G.R. No.

L-50466 May 31, 1982

CALTEX (PHILIPPINES) INC., petitioner.,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY, respondents.

AQUINO, J.:

This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its gas stations located
on leased land.

The machines and equipment consists of underground tanks, elevated tank, elevated water tanks, water tanks, gasoline
pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air compressors and tireflators. The city
assessor described the said equipment and machinery in this manner:

A gasoline service station is a piece of lot where a building or shed is erected, a water tank if there is any is placed in one
corner of the lot, car hoists are placed in an adjacent shed, an air compressor is attached in the wall of the shed or at the
concrete wall fence.

The controversial underground tank, depository of gasoline or crude oil, is dug deep about six feet more or less, a few
meters away from the shed. This is done to prevent conflagration because gasoline and other combustible oil are very
inflammable.

This underground tank is connected with a steel pipe to the gasoline pump and the gasoline pump is commonly placed or
constructed under the shed. The footing of the pump is a cement pad and this cement pad is imbedded in the pavement
under the shed, and evidence that the gasoline underground tank is attached and connected to the shed or building
through the pipe to the pump and the pump is attached and affixed to the cement pad and pavement covered by the roof
of the building or shed.

The building or shed, the elevated water tank, the car hoist under a separate shed, the air compressor, the underground
gasoline tank, neon lights signboard, concrete fence and pavement and the lot where they are all placed or erected, all of
them used in the pursuance of the gasoline service station business formed the entire gasoline service-station.

As to whether the subject properties are attached and affixed to the tenement, it is clear they are, for the tenement we
consider in this particular case are (is) the pavement covering the entire lot which was constructed by the owner of the
gasoline station and the improvement which holds all the properties under question, they are attached and affixed to the
pavement and to the improvement.

The pavement covering the entire lot of the gasoline service station, as well as all the improvements, machines,
equipments and apparatus are allowed by Caltex (Philippines) Inc. ...

The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with the water tank it is connected
also by a steel pipe to the pavement, then to the electric motor which electric motor is placed under the shed. So to say
that the gasoline pumps, water pumps and underground tanks are outside of the service station, and to consider only the
building as the service station is grossly erroneous. (pp. 58-60, Rollo).

The said machines and equipment are loaned by Caltex to gas station operators under an appropriate lease agreement or
receipt. It is stipulated in the lease contract that the operators, upon demand, shall return to Caltex the machines and
equipment in good condition as when received, ordinary wear and tear excepted.

The lessor of the land, where the gas station is located, does not become the owner of the machines and equipment
installed therein. Caltex retains the ownership thereof during the term of the lease.

The city assessor of Pasay City characterized the said items of gas station equipment and machinery as taxable realty. The
realty tax on said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city board of tax appeals ruled that they
are personalty. The assessor appealed to the Central Board of Assessment Appeals.

The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting Secretary of Justice Catalino
Macaraig, Jr. and Secretary of Local Government and Community Development Jose Roño, held in its decision of June 3,
1977 that the said machines and equipment are real property within the meaning of sections 3(k) & (m) and 38 of the Real
Property Tax Code, Presidential Decree No. 464, which took effect on June 1, 1974, and that the definitions of real property
and personal property in articles 415 and 416 of the Civil Code are not applicable to this case.

The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its resolution of January
12, 1978, denying Caltex's motion for reconsideration, a copy of which was received by its lawyer on April 2, 1979.

On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the Board's decision and for
a declaration that t he said machines and equipment are personal property not subject to realty tax (p. 16, Rollo).

The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction over this case is not
correct. When Republic act No. 1125 created the Tax Court in 1954, there was as yet no Central Board of Assessment
Appeals. Section 7(3) of that law in providing that the Tax Court had jurisdiction to review by appeal decisions of provincial
or city boards of assessment appeals had in mind the local boards of assessment appeals but not the Central Board of
Assessment Appeals which under the Real Property Tax Code has appellate jurisdiction over decisions of the said local
boards of assessment appeals and is, therefore, in the same category as the Tax Court.

Section 36 of the Real Property Tax Code provides that the decision of the Central Board of Assessment Appeals shall
become final and executory after the lapse of fifteen days from the receipt of its decision by the appellant. Within that
fifteen-day period, a petition for reconsideration may be filed. The Code does not provide for the review of the Board's
decision by this Court.

Consequently, the only remedy available for seeking a review by this Court of the decision of the Central Board of
Assessment Appeals is the special civil action of certiorari, the recourse resorted to herein by Caltex (Philippines), Inc.

The issue is whether the pieces of gas station equipment and machinery already enumerated are subject to realty tax. This
issue has to be resolved primarily under the provisions of the Assessment Law and the Real Property Tax Code.

Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land, buildings, machinery,
and other improvements" not specifically exempted in section 3 thereof. This provision is reproduced with some
modification in the Real Property Tax Code which provides:

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

The Code contains the following definitions in its section 3:

k) Improvements — is a valuable addition made to property or an amelioration in its condition, amounting to more than
mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to
adapt it for new or further purposes.

m) Machinery — shall embrace machines, mechanical contrivances, instruments, appliances and apparatus attached to
the real estate. It includes the physical facilities available for production, as well as the installations and appurtenant
service facilities, together with all other equipment designed for or essential to its manufacturing, industrial or agricultural
purposes (See sec. 3[f], Assessment Law).

We hold that the said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex
(as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station, for without
them the gas station would be useless, and which have been attached or affixed permanently to the gas station site or
embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real
Property Tax Code.

Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized when placed in a plant
by the owner of the property or plant but not when so placed by a tenant, a usufructuary, or any person having only a
temporary right, unless such person acted as the agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).

That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery that becomes real
property by destination. In the Davao Saw Mills case the question was whether the machinery mounted on foundations
of cement and installed by the lessee on leased land should be regarded as real property for purposes of execution of a
judgment against the lessee. The sheriff treated the machinery as personal property. This Court sustained the sheriff's
action. (Compare with Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case
machinery was treated as realty).

Here, the question is whether the gas station equipment and machinery permanently affixed by Caltex to its gas station
and pavement (which are indubitably taxable realty) should be subject to the realty tax. This question is different from
the issue raised in the Davao Saw Mill case.

Improvements on land are commonly taxed as realty even though for some purposes they might be considered personalty
(84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal property" (Standard Oil Co. of New York vs. Jaramillo,
44 Phil. 630, 633).

This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co., 119 Phil. 328, where
Meralco's steel towers were considered poles within the meaning of paragraph 9 of its franchise which exempts its poles
from taxation. The steel towers were considered personalty because they were attached to square metal frames by means
of bolts and could be moved from place to place when unscrewed and dismantled.

Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the repair shop of a bus
company which were held to be personal property not subject to realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil.
501).

The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding the city assessor's is
imposition of the realty tax on Caltex's gas station and equipment.
WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals are affirmed. The
petition for certiorari is dismissed for lack of merit. No costs.

SO ORDERED.

G.R. No. L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner,

vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of Zambales and Olongapo City;
FERNANDO MAGCALE & TEODULA BALUYUT-MAGCALE, respondents.

PARAS, J.:

This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court of First Instance of
Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale
vs. Hon. Ramon Y. Pardo and Prudential Bank" declaring that the deeds of real estate mortgage executed by respondent
spouses in favor of petitioner bank are null and void.

The undisputed facts of this case by stipulation of the parties are as follows:

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula Baluyut Magcale secured a loan in the sum
of P70,000.00 from the defendant Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of
defendant on the aforesaid date a deed of Real Estate Mortgage over the following described properties:

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces containing a total floor area of 263 sq. meters,
more or less, generally constructed of mixed hard wood and concrete materials, under a roofing of cor. g. i. sheets;
declared and assessed in the name of FERNANDO MAGCALE under Tax Declaration No. 21109, issued by the Assessor of
Olongapo City with an assessed value of P35,290.00. This building is the only improvement of the lot.

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of occupancy on the lot where the above
property is erected, and more particularly described and bounded, as follows:

A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo Townsite Subdivision) Ardoin Street, East Bajac-
Bajac, Olongapo City, containing an area of 465 sq. m. more or less, declared and assessed in the name of FERNANDO
MAGCALE under Tax Duration No. 19595 issued by the Assessor of Olongapo City with an assessed value of P1,860.00;
bounded on the

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

All corners of the lot marked by conc. cylindrical monuments of the Bureau of Lands as visible limits. ( Exhibit "A, " also
Exhibit "1" for defendant).

Apart from the stipulations in the printed portion of the aforestated deed of mortgage, there appears a rider typed at the
bottom of the reverse side of the document under the lists of the properties mortgaged which reads, as follows:

AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot applied for by the Mortgagors as herein stated is
released or issued by the Bureau of Lands, the Mortgagors hereby authorize the Register of Deeds to hold the Registration
of same until this Mortgage is cancelled, or to annotate this encumbrance on the Title upon authority from the Secretary
of Agriculture and Natural Resources, which title with annotation, shall be released in favor of the herein Mortgage.

From the aforequoted stipulation, it is obvious that the mortgagee (defendant Prudential Bank) was at the outset aware
of the fact that the mortgagors (plaintiffs) have already filed a Miscellaneous Sales Application over the lot, possessory
rights over which, were mortgaged to it.

Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the Registry of Deeds of Zambales
on November 23, 1971.

On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential Bank in the sum of P20,000.00. To secure
payment of this additional loan, plaintiffs executed in favor of the said defendant another deed of Real Estate Mortgage
over the same properties previously mortgaged in Exhibit "A." (Exhibit "B;" also Exhibit "2" for defendant). This second
deed of Real Estate Mortgage was likewise registered with the Registry of Deeds, this time in Olongapo City, on May
2,1973.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776 over the parcel of land,
possessory rights over which were mortgaged to defendant Prudential Bank, in favor of plaintiffs. On the basis of the
aforesaid Patent, and upon its transcription in the Registration Book of the Province of Zambales, Original Certificate of
Title No. P-2554 was issued in the name of Plaintiff Fernando Magcale, by the Ex-Oficio Register of Deeds of Zambales, on
May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon application of said
defendant, the deeds of Real Estate Mortgage (Exhibits "A" and "B") were extrajudicially foreclosed. Consequent to the
foreclosure was the sale of the properties therein mortgaged to defendant as the highest bidder in a public auction sale
conducted by the defendant City Sheriff on April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written
request from plaintiffs through counsel dated March 29, 1978, for the defendant City Sheriff to desist from going with the
scheduled public auction sale (Exhibit "D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate Mortgage as null and void
(Ibid., p. 35).

On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed by private respondents
on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10, 1979 (Ibid., p. 63), the Motion for Reconsideration
was denied for lack of merit. Hence, the instant petition (Ibid., pp. 5-28).

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the respondents to comment
(Ibid., p. 65), which order was complied with the Resolution dated May 18,1979, (Ibid., p. 100), petitioner filed its Reply
on June 2,1979 (Ibid., pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties were required to
submit simultaneously their respective memoranda. (Ibid., p. 114).

On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents filed their Memorandum
on August 1, 1979 (Ibid., pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P. 158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF MISCELLANEOUS SALES
PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-
2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for
Petitioner, Rollo, p. 122).

This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the building erected on
the land belonging to another.

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled that, "it is obvious
that the inclusion of "building" separate and distinct from the land, in said provision of law can only mean that a building
is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co.,
Inc. vs. Iya, et al., L-10837-38, May 30,1958).

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the improvements
thereon, buildings, still a building by itself may be mortgaged apart from the land on which it has been built. Such a
mortgage would be still a real estate mortgage for the building would still be considered immovable property even if dealt
with separately and apart from the land (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court
has also established that possessory rights over said properties before title is vested on the grantee, may be validly
transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on the 2-storey semi-
concrete residential building with warehouse and on the right of occupancy on the lot where the building was erected,
was executed on November 19, 1971 and registered under the provisions of Act 3344 with the Register of Deeds of
Zambales on November 23, 1971. Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the
basis of which OCT No. 2554 was issued in the name of private respondent Fernando Magcale on May 15, 1972. It is
therefore without question that the original mortgage was executed before the issuance of the final patent and before
the government was divested of its title to the land, an event which takes effect only on the issuance of the sales patent
and its subsequent registration in the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director
of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on Natural Resources",
p. 49). Under the foregoing considerations, it is evident that the mortgage executed by private respondent on his own
building which was erected on the land belonging to the government is to all intents and purposes a valid mortgage.

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted that Sections 121, 122
and 124 of the Public Land Act, refer to land already acquired under the Public Land Act, or any improvement thereon and
therefore have no application to the assailed mortgage in the case at bar which was executed before such eventuality.
Likewise, Section 2 of Republic Act No. 730, also a restriction appearing on the face of private respondent's title has
likewise no application in the instant case, despite its reference to encumbrance or alienation before the patent is issued
because it refers specifically to encumbrance or alienation on the land itself and does not mention anything regarding the
improvements existing thereon.

But it is a different matter, as regards the second mortgage executed over the same properties on May 2, 1973 for an
additional loan of P20,000.00 which was registered with the Registry of Deeds of Olongapo City on the same date. Relative
thereto, it is evident that such mortgage executed after the issuance of the sales patent and of the Original Certificate of
Title, falls squarely under the prohibitions stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of
Republic Act 730, and is therefore null and void.

Petitioner points out that private respondents, after physically possessing the title for five years, voluntarily surrendered
the same to the bank in 1977 in order that the mortgaged may be annotated, without requiring the bank to get the prior
approval of the Ministry of Natural Resources beforehand, thereby implicitly authorizing Prudential Bank to cause the
annotation of said mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118, 120, 122 and 123 of
Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as in pari delicto may not be invoked to defeat the
policy of the State neither may the doctrine of estoppel give a validating effect to a void contract. Indeed, it is generally
considered that as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is
against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away what public policy by
law was to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not pass upon any new contract
between the parties (Ibid), as in the case at bar. It should not preclude new contracts that may be entered into between
petitioner bank and private respondents that are in accordance with the requirements of the law. After all, private
respondents themselves declare that they are not denying the legitimacy of their debts and appear to be open to new
negotiations under the law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to whatever
steps the Government may take for the reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City is hereby MODIFIED,
declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid but ruling that the Deed of Real Estate Mortgage
for an additional loan of P20,000.00 is null and void, without prejudice to any appropriate action the Government may
take against private respondents.

SO ORDERED.

[G.R. No. 137705. August 22, 2000]

SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, Petitioners, vs. PCI LEASING AND FINANCE, INC., Respondent.

DECISION

PANGANIBAN, J.:

After agreeing to a contract stipulating that a real or immovable property be considered as personal or movable, a party
is estopped from subsequently claiming otherwise. Hence, such property is a proper subject of a writ of replevin obtained
by the other contracting party.

The Case

Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision1 of the Court of Appeals (CA)[2 in CA-
GR SP No. 47332 and its February 26, 1999 Resolution[3 denying reconsideration. The decretal portion of the CA Decision
reads as follows:

WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution dated March 31, 1998 in
Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 is
hereby LIFTED.4

In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of Quezon City (Branch 218)[6 issued a Writ of Seizure.[7 The
March 18, 1998 Resolution[8 denied petitioners Motion for Special Protective Order, praying that the deputy sheriff be
enjoined from seizing immobilized or other real properties in (petitioners) factory in Cainta, Rizal and to return to their
original place whatever immobilized machineries or equipments he may have removed.[9
The Facts

The undisputed facts are summarized by the Court of Appeals as follows:10

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filed with the RTC-QC a complaint
for [a] sum of money (Annex E), with an application for a writ of replevin docketed as Civil Case No. Q-98-33500.

On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ of replevin (Annex B)
directing its sheriff to seize and deliver the machineries and equipment to PCI Leasing after 5 days and upon the payment
of the necessary expenses.

On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners factory, seized one machinery
with [the] word that he [would] return for the other machineries.

On March 25, 1998, petitioners filed a motion for special protective order (Annex C), invoking the power of the court to
control the conduct of its officers and amend and control its processes, praying for a directive for the sheriff to defer
enforcement of the writ of replevin.

This motion was opposed by PCI Leasing (Annex F), on the ground that the properties [were] still personal and therefore
still subject to seizure and a writ of replevin.

In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as defined in Article 415 of
the Civil Code, the parties agreement to the contrary notwithstanding. They argued that to give effect to the agreement
would be prejudicial to innocent third parties. They further stated that PCI Leasing [was] estopped from treating these
machineries as personal because the contracts in which the alleged agreement [were] embodied [were] totally sham and
farcical.

On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the remaining properties.
He was able to take two more, but was prevented by the workers from taking the rest.

On April 7, 1998, they went to [the CA] via an original action for certiorari.

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the subject machines were personal property, and that
they had only been leased, not owned, by petitioners. It also ruled that the words of the contract are clear and leave no
doubt upon the true intention of the contracting parties. Observing that Petitioner Goquiolay was an experienced
businessman who was not unfamiliar with the ways of the trade, it ruled that he should have realized the import of the
document he signed. The CA further held:

Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the case below, since the
merits of the whole matter are laid down before us via a petition whose sole purpose is to inquire upon the existence of
a grave abuse of discretion on the part of the [RTC] in issuing the assailed Order and Resolution. The issues raised herein
are proper subjects of a full-blown trial, necessitating presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other a matter x x x which respondent court is in the best position to
determine.

Hence, this Petition.11

The Issues

In their Memorandum, petitioners submit the following issues for our consideration:

A. Whether or not the machineries purchased and imported by SERGS became real property by virtue of immobilization.

B. Whether or not the contract between the parties is a loan or a lease.12

In the main, the Court will resolve whether the said machines are personal, not immovable, property which may be a
proper subject of a writ of replevin. As a preliminary matter, the Court will also address briefly the procedural points raised
by respondent.

The Courts Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Questions

Respondent contends that the Petition failed to indicate expressly whether it was being filed under Rule 45 or Rule 65 of
the Rules of Court. It further alleges that the Petition erroneously impleaded Judge Hilario Laqui as respondent.

There is no question that the present recourse is under Rule 45. This conclusion finds support in the very title of the
Petition, which is Petition for Review on Certiorari.13
While Judge Laqui should not have been impleaded as a respondent,14 substantial justice requires that such lapse by itself
should not warrant the dismissal of the present Petition. In this light, the Court deems it proper to remove, motu proprio,
the name of Judge Laqui from the caption of the present case.

Main Issue: Nature of the Subject Machinery

Petitioners contend that the subject machines used in their factory were not proper subjects of the Writ issued by the
RTC, because they were in fact real property. Serious policy considerations, they argue, militate against a contrary
characterization.

Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of personal property only.15 Section
3 thereof reads:

SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue an order and the
corresponding writ of replevin describing the personal property alleged to be wrongfully detained and requiring the sheriff
forthwith to take such property into his custody.

On the other hand, Article 415 of the Civil Code enumerates immovable or real property as follows:

ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x

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

x x x....................................x x x....................................x x x

In the present case, the machines that were the subjects of the Writ of Seizure were placed by petitioners in the factory
built on their own land. Indisputably, they were essential and principal elements of their chocolate-making industry.
Hence, although each of them was movable or personal property on its own, all of them have become immobilized by
destination because they are essential and principal elements in the industry.16 In that sense, petitioners are correct in
arguing that the said machines are real, not personal, property pursuant to Article 415 (5) of the Civil Code.[17

Be that as it may, we disagree with the submission of the petitioners that the said machines are not proper subjects of the
Writ of Seizure.

The Court has held that contracting parties may validly stipulate that a real property be considered as personal.18 After
agreeing to such stipulation, they are consequently estopped from claiming otherwise. Under the principle of estoppel, a
party to a contract is ordinarily precluded from denying the truth of any material fact found therein.

Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the parties to treat a house as a personal property
because it had been made the subject of a chattel mortgage. The Court ruled:

x x x. Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or
transferring a property by way of chattel mortgage 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 Mills[20] also held that the
machinery used in a factory and essential to the industry, as in the present case, was a proper subject of a writ of replevin
because it was treated as personal property in a contract. Pertinent portions of the Courts ruling are reproduced
hereunder:

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

In the present case, the Lease Agreement clearly provides that the machines in question are to be considered as personal
property. Specifically, Section 12.1 of the Agreement reads as follows:21

12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding that the PROPERTY or any
part thereof may now be, or hereafter become, in any manner affixed or attached to or embedded in, or permanently
resting upon, real property or any building thereon, or attached in any manner to what is permanent.

Clearly then, petitioners are estopped from denying the characterization of the subject machines as personal property.
Under the circumstances, they are proper subjects of the Writ of Seizure.

It should be stressed, however, that our holding -- that the machines should be deemed personal property pursuant to
the Lease Agreement is good only insofar as the contracting parties are concerned. 22 Hence, while the parties are bound
by the Agreement, third persons acting in good faith are not affected by its stipulation characterizing the subject
machinery as personal.[23 In any event, there is no showing that any specific third party would be adversely affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and not a lease. 24 Submitting documents
supposedly showing that they own the subject machines, petitioners also argue in their Petition that the Agreement
suffers from intrinsic ambiguity which places in serious doubt the intention of the parties and the validity of the lease
agreement itself.[25 In their Reply to respondents Comment, they further allege that the Agreement is invalid.[26

These arguments are unconvincing. The validity and the nature of the contract are the lis mota of the civil action pending
before the RTC. A resolution of these questions, therefore, is effectively a resolution of the merits of the case. Hence, they
should be threshed out in the trial, not in the proceedings involving the issuance of the Writ of Seizure.

Indeed, in La Tondea Distillers v. CA,27 the Court explained that the policy under Rule 60 was that questions involving title
to the subject property questions which petitioners are now raising -- should be determined in the trial. In that case, the
Court noted that the remedy of defendants under Rule 60 was either to post a counter-bond or to question the sufficiency
of the plaintiffs bond. They were not allowed, however, to invoke the title to the subject property. The Court ruled:

In other words, the law does not allow the defendant to file a motion to dissolve or discharge the writ of seizure (or
delivery) on ground of insufficiency of the complaint or of the grounds relied upon therefor, as in proceedings on
preliminary attachment or injunction, and thereby put at issue the matter of the title or right of possession over the
specific chattel being replevied, the policy apparently being that said matter should be ventilated and determined only at
the trial on the merits.28

Besides, these questions require a determination of facts and a presentation of evidence, both of which have no place in
a petition for certiorari in the CA under Rule 65 or in a petition for review in this Court under Rule 45.29

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease Agreement, for nothing on record shows that it
has been nullified or annulled. In fact, petitioners assailed it first only in the RTC proceedings, which had ironically been
instituted by respondent. Accordingly, it must be presumed valid and binding as the law between the parties.

Makati Leasing and Finance 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 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 applicants bond, or of the surety or
sureties thereon, he cannot immediately require the return of the property, but if he does not so object, he may, at any
time before the delivery of the property to the applicant, require the return thereof, by filing with the court where the
action is pending a bond executed to the applicant, in double the value of the property as stated in the applicants affidavit
for the delivery thereof to the applicant, if such delivery be adjudged, and for the payment of such sum to him as may be
recovered against the adverse party, and by serving a copy bond on the applicant.

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against
petitioners.

SO ORDERED.
G.R. No. 120098 October 2, 2001

RUBY L. TSAI, petitioner,

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

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

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

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

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

QUISUMBING, J.:

These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No. 32986, affirming the decision2 of
the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is respondent court's resolution
denying petitioners' motion for reconsideration.

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million peso (P3,000,000.00) loan
from petitioner Philippine Bank of Communications (PBCom). As security for the loan, EVERTEX executed in favor of
PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097, where its factory stands, and the chattels
located therein as enumerated in a schedule attached to the mortgage contract. The pertinent portions of the Real and
Chattel Mortgage are quoted below:

MORTGAGE

(REAL AND CHATTEL)

xxx xxx xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the MORTGAGEE, . . . certain parcel(s)
of land, together with all the buildings and improvements now existing or which may hereafter exist thereon, situated in
...

"Annex A"

(Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications — continued)

LIST OF MACHINERIES & EQUIPMENT

A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:

Serial Numbers Size of Machines

xxx xxx xxx

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

xxx xxx xxx

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

xxx xxx xxx

D. Four (4) Winding Machines.

xxx xxx xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx xxx xxx

II. Any and all buildings and improvements now existing or hereafter to exist on the above-mentioned lot.

III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned lot located at . . .

(a) Forty eight sets (48) Vayrow Knitting Machines . . .

(b) Sixteen sets (16) Vayrow Knitting Machines . . .

(c) Two (2) Circular Knitting Machines . . .

(d) Two (2) Winding Machines . . .

(e) Two (2) Winding Machines . . .

IV. Any and all replacements, substitutions, additions, increases and accretions to above properties.

xxx xxx xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured by a Chattel Mortgage
over personal properties enumerated in a list attached thereto. These listed properties were similar to those listed in
Annex A of the first mortgage deed.

After April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX purchased various
machines and equipments.

On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as SP Proc. No. LP-3091-
P before the defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24, 1982
declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court, including the
collateral, real and personal, securing the two mortgages as abovementioned.

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

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

On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In November 1986, it leased
the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the factory,
lock, stock and barrel to Tsai for P9,000,000.00, including the contested machineries.

On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the Regional Trial
Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was in violation of the
Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of insolvent EVERTEX,
therefore Tsai acquired no rights over such assets sold to her, and should reconvey the assets.

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

The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1 Jet Drying
Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment.

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

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the defendants:

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

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

3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P50,000.00 as and for attorney's
fees and expenses of litigation;

4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P200,000.00 by way of
exemplary damages;

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

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

SO ORDERED.4

Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision dated August 31, 1994, the
dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and reduction of the actual
damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject personal properties are restored
to appellees, the judgment appealed from is hereby AFFIRMED, in all other respects. No pronouncement as to costs.5

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

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

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A CONTRACT FOR THE PARTIES BY
TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975
DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.

II

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE DISPUTED 1981 MACHINERIES
ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE — DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND
APPLICABLE RULINGS OF THE SUPREME COURT.

III

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER A PURCHASER IN BAD FAITH.

IV

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES,
ATTORNEY'S FEES AND EXPENSES OF LITIGATION — FOR WANT OF VALID FACTUAL AND LEGAL BASIS.

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST PETITIONER'S ARGUMENTS ON
PRESCRIPTION AND LACHES.6

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

I.

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

II

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

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

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

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

In opposition, private respondents argue that the controverted units of machinery are not "real properties" but chattels,
and, therefore, they were not part of the foreclosed real properties, rendering the lease and the subsequent sale thereof
to Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit and ought to be
denied.

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

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

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

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

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

As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely to chattels. The
inventory list of the mortgaged properties is an itemization of sixty-three (63) individually described machineries while
the schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16

In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the evidence on record,
we find no compelling reason to depart therefrom.

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

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

Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuch as the subject mortgages
were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the Chattel
Mortgage Law applies, which provides in Section 7 thereof that: "a chattel mortgage shall be deemed to cover only the
property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the
same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding."

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

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

Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a nullity, she is nevertheless
a purchaser in good faith and for value who now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial court that she is not a purchaser in good
faith. Well-settled is the rule that the person who asserts the status of a purchaser in good faith and for value has the
burden of proving such assertion.18 Petitioner Tsai failed to discharge this burden persuasively.

Moreover, a purchaser in good faith and for value is one who buys the property of another without notice that some other
person has a right to or interest in such property and pays a full and fair price for the same, at the time of purchase, or
before he has notice of the claims or interest of some other person in the property.19 Records reveal, however, that when
Tsai purchased the controverted properties, she knew of respondent's claim thereon. As borne out by the records, she
received the letter of respondent's counsel, apprising her of respondent's claim, dated February 27, 1987. 20 She replied
thereto on March 9, 1987.21 Despite her knowledge of respondent's claim, she proceeded to buy the contested units of
machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.

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

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

As to the award of damages, the contested damages are the actual compensation, representing rentals for the contested
units of machinery, the exemplary damages, and attorney's fees.

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

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

. . . In the award of actual damages under scrutiny, there is nothing on record warranting the said award of P5,200,000.00,
representing monthly rental income of P100,000.00 from November 1986 to February 1991, and the additional award of
P100,000.00 per month thereafter.

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

The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed to be a practice in business
and industry. But such a testimony cannot serve as the sole basis for assessing the actual damages complained of. What
is more, there is no showing that had appellant Tsai not taken possession of the machineries and equipments in question,
somebody was willing and ready to rent the same for P100,000.00 a month.

xxx xxx xxx

Then, too, even assuming arguendo that the said machineries and equipments could have generated a rental income of
P30,000.00 a month, as projected by witness Mamerto Villaluz, the same would have been a gross income. Therefrom
should be deducted or removed, expenses for maintenance and repairs . . . Therefore, in the determination of the actual
damages or unrealized rental income sued upon, there is a good basis to calculate that at least four months in a year, the
machineries in dispute would have been idle due to absence of a lessee or while being repaired. In the light of the foregoing
rationalization and computation, We believe that a net unrealized rental income of P20,000.00 a month, since November
1986, is more realistic and fair.25

As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals deleted. But according
to the CA, there was no clear showing that petitioners acted malevolently, wantonly and oppressively. The evidence,
however, shows otherwise.It is a requisite to award exemplary damages that the wrongful act must be accompanied by
bad faith,26 and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent manner. 27 As previously
stressed, petitioner Tsai's act of purchasing the controverted properties despite her knowledge of EVERTEX's claim was
oppressive and subjected the already insolvent respondent to gross disadvantage. Petitioner PBCom also received the
same letters of Atty. Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom's act of taking all the properties found
in the factory of the financially handicapped respondent, including those properties not covered by or included in the
mortgages, is equally oppressive and tainted with bad faith. Thus, we are in agreement with the RTC that an award of
exemplary damages is proper.

The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil Code provides that no
proof of pecuniary loss is necessary for the adjudication of exemplary damages, their assessment being left to the
discretion of the court in accordance with the circumstances of each case. 29 While the imposition of exemplary damages
is justified in this case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122
SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion granted to the courts in the assessment of
damages must always be exercised with balanced restraint and measured objectivity. Thus, here the award of exemplary
damages by way of example for the public good should be reduced to P100,000.00.

By the same token, attorney's fees and other expenses of litigation may be recovered when exemplary damages are
awarded.30 In our view, RTC's award of P50,000.00 as attorney's fees and expenses of litigation is reasonable, given the
circumstances in these cases.

WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in CA-G.R. CV No.
32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L. Tsai are hereby
ordered to pay jointly and severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation for
the use and possession of the properties in question from November 198631 until subject personal properties are restored
to respondent corporation; (2) P100,000.00 by way of exemplary damages, and (3) P50,000.00 as attorney's fees and
litigation expenses. Costs against petitioners.

SO ORDERED.

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. 2679 8 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

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

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

The City Assessor of Lucena filed an appeal with the CBAA, which was docketed as CBAA Case No. 248. In its
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: y

TAX ASSESSED COVERED TAX DUE PENALTY TOTAL

DEC. # VALUE PERIOD

019-6500 P65,448,800.00 1990-94 P3,272,440.00 P2,356,156.80 P5,628,596.80

019-7394 78,538,560.00 1995 785,385.60 534,062.21 1,319,447.81

1996 785,385.60 345,569.66 1,130,955.26

lst-3rd/1997 589,039.20 117,807.84 706,847.04

4th 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

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

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

2) MERALCO be required to pay the realty tax on the questioned properties, because they are not exempt by law, same
to be based on the 1991 level of assessment, less depreciation cost allowed by law.25

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

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

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
R.A. 7160.26

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

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

Resultantly, the decretal portion of said CBAA Decision reads

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

The CBAA denied the Motion for Reconsideration of MERALCO in a 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

It was not disputed that [MERALCO] failed to provide the [City Assessor and City Treasurer of Lucena] with a sworn
statement declaring the true value of each of the subject transformer and electric post, transmission line, insulator and
electric meter which should have been made the basis of the fair and current market value of the aforesaid property and
which would enable the assessor to identify the same for assessment purposes. [MERALCO] merely claims that the
assessment made by the [City Assessor and City Treasurer of Lucena] was incorrect but did not even mention in their
pleading the true and correct assessment of the said properties. Absent any sworn statement given by [MERALCO], [the
City Assessor and City Treasurer of Lucena] were constrained to make an assessment based on the materials within [their
reach].30

The Court of Appeals further ruled that there was no more basis for the real property tax exemption of MERALCO under
the Local Government Code and that the withdrawal of said exemption did not violate the non-impairment clause of the
Constitution, thus

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

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

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

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

In addition, "improvements on land are commonly taxed as realty even though for some purposes they might be
considered personalty. It is a familiar personalty phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal property." (Caltex (Phil) Inc. vs. Central Board of
Assessment Appeals, 114 SCRA 296, 301-302)32

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

Hence, the Court of Appeals adjudged

WHEREFORE, premises considered, the assailed Decision [dated] May 3, 2001 and Resolution dated August 16, 2001 are
hereby AFFIRMED in toto and the present petition is hereby DENIED DUE COURSE and accordingly DISMISSED for lack
of merit.33

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

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

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

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

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

Granting that the assessment of its transformers, electric posts, transmission lines, insulators, and electric meters by the
City Assessor of Lucena in 1997 is valid, MERALCO alternatively contends that: (1) under Sections 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

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

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

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

The Petition is partly meritorious.

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

By posting a surety bond before

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

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

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

By posting the surety bond, MERALCO may be considered to have substantially complied with Section 252 of the Local
Government Code for the said bond already guarantees the payment to the Office of the City Treasurer of Lucena of the
total amount of real property taxes and penalties due on Tax Declaration Nos. 019-6500 and 019-7394. This is not the first
time that the Court allowed a surety bond as an alternative to cash payment of the real property tax before protest/appeal
as required by Section 252 of the Local Government Code. In Camp John Hay Development Corporation v. Central Board
of Assessment 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

Par 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including poles, wires,
transformers, and insulators), machinery and personal property as other persons are or may be hereafter required by law
to pay. x x x Said percentage shall be due and payable at the times stated in paragraph nineteen of Part One hereof, x x
x and shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges,
earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee from which taxes and
assessments the grantee is hereby expressly exempted, x x x.41

Given the express exemption from taxes and assessments of the "poles, wires, transformers, and insulators" of MERALCO
in the aforequoted paragraph, the sole issue in the 1964 MERALCO case was whether or not the steel towers of MERALCO
qualified as "poles" which were exempted from real property tax. The Court ruled in the affirmative, ratiocinating that

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

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

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 its consumers, x x x.42

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

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

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

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

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and
nonprofit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

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

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or
educational purposes

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

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

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

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

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

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

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

(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties owned by:
(i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable institutions,
(ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto, mosques, and (iii) nonprofit
or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and exclusive use to which they
are devoted are: (i) all lands, buildings and improvements which are actually directly and exclusively used for religious,
charitable or educational purposes; (ii) all machineries and equipment actually, directly and exclusively used by local water
districts or by government-owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power; and (iii) all machinery and equipment used for pollution control and
environmental protection.

To help provide a healthy environment in the midst of the modernization of the country, all machinery and equipment for
pollution control and environmental protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons including
government-owned or controlled corporations are withdrawn upon the effectivity of the Code.44

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

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

It is worthy to note that the subsequent franchises for operation granted to MERALCO, i.e., under the Certificate of
Franchise dated October 28, 1993 issued by the National Electrification Commission and Republic Act No. 9209 enacted
on June 9, 2003 by Congress, are completely silent on the matter of exemption from real property tax of MERALCO or
any of its properties.

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

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

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

Real Property
Incidence of Real Property Tax Definition of Machinery47
Tax Law

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

Real Property Section 38. Incidence of Real Property Tax. - Section 3. Definition of Terms. -
Tax Code There shall be levied, assessed and collected in When used in this Code -
all provinces, cities and municipalities an annual
Effectivity: June 1, ad valorem tax on real property, such as land, x x x x
1974 buildings, machinery and other improvements
(m) Machinery - shall embrace machines,
 affixed or attached to real property not mechanical contrivances, instruments,
hereinafter specifically exempted. 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.

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

Local Section 232. Power to Levy Real Property Section 199. Definitions. - When used in this
Government Tax. — A province or city or a municipality Title:
Code within the Metropolitan Manila Area may levy x x x x
an annual ad valorem tax on real property such
Effectivity: as land, building, machinery, and other (o) "Machinery" embraces machines,
January 1, 1992 improvement not hereinafter specifically equipment, mechanical contrivances,
exempted. instruments, appliances or apparatus which
may or may not be attached, permanently or
temporarily, to the real property. It 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 "apparatus,"53 or "installation."54

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

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

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

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

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

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

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

xxxx

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

The aforequoted conclusions of the Court in the 1964 MERALCO case do not hold true anymore under the Local
Government Code.

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

Article 415, paragraph (1) of the Civil Code declares as immovables or real properties "[l]and, buildings, roads and
constructions of all kinds adhered to the soil." The land, buildings, and roads are immovables by nature "which
cannot be moved from place to place," whereas the constructions adhered to the soil are immovables by
incorporation "which are essentially movables, but are attached to an immovable in such manner as to be an
integral part thereof."57 Article 415, paragraph (3) of the Civil Code, referring to "[ejverything attached to an
 immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material
or deterioration of the object," are likewise immovables by incorporation. In contrast, the Local Government Code
considers as real property machinery which "may or may not be attached, permanently or temporarily to the real
property," and even those which are "mobile."

Article 415, paragraph (5) of the Civil Code considers as immovables or real properties "[machinery, receptacles,
instruments or implements intended by the owner of the tenement for an industry or works which may be carried
on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works."
The Civil Code, however, does not define "machinery."

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

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

As between the Civil Code, a general law governing property and property relations, and the Local Government
Code, a special law granting local government units the power to impose real property tax, then the latter shall
prevail. As the Court pronounced in Disomangcop v. The Secretary of the Department of Public Works and
Highways Simeon A. Datumanong60

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

The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco Corporation61 that

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

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

Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment Appeals,62 the Court acknowledged that "[i]t is a
familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be
considered personal property[.]"

Therefore, for determining whether machinery is real property subject to real property tax, the definition and
requirements under the Local Government Code are controlling.

MERALCO maintains that its electric posts are not machinery subject to real property tax because said posts are not
being exclusively used by MERALCO; these are also being utilized by cable and telephone companies. This, however, is a
factual issue which the Court cannot take cognizance of in the Petition at bar as it is not a trier of facts. Whether or not
the electric posts of MERALCO are actually being used by other companies or industries is best left to the determination
of the City Assessor or his deputy, who has been granted the authority to take evidence under Article 304 of the Rules
and Regulations Implementing the Local Government Code of 1991.
Nevertheless, the appraisal and assessment of the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO as machinery under Tax Declaration Nos. 019-6500 and 019-7394 were not in accordance
with the Local Government Code and in violation of the right to due process of MERALCO and, therefore, null and void.

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

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

(b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and other charges, brokerage,
arrastre and handling, duties and taxes, plus cost of inland transportation, handling, and installation charges at the present
site. The cost in foreign currency of imported machinery shall be converted to peso cost on the basis of foreign currency
exchange rates as fixed by the Central Bank.

Section 225. Depreciation Allowance for Machinery. - For purposes of assessment, a depreciation allowance shall be made
for machinery at a rate not exceeding five percent (5%) of its original cost or its replacement or reproduction cost, as the
case may be, for each year of use: Provided, however, That the remaining value for all kinds of machinery shall be fixed at
not less than twenty percent (20%) of such original, replacement, or reproduction cost for so long as the machinery is
useful and in operation.

It is apparent from these two provisions that every machinery must be individually appraised and assessed depending on
its acquisition cost, remaining economic life, estimated economic life, replacement or reproduction cost, and depreciation.

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

Article 304. Authority of Local Assessors to Take Evidence. - For the purpose of obtaining information on which to base the
market value of any real property, the assessor of the province, city, or municipality or his deputy may summon the owners
of the properties to be affected or persons having legal interest therein and witnesses, administer oaths, and take
deposition concerning the property, its ownership, amount, nature, and value.

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

Section 223. Notification of New or Revised Assessment. - When real property is assessed for the first time or when an
existing assessment is increased or decreased, the provincial, city or municipal assessor shall within thirty (30) days give
written notice of such new or revised assessment to the person in whose name the property is declared. The notice may
be delivered personally or by registered mail or through the assistance of the punong barangay to the last known address
of the person to served.

A notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability,
should be sufficiently informative to apprise the taxpayer the legal basis of the tax.64 In Manila Electric Company v.
Barlis,65 the Court described the contents of a valid notice of assessment of real property and differentiated the same
from a notice of collection

A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value
of a specific property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of
properties. The September 3, 1986 and October 31, 1989 notices do not contain the essential information that a notice of
assessment must specify, namely, the value of a specific property or proportion thereof which is being taxed, nor does it
state the discovery, listing, classification and appraisal of the property subject to taxation. In fact, the tenor of the notices
bespeaks an intention to collect unpaid taxes, thus the reminder to the taxpayer that the failure to pay the taxes shall
authorize the government to auction off the properties subject to taxes x x x.

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

A perusal of the documents received by MERALCO on October 29, 1997 reveals that none of them constitutes a valid
notice of assessment of the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO.
The letter dated October 16, 1997 of the City Treasurer of Lucena (which interestingly precedes the purported Notice of
Assessment dated October 20, 1997 of the City Assessor of Lucena) is a notice of collection, ending with the request for
MERALCO to settle the payable amount soon in order to avoid accumulation of penalties. It only presented in table form
the tax declarations covering the machinery, assessed values in the tax declarations in lump sums for all the machinery,
the periods covered, and the taxes and penalties due again in lump sums for all the machinery.

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

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

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

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

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

Section 204. Declaration of Real Property by the Assessor. -When any person, natural or juridical, by whom real property
is required to be declared under Section 202 hereof, refuses or fails for any reason to make such declaration within the
time prescribed, the provincial, city or municipal assessor shall himself declare the property in the name of the defaulting
owner, if known, or against an unknown owner, as the case may be, and shall assess the property for taxation in
accordance with the provision of this Title. No oath shall be required of a declaration thus made by the provincial, city or
municipal assessor.

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

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

The exercise of the power of taxation constitutes a deprivation of property under the due process clause, and the
taxpayer's right to due process is violated when arbitrary or oppressive methods are used in assessing and collecting
taxes. 67 The Court applies by analogy its pronouncements in Commissioner of Internal Revenue v. United Salvage and
Towage (Phils.), Inc.,68 concerning an assessment that did not comply with the requirements of the National Internal
Revenue Code
On the strength of the foregoing observations, we ought to reiterate our earlier teachings that "in balancing the scales
between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side,
and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales
must tilt in favor of the individual, for a citizen's right is amply protected by the Bill of Rights under the Constitution." Thus,
while "taxes are the lifeblood of the government," the power to tax has its limits, in spite of all its plenitude. Even as we
concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure. (Citations omitted.)

The appraisal and assessment of the transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO under Tax Declaration Nos. 019-6500 and 019-7394, not being in compliance with the Local Government Code,
are attempts at deprivation of property without due process of law and, therefore, null and void.

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

SO ORDERED.