CALTEX v.

BAA

I. FACTS:

 This case is about realty tax on machinery and equipment installed by Caltex in its gas stations
on leased land. The machinery and equipment are loaned to their respective gas stations.
 The machines and equipment consist of underground tanks, elevated tank, elevated water
tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists,
truck hoists, air compressors and tireflators.
 The City Assessor of Pasay City characterized the items as taxable realty. The city board of tax
appeals ruled them to be personalty. Finally, Central Board of Assessment Appeals ruled that the
items are real property within the contemplated meaning of the Real Property Tax Code.
 Caltex filed a certiorari petition praying to set aside the decision of the CBAA. The Solicitor
General contended that the Court of Tax Appeals has exclusive appellate jurisdiction over the
case.

II. ISSUES:

 WoN the Court of Tax Appeals has exclusive appellate jurisdiction over this case – NO;
 WoN the gas station equipment and machinery are subject to realty tax (relevant issue)? - YES

III. RATIONALE:

 The Supreme Court held that the said equipment and machinery are taxable improvements
within the meaning of the Assessment Law and the Real Property Tax Code.

“SEC. 38. Incidence of Real Property Tax. —There shall be levied, assessed and collected in
all provinces, cities and municipalities an annual ad valorem tax on real property, such as
land, buildings, machinery and other improvements affixed or attached to real property not
hereinafter specifically exempted.”

“k) Improvements — is a valuable addition made to property or an amelioration

in its condition, amounting to more than mere repairs or replacement of waste,
costing labor or capital and intended to enhance its value, beauty or utility or to
adapt it for new or further purposes.”

“m) Machinery—shall embrace machines, mechanical contrivances,

instruments, appliances and apparatus attached to the real estate. It includes
the physical facilities available for production, as well as the installations and
appurtenant service facilities, together with all other equipment designed for or
essential to its manufacturing, industrial or agricultural purposes.”

 The Court held that the said equipment and machinery, as appurtenances to the gas station
building or shed owned by Caltex and which fixtures are necessary to the operation of the gas
station, for without them the gas station would be useless, and which have been attached or
affixed permanently to the gas station site or embedded therein
 Caltex’ improvements are distinguished from other cases in that they are more permanent
structures installed in the gas stations, the existence of which are necessary for the certain
establishments to be able to function and deliver its services.
o Davao Sawmill – the question is different from this case as the question in the case is for
purposes of execution of judgment against the lessee
o Board of assessment appeals v. Meralco – the steel towers are personalty because they
are attached to metal frames which can be detached by unscrewing the bolts
o Mindanao Bus – not the same tools in the repair shop of a bus company not subject to
realty tax
 Improvements on land are commonly taxed as realty even though for some purposes they might
be considered personalty. It is a familiar phenomenon to see things classes as real property for
purposes of taxation which on general principle might be considered personal property.
IV. DISPOSITIVE:

WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals are
affirmed. The petition for certiorari is dismissed for lack of merit. Petition is dismissed.
PRUDENTIAL BANK vs. PANIS

FACTS:

 Private respondents, Fernando and Teodula Magcale secured a loan from the petitioner
Prudential Bank in the amount of 70,000.00.
 To secure payment of this loan, the spouses executed in favor of the bank a deed of Real Estate
Mortgage over a building erected on a lot,
 The MORTGAGE includes the right of occupancy on the lot where the property is erected which
was subject of a Sales Patent on the lot applied for by the Mortgagors
o The bank was aware of the fact that the private respondents have already filed a
Miscellaneous Sales Application over the lot, possessory rights over which were
mortgaged to it.
 The Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776 over the parcel of land,
possessory rights over which were mortgaged to Prudential Bank, in favor of spouses
 They then secured an additional loan in the amount of 20,000.00 from Prudential Bank and to
secure payment of this additional loan executed in favor of the said defendant another deed of
Real Estate Mortgage over the same properties previously mortgaged.
 For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon
application of said defendant, the deeds of Real Estate Mortgage were extrajudicially foreclosed.
 After the foreclosure was the sale of the properties therein mortgaged to the bank as the
highest bidder in a public auction sale despite desistance from the spouses
 Court of First Instance of Zambales, presided by Hon.Domingo Panis, declared that the deeds of
real estate mortgage executed by respondent spouses in favor of petitioner bank are null and
void.
 Motion for Reconsideration was denied, hence the instant petition.

ISSUE:

 WON a valid real estate mortgage can be constituted on the building erected on the land
belonging to another.

RULING:

 Affirmative. In the enumeration of properties under Article 415 of the Civil Code of the
Philippines, the Court ruled that, "it is obvious that the inclusion of "building" separate and
distinct from the land, in said provision of law can only mean that a building is by itself an
immovable property."
 Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation
of the improvements thereon, buildings, still a building by itself may be mortgaged apart from
the land on which it has been built.
 Such a mortgage would be still a real estate mortgage for the building would still be considered
immovable property even if dealt with separately and apart from the land (Leung Yee vs. Strong
Machinery Co., 37 Phil. 644).
 In the same manner, this Court has also established that possessory rights over said properties
before title is vested on the grantee, may be validly transferred or conveyed as in a deed of
mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).
 Coming back to the case at bar, the records show, that the original mortgage deed on the 2-
storey semi-concrete residential building with warehouse and on the right of occupancy on the
lot where the building was erected, was executed on November 19, 1971 and registered under
the provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971.
 Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of
which OCT No. 2554 was issued in the name of private respondent Fernando Magcale on May
15, 1972.
 It is therefore without question that the original mortgage was executed before the issuance
of the final patent and before the government was divested of its title to the land, an event
which takes effect only on the issuance of the sales patent and its subsequent registration in
 the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands
vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on
Natural Resources", p. 49).
 Under the foregoing considerations, it is evident that the mortgage executed by private
respondent on his own building which was erected on the land belonging to the government is
to all intents and purposes a valid mortgage.
o As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it
will be noted that Sections 121, 122 and 124 of the Public Land Act, refer to land already
acquired under the Public Land Act, or any improvement thereon and therefore have no
application to the assailed mortgage in the case at bar which was executed before such
eventuality. Likewise, Section 2 of Republic Act No. 730, also a restriction appearing on
the face of private respondent's title has likewise no application in the instant case,
despite its reference to encumbrance or alienation before the patent is issued because
it refers specifically to encumbrance or alienation on the land itself and does not
mention anything regarding the improvements existing thereon.
 But it is a different matter, as regards the second mortgage executed over the same properties
on May 2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of
Deeds of Olongapo City on the same date.
 Relative thereto, it is evident that such mortgage executed after the issuance of the sales patent
and of the Original Certificate of Title, falls squarely under the prohibitions stated in Sections
121, 122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is therefore null
and void.
SERG’S PRODUCTS v. PCI LEASING

FACTS:

 PCI Leasing, respondent, filed a complaint for a sum of money with an application for a writ of
replevin with the Regional Trial Court.
 The Court granted the Writ of Replevin directing its sheriff to seize and deliver the machineries
and equipment of Serg’s Products Incorporated, petitioner, to PCI Leasing after 5 days and upon
the payment of the necessary expenses
 The sheriff went and seized one machinery from petitioner, and announced his return for the
other machinery
 Petitioner filed a motion for special protective order but the motion was opposed by
respondent, on the ground that the properties were still personal and therefore still subject to
seizure and a writ of replevin.
 Petitioners. asserted that the properties sought to be seized were immovables. They argued that
to give effect to their agreement would be prejudicial to innocent third parties.
o They also contended that respondent is estopped from claiming the machineries as
personal as the agreement was a total sham
 When the sheriff was able to take 2 more machineries, the petitioner filed an action for
certiorari with the Court of Appeals
 Appellate court held that the subject machines were personal property, and that they had only
been leased, not owned, by petitioners.
 Hence the present petition

ISSUE:

 Whether or not the machineries are personal and not immovable property which may be a
proper subject of a writ of replevin

RULING:

 Court held that petitioners are partly correct, that the machines were placed by petitioners in
the factory built on their own land. Indisputably, they were essential and principal elements of
their chocolate-making industry. 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. Court agreed with petitioners that said machines are real, not
personal pursuant to Article 415 (5) of the Civil Code.
 However, the Court reiterated that contracting parties may validly stipulate that a real property
be considered as personal. After agreeing to such stipulation, they are consequently estopped
from claiming otherwise.
o The principle of estoppel states that a party to a contract is ordinarily precluded from
denying the truth of any material fact found therein.
 In this case, the Lease Agreement clearly provides that the machines in question are to be
considered as personal property. Hence, the 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.
o 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
 In treating the machines as personal property pursuant to the Lease Agreement is good only
insofar as the contracting parties are concerned. Third persons acting in good faith are not
affected by its stipulation characterizing the subject machinery as personal.

VALIDITY OF LEASE – Petitioners contend that agreement is a loan. Court said that there is nothing in
record that the lease agreement was nullified. These questions are to be raised on trial court for facts
and presentation of evidence, which the Court of Appeals and SC have no place to determine.
TSAI v. CA

FACTS:

 Ever Textile Mills, Inc. (EVERTEX) obtained loan from Philippine Bank of Communications
(PBCom), in the amount of 3million secured by a deed of Real and Chattel Mortgage over the lot
where its factory stands, and the chattels located therein as enumerated in a schedule attached
to the mortgage contract.
 PBCom again granted a second loan to EVERTEX which was secured by a Chattel Mortgage over
personal properties enumerated in a list attached thereto.
 These listed properties were similar to those listed in the first mortgage deed. After the date of
the execution of the second mortgage, EVERTEX purchased various machines and equipments.
 EVERTEX subsequently filed insolvency proceedings and upon EVERTEX's failure to meet its
obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against
 EVERTEX, a public auction was held and PBCom the highest bidder was issued a Certificate of
Sale by the sheriff ( under Act 3135 and Act 1506 or "The Chattel Mortgage Law". )
 PBCom then consolidated its ownership over the lot and all the properties in it and thereafter
leased the entire factory premises to Ruby Tsai.
 Subsequently, the factory, lock, stock and barrel including the contested machineries were sold
to Tsai.
 EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the RTC
against PBCom, alleging that the extrajudicial foreclosure of subject mortgage was not valid,
and no rights were transmitted to PBCom, and thereafter to Tsai
o PBCom, without any legal or factual basis, appropriated the contested properties which
were not included in the Real and Chattel Mortgage of the first mortgage contract nor in
the second contract which is a Chattel Mortgage, and neither were those properties
included in the Notice of Sheriff's Sale.
 The Trial Court found the sale of personal properties were irregular and illegal
o Because they were not foreclosed nor sold at the auction sale since these were not
included in the schedules attached to the mortgage contracts
 PBCom and Tsak appealed to the CA, but the decision was affirmed, hence the petition by
PBCom and Tsai.

ISSUES:

1) W/N the contested properties are personal or movable properties

2) W/N the sale of these properties to a third person (Tsai) by the bank through an irregular foreclosure
sale is valid.

RULING:

 1. Nature of the Properties and Intent of the Parties

 The nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the
real property mortgaged does not make them ipso facto immovable under Article 415 (3) and
(5) of the New Civil Code.
 While it is true that the properties appear to be immobile, a perusal of the contract of Real and
Chattel Mortgage executed by the parties reveal their intent, that is - to treat machinery and
equipment as chattels.
 According to the Court, 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 this case.
 The parties 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,
o In the first mortgage contract, reflective of the true intention of PBCOM and 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.
o 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.
 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
 Therefore the contested after acquired properties which have been describe the same as the
units enumerated under the LIST OF MACHINERIES & EQUIPMENT, must also be treated as
chattels.
 As regards the second 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 63
individually described machineries while the schedule listed only machines and 2,996,880.50
worth of finished cotton fabrics and natural cotton fabrics.
 CHATTEL MORTGAGE LAW
o 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
 Since the disputed machines were acquired subsequently, it could not have been involved in the
first or second chattel mortgages and it was an error on the part of the sheriff to include subject
machineries with properties enumerated in the said chattel mortgages
 As the auction sale of the subject properties is void, no valid title passed in its favor.
Consequently the sales thereof to Tsai is also a nullity under the principle of nemo dat quod non
habet, one cannot give what one does not have.

UNDER PRINCIPLE OF STOPPEL

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, 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.

 2) Sale of the Properties Not Included in the Subject of Chattel Mortgage is Not Valid. The
auction sale of the subject properties to PBCom is void. 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. Section 7 provides 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."
 Since the disputed machineries were acquired later after the two mortgage contracts were
executed, 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 lease and sale of said personal properties were irregular and illegal because they were
not duly foreclosed nor sold at the auction, no valid title passed in its favor. Consequently, the
sale thereof to Ruby Tsai is also a nullity under the elementary principle of nemo dat quod non
habet, one cannot give what one does not have.

MERALCO v. CITY ASSESSOR

FACTS:

 MERALCO, the petitioner in this case, is a private corporation organized and existing under
Philippine laws to operate as a public utility engaged in electric distribution and was successfully
granted franchises to operate in Lucena City.
 In 1989, MERALCO received from the City Assessor of Lucena copy of Tax Declaration covering
transformers, electric post, transmission line, insulator and electric meter which were all
subjected to real property tax.
 MERALCO appealed before the Local Board of Assessment Appeals (LBAA) and claimed that it
was exempt from payment of the mentioned facilities.
 LBAA rendered a decision finding that MERALCO is exempted to pay taxes on the facilities based
on its franchise and the earlier MERALCO case
o Board of Assessment Appeals v. Meralco, held that steel towers are poles and expressly
exempted from taxes under franchise and were personal properties, not subject to real
property tax
o This was appealed by the City Assessor of Lucena with the Central Board of Assessment
Appeals but the latter affirmed the decision. It became final and executory.
 Six years later MERALCO received a letter from the City Treasurer that it has real property tax
delinquency on its machineries beginning 1990
 MERALCO posted a surety bond to guarantee payment of the delinquency but appealed before
the LBAA to declare the properties covered by the Tax Declaration as exempt from real property
tax
 The LBAA rendered a decision that the Local Government Code repealed the provisions in the
franchise of MERALCO and PD 551, pertaining to the exemption of MERALCO from payment of
real property tax on its poles, wires, insulators, transformers, and meters
 MERALCO went before the CBAA, which agreed with the decision of the LBAA that MERALCO
could no longer claim exemption from real property tax on its machineries
o Upon the enactment of RA 7160 (Local Government Code of 1991)
o CBAA modified the ruling to exempt years 1990 to 1991 from the deficiency assessment
as the franchise was still in effect prior to the enactment of the Local Government Code.
 MERALCO appealed to the CA which AFFIRMED the decisions of the CBAA.
o There is no more basis for the real property tax exemption under the Local Government
Code and it does not violate the non-impairment clause, as it was enacted in the
constitutional policy to ensure autonomy to local governments
 Hence, the petition by MERALCO
o Contending that the CA erred in affirming the decision of the CBAA, and that assessment
on the subject properties should be made to take effect retroactively from 1992 until
1997 is not in accord with the Local Government Code

Issue:

 Whether or not the transformers, electric posts (or poles), transmission lines, insulators, and
electric meters are real properties subject to real property tax

Held:

 The Supreme Court ruled in the affirmative, and held that the transformers, poles, transmission
lines, insulators and electric meters fall and qualify as machinery subject to real property tax
under the Local Government Code.
 Previously as stated in the narration of facts, the franchise of MERALCO provides for exemption
for real property tax for these facilities. However, upon the enactment of RA 7160 or the Local
Government Code, it expressly provided for in its provisions the withdrawal of tax exemption
privileges, including that of MERALCO.
o The Code also provided a repealing clause that general and special laws, acts, city,
charters, decrees, orders or proclamation inconsistent with the LGC are repealed.
 MERALCO does not fall in any of the exemptions from real property provided for by the Local
Government Code
 o Ownership – Republic, province, city, municipality, barangay, cooperatives
o Character – charitable institutions, houses and temples of prayer, parsonages, convent
o Usage – all lands, buildings, improvements used for religious purposes, water districts,
machineries by water districts, and machinery used for pollution control
 The subsequent franchises of MERALCO is silent as to this matter of exemption from real
property tax, and since tax exemptions must be clear and unequivocal, then MERALCO, failing to
present express grant of exemption is not exempted.
 Machinery, as a real property subject to real property tax had its definition modified and
expanded through the years.
 In the Local Government Code, machinery is defined as machines, equipment, mechanical
contrivances, instruments, appliances or apparatus WHICH MAY OR MAY NOT BE ATTACHED
PERMANENTLY OR TEMPORARILY to the real property, and includes those which are MOBILE,
SELF-POWERED or SELF-PROPELLED.
o This means that under 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 may be mobile.
o For the machinery to be subject to real property tax, this installations must be directly
and exclusively used to meet the needs of the particular industry, business or activity
and designed for or necessary for manufacturing, mining, logging, commercial, industrial
or agricultural
 While Article 415 of the Civil Code does not provide for the exact definition of machinery, the
Local Government Code considers real property machinery which “may or may not be attached,
permanently or temporarily to the real property, even those which are mobile”.
 Between the Civil Code which is a general law governing property, and the Local Government
Code, a special law granting local government units the power to impose real property tax, then
the latter shall prevail.
 Reiterating the Caltex v. CBAA ruling, 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.
 Therefore, whether machinery is real property subject to real property tax, the definition and
requirements under the Local Government Code are controlling.

As to the assessment, the Court has declared it null and void for not being in accordance with the Local
Government Code. The proper itemization was not provided for, and it appears that the facilities of
MERALCO had just been summed up to result to the value indicated in the assessment.

 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 orimplements 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.
 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.