of machinery in question were personal
properties have no factual and legal basis. Finally, it asserts that the Court of Appeals
erred in assessing damages and attorney's fees against PBCom.

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

Considering the assigned errors and the arguments of the parties, we find the petitions
devoid of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review
on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are devoid of support
by the evidence on record or the assailed judgment is based on misapprehension of
facts.13 This rule is applied more stringently when the findings of fact of the RTC is
affirmed by the Court of Appeals.14

The following are the facts as found by the RTC and affirmed by the Court of Appeals
that are decisive of the issues: (1) the "controverted machineries" are not covered by, or
included in, either of the two mortgages, the Real Estate and Chattel Mortgage, and the
pure Chattel Mortgage; (2) the said machineries were not included in the list of properties
appended to the Notice of Sale, and neither were they included in the Sheriff's Notice of
Sale of the foreclosed properties.15

Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy,
bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make
them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code. This
assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose the
controversy. We have to look at the parties' intent.

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

As stressed upon by appellees, appellant bank treated the machineries as chattels; never
as real properties. Indeed, the 1975 mortgage contract, which was actually real and
chattel mortgage, militates against appellants' posture. It should be noted that the printed
form used by appellant bank was mainly for real estate mortgages. But reflective of the
true intention of appellant PBCOM and appellee EVERTEX was the typing in capital
letters, immediately following the printed caption of mortgage, of the phrase "real and
chattel." So also, the "machineries and equipment" in the printed form of the bank had to
be inserted in the blank space of the printed contract and connected with the word
"building" by typewritten slash marks. Now, then, if the machineries in question were
contemplated to be included in the real estate mortgage, there would have been no
necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a
listing of the machineries covered thereby. It would have sufficed to list them as
immovables in the Deed of Real Estate Mortgage of the land and building involved.

As regards the 1979 contract, the intention of the parties is clear and beyond question. It
refers solely 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.

 THIRD DIVISION

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:

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;

xxx xxx 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. As earlier 1â wphi1

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.

 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.

 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.
 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.

 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.
 FIRST DIVISION

G.R. No. 166102, August 05, 2015

MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY ASSESSOR AND

CITY TREASURER OF LUCENA CITY, Respondents.

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 Decision1 dated May 13, 2004 and Resolution2 dated
November 18, 2004 of the Court of Appeals in CA-G.R. SP No. 67027. The
appellate court affirmed the Decision3 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 Decision4 dated June 17, 19985 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. 366 dated May 15,
1922 of the Municipal Council of Lucena; (2) Resolution No. 1087 dated July 1,
1957 of the Municipal Council of Lucena; (3) Resolution No. 26798 dated June
13, 1972 of the Municipal Board of Lucena City;9 (4) Certificate of
Franchise10 dated October 28, 1993 issued by the National Electrification
Commission; and (5) Republic Act No. 920911 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. 019-650013 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 Decision14 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 Company16 (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: cral awlawlibrary

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,
17
1957 to date, if said tax has not yet been paid. chanrob leslaw

The City Assessor of Lucena filed an appeal with the CBAA, which was
docketed as CBAA Case No. 248. In its Decision18 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: chanRobles virt ualLawlib rary

TAX ASSESSED COVERED

TAX DUE PENALTY TOTAL
DEC. # VALUE PERIOD

019-
P65,448,800.00 1990-94 P3,272,440.00P2,356,156.80 P5,628,596.80
6500
019-
78,538,560.00 1995 785,385.60 534,062.21 1,319,447.81
7394
1996 785,385.60 345,569.66 1,130,955.26
st
l -
589,039.20 117,807.84 706,847.04
3rd/1997
th
4 1997 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 Assessment20 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 bond23 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. 55124 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: cral awlawlibrary

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

that: chanRob lesvir tualLa wlibra ry

1) MERALCO's appeal be dismissed for lack of merit; ChanRob lesVir tualaw librar y

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
25
depreciation cost allowed by law. chanrob leslaw

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: cral awlawlibrary

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:
chanRob lesvir tualLa wlibra ry

x x x x

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.

x x x x

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
26
R.A. 7160.
chanrob leslaw

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:
cral awlawlibrary

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 chanrob leslaw

Resultantly, the decretal portion of said CBAA Decision reads: cral awlawlibrary

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
28
of the Local Government Code.chanrob leslaw
The CBAA denied the Motion for Reconsideration of MERALCO in a
Resolution29 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: cral awlawlibrary

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 chanrob leslaw

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:
cralawlawl ibrary

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 chanrob leslaw

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: cral awlawlibrary

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)32chanrob leslaw
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: cralawlawli brary

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
chanrob leslaw

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: cralawlawl ibrary

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 chanrob leslaw

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 22135 and
22236 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: cral awlawlibrary

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

37
deemed just and equitable in the premises.
chanrob leslaw

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 Appeals39 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:cralawl awlibrary

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
41
x x. chanrob leslaw

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:
cral awlawlibrary

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.

x x x x

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
42
its consumers, x x x. chanrob leslaw

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: cral awlawlibrary

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.) chanrob leslaw

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:cral awlawlibrary
 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: chanRob lesvir tualLa wlibra ry

(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; ChanRob lesVir tualaw librar y

(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; ChanRob lesVir tualaw librar y

(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; ChanRob lesVir tualaw librar y

(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. chanrob leslaw

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.:cral awlawlibrary

(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
44
withdrawn upon the effectivity of the Code. chanrob leslaw

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:chanRobles virt ualLawlibrary
Real Property Incidence of Real Property
Definition of Machinery47
Tax Law Tax
Section 3. Property exempt
from tax. - The exemptions
Section 2. Incidence of shall be as follows:
The real property tax. - x x x x
Assessment Except in chartered cities, (f) Machinery, which term
Law there shall be levied, shall embrace machines,
(Commonwealth assessed, and collected, an mechanical contrivances,
Act No. 470) annual ad valorem tax on instruments, appliances,
real property, including and apparatus attached to
Effectivity: land, buildings, machinery, the real estate, used for
January 1, and other improvements not industrial agricultural or
1940 hereinafter specifically manufacturing purposes,
exempted. during the first five years
of the operation of the
machinery.
Section 3. Definition of
Terms. -
When used in this Code -

x x x x
Section 38. Incidence of
Real Property Tax. - There (m) Machinery - shall
shall be levied, assessed embrace machines,
and collected in all mechanical contrivances,
Real Property provinces, cities and instruments, appliances and
Tax Code municipalities an annual ad apparatus attached to the
valorem tax on real real estate. It includes
Effectivity: property, such as land, the physical facilities
June 1, 1974 buildings, machinery and available for production,
other improvements affixed as well as the
or attached to real installations and
property not hereinafter appurtenant service
specifically exempted. facilities, together with
all other equipment
designed for or essential
to its manufacturing,
industrial or agricultural
purposes.
Real Property Section 38. Incidence of Section 3. Definition of
Tax Code, as Real Property Tax. - There Terms.
amended by shall be levied, assessed When used in this Code -
Presidential and collected in all x x x x
Decree No. provinces, cities and
1383 municipalities an annual ad (m) Machinery - shall
valorem tax on real embrace machines,
Effectivity: property, such as land, equipment, mechanical
May 25, 1978 buildings, machinery and contrivances, instruments,
other improvements affixed appliances and apparatus
or attached to real attached to the real
property not hereinafter estate. It shall include
specifically exempted. 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
Section 232. Power to Levy used in this Title:
Real Property Tax. — A x x x x
province or city or a
Local
municipality within the (o) "Machinery" embraces
Government
Metropolitan Manila Area machines, equipment,
Code
may levy an annual ad mechanical contrivances,
valorem tax on real instruments, appliances or
Effectivity:
property such as land, apparatus which may or may
January 1,
building, machinery, and not be attached,
1992
other improvement not permanently or temporarily,
hereinafter specifically to the real property. It
exempted. includes the physical
facilities for production,
the installations and
 appurtenant service
facilities, those which
are mobile, self-powered or
self- propelled, and those
not permanently attached to
the 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: cral awlawlibrary

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.) chanrob leslaw

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: cral awlawlibrary

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: cralawl awlibr ary

(1) Land, buildings, roads, and constructions

of all kinds adhered to the soil; ChanRob lesVir tualaw librar y

x x x x

(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; ChanRob lesVir tualaw librar y

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 in a building or on a piece of
land, and which tends directly to meet the
needs of the said industry or works; ChanRob lesVir tualaw librar y

x x x x
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.) chanrob leslaw

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. Datumanong60: cral awlawlibrary

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.) chanrob leslaw

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

Corporation61 that: cral awlawlibrary
 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.) chanrob leslaw

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: cralawlawli brary

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. chanrob leslaw

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: cral awlawlibrary
 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.
chanrob leslaw

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

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. chanrob leslaw

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: cral awlawlibrary

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. chanrob leslaw
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:
cral awlawlibrary

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. chanrob leslaw

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: cral awlawlibrary
 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.) chanrob leslaw

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. chanrobles virt uallawl ibrary

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

 THIRD DIVISION

May 30, 2016

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. The dispositive portion of the
1âwphi1

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

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA*

Associate Justice Associate Justice

On leave
FRANCIS H. JARDELEZA**
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the casse was assigned to the writer of the opinion of the Court’s Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court's
Division.

MARIA LOURDES P.A. SERENO

Chief Justice
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 168557 February 16, 2007

FELS ENERGY, INC., Petitioner,

vs.
THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

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

G.R. No. 170628 February 16, 2007

NATIONAL POWER CORPORATION, Petitioner,

vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA,
in his capacity as the Assessor of the Province of Batangas, and the PROVINCE
OF BATANGAS represented by its Provincial Assessor, Respondents.

DECISION

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No.
170628, which were filed by petitioners FELS Energy, Inc. (FELS) and National Power
Corporation (NPC), respectively. The first is a petition for review on certiorari assailing
the August 25, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490
and its Resolution2 dated June 20, 2005; the second, also a petition for review on
certiorari, challenges the February 9, 2005 Decision3 and November 23, 2005
Resolution4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the
ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over
3x30 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The
contract, denominated as an Energy Conversion Agreement5 (Agreement), was for a
period of five years. Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes,
import duties, fees, charges and other levies imposed by the National Government of the
Republic of the Philippines or any agency or instrumentality thereof to which POLAR may
be or become subject to or in relation to the performance of their obligations under this
agreement (other than (i) taxes imposed or calculated on the basis of the net income of
POLAR and Personal Income Taxes of its employees and (ii) construction permit fees,
environmental permit fees and other similar fees and charges) and (b) all real estate
taxes and assessments, rates and other charges in respect of the Power Barges.6
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The
NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the
Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power
barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax,
which likewise covered those due for 1994, amounted to ₱56,184,088.40 per annum.
FELS referred the matter to NPC, reminding it of its obligation under the Agreement to
pay all real estate taxes. It then gave NPC the full power and authority to represent it in
any conference regarding the real property assessment of the Provincial Assessor.

In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial

Assessor’s decision to assess real property taxes on the power barges. However, the
motion was denied on September 22, 1995, and the Provincial Assessor advised NPC to
pay the assessment.8 This prompted NPC to file a petition with the Local Board of
Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration
of the barges as non-taxable items; it also prayed that should LBAA find the barges to be
taxable, the Provincial Assessor be directed to make the necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real
property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the
LBAA that the Department of Finance (DOF) had rendered an opinion10 dated May 20,
1996, where it is clearly stated that power barges are not real property subject to real
property assessment.

On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo
reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax
in the amount of ₱56,184,088.40, for the year 1994.

SO ORDERED.12

The LBAA ruled that the power plant facilities, while they may be classified as movable or
personal property, are nevertheless considered real property for taxation purposes
because they are installed at a specific location with a character of permanency. The
LBAA also pointed out that the owner of the barges–FELS, a private corporation–is the
one being taxed, not NPC. A mere agreement making NPC responsible for the payment
of all real estate taxes and assessments will not justify the exemption of FELS; such a
privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA
also ruled that the petition was filed out of time.

Aggrieved, FELS appealed the LBAA’s ruling to the Central Board of Assessment
Appeals (CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy
and Warrant by Distraint13 over the power barges, seeking to collect real property taxes
amounting to ₱232,602,125.91 as of July 31, 1996. The notice and warrant was officially
served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November
14, 1996, praying that the Provincial Assessor be further restrained by the CBAA from
enforcing the disputed assessment during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the
properties of FELS in order not to preempt and render ineffectual, nugatory and illusory
any resolution or judgment which the Board would issue.

Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the
proceedings before the CBAA. This was approved by the CBAA in an Order16 dated
September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit
bond to guarantee the payment of real property taxes assessed by the Provincial
Assessor (in the event that the judgment be unfavorable to them). The bonds were duly
approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from
real property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province
of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the
Province of Batangas is hereby ordered to drop subject property under ARP/Tax
Declaration No. 018-00958 from the List of Taxable Properties in the Assessment Roll.
The Provincial Treasurer of Batangas is hereby directed to act accordingly.

SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to
NPC; since they are actually, directly and exclusively used by it, the power barges are
covered by the exemptions under Section 234(c) of R.A. No. 7160.19 As to the other
jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from
pursuing its claim for tax exemption in accordance with Section 206 of R.A. No. 7160.
The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS
and NPC.

In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its
earlier decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby
affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.

SO ORDERED.21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by
the Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated
October 19, 2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No.
67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP
No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a
Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its
motion for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter
petition who should resolve the request for reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth
Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the
petition on the ground of prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed
Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of
Assessment Appeals are AFFIRMED.

SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the
reversal of the appellate court’s decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court,
docketed as G.R. No. 165113, assailing the appellate court’s decision in CA-G.R. SP No.
67490. The petition was, however, denied in this Court’s Resolution25 of November 8,
2004, for NPC’s failure to sufficiently show that the CA committed any reversible error in
the challenged decision. NPC filed a motion for reconsideration, which the Court denied
with finality in a Resolution26 dated January 19, 2005.

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held
that the right to question the assessment of the Provincial Assessor had already
prescribed upon the failure of FELS to appeal the disputed assessment to the LBAA
within the period prescribed by law. Since FELS had lost the right to question the
assessment, the right of the Provincial Government to collect the tax was already
absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of
the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied
in a Resolution27 dated November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier
denied for lack of merit in a Resolution28 dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this
Court, raising the following issues:

A.

Whether power barges, which are floating and movable, are personal
properties and therefore, not subject to real property tax.

B.

Assuming that the subject power barges are real properties, whether they
are exempt from real estate tax under Section 234 of the Local
Government Code ("LGC").

C.
 Assuming arguendo that the subject power barges are subject to real
estate tax, whether or not it should be NPC which should be made to pay
the same under the law.

D.

Assuming arguendo that the subject power barges are real properties,
whether or not the same is subject to depreciation just like any other
personal properties.

E.

Whether the right of the petitioner to question the patently null and void
real property tax assessment on the petitioner’s personal properties is
imprescriptible.29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No.
170628), indicating the following errors committed by the CA:

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE

APPEAL TO THE LBAA WAS FILED OUT OF TIME.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT

THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY
TAXES.

III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT

THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN
ACCORDANCE WITH LAW.30

Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution31 dated March 8, 2006.1awph i1.ne t

In an earlier Resolution dated February 1, 2006, the Court had required the parties to
submit their respective Memoranda within 30 days from notice. Almost a year passed but
the parties had not submitted their respective memoranda. Considering that taxes—the
lifeblood of our economy—are involved in the present controversy, the Court was
prompted to dispense with the said pleadings, with the end view of advancing the
interests of justice and avoiding further delay.

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-
barred. FELS argues that when NPC moved to have the assessment reconsidered on
September 7, 1995, the running of the period to file an appeal with the LBAA was tolled.
For its part, NPC posits that the 60-day period for appealing to the LBAA should be
reckoned from its receipt of the denial of its motion for reconsideration.

Petitioners’ contentions are bereft of merit.

Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991,
provides:

SECTION 226. Local Board of Assessment Appeals. – Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or
municipal assessor in the assessment of his property may, within sixty (60) days from the
date of receipt of the written notice of assessment, appeal to the Board of Assessment
Appeals of the province or city by filing a petition under oath in the form prescribed for the
purpose, together with copies of the tax declarations and such affidavits or documents
submitted in support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on
August 7, 1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the
date of receipt hereof, appeal to the Board of Assessment Appeals of the province by
filing a petition under oath on the form prescribed for the purpose, together with copies of
ARP/Tax Declaration and such affidavits or documents submitted in support of the
appeal.32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC
opted to file a motion for reconsideration of the Provincial Assessor’s decision, a remedy
not sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the
provincial, city or municipal assessor in the assessment of the property. It follows then
that the determination made by the respondent Provincial Assessor with regard to the
taxability of the subject real properties falls within its power to assess properties for
taxation purposes subject to appeal before the LBAA.33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-
G.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta v.
Office of the Ombudsman,34 where we ruled that under Section 226 of R.A. No
7160,35 the last action of the local assessor on a particular assessment shall be the notice
of assessment; it is this last action which gives the owner of the property the right to
appeal to the LBAA. The procedure likewise does not permit the property owner the
remedy of filing a motion for reconsideration before the local assessor. The pertinent
holding of the Court in Callanta is as follows:

x x x [T]he same Code is equally clear that the aggrieved owners should have brought
their appeals before the LBAA. Unfortunately, despite the advice to this effect contained
in their respective notices of assessment, the owners chose to bring their requests for a
review/readjustment before the city assessor, a remedy not sanctioned by the law. To
allow this procedure would indeed invite corruption in the system of appraisal and
assessment. It conveniently courts a graft-prone situation where values of real property
may be initially set unreasonably high, and then subsequently reduced upon the request
of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off
cannot be avoided, and in fact can conveniently take place. Such occasion for mischief
must be prevented and excised from our system.36

For its part, the appellate court declared in CA-G.R. SP No. 67491:

x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to
the owner or lawful possessor of real property of its revised assessed value, the former
shall no longer have any jurisdiction to entertain any request for a review or readjustment.
The appropriate forum where the aggrieved party may bring his appeal is the LBAA as
provided by law. It follows ineluctably that the 60-day period for making the appeal to the
LBAA runs without interruption. This is what We held in SP 67490 and reaffirm today in
SP 67491.37

To reiterate, if the taxpayer fails to appeal in due course, the right of the local government
to collect the taxes due with respect to the taxpayer’s property becomes absolute upon
the expiration of the period to appeal.38 It also bears stressing that the taxpayer’s failure
to question the assessment in the LBAA renders the assessment of the local assessor
final, executory and demandable, thus, precluding the taxpayer from questioning the
correctness of the assessment, or from invoking any defense that would reopen the
question of its liability on the merits.39

In fine, the LBAA acted correctly when it dismissed the petitioners’ appeal for having
been filed out of time; the CBAA and the appellate court were likewise correct in affirming
the dismissal. Elementary is the rule that the perfection of an appeal within the period
therefor is both mandatory and jurisdictional, and failure in this regard renders the
decision final and executory.40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is
barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where
there was a final determination on the issue of prescription), effectively precludes the
claims herein; and that the filing of the instant petition after an adverse judgment in G.R.
No. 165113 constitutes forum shopping.

FELS maintains that the argument of the Provincial Assessor is completely misplaced
since it was not a party to the erroneous petition which the NPC filed in G.R. No. 165113.
It avers that it did not participate in the aforesaid proceeding, and the Supreme Court
never acquired jurisdiction over it. As to the issue of forum shopping, petitioner claims
that no forum shopping could have been committed since the elements of litis pendentia
or res judicata are not present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two
grounds embodied in various maxims of common law, namely: (1) public policy and
necessity, which makes it to the interest of the

State that there should be an end to litigation – republicae ut sit litium; and (2) the
hardship on the individual of being vexed twice for the same cause – nemo debet bis
vexari et eadem causa. A conflicting doctrine would subject the public peace and quiet to
the will and dereliction of individuals and prefer the regalement of the litigious disposition
on the part of suitors to the preservation of the public tranquility and happiness.41 As we
ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42

x x x An existing final judgment or decree – rendered upon the merits, without fraud or
collusion, by a court of competent jurisdiction acting upon a matter within its authority – is
conclusive on the rights of the parties and their privies. This ruling holds in all other
actions or suits, in the same or any other judicial tribunal of concurrent jurisdiction,
touching on the points or matters in issue in the first suit.

xxx

Courts will simply refuse to reopen what has been decided. They will not allow the same
parties or their privies to litigate anew a question once it has been considered and
decided with finality. Litigations must end and terminate sometime and somewhere. The
effective and efficient administration of justice requires that once a judgment has become
final, the prevailing party should not be deprived of the fruits of the verdict by subsequent
suits on the same issues filed by the same parties.

This is in accordance with the doctrine of res judicata which has the following elements:
(1) the former judgment must be final; (2) the court which rendered it had jurisdiction over
the subject matter and the parties; (3) the judgment must be on the merits; and (4) there
must be between the first and the second actions, identity of parties, subject matter and
causes of action. The application of the doctrine of res judicata does not require absolute
identity of parties but merely substantial identity of parties. There is substantial identity of
parties when there is community of interest or privity of interest between a party in the
first and a party in the second case even if the first case did not implead the latter.43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding
regarding real property assessment. Therefore, when petitioner NPC filed its petition for
review docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of
FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court
was the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the
petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the
principle of privity of interest. In fine, FELS and NPC are substantially "identical parties"
as to warrant the application of res judicata. FELS’s argument that it is not bound by the
erroneous petition filed by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping
exists when, as a result of an adverse judgment in one forum, a party seeks another and
possibly favorable judgment in another forum other than by appeal or special civil action
or certiorari. There is also forum shopping when a party institutes two or more actions or
proceedings grounded on the same cause, on the gamble that one or the other court
would make a favorable disposition.44

Petitioner FELS alleges that there is no forum shopping since the elements of res
judicata are not present in the cases at bar; however, as already discussed, res judicata
may be properly applied herein. Petitioners engaged in forum shopping when they filed
G.R. Nos. 168557 and 170628 after the petition for review in G.R. No. 165116. Indeed,
petitioners went from one court to another trying to get a favorable decision from one of
the tribunals which allowed them to pursue their cases.

It must be stressed that an important factor in determining the existence of forum

shopping is the vexation caused to the courts and the parties-litigants by the filing of
similar cases to claim substantially the same reliefs.45 The rationale against forum
shopping is that a party should not be allowed to pursue simultaneous remedies in two
different fora. Filing multiple petitions or complaints constitutes abuse of court processes,
which tends to degrade the administration of justice, wreaks havoc upon orderly judicial
procedure, and adds to the congestion of the heavily burdened dockets of the courts.46

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such
parties as represent the same interests in both actions, (b) identity of rights asserted and
relief prayed for, the relief being founded on the same facts, and (c) the identity of the two
preceding particulars is such that any judgment rendered in the pending case, regardless
of which party is successful, would amount to res judicata in the other.47

Having found that the elements of res judicata and forum shopping are present in the
consolidated cases, a discussion of the other issues is no longer necessary.
Nevertheless, for the peace and contentment of petitioners, we shall shed light on the
merits of the case.
As found by the appellate court, the CBAA and LBAA power barges are real property and
are thus subject to real property tax. This is also the inevitable conclusion, considering
that G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error.
Tax assessments by tax examiners are presumed correct and made in good faith, with
the taxpayer having the burden of proving otherwise.48 Besides, factual findings of
administrative bodies, which have acquired expertise in their field, are generally binding
and conclusive upon the Court; we will not assume to interfere with the sensible exercise
of the judgment of men especially trained in appraising property. Where the judicial mind
is left in doubt, it is a sound policy to leave the assessment undisturbed.49 We find no
reason to depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et
al.,50 a power company brought an action to review property tax assessment. On the
city’s motion to dismiss, the Supreme Court of New York held that the barges on which
were mounted gas turbine power plants designated to generate electrical power, the fuel
oil barges which supplied fuel oil to the power plant barges, and the accessory equipment
mounted on the barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures
which, though floating, are intended by their nature and object to remain at a fixed place
on a river, lake, or coast" are considered immovable property. Thus, power barges are
categorized as immovable property by destination, being in the nature of machinery and
other implements intended by the owner for an industry or work which may be carried on
in a building or on a piece of land and which tend directly to meet the needs of said
industry or work.51

Petitioners maintain nevertheless that the power barges are exempt from real estate tax
under Section 234 (c) of R.A. No. 7160 because they are actually, directly and
exclusively used by petitioner NPC, a government- owned and controlled corporation
engaged in the supply, generation, and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is
petitioner FELS, which in fine, is the entity being taxed by the local government. As
stipulated under Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the
fixtures, fittings, machinery and equipment on the Site used in connection with the Power
Barges which have been supplied by it at its own cost. POLAR shall operate, manage
and maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into
electricity.52

It follows then that FELS cannot escape liability from the payment of realty taxes by
invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads:

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

xxx

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

Indeed, the law states that the machinery must be actually, directly and exclusively used
by the government owned or controlled corporation; nevertheless, petitioner FELS still
cannot find solace in this provision because Section 5.5, Article 5 of the Agreement
provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the
supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it
will operate the Power Barges to convert such Fuel into electricity in accordance with
Part A of Article 7.53

It is a basic rule that obligations arising from a contract have the force of law between the
parties. Not being contrary to law, morals, good customs, public order or public policy,
the parties to the contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is
the exception.55 The law does not look with favor on tax exemptions and the entity that
would seek to be thus privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted.56 Thus, applying the rule of strict construction of laws
granting tax exemptions, and the rule that doubts should be resolved in favor of provincial
corporations, we hold that FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it
shall be responsible for the payment of all real estate taxes and assessments, does not
justify the exemption. The privilege granted to petitioner NPC cannot be extended to
FELS. The covenant is between FELS and NPC and does not bind a third person not
privy thereto, in this case, the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in
the local government’s deprivation of revenues. The power to tax is an incident of
sovereignty and is unlimited in its magnitude, acknowledging in its very nature no
perimeter so that security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who are to pay for it.57 The right of
local government units to collect taxes due must always be upheld to avoid severe tax
erosion. This consideration is consistent with the State policy to guarantee the autonomy
of local governments58 and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to empower them to achieve their fullest
development as self-reliant communities and make them effective partners in the
attainment of national goals.59

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the
needed revenues to finance and support myriad activities of the local government units
for the delivery of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people.60

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions
AFFIRMED.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice Asscociate Justice
 MINITA V. CHICO-NAZARIO
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s
Attestation, it is hereby certified that the conclusions in the above decision were reached
in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.

REYNATO S. PUNO
Chief Justice