LADERA VS. HODGES (G.R. NO. 8027-R, VOL. 48, NO.
12, and so she gave him 230 pesos. It does not appear, however, that it was
O.G. 5374, SEPTEMBER 23, 1952) *NO CASE ONLINE*
FACTS:
1. Hodges entered into a contract promising to sell a lot to Ladera under
certain terms and conditions. One of which is that the contract may be
rescinded and annulled in case Ladera failed to make the monthly
payment 60 days after it is due.
2. After the execution of the contract, Ladera built a house on the lot
assessed at 4,500 pesos. However, Ladera failed to pay the agreed
installments so Hodges rescinded the contract and filed an action for
ejectment.
3. The MTC ruled in favor of Hodges and issued an alias writ of
execution. Pursuant thereto, the sheriff levied upon all rights, interests
and participation over the house. Notices of sale were posted, however,
were not published in a newspaper of general circulation.
4. An auction sale was then conducted but Ladera was not able to attend
as she had gone to Manila. The house was then sold to one Avelina
Magno as the highest bidder. Meanwhile, Ladera sold the same lot to
one Manuel Villa and on the same day purchased the house from
Magno for 200 pesos. This, however, was not recorded.
5. Ladera then returned to Iloilo and learned what happened. She went to
see the sheriff and represented that the property can still be redeemed
turned over to Hodges. Thereupon, Ladera filed an action against
Hodges, the sheriff, Magno and Villa to set aside the sale and recover
the house.
6. The lower court ruled in favor of Ladera on the ground of non-
compliance based on Rule 39 of the Rules of Court. On appeal, Hodges
contends that the house, built on a lot owned by another, should be
regarded as movable or personal property. The sale of the land was
also made without proper publication required by law.
ISSUE: Was the house movable or immovable?
RULING: Immovable.
1. As enumerated in the Civil Code, immovable property includes lands,
buildings, roads and constructions of all kinds adhered to the soil. The
law does not make any distinction whether or not the owner of the lot
was the one who built the construction.
2. Also, Ladera did not declare his house to be a chattel mortgage. The
object of the levy or sale was real property and its publication in a
newspaper of general circulation was indespensible. Without it, the
execution sale was void.
1

3. In addition, Magno, the alleged purchaser at the auction sale, was a
mere employee of Hodges and the low bid made by her as well as the
fact that she sold the house to Villa on the same day Hodges sold him
the land, proves that she was merely acting for and in behalf of
Hodges.
4. In the sale of immovables, the lack of title of the vendor taints the
rights of the subsequent purchasers. Possession in good faith is not
equivalent to title.
5. The principles of accession regard buildings and constructions as mere
accessories to the land on which it is built, it is logical that said
accessories should partake the nature of the principal thing.
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX
APPEALS of Cagayan de Oro City,respondents.
This is a petition for the review of the decision of the Court of Tax Appeals
in C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company
is liable to the payment of the realty tax on its maintenance and repair
equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400
petitioner's above-mentioned equipment. Petitioner appealed the assessment
to the respondent Board of Tax Appeals on the ground that the same are not
realty. The Board of Tax Appeals of the City sustained the city assessor, so
petitioner herein filed with the Court of Tax Appeals a petition for the
review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation
of facts:
Petitioner and respondents, thru their respective counsels agreed to
the following stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting
passengers and cargoes by motor trucks, over its authorized lines in
the Island of Mindanao, collecting rates approved by the Public
Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro
City. It maintains Branch Offices and/or stations at Iligan City,
Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe,
Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as
real properties are the following:
(a) Hobart Electric Welder Machine, appearing in the
attached photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached
photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the attached
photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached
photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached
photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in
the attached photograph, marked Annex "F"; and
2
 (g) D-Engine Waukesha-M-Fuel, appearing in the
attached photograph, marked Annex "G".
4. That these machineries are sitting on cement or wooden
platforms as may be seen in the attached photographs which form
part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and
operates a garage for its TPU motor trucks; a repair shop;
blacksmith and carpentry shops, and with these machineries which
are placed therein, its TPU trucks are made; body constructed; and
same are repaired in a condition to be serviceable in the TPU land
transportation business it operates;
6. That these machineries have never been or were never used as
industrial equipments to produce finished products for sale, nor to
repair machineries, parts and the like offered to the general public
indiscriminately for business or commercial purposes for which
petitioner has never engaged in, to date.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city assessor's
ruling, and having denied a motion for reconsideration, petitioner brought
the case to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding
respondents' contention that the questioned assessments are valid;
and that said tools, equipments or machineries are immovable
taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of
Article 415 of the New Civil Code, and holding that pursuant
thereto the movable equipments are taxable realties, by reason of
their being intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's
contention that the respondent City Assessor's power to assess and
levy real estate taxes on machineries is further restricted by section
31, paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for
reconsideration.
Respondents contend that said equipments, tho movable, are immobilized
by destination, in accordance with paragraph 5 of Article 415 of the New
Civil Code which provides:
Art. 415. — The following are immovable properties:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by
the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works. (Emphasis
ours.)
Note that the stipulation expressly states that the equipment are placed on
wooden or cement platforms. They can be moved around and about in
petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61
Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives
the character of real property to "machinery, liquid containers,
instruments or implements intended by the owner of any building
or land for use in connection with any industry or trade being
carried on therein and which are expressly adapted to meet the
requirements of such trade or industry."
If the installation of the machinery and equipment in question in
the central of the Mabalacat Sugar Co., Inc., in lieu of the other of
less capacity existing therein, for its sugar and industry, converted
them into real property by reason of their purpose, it cannot be said
that their incorporation therewith was not permanent in character
because, as essential and principle elements of a sugar central,
without them the sugar central would be unable to function or
carry on the industrial purpose for which it was established.
Inasmuch as the central is permanent in character, the necessary
machinery and equipment installed for carrying on the sugar
3
 industry for which it has been established must necessarily be
permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of the law
must first be "essential and principal elements" of an industry or works
without which such industry or works would be "unable to function or carry
on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by
destination because they are essential and principal elements in the industry
for those which may not be so considered immobilized because they
are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc.
are merely incidentals and are not and should not be considered
immobilized by destination, for these businesses can continue or carry on
their functions without these equity comments. Airline companies use
forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On the other
hand, machineries of breweries used in the manufacture of liquor and soft
drinks, though movable in nature, are immobilized because they are
essential to said industries; but the delivery trucks and adding machines
which they usually own and use and are found within their industrial
compounds are merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by
their nature, not essential and principle municipal elements of petitioner's
business of transporting passengers and cargoes by motor trucks. They are
merely incidentals — acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools and
equipments, its business may be carried on, as petitioner has carried on,
without such equipments, before the war. The transportation business could
be carried on without the repair or service shop if its rolling equipment is
repaired or serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as
follows:
Art. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by
the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works; (Civil
Code of the Phil.)
Aside from the element of essentiality the above-quoted provision also
requires that the industry or works be carried on in a building or on a piece
of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the
"machinery, liquid containers, and instruments or implements" are found in
a building constructed on the land. A sawmill would also be installed in a
building on land more or less permanently, and the sawing is conducted in
the land or building.
But in the case at bar the equipments in question are destined only to repair
or service the transportation business, which is not carried on in a building
or permanently on a piece of land, as demanded by the law. Said
equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in
question are not absolutely essential to the petitioner's transportation
business, and petitioner's business is not carried on in a building, tenement
or on a specified land, so said equipment may not be considered real estate
within the meaning of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby set
aside and the equipment in question declared not subject to assessment as
real estate for the purposes of the real estate tax. Without costs. So ordered.
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT
OF APPEALS, respondents.
Petition for review on certiorari of the decision of the Court of Appeals
(now Intermediate Appellate Court) promulgated on August 27, 1981 in
CA-G.R. No. SP-12731, setting aside certain Orders later specified herein,
4
of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First
instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the
resolution dated September 22, 1981 of the said appellate court, denying
petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein
petitioner Makati Leasing and Finance Corporation, the private respondent
Wearever Textile Mills, Inc., discounted and assigned several receivables
with the former under a Receivable Purchase Agreement. To secure the
collection of the receivables assigned, private respondent executed a Chattel
Mortgage over certain raw materials inventory as well as a machinery
described as an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial
foreclosure of the properties mortgage to it. However, the Deputy Sheriff
assigned to implement the foreclosure failed to gain entry into private
respondent's premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial
foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as
Civil Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ
of seizure, the enforcement of which was however subsequently restrained
upon private respondent's filing of a motion for reconsideration. After
several incidents, the lower court finally issued on February 11, 1981, an
order lifting the restraining order for the enforcement of the writ of seizure
and an order to break open the premises of private respondent to enforce
said writ. The lower court reaffirmed its stand upon private respondent's
filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the
premises of private respondent and removed the main drive motor of the
subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings
subsequently filed by herein private respondent, set aside the Orders of the
lower court and ordered the return of the drive motor seized by the sheriff
pursuant to said Orders, after ruling that the machinery in suit cannot be the
subject of replevin, much less of a chattel mortgage, because it is a real
property pursuant to Article 415 of the new Civil Code, the same being
attached to the ground by means of bolts and the only way to remove it
from respondent's plant would be to drill out or destroy the concrete floor,
the reason why all that the sheriff could do to enfore the writ was to take the
main drive motor of said machinery. The appellate court rejected
petitioner's argument that private respondent is estopped from claiming that
the machine is real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals
having been denied, petitioner has brought the case to this Court for review
by writ of certiorari. It is contended by private respondent, however, that the
instant petition was rendered moot and academic by petitioner's act of
returning the subject motor drive of respondent's machinery after the Court
of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner
returned the subject motor drive, it made itself unequivocably clear that said
action was without prejudice to a motion for reconsideration of the Court of
Appeals decision, as shown by the receipt duly signed by respondent's
representative. 1 Considering that petitioner has reserved its right to question
the propriety of the Court of Appeals' decision, the contention of private
respondent that this petition has been mooted by such return may not be
sustained.
The next and the more crucial question to be resolved in this Petition is
whether the machinery in suit is real or personal property from the point of
view of the parties, with petitioner arguing that it is a personality, while the
respondent claiming the contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage constituted thereon is null
and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41
SCRA 143 where this Court, speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the
subject house as personal property, yet by ceding, selling
or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey
the house as chattel, or at least, intended to treat the same
5
 as such, so that they should not now be allowed to make
an inconsistent stand by claiming otherwise. Moreover,
the subject house stood on a rented lot to which
defendants-appellants merely had a temporary right as
lessee, and although this can not in itself alone determine
the status of the property, it does so when combined with
other factors to sustain the interpretation that the parties,
particularly the mortgagors, intended to treat the house as
personality. Finally, unlike in the Iya cases, Lopez vs.
Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L.
Strong Machinery & Williamson, wherein third persons
assailed the validity of the chattel mortgage, it is the
defendants-appellants themselves, as debtors-mortgagors,
who are attacking the validity of the chattel mortgage in
this case. The doctrine of estoppel therefore applies to the
herein defendants-appellants, having treated the subject
house as personality.
Examining the records of the instant case, We find no logical justification to
exclude the rule out, as the appellate court did, the present case from the
application of the abovequoted pronouncement. If a house of strong
materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is absolutely no reason
why a machinery, which is movable in its nature and becomes immobilized
only by destination or purpose, may not be likewise treated as such. This is
really because one who has so agreed is estopped from denying the
existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad
doctrine, the Court of Appeals lays stress on the fact that the house involved
therein was built on a land that did not belong to the owner of such house.
But the law makes no distinction with respect to the ownership of the land
on which the house is built and We should not lay down distinctions not
contemplated by law.
It must be pointed out that the characterization of the subject machinery as
chattel by the private respondent is indicative of intention and impresses
upon the property the character determined by the parties. As stated
in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable
that the parties to a contract may by agreement treat as personal property
that which by nature would be real property, as long as no interest of third
parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it
had never represented nor agreed that the machinery in suit be considered as
personal property but was merely required and dictated on by herein
petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the respondent, the status of the
subject machinery as movable or immovable was never placed in issue
before the lower court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court.
Moreover, even granting that the charge is true, such fact alone does not
render a contract void ab initio, but can only be a ground for rendering said
contract voidable, or annullable pursuant to Article 1390 of the new Civil
Code, by a proper action in court. There is nothing on record to show that
the mortgage has been annulled. Neither is it disclosed that steps were taken
to nullify the same. On the other hand, as pointed out by petitioner and
again not refuted by respondent, the latter has indubitably benefited from
said contract. Equity dictates that one should not benefit at the expense of
another. Private respondent could not now therefore, be allowed to impugn
the efficacy of the chattel mortgage after it has benefited therefrom,
From what has been said above, the error of the appellate court in ruling that
the questioned machinery is real, not personal property, becomes very
apparent. Moreover, the case of Machinery and Engineering Supplies, Inc.
v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable to the
case at bar, the nature of the machinery and equipment involved therein as
real properties never having been disputed nor in issue, and they were not
the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears
more nearly perfect parity with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of
Appeals are hereby reversed and set aside, and the Orders of the lower court
are hereby reinstated, with costs against the private respondent. SO
ORDERED.
6
G.R. No. L-11139 April 23, 1958
SANTOS EVANGELISTA, petitioner,
vs.
ALTO SURETY & INSURANCE CO., INC., respondent.
This is an appeal by certiorari from a decision of the Court of Appeals.
Briefly, the facts are: On June 4, 1949, petitioner herein, Santos
Evangelista, instituted Civil Case No. 8235 of the Court of First, Instance of
Manila entitled " Santos Evangelista vs. Ricardo Rivera," for a sum of
money. On the same date, he obtained a writ of attachment, which levied
upon a house, built by Rivera on a land situated in Manila and leased to
him, by filing copy of said writ and the corresponding notice of attachment
with the Office of the Register of Deeds of Manila, on June 8, 1949. In due
course, judgment was rendered in favor of Evangelista, who, on October 8,
1951, bought the house at public auction held in compliance with the writ of
execution issued in said case. The corresponding definite deed of sale was
issued to him on October 22, 1952, upon expiration of the period of
redemption. When Evangelista sought to take possession of the house,
Rivera refused to surrender it, upon the ground that he had leased the
property from the Alto Surety & Insurance Co., Inc. — respondent herein
— and that the latter is now the true owner of said property. It appears that
on May 10, 1952, a definite deed of sale of the same house had been issued
to respondent, as the highest bidder at an auction sale held, on September
29, 1950, in compliance with a writ of execution issued in Civil Case No.
6268 of the same court, entitled "Alto Surety & Insurance Co.,
Inc. vs. Maximo Quiambao, Rosario Guevara and Ricardo Rivera," in which
judgment, for the sum of money, had been rendered in favor respondent
herein, as plaintiff therein. Hence, on June 13, 1953, Evangelista instituted
the present action against respondent and Ricardo Rivera, for the purpose of
establishing his (Evangelista) title over said house, securing possession
thereof, apart from recovering damages.
In its answer, respondent alleged, in substance, that it has a better right to
the house, because the sale made, and the definite deed of sale executed, in
its favor, on September 29, 1950 and May 10, 1952, respectively, precede
the sale to Evangelista (October 8, 1951) and the definite deed of sale in his
favor (October 22, 1952). It, also, made some special defenses which are
discussed hereafter. Rivera, in effect, joined forces with respondent. After
due trial, the Court of First Instance of Manila rendered judgment for
Evangelista, sentencing Rivera and respondent to deliver the house in
question to petitioner herein and to pay him, jointly and severally, forty
pesos (P40.00) a month from October, 1952, until said delivery, plus costs.
On appeal taken by respondent, this decision was reversed by the Court of
Appeals, which absolved said respondent from the complaint, upon the
ground that, although the writ of attachment in favor of Evangelista had
been filed with the Register of Deeds of Manila prior to the sale in favor of
respondent, Evangelista did not acquire thereby a preferential lien, the
attachment having been levied as if the house in question were immovable
property, although in the opinion of the Court of Appeals, it is "ostensibly a
personal property." As such, the Court of Appeals held, "the order of
attachment . . . should have been served in the manner provided in
subsection (e) of section 7 of Rule 59," of the Rules of Court, reading:
The property of the defendant shall be attached by the officer
executing the order in the following manner:
(e) Debts and credits, and other personal property not capable of
manual delivery, by leaving with the person owing such debts, or
having in his possession or under his control, such credits or other
personal property, or with, his agent, a copy of the order, and a
notice that the debts owing by him to the defendant, and the credits
and other personal property in his possession, or under his control,
belonging to the defendant, are attached in pursuance of such
order. (Emphasis ours.)
However, the Court of Appeals seems to have been of the opinion, also, that
the house of Rivera should have been attached in accordance with
subsection (c) of said section 7, as "personal property capable of manual
delivery, by taking and safely keeping in his custody", for it declared that
"Evangelists could not have . . . validly purchased Ricardo Rivera's house
from the sheriff as the latter was not in possession thereof at the time he
sold it at a public auction."
Evangelista now seeks a review, by certiorari, of this decision of the Court
of Appeals. In this connection, it is not disputed that although the sale to the
7
respondent preceded that made to Evangelists, the latter would have a better
right if the writ of attachment, issued in his favor before the sale to the
respondent, had been properly executed or enforced. This question, in turn,
depends upon whether the house of Ricardo Rivera is real property or not.
In the affirmative case, the applicable provision would be subsection (a) of
section 7, Rule 59 of the Rules of Court, pursuant to which the attachment
should be made "by filing with the registrar of deeds a copy of the order,
together with a description of the property attached, and a notice that it is
attached, and by leaving a copy of such order, description, and notice with
the occupant of the property, if any there be."
Respondent maintains, however, and the Court of Appeals held, that
Rivera's house is personal property, the levy upon which must be made in
conformity with subsections (c) and (e) of said section 7 of Rule 59. Hence,
the main issue before us is whether a house, constructed the lessee of the
land on which it is built, should be dealt with, for purpose, of attachment, as
immovable property, or as personal property.
It is, our considered opinion that said house is not personal property, much
less a debt, credit or other personal property not capable of manual delivery,
but immovable property. As explicitly held, in Laddera vs. Hodges (48 Off.
Gaz., 5374), "a true building (not merely superimposed on the soil) is
immovable or real property, whether it is erected by the owner of the land
or by usufructuary or lessee. This is the doctrine of our Supreme Court in
Leung Yee vs. Strong Machinery Company, 37 Phil., 644. And it is amply
supported by the rulings of the French Court. . . ."
It is true that the parties to a deed of chattel mortgage may agree to consider
a house as personal property for purposes of said contract
(Luna vs. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co. of New
York vs. Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil.,
464). However, this view is good only insofar as the contracting parties are
concerned. It is based, partly, upon the principle of estoppel. Neither this
principle, nor said view, is applicable to strangers to said contract. Much
less is it in point where there has been no contract whatsoever, with respect
to the status of the house involved, as in the case at bar. Apart from this,
in Manarang vs. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we held:
The question now before us, however, is: Does the fact that the
parties entering into a contract regarding a house gave said
property the consideration of personal property in their contract,
bind the sheriff in advertising the property's sale at public auction
as personal property? It is to be remembered that in the case at bar
the action was to collect a loan secured by a chattel mortgage on
the house. It is also to be remembered that in practice it is the
judgment creditor who points out to the sheriff the properties that
the sheriff is to levy upon in execution, and the judgment creditor
in the case at bar is the party in whose favor the owner of the house
had conveyed it by way of chattel mortgage and, therefore, knew
its consideration as personal property.
These considerations notwithstanding, we hold that the rules on
execution do not allow, and, we should not interpret them in such a
way as to allow, the special consideration that parties to a contract
may have desired to impart to real estate, for example, as personal
property, when they are, not ordinarily so. Sales on execution affect
the public and third persons. The regulation governing sales on
execution are for public officials to follow. The form of
proceedings prescribed for each kind of property is suited to its
character, not to the character, which the parties have given to it or
desire to give it. When the rules speak of personal property,
property which is ordinarily so considered is meant; and when real
property is spoken of, it means property which is generally known
as real property. The regulations were never intended to suit the
consideration that parties may have privately given to the property
levied upon. Enforcement of regulations would be difficult were
the convenience or agreement of private parties to determine or
govern the nature of the proceedings. We therefore hold that the
mere fact that a house was the subject of the chattel mortgage and
was considered as personal property by the parties does not make
said house personal property for purposes of the notice to be given
for its sale of public auction. This ruling is demanded by the need
for a definite, orderly and well defined regulation for official and
public guidance and would prevent confusion and
misunderstanding.
We, therefore, declare that the house of mixed materials levied
upon on execution, although subject of a contract of chattel
8
 mortgage between the owner and a third person, is real property
within the purview of Rule 39, section 16, of the Rules of Court as
it has become a permanent fixture of the land, which, is real
property. (42 Am. Jur. 199-200; Leung Yee vs. Strong Machinery
Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90 Phil., 544;
Ladera,, et al. vs. Hodges, et al., [C.A.] Off. Gaz. 5374.)"
(Emphasis ours.)
The foregoing considerations apply, with equal force, to the conditions for
the levy of attachment, for it similarly affects the public and third persons.
It is argued, however, that, even if the house in question were immovable
property, its attachment by Evangelista was void or ineffective, because, in
the language of the Court of Appeals, "after presenting a Copy of the order
of attachment in the Office of the Register of Deeds, the person who might
then be in possession of the house, the sheriff took no pains to serve Ricardo
Rivera, or other copies thereof." This finding of the Court of Appeals is
neither conclusive upon us, nor accurate.
The Record on Appeal, annexed to the petition for Certiorari, shows that
petitioner alleged, in paragraph 3 of the complaint, that he acquired the
house in question "as a consequence of the levy of an attachment and
execution of the judgment in Civil Case No. 8235" of the Court of First
Instance of Manila. In his answer (paragraph 2), Ricardo
Rivera admitted said attachment execution of judgment. He alleged,
however, by way a of special defense, that the title of respondent
"is superior to that of plaintiff because it is based on a public instrument,"
whereas Evangelista relied upon a "promissory note" which "is only a
private instrument"; that said Public instrument in favor of respondent
"is superior also to the judgment in Civil Case No. 8235"; and that
plaintiff's claim against Rivera amounted only to P866, "which is much
below the real value" of said house, for which reason it would be "grossly
unjust to acquire the property for such an inadequate consideration."
Thus, Rivera impliedly admitted that his house had been attached, that the
house had been sold to Evangelista in accordance with the requisite
formalities, and that said attachment was valid, although allegedly inferior
to the rights of respondent, and the consideration for the sale to Evangelista
was claimed to be inadequate.
Respondent, in turn, denied the allegation in said paragraph 3 of the
complaint, but only " for the reasons stated in its special defenses" namely:
(1) that by virtue of the sale at public auction, and the final deed executed
by the sheriff in favor of respondent, the same became the "legitimate
owner of the house" in question; (2) that respondent "is a buyer in good
faith and for value"; (3) that respondent "took possession and control of said
house"; (4) that "there was no valid attachment by the plaintiff and/or the
Sheriff of Manila of the property in question as neither took actual or
constructive possession or control of the property at any time"; and (5) "that
the alleged registration of plaintiff's attachment, certificate of sale and final
deed in the Office of Register of Deeds, Manila, if there was any, is
likewise, not valid as there is no registry of transactions covering houses
erected on land belonging to or leased from another." In this manner,
respondent claimed a better right, merely under the theory that, in case of
double sale of immovable property, the purchaser who first obtains
possession in good faith, acquires title, if the sale has not been "recorded . . .
in the Registry of Property" (Art. 1544, Civil Code of the Philippines), and
that the writ of attachment and the notice of attachment in favor of
Evangelista should be considered unregistered, "as there is no registry of
transactions covering houses erected on land belonging to or leased from
another." In fact, said article 1544 of the Civil Code of the Philippines,
governing double sales, was quoted on page 15 of the brief for respondent
in the Court of Appeals, in support of its fourth assignment of error therein,
to the effect that it "has preference or priority over the sale of the same
property" to Evangelista.
In other words, there was no issue on whether copy of the writ and notice of
attachment had been served on Rivera. No evidence whatsoever, to the
effect that Rivera had not been served with copies of said writ and notice,
was introduced in the Court of First Instance. In its brief in the Court of
Appeals, respondent did not aver, or even, intimate, that no such copies
were served by the sheriff upon Rivera. Service thereof on Rivera had been
impliedly admitted by the defendants, in their respective answers, and by
their behaviour throughout the proceedings in the Court of First Instance,
and, as regards respondent, in the Court of Appeals. In fact, petitioner
asserts in his brief herein (p. 26) that copies of said writ and notice were
delivered to Rivera, simultaneously with copies of the complaint, upon
service of summons, prior to the filing of copies of said writ and notice with
the register deeds, and the truth of this assertion has not been directly and
positively challenged or denied in the brief filed before us by respondent
9
herein. The latter did not dare therein to go beyond making a statement —
for the first time in the course of these proceedings, begun almost five (5)
years ago (June 18, 1953) — reproducing substantially the aforementioned
finding of the Court of Appeals and then quoting the same.
Considering, therefore, that neither the pleadings, nor the briefs in the
Court of Appeals, raised an issue on whether or not copies of the writ of
attachment and notice of attachment had been served upon Rivera; that the
defendants had impliedly admitted-in said pleadings and briefs, as well as
by their conduct during the entire proceedings, prior to the rendition of the
decision of the Court of Appeals — that Rivera had received copies of said
documents; and that, for this reason, evidently, no proof was introduced
thereon, we, are of the opinion, and so hold that the finding of the Court of
Appeals to the effect that said copies had not been served upon Rivera is
based upon a misapprehension of the specific issues involved therein and
goes beyond the range of such issues, apart from being contrary to the
aforementioned admission by the parties, and that, accordingly, a grave
abuse of discretion was committed in making said finding, which is,
furthermore, inaccurate.
Wherefore, the decision of the Court of Appeals is hereby reversed, and
another one shall be entered affirming that of the Court of First Instance of
Manila, with the costs of this instance against respondent, the Alto Surety
and Insurance Co., Inc. It is so ordered.
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.
[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.
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
10
B. Sixteen (16) sets of Vayrow Knitting Machines made in xxx xxx xxx3
Taiwan.
On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to
xxx xxx xxx EVERTEX. The loan was secured by a Chattel Mortgage over personal
properties enumerated in a list attached thereto. These listed properties were
C. Two (2) Circular Knitting Machines made in West Germany. similar to those listed in Annex A of the first mortgage deed.

xxx xxx xxx After April 23, 1979, the date of the execution of the second mortgage
mentioned above, EVERTEX purchased various machines and equipments.
D. Four (4) Winding Machines.
On November 19, 1982, due to business reverses, EVERTEX filed
xxx xxx xxx 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.
SCHEDULE "A" All its assets were taken into the custody of the Insolvency Court, including
the collateral, real and personal, securing the two mortgages as
I. TCT # 372097 - RIZAL abovementioned.

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 . . .
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.

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

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

IV. Any and all replacements, substitutions, additions, increases On March 16, 1989, EVERTEX filed a complaint for annulment of sale,
and accretions to above properties. reconveyance, and damages with the Regional Trial Court against PBCom,

11
alleging inter alia that the extrajudicial foreclosure of subject mortgage was
in violation of the Insolvency Law. EVERTEX claimed that no rights
having been transmitted to PBCom over the assets of insolvent EVERTEX,
therefore Tsai acquired no rights over such assets sold to her, and should
reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis,
appropriated the contested properties, which were not included in the Real
and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of
April 23, 1979, and neither were those properties included in the Notice of
Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . . dated
December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14
Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer
Equipment, 1 Raisin Equipment and 1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties were
irregular and illegal because they were not duly foreclosed nor sold at the
December 15, 1982 auction sale since these were not included in the
schedules attached to the mortgage contracts. The trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff
corporation and against the defendants:
1. Ordering the annulment of the sale executed by defendant
Philippine Bank of Communications in favor of defendant Ruby L.
Tsai on May 3, 1988 insofar as it affects the personal properties
listed in par. 9 of the complaint, and their return to the plaintiff
corporation through its assignee, plaintiff Mamerto R. Villaluz, for
disposition by the Insolvency Court, to be done within ten (10)
days from finality of this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P5,200,000.00 as compensation for the use
and possession of the properties in question from November 1986
to February 1991 and P100,000.00 every month thereafter, with
interest thereon at the legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P50,000.00 as and for attorney's fees and
expenses of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P200,000.00 by way of exemplary
damages;
5. Ordering the dismissal of the counterclaim of the defendants;
and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which
issued its decision dated August 31, 1994, the dispositive portion of which
reads:
WHEREFORE, except for the deletion therefrom of the award; for
exemplary damages, and reduction of the actual damages, from P100,000.00
to P20,000.00 per month, from November 1986 until subject personal
properties are restored to appellees, the judgment appealed from is hereby
AFFIRMED, in all other respects. No pronouncement as to costs. 5
Motion for reconsideration of the above decision having been denied in the
resolution of April 28, 1995, PBCom and Tsai filed their separate petitions
for review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the
respondent court:
I
THE HONORABLE COURT OF APPEALS (SECOND
DIVISION) ERRED IN EFFECT MAKING A CONTRACT FOR
THE PARTIES BY TREATING THE 1981 ACQUIRED
MACHINERIES AS CHATTELS INSTEAD OF REAL
12
 PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL
AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL
MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND
DIVISION) ERRED IN HOLDING THAT THE DISPUTED 1981
MACHINERIES ARE NOT REAL PROPERTIES DEEMED
PART OF THE MORTGAGE — DESPITE THE CLEAR
IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS
OF THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND
DIVISION) ERRED IN DEEMING PETITIONER A
PURCHASER IN BAD FAITH.
IV
THE HONORABLE COURT OF APPEALS (SECOND
DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL
DAMAGES, ATTORNEY'S FEES AND EXPENSES OF
LITIGATION — FOR WANT OF VALID FACTUAL AND
LEGAL BASIS.
V valid.
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
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
13
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
14
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.
15
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.
16
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. 137705 August 22, 2000
SERG'S PRODUCTS, INC., and SERGIO T.
GOQUIOLAY, petitioners,
vs.
PCI LEASING AND FINANCE, INC., respondent.
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)2in CA-GR SP No. 47332 and
its February 26, 1999 Resolution3 denying reconsideration. The decretal
portion of the CA Decision reads as follows:
"WHEREFORE, premises considered, the assailed Order dated February
18, 1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-
33500 are hereby AFFIRMED. The writ of preliminary injunction issued
on June 15, 1998 is hereby LIFTED."4
In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of Quezon
City (Branch 218)6 issued a Writ of Seizure.7 The March 18, 1998
Resolution8 denied petitioners’ Motion for Special Protective Order, praying
that the deputy sheriff be enjoined "from seizing immobilized or other real
properties in (petitioners’) factory in Cainta, Rizal and to return to their
original place whatever immobilized machineries or equipments he may
have removed."9
The Facts
The undisputed facts are summarized by the Court of Appeals as follows:10
"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI
Leasing" for short) filed with the RTC-QC a complaint for [a] sum of
money (Annex ‘E’), with an application for a writ of replevin docketed as
Civil Case No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of PCI Leasing,
respondent judge issued a writ of replevin (Annex ‘B’) directing its sheriff
to seize and deliver the machineries and equipment to PCI Leasing after 5
days and upon the payment of the necessary expenses.
"On March 24, 1998, in implementation of said writ, the sheriff proceeded
to petitioner’s factory, seized one machinery with [the] word that he
[would] return for the other machineries.
17
"On March 25, 1998, petitioners filed a motion for special protective order
(Annex ‘C’), invoking the power of the court to control the conduct of its
officers and amend and control its processes, praying for a directive for the
sheriff to defer enforcement of the writ of replevin.
"This motion was opposed by PCI Leasing (Annex ‘F’), on the ground that
the properties [were] still personal and therefore still subject to seizure and a
writ of replevin.
"In their Reply, petitioners asserted that the properties sought to be seized
[were] immovable as defined in Article 415 of the Civil Code, the parties’
agreement to the contrary notwithstanding. They argued that to give effect
to the agreement would be prejudicial to innocent third parties. They further
stated that PCI Leasing [was] estopped from treating these machineries as
personal because the contracts in which the alleged agreement [were]
embodied [were] totally sham and farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and
take possession of the remaining properties. He was able to take two more,
but was prevented by the workers from taking the rest.
"On April 7, 1998, they went to [the CA] via an original action for
certiorari."
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not
owned, by petitioners. It also ruled that the "words of the contract are clear
and leave no doubt upon the true intention of the contracting parties."
Observing that Petitioner Goquiolay was an experienced businessman who
was "not unfamiliar with the ways of the trade," it ruled that he "should
have realized the import of the document he signed." The CA further held:
"Furthermore, to accord merit to this petition would be to preempt the trial
court in ruling upon the case below, since the merits of the whole matter are
laid down before us via a petition whose sole purpose is to inquire upon the
existence of a grave abuse of discretion on the part of the [RTC] in issuing
the assailed Order and Resolution. The issues raised herein are proper
subjects of a full-blown trial, necessitating presentation of evidence by both
parties. The contract is being enforced by one, and [its] validity is attacked
by the other – a matter x x x which respondent court is in the best position
to determine."
Hence, this Petition.11
The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:
"A. Whether or not the machineries purchased and imported by SERG’S
became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease. "12
In the main, the Court will resolve whether the said machines are personal,
not immovable, property which may be a proper subject of a writ of
replevin. As a preliminary matter, the Court will also address briefly the
procedural points raised by respondent.
The Court’s Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it
was being filed under Rule 45 or Rule 65 of the Rules of Court. It further
alleges that the Petition erroneously impleaded Judge Hilario Laqui as
respondent.
There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is "Petition
for Review on Certiorari."13
18
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.15Section 3 thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the
bond, the court shall issue an order and the corresponding writ of replevin
describing the personal property alleged to be wrongfully detained and
requiring the sheriff forthwith to take such property into his custody."
On the other hand, Article 415 of the Civil Code enumerates immovable or
real property as follows:
"ART. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried on in
a building or on a piece of land, and which tend directly to meet the needs
of the said industry or works;
xxx xxx x x x"
In the present case, the machines that were the subjects of the Writ of
Seizure were placed by petitioners in the factory built on their own land.
Indisputably, they were essential and principal elements of their chocolate-
making industry. Hence, although each of them was movable or personal
property on its own, all of them have become "immobilized by destination
because they are essential and principal elements in the industry." 16 In that
sense, petitioners are correct in arguing that the said machines are real, not
personal, property pursuant to Article 415 (5) of the Civil Code. 17
Be that as it may, we disagree with the submission of the petitioners that the
said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal.18After agreeing to such stipulation, they
are consequently estopped from claiming otherwise. Under the principle of
estoppel, a party to a contract is ordinarily precluded from denying the truth
of any material fact found therein.
Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the
parties to treat a house as a personal property because it had been made the
subject of a chattel mortgage. The Court ruled:
"x x x. Although there is no specific statement referring to the subject house
as personal property, yet by ceding, selling or transferring a property by
way of chattel mortgage defendants-appellants could only have meant to
convey the house as chattel, or at least, intended to treat the same as such,
so that they should not now be allowed to make an inconsistent stand by
claiming otherwise."
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.
Wearever Textile Mills20 also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a
writ of replevin because it was treated as personal property in a contract.
Pertinent portions of the Court’s ruling are reproduced hereunder:
"x x x. If a house of strong materials, like what was involved in the above
Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so
agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose, may not be likewise
19
treated as such. This is really because one who has so agreed is estopped
from denying the existence of the chattel mortgage."
In the present case, the Lease Agreement clearly provides that the machines
in question are to be considered as personal property. Specifically, Section
12.1 of the Agreement reads as follows:21
"12.1 The PROPERTY is, and shall at all times be and remain, personal
property notwithstanding that the PROPERTY or any part thereof may now
be, or hereafter become, in any manner affixed or attached to or embedded
in, or permanently resting upon, real property or any building thereon, or
attached in any manner to what is permanent."
Clearly then, petitioners are estopped from denying the characterization of
the subject machines as personal property. Under the circumstances, they
are proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should
be deemed personal property pursuant to the Lease Agreement – is good
only insofar as the contracting parties are concerned. 22 Hence, while the
parties are bound by the Agreement, third persons acting in good faith are
not affected by its stipulation characterizing the subject machinery as
personal.23 In any event, there is no showing that any specific third party
would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and
not a lease.24 Submitting documents supposedly showing that they own the
subject machines, petitioners also argue in their Petition that the Agreement
suffers from "intrinsic ambiguity which places in serious doubt the intention
of the parties and the validity of the lease agreement itself." 25 In their Reply
to respondent’s Comment, they further allege that the Agreement is
invalid.26
These arguments are unconvincing. The validity and the nature of the
contract are the lis mota of the civil action pending before the RTC. A
resolution of these questions, therefore, is effectively a resolution of the
merits of the case. Hence, they should be threshed out in the trial, not in the
proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondeña Distillers v. CA,27 the Court explained that the policy
under Rule 60 was that questions involving title to the subject property –
questions which petitioners are now raising -- should be determined in the
trial. In that case, the Court noted that the remedy of defendants under Rule
60 was either to post a counter-bond or to question the sufficiency of the
plaintiff’s bond. They were not allowed, however, to invoke the title to the
subject property. The Court ruled:
"In other words, the law does not allow the defendant to file a motion to
dissolve or discharge the writ of seizure (or delivery) on ground of
insufficiency of the complaint or of the grounds relied upon therefor, as in
proceedings on preliminary attachment or injunction, and thereby put at
issue the matter of the title or right of possession over the specific chattel
being replevied, the policy apparently being that said matter should be
ventilated and determined only at the trial on the merits." 28
Besides, these questions require a determination of facts and a presentation
of evidence, both of which have no place in a petition for certiorari in the
CA under Rule 65 or in a petition for review in this Court under Rule 45. 29
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or
annulled. In fact, petitioners assailed it first only in the RTC proceedings,
which had ironically been instituted by respondent. Accordingly, it must be
presumed valid and binding as the law between the parties.
Makati Leasing and Finance Corporation30 is also instructive on this point.
In that case, the Deed of Chattel Mortgage, which characterized the subject
machinery as personal property, was also assailed because respondent had
allegedly been required "to sign a printed form of chattel mortgage which
was in a blank form at the time of signing." The Court rejected the argument
and relied on the Deed, ruling as follows:
20
"x x x. Moreover, even granting that the charge is true, such fact alone does
not render a contract void ab initio, but can only be a ground for rendering
said contract voidable, or annullable pursuant to Article 1390 of the new
Civil Code, by a proper action in court. There is nothing on record to show
that the mortgage has been annulled. Neither is it disclosed that steps were
taken to nullify the same. x x x"
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that "if the Court allows these machineries to be seized,
then its workers would be out of work and thrown into the streets." 31 They
also allege that the seizure would nullify all efforts to rehabilitate the
corporation.
Petitioners’ arguments do not preclude the implementation of the
Writ.1âwphi1 As earlier discussed, law and jurisprudence support its
propriety. Verily, the above-mentioned consequences, if they come true,
should not be blamed on this Court, but on the petitioners for failing to avail
themselves of the remedy under Section 5 of Rule 60, which allows the
filing of a counter-bond. The provision states:
"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency
of the applicant’s bond, or of the surety or sureties thereon, he cannot
immediately require the return of the property, but if he does not so object,
he may, at any time before the delivery of the property to the applicant,
require the return thereof, by filing with the court where the action is
pending a bond executed to the applicant, in double the value of the
property as stated in the applicant’s affidavit for the delivery thereof to the
applicant, if such delivery be adjudged, and for the payment of such sum to
him as may be recovered against the adverse party, and by serving a copy
bond on the applicant."
WHEREFORE, the Petition is DENIED and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against petitioners. SO ORDERED.
G.R. No. L-64261 December 26, 1984
JOSE BURGOS, SR., JOSE BURGOS, JR., BAYANI SORIANO and
J. BURGOS MEDIA SERVICES, INC., petitioners,
vs.
THE CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES,
THE CHIEF, PHILIPPINE CONSTABULARY, THE CHIEF LEGAL
OFFICER, PRESIDENTIAL SECURITY COMMAND, THE JUDGE
ADVOCATE GENERAL, ET AL., respondents.
Assailed in this petition for certiorari prohibition and mandamus with
preliminary mandatory and prohibitory injunction is the validity of two [2]
search warrants issued on December 7, 1982 by respondent Judge Ernani
Cruz-Pano, Executive Judge of the then Court of First Instance of Rizal
[Quezon City], under which the premises known as No. 19, Road 3, Project
6, Quezon City, and 784 Units C & D, RMS Building, Quezon Avenue,
Quezon City, business addresses of the "Metropolitan Mail" and "We
Forum" newspapers, respectively, were searched, and office and printing
machines, equipment, paraphernalia, motor vehicles and other articles used
in the printing, publication and distribution of the said newspapers, as well
as numerous papers, documents, books and other written literature alleged
to be in the possession and control of petitioner Jose Burgos, Jr. publisher-
editor of the "We Forum" newspaper, were seized.
Petitioners further pray that a writ of preliminary mandatory and prohibitory
injunction be issued for the return of the seized articles, and that
respondents, "particularly the Chief Legal Officer, Presidential Security
Command, the Judge Advocate General, AFP, the City Fiscal of Quezon
City, their representatives, assistants, subalterns, subordinates, substitute or
successors" be enjoined from using the articles thus seized as evidence
against petitioner Jose Burgos, Jr. and the other accused in Criminal Case
No. Q- 022782 of the Regional Trial Court of Quezon City, entitled People
v. Jose Burgos, Jr. et al. 1
In our Resolution dated June 21, 1983, respondents were required to answer
the petition. The plea for preliminary mandatory and prohibitory injunction
was set for hearing on June 28, 1983, later reset to July 7, 1983, on motion
of the Solicitor General in behalf of respondents.
At the hearing on July 7, 1983, the Solicitor General, while opposing
petitioners' prayer for a writ of preliminary mandatory injunction,
manifested that respondents "will not use the aforementioned articles as
evidence in the aforementioned case until final resolution of the legality of
21
the seizure of the aforementioned articles. ..." 2 With this manifestation, the
prayer for preliminary prohibitory injunction was rendered moot and
academic.
Respondents would have this Court dismiss the petition on the ground that
petitioners had come to this Court without having previously sought the
quashal of the search warrants before respondent judge. Indeed, petitioners,
before impugning the validity of the warrants before this Court, should have
filed a motion to quash said warrants in the court that issued them. 3 But this
procedural flaw notwithstanding, we take cognizance of this petition in view
of the seriousness and urgency of the constitutional issues raised not to
mention the public interest generated by the search of the "We Forum"
offices, which was televised in Channel 7 and widely publicized in all
metropolitan dailies. The existence of this special circumstance justifies this
Court to exercise its inherent power to suspend its rules. In the words of the
revered Mr. Justice Abad Santos in the case of C. Vda. de Ordoveza v.
Raymundo, 4 "it is always in the power of the court [Supreme Court] to
suspend its rules or to except a particular case from its operation, whenever
the purposes of justice require it...".
Respondents likewise urge dismissal of the petition on ground of laches.
Considerable stress is laid on the fact that while said search warrants were
issued on December 7, 1982, the instant petition impugning the same was
filed only on June 16, 1983 or after the lapse of a period of more than six
[6] months.
Laches is failure or negligence for an unreasonable and unexplained length
of time to do that which, by exercising due diligence, could or should have
been done earlier. It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it
either has abandoned it or declined to assert it. 5
Petitioners, in their Consolidated Reply, explained the reason for the delay
in the filing of the petition thus:
Respondents should not find fault, as they now do [p. 1, Answer, p.
3, Manifestation] with the fact that the Petition was filed on June 16,
1983, more than half a year after the petitioners' premises had been
raided.
The climate of the times has given petitioners no other choice. If
they had waited this long to bring their case to court, it was because
they tried at first to exhaust other remedies. The events of the past
eleven fill years had taught them that everything in this country,
from release of public funds to release of detained persons from
custody, has become a matter of executive benevolence or largesse
Hence, as soon as they could, petitioners, upon suggestion of persons
close to the President, like Fiscal Flaminiano, sent a letter to
President Marcos, through counsel Antonio Coronet asking the
return at least of the printing equipment and vehicles. And after such
a letter had been sent, through Col. Balbino V. Diego, Chief
Intelligence and Legal Officer of the Presidential Security
Command, they were further encouraged to hope that the latter
would yield the desired results.
After waiting in vain for five [5] months, petitioners finally decided
to come to Court. [pp. 123-124, Rollo]
Although the reason given by petitioners may not be flattering to our
judicial system, We find no ground to punish or chastise them for an error
in judgment. On the contrary, the extrajudicial efforts exerted by petitioners
quite evidently negate the presumption that they had abandoned their right
to the possession of the seized property, thereby refuting the charge of
laches against them.
Respondents also submit the theory that since petitioner Jose Burgos, Jr.
had used and marked as evidence some of the seized documents in Criminal
Case No. Q- 022872, he is now estopped from challenging the validity of
the search warrants. We do not follow the logic of respondents. These
documents lawfully belong to petitioner Jose Burgos, Jr. and he can do
whatever he pleases with them, within legal bounds. The fact that he has
used them as evidence does not and cannot in any way affect the validity or
invalidity of the search warrants assailed in this petition.
Several and diverse reasons have been advanced by petitioners to nullify the
search warrants in question.
22
1. Petitioners fault respondent judge for his alleged failure to conduct an
examination under oath or affirmation of the applicant and his witnesses, as
mandated by the above-quoted constitutional provision as wen as Sec. 4,
Rule 126 of the Rules of Court .6 This objection, however, may properly be
considered moot and academic, as petitioners themselves conceded during
the hearing on August 9, 1983, that an examination had indeed been
conducted by respondent judge of Col. Abadilla and his witnesses.
2. Search Warrants No. 20-82[a] and No. 20- 82[b] were used to search two
distinct places: No. 19, Road 3, Project 6, Quezon City and 784 Units C &
D, RMS Building, Quezon Avenue, Quezon City, respectively. Objection is
interposed to the execution of Search Warrant No. 20-82[b] at the latter
address on the ground that the two search warrants pinpointed only one
place where petitioner Jose Burgos, Jr. was allegedly keeping and
concealing the articles listed therein, i.e., No. 19, Road 3, Project 6, Quezon
City. This assertion is based on that portion of Search Warrant No. 20-
82[b] which states:
Which have been used, and are being used as instruments and means
of committing the crime of subversion penalized under P.D. 885 as
amended and he is keeping and concealing the same at 19 Road 3,
Project 6, Quezon City.
The defect pointed out is obviously a typographical error. Precisely, two
search warrants were applied for and issued because the purpose and intent
were to search two distinct premises. It would be quite absurd and illogical
for respondent judge to have issued two warrants intended for one and the
same place. Besides, the addresses of the places sought to be searched were
specifically set forth in the application, and since it was Col. Abadilla
himself who headed the team which executed the search warrants, the
ambiguity that might have arisen by reason of the typographical error is
more apparent than real. The fact is that the place for which Search Warrant
No. 20- 82[b] was applied for was 728 Units C & D, RMS Building,
Quezon Avenue, Quezon City, which address appeared in the opening
paragraph of the said warrant. 7 Obviously this is the same place that
respondent judge had in mind when he issued Warrant No. 20-82 [b].
In the determination of whether a search warrant describes the premises to
be searched with sufficient particularity, it has been held "that the executing
officer's prior knowledge as to the place intended in the warrant is relevant.
This would seem to be especially true where the executing officer is the
affiant on whose affidavit the warrant had issued, and when he knows that
the judge who issued the warrant intended the building described in the
affidavit, And it has also been said that the executing officer may look to the
affidavit in the official court file to resolve an ambiguity in the warrant as to
the place to be searched." 8
3. Another ground relied upon to annul the search warrants is the fact that
although the warrants were directed against Jose Burgos, Jr. alone, articles b
belonging to his co-petitioners Jose Burgos, Sr., Bayani Soriano and the J.
Burgos Media Services, Inc. were seized.
Section 2, Rule 126 of the Rules of Court, enumerates the personal
properties that may be seized under a search warrant, to wit:
Sec. 2. Personal Property to be seized. — A search warrant may be
issued for the search and seizure of the following personal property:
[a] Property subject of the offense;
[b] Property stolen or embezzled and other proceeds or fruits
of the offense; and
[c] Property used or intended to be used as the means of
committing an offense.
The above rule does not require that the property to be seized should be
owned by the person against whom the search warrant is directed. It may or
may not be owned by him. In fact, under subsection [b] of the above-quoted
Section 2, one of the properties that may be seized is stolen property.
Necessarily, stolen property must be owned by one other than the person in
whose possession it may be at the time of the search and seizure.
Ownership, therefore, is of no consequence, and it is sufficient that the
person against whom the warrant is directed has control or possession of the
property sought to be seized, as petitioner Jose Burgos, Jr. was alleged to
have in relation to the articles and property seized under the warrants.
23
4. Neither is there merit in petitioners' assertion that real properties were
seized under the disputed warrants. Under Article 415[5] of the Civil Code
of the Philippines, "machinery, receptables, instruments or implements
intended by the owner of the tenement for an industry or works which may
be carried on in a building or on a piece of land and which tend directly to
meet the needs of the said industry or works" are considered immovable
property. In Davao Sawmill Co. v. Castillo9 where this legal provision was
invoked, this Court ruled that machinery which is movable by nature
becomes immobilized when placed by the owner of the tenement, property
or plant, but not so when placed by a tenant, usufructuary, or any other
person having only a temporary right, unless such person acted as the agent
of the owner.
In the case at bar, petitioners do not claim to be the owners of the land
and/or building on which the machineries were placed. This being the case,
the machineries in question, while in fact bolted to the ground remain
movable property susceptible to seizure under a search warrant.
5. The questioned search warrants were issued by respondent judge upon
application of Col. Rolando N. Abadilla Intelligence Officer of the P.C.
Metrocom.10 The application was accompanied by the Joint Affidavit of
Alejandro M. Gutierrez and Pedro U. Tango, 11 members of the Metrocom
Intelligence and Security Group under Col. Abadilla which conducted a
surveillance of the premises prior to the filing of the application for the
search warrants on December 7, 1982.
It is contended by petitioners, however, that the abovementioned documents
could not have provided sufficient basis for the finding of a probable cause
upon which a warrant may validly issue in accordance with Section 3,
Article IV of the 1973 Constitution which provides:
SEC. 3. ... and no search warrant or warrant of arrest shall issue
except upon probable cause to be determined by the judge, or such
other responsible officer as may be authorized by law, after
examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be
searched and the persons or things to be seized.
We find petitioners' thesis impressed with merit. Probable cause for a search
is defined as such facts and circumstances which would lead a reasonably
discreet and prudent man to believe that an offense has been committed and
that the objects sought in connection with the offense are in the place sought
to be searched. And when the search warrant applied for is directed against
a newspaper publisher or editor in connection with the publication of
subversive materials, as in the case at bar, the application and/or its
supporting affidavits must contain a specification, stating with particularity
the alleged subversive material he has published or is intending to publish.
Mere generalization will not suffice. Thus, the broad statement in Col.
Abadilla's application that petitioner "is in possession or has in his control
printing equipment and other paraphernalia, news publications and other
documents which were used and are all continuously being used as a means
of committing the offense of subversion punishable under Presidential
Decree 885, as amended ..." 12 is a mere conclusion of law and does not
satisfy the requirements of probable cause. Bereft of such particulars as
would justify a finding of the existence of probable cause, said allegation
cannot serve as basis for the issuance of a search warrant and it was a grave
error for respondent judge to have done so.
Equally insufficient as basis for the determination of probable cause is the
statement contained in the joint affidavit of Alejandro M. Gutierrez and
Pedro U. Tango, "that the evidence gathered and collated by our unit clearly
shows that the premises above- mentioned and the articles and things
above-described were used and are continuously being used for subversive
activities in conspiracy with, and to promote the objective of, illegal
organizations such as the Light-a-Fire Movement, Movement for Free
Philippines, and April 6 Movement." 13
In mandating that "no warrant shall issue except upon probable cause to be
determined by the judge, ... after examination under oath or affirmation of
the complainant and the witnesses he may produce; 14 the Constitution
requires no less than personal knowledge by the complainant or his
witnesses of the facts upon which the issuance of a search warrant may be
justified. In Alvarez v. Court of First Instance, 15 this Court ruled that "the
oath required must refer to the truth of the facts within the personal
knowledge of the petitioner or his witnesses, because the purpose thereof is
to convince the committing magistrate, not the individual making the
affidavit and seeking the issuance of the warrant, of the existence of
probable cause." As couched, the quoted averment in said joint affidavit
24
filed before respondent judge hardly meets the test of sufficiency
established by this Court in Alvarez case.
Another factor which makes the search warrants under consideration
constitutionally objectionable is that they are in the nature of general
warrants. The search warrants describe the articles sought to be seized in
this wise:
1] All printing equipment, paraphernalia, paper, ink, photo
(equipment, typewriters, cabinets, tables, communications/recording
equipment, tape recorders, dictaphone and the like used and/or
connected in the printing of the "WE FORUM" newspaper and any
and all documents communication, letters and facsimile of prints
related to the "WE FORUM" newspaper.
2] Subversive documents, pamphlets, leaflets, books, and other
publication to promote the objectives and piurposes of the subversive
organization known as Movement for Free Philippines, Light-a-Fire
Movement and April 6 Movement; and,
3] Motor vehicles used in the distribution/circulation of the "WE
FORUM" and other subversive materials and propaganda, more
particularly,
1] Toyota-Corolla, colored yellow with Plate No. NKA
892;
2] DATSUN pick-up colored white with Plate No. NKV
969
3] A delivery truck with Plate No. NBS 524;
4] TOYOTA-TAMARAW, colored white with Plate No.
PBP 665; and,
5] TOYOTA Hi-Lux, pick-up truck with Plate No. NGV
427 with marking "Bagong Silang."
In Stanford v. State of Texas 16 the search warrant which authorized the
search for "books, records, pamphlets, cards, receipts, lists, memoranda,
pictures, recordings and other written instruments concerning the
Communist Party in Texas," was declared void by the U.S. Supreme Court
for being too general. In like manner, directions to "seize any evidence in
connectionwith the violation of SDC 13-3703 or otherwise" have been held
too general, and that portion of a search warrant which authorized the
seizure of any "paraphernalia which could be used to violate Sec. 54-197 of
the Connecticut General Statutes [the statute dealing with the crime of
conspiracy]" was held to be a general warrant, and therefore invalid. 17 The
description of the articles sought to be seized under the search warrants in
question cannot be characterized differently.
In the Stanford case, the U.S. Supreme Courts calls to mind a notable
chapter in English history: the era of disaccord between the Tudor
Government and the English Press, when "Officers of the Crown were given
roving commissions to search where they pleased in order to suppress and
destroy the literature of dissent both Catholic and Puritan Reference herein
to such historical episode would not be relevant for it is not the policy of
our government to suppress any newspaper or publication that speaks with
"the voice of non-conformity" but poses no clear and imminent danger to
state security.
As heretofore stated, the premises searched were the business and printing
offices of the "Metropolitan Mail" and the "We Forum newspapers. As a
consequence of the search and seizure, these premises were padlocked and
sealed, with the further result that the printing and publication of said
newspapers were discontinued.
Such closure is in the nature of previous restraint or censorship abhorrent to
the freedom of the press guaranteed under the fundamental law, 18 and
constitutes a virtual denial of petitioners' freedom to express themselves in
print. This state of being is patently anathematic to a democratic framework
where a free, alert and even militant press is essential for the political
enlightenment and growth of the citizenry.
Respondents would justify the continued sealing of the printing machines
on the ground that they have been sequestered under Section 8 of
Presidential Decree No. 885, as amended, which authorizes "the
25
sequestration of the property of any person, natural or artificial, engaged in
subversive activities against the government and its duly constituted
authorities ... in accordance with implementing rules and regulations as may
be issued by the Secretary of National Defense." It is doubtful however, if
sequestration could validly be effected in view of the absence of any
implementing rules and regulations promulgated by the Minister of National
Defense.
Besides, in the December 10, 1982 issue of the Daily Express, it was
reported that no less than President Marcos himself denied the request of the
military authorities to sequester the property seized from petitioners on
December 7, 1982. Thus:
The President denied a request flied by government prosecutors for
sequestration of the WE FORUM newspaper and its printing presses,
according to Information Minister Gregorio S. Cendana.
On the basis of court orders, government agents went to the We
Forum offices in Quezon City and took a detailed inventory of the
equipment and all materials in the premises.
Cendaña said that because of the denial the newspaper and its
equipment remain at the disposal of the owners, subject to the
discretion of the court. 19
That the property seized on December 7, 1982 had not been sequestered is
further confirmed by the reply of then Foreign Minister Carlos P. Romulo to
the letter dated February 10, 1983 of U.S. Congressman Tony P. Hall
addressed to President Marcos, expressing alarm over the "WE FORUM "
case. 20 In this reply dated February 11, 1983, Minister Romulo stated:
2. Contrary to reports, President Marcos turned down the
recommendation of our authorities to close the paper's printing
facilities and confiscate the equipment and materials it uses. 21
IN VIEW OF THE FOREGOING, Search Warrants Nos. 20-82[a] and 20-
82[b] issued by respondent judge on December 7, 1982 are hereby declared
null and void and are accordingly set aside. The prayer for a writ of
mandatory injunction for the return of the seized articles is hereby granted
and all articles seized thereunder are hereby ordered released to petitioners.
No costs. SO ORDERED.
G.R. Nos. L-10817-18 February 28, 1958
ENRIQUE LOPEZ, petitioner,
vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.
Enrique Lopez is a resident of Balayan, Batangas, doing business under the
trade name of Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente
Orosa, Jr., also a resident of the same province, dropped at Lopez' house
and invited him to make an investment in the theatre business. It was
intimated that Orosa, his family and close friends were organizing a
corporation to be known as Plaza Theatre, Inc., that would engage in such
venture. Although Lopez expressed his unwillingness to invest of the same,
he agreed to supply the lumber necessary for the construction of the
proposed theatre, and at Orosa's behest and assurance that the latter would
be personally liable for any account that the said construction might incur,
Lopez further agreed that payment therefor would be on demand and not
cash on delivery basis. Pursuant to said verbal agreement, Lopez delivered
the lumber which was used for the construction of the Plaza Theatre on May
17, 1946, up to December 4 of the same year. But of the total cost of the
materials amounting to P62,255.85, Lopez was paid only P20,848.50, thus
leaving a balance of P41,771.35.
We may state at this juncture that the Plaza Theatre was erected on a piece
of land with an area of 679.17 square meters formerly owned by Vicente
Orosa, Jr., and was acquired by the corporation on September 25, 1946, for
P6,000. As Lopez was pressing Orosa for payment of the remaining unpaid
obligation, the latter and Belarmino Rustia, the president of the corporation,
promised to obtain a bank loan by mortgaging the properties of the Plaza
Theatre., out of which said amount of P41,771.35 would be satisfied, to
which assurance Lopez had to accede. Unknown to him, however, as early
as November, 1946, the corporation already got a loan for P30,000 from the
Philippine National Bank with the Luzon Surety Company as surety, and
the corporation in turn executed a mortgage on the land and building in
favor of said company as counter-security. As the land at that time was not
yet brought under the operation of the Torrens System, the mortgage on the
26
same was registered on November 16, 1946, under Act No. 3344.
Subsequently, when the corporation applied for the registration of the land
under Act 496, such mortgage was not revealed and thus Original
Certificate of Title No. O-391 was correspondingly issued on October 25,
1947, without any encumbrance appearing thereon.
Persistent demand from Lopez for the payment of the amount due him
caused Vicente Orosa, Jr. to execute on March 17, 1947, an alleged "deed of
assignment" of his 420 shares of stock of the Plaza Theater, Inc., at P100
per share or with a total value of P42,000 in favor of the creditor, and as the
obligation still remained unsettled, Lopez filed on November 12, 1947, a
complaint with the Court of First Instance of Batangas (Civil Case No. 4501
which later became R-57) against Vicente Orosa, Jr. and Plaza Theater, Inc.,
praying that defendants be sentenced to pay him jointly and severally the
sum of P41,771.35, with legal interest from the firing of the action; that in
case defendants fail to pay the same, that the building and the land covered
by OCT No. O-391 owned by the corporation be sold at public auction and
the proceeds thereof be applied to said indebtedness; or that the 420 shares
of the capital stock of the Plaza Theatre, Inc., assigned by Vicente Orosa,
Jr., to said plaintiff be sold at public auction for the same purpose; and for
such other remedies as may be warranted by the circumstances. Plaintiff
also caused the annotation of a notice of lis pendens on said properties with
the Register of Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate
answers, the first denying that the materials were delivered to him as a
promoter and later treasurer of the corporation, because he had purchased
and received the same on his personal account; that the land on which the
movie house was constructed was not charged with a lien to secure the
payment of the aforementioned unpaid obligation; and that the 420 shares of
stock of the Plaza Theatre, Inc., was not assigned to plaintiff as collaterals
but as direct security for the payment of his indebtedness. As special
defense, this defendant contended that as the 420 shares of stock assigned
and conveyed by the assignor and accepted by Lopez as direct security for
the payment of the amount of P41,771.35 were personal properties, plaintiff
was barred from recovering any deficiency if the proceeds of the sale
thereof at public auction would not be sufficient to cover and satisfy the
obligation. It was thus prayed that he be declared exempted from the
payment of any deficiency in case the proceeds from the sale of said
personal properties would not be enough to cover the amount sought to be
collected.
Defendant Plaza Theatre, Inc., on the other hand, practically set up the same
line of defense by alleging that the building materials delivered to Orosa
were on the latter's personal account; and that there was no understanding
that said materials would be paid jointly and severally by Orosa and the
corporation, nor was a lien charged on the properties of the latter to secure
payment of the same obligation. As special defense, defendant corporation
averred that while it was true that the materials purchased by Orosa were
sold by the latter to the corporation, such transactions were in good faith
and for valuable consideration thus when plaintiff failed to claim said
materials within 30 days from the time of removal thereof from Orosa,
lumber became a different and distinct specie and plaintiff lost whatever
rights he might have in the same and consequently had no recourse against
the Plaza Theatre, Inc., that the claim could not have been refectionary
credit, for such kind of obligation referred to an indebtedness incurred in the
repair or reconstruction of something already existing and this concept did
not include an entirely new work; and that the Plaza Theatre, Inc., having
been incorporated on October 14, 1946, it could not have contracted any
obligation prior to said date. It was, therefore, prayed that the complaint be
dismissed; that said defendant be awarded the sum P 5,000 for damages,
and such other relief as may be just and proper in the premises.
The surety company, in the meantime, upon discovery that the land was
already registered under the Torrens System and that there was a notice
of lis pendens thereon, filed on August 17, 1948, or within the 1-year period
after the issuance of the certificate of title, a petition for review of the
decree of the land registration court dated October 18, 1947, which was
made the basis of OCT No. O-319, in order to annotate the rights and
interests of the surety company over said properties (Land Registration Case
No. 17 GLRO Rec. No. 296). Opposition thereto was offered by Enrique
Lopez, asserting that the amount demanded by him constituted a preferred
lien over the properties of the obligors; that the surety company was guilty
of negligence when it failed to present an opposition to the application for
registration of the property; and that if any violation of the rights and
interest of said surety would ever be made, same must be subject to the lien
in his favor.
27
The two cases were heard jointly and in a decision dated October 30, 1952,
the lower Court, after making an exhaustive and detailed analysis of the
respective stands of the parties and the evidence adduced at the trial, held
that defendants Vicente Orosa, Jr., and the Plaza Theatre, Inc.,
were jointly liable for the unpaid balance of the cost of lumber used in the
construction of the building and the plaintiff thus acquired the materialman's
lien over the same. In making the pronouncement that the lien was merely
confined to the building and did not extend to the land on which the
construction was made, the trial judge took into consideration the fact that
when plaintiff started the delivery of lumber in May, 1946, the land was not
yet owned by the corporation; that the mortgage in favor of Luzon Surety
Company was previously registered under Act No. 3344; that the codal
provision (Art. 1923 of the old Spanish Civil Code) specifying that refection
credits are preferred could refer only to buildings which are also classified
as real properties, upon which said refection was made. It was, however,
declared that plaintiff's lien on the building was superior to the right of the
surety company. And finding that the Plaza Theatre, Inc., had no objection
to the review of the decree issued in its favor by the land registration court
and the inclusion in the title of the encumbrance in favor of the surety
company, the court a quo granted the petition filed by the latter company.
Defendants Orosa and the Plaza Theatre, Inc., were thus required to
pay jointly the amount of P41,771.35 with legal interest and costs within 90
days from notice of said decision; that in case of default, the 420 shares of
stock assigned by Orosa to plaintiff be sold at public auction and the
proceeds thereof be applied to the payment of the amount due the plaintiff,
plus interest and costs; and that the encumbrance in favor of the surety
company be endorsed at the back of OCT No. O-391, with notation I that
with respect to the building, said mortgage was subject to the materialman's
lien in favor of Enrique Lopez.
Plaintiff tried to secure a modification of the decision in so far as it declared
that the obligation of therein defendants was joint instead of solidary, and
that the lien did not extend to the land, but same was denied by order the
court of December 23, 1952. The matter was thus appealed to the Court of
appeals, which affirmed the lower court's ruling, and then to this Tribunal.
In this instance, plaintiff-appellant raises 2 issues: (1) whether a
materialman's lien for the value of the materials used in the construction of
a building attaches to said structure alone and does not extend to the land on
which the building is adhered to; and (2) whether the lower court and the
Court of Appeals erred in not providing that the material mans liens is
superior to the mortgage executed in favor surety company not only on the
building but also on the land.
It is to be noted in this appeal that Enrique Lopez has not raised any
question against the part of the decision sentencing defendants Orosa and
Plaza Theatre, Inc., to pay jointly the sum of P41,771.35, so We will not
take up or consider anything on that point. Appellant, however, contends
that the lien created in favor of the furnisher of the materials used for the
construction, repair or refection of a building, is also extended to the land
which the construction was made, and in support thereof he relies on Article
1923 of the Spanish Civil Code, pertinent law on the matter, which reads as
follows:
ART. 1923. With respect to determinate real property and real
rights of the debtor, the following are preferred:
xxx xxx xxx
5. Credits for refection, not entered or recorded, with respect to the
estate upon which the refection was made, and only with respect to
other credits different from those mentioned in four preceding
paragraphs.
It is argued that in view of the employment of the phrase real estate, or
immovable property, and inasmuch as said provision does not contain any
specification delimiting the lien to the building, said article must be
construed as to embrace both the land and the building or structure adhering
thereto. We cannot subscribe to this view, for while it is true that generally,
real estate connotes the land and the building constructed thereon, it is
obvious that the inclusion of the building, separate and distinct from the
land, in the enumeration of what may constitute real properties1 could mean
only one thing — that a building is by itself an immovable property, a
doctrine already pronounced by this Court in the case of Leung Yee vs.
Strong Machinery Co., 37 Phil., 644. Moreover, and in view of the absence
of any specific provision of law to the contrary, a building is an immovable
property, irrespective of whether or not said structure and the land on which
it is adhered to belong to the same owner.
28
A close examination of the provision of the Civil Code invoked by appellant
reveals that the law gives preference to unregistered refectionary credits
only with respect to the real estate upon which the refection or work was
made. This being so, the inevitable conclusion must be that the lien so
created attaches merely to the immovable property for the construction or
repair of which the obligation was incurred. Evidently, therefore, the lien in
favor of appellant for the unpaid value of the lumber used in the
construction of the building attaches only to said structure and to no other
property of the obligors.
Considering the conclusion thus arrived at, i.e., that the materialman's lien
could be charged only to the building for which the credit was made or
which received the benefit of refection, the lower court was right in, holding
at the interest of the mortgagee over the land is superior and cannot be made
subject to the said materialman's lien.
Wherefore, and on the strength of the foregoing considerations, the decision
appealed from is hereby affirmed, with costs against appellant. It is so
ordered.
G.R. No. L-32917 July 18, 1988
JULIAN S. YAP, petitioner,
vs.
HON. SANTIAGO O. TAÑADA, etc., and GOULDS PUMPS
INTERNATIONAL (PHIL.), INC., respondents.
The petition for review on certiorari at bar involves two (2) Orders of
respondent Judge Tañada 1 in Civil Case No. 10984. The first, dated
September 16, 1970, denied petitioner Yap's motion to set aside execution
sale and to quash alias writ of execution. The second, dated November 21,
1970, denied Yap's motion for reconsideration. The issues concerned the
propriety of execution of a judgment claimed to be "incomplete, vague and
non-final," and the denial of petitioner's application to prove and recover
damages resulting from alleged irregularities in the process of execution.
The antecedents will take some time in the telling. The case began in the
City Court of Cebu with the filing by Goulds Pumps International (Phil.),
Inc. of a complaint 2 against Yap and his wife 3 seeking recovery of
P1,459.30 representing the balance of the price and installation cost of a
water pump in the latter's premises. 4 The case resulted in a judgment by the
City Court on November 25, 1968, reading as follows:
When this case was called for trial today, Atty. Paterno
Natinga appeared for the plaintiff Goulds and informed
the court that he is ready for trial. However, none of the
defendants appeared despite notices having been served
upon them.
Upon petition Atty. Natinga, the plaintiff is hereby
allowed to present its evidence ex-parte.
After considering the evidence of the plaintiff, the court
hereby renders judgment in favor of the plaintiff and
against the defendant (Yap), ordering the latter to pay to
the former the sum of Pl,459.30 with interest at the rate of
12% per annum until fully paid, computed from August
12, 1968, date of the filing of the complaint; to pay the
sum of P364.80 as reasonable attorney's fees, which is
equivalent " to 25% of the unpaid principal obligation;
and to pay the costs, if any.
Yap appealed to the Court of First Instance. The appeal was assigned to
the sala of respondent Judge Tañada. For failure to appear for pre-trial on
August 28, 1968, this setting being intransferable since the pre-trial had
already been once postponed at his instance, 5 Yap was declared in default
by Order of Judge Tañada dated August 28, 1969, 6 reading as follows:
When this case was called for pre-trial this morning, the
plaintiff and counsel appeared, but neither the defendants
nor his counsel appeared despite the fact that they were
duly notified of the pre-trial set this morning. Instead he
filed an Ex-Parte Motion for Postponement which this
Court received only this morning, and on petition of
counsel for the plaintiff that the Ex-Parte Motion for
Postponement was not filed in accordance with the Rules
of Court he asked that the same be denied and the
defendants be declared in default; .. the motion for the
29
 plaintiff being well- grounded, the defendants are hereby
declared in default and the Branch Clerk of Court ..is
hereby authorized to receive evidence for the plaintiff and
.. submit his report within ten (10) days after reception of
evidence.
Goulds presented evidence ex parte and judgment by default was rendered
the following day by Judge Tañada requiring Yap to pay to Goulds (1)
Pl,459.30 representing the unpaid balance of the pump purchased by him;
(2) interest of 12% per annum thereon until fully paid; and (3) a sum
equivalent to 25% of the amount due as attorney's fees and costs and other
expenses in prosecuting the action. Notice of the judgment was served on
Yap on September 1, 1969. 7
On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he
insisted that his motion for postponement should have been granted since it
expressed his desire to explore the possibility of an amicable settlement;
that the court should give the parties time to arrive at an amicable settlement
failing which, he should be allowed to present evidence in support of his
defenses (discrepancy as to the price and breach of warranty). The motion
was not verified or accompanied by any separate affidavit. Goulds opposed
the motion. Its opposition 9 drew attention to the eleventh-hour motion for
postponement of Yap which had resulted in the cancellation of the prior
hearing of June 30, 1969 despite Goulds' vehement objection, and the re-
setting thereof on August 28, 1969 with intransferable character; it averred
that Yap had again sought postponement of this last hearing by another
eleventh-hour motion on the plea that an amicable settlement would be
explored, yet he had never up to that time ever broached the matter, 10 and
that this pattern of seeking to obtain last-minute postponements was
discernible also in the proceedings before the City Court. In its opposition,
Goulds also adverted to the examination made by it of the pump, on
instructions of the City Court, with a view to remedying the defects claimed
to exist by Yap; but the examination had disclosed the pump's perfect
condition. Yap's motion for reconsideration was denied by Order dated
October 10, 1969, notice of which was received by Yap on October 4,
1969. 11
On October 15, 1969 Judge Tañada issued an Order granting Goulds'
Motion for Issuance of Writ of Execution dated October 14, 1969, declaring
the reasons therein alleged to be meritorious. 12 Yap forthwith filed an
"Urgent Motion for Reconsideration of Order" dated October 17,
1969, 13 contending that the judgment had not yet become final, since
contrary to Goulds' view, his motion for reconsideration was not pro
forma for lack of an affidavit of merit, this not being required under Section
1 (a) of Rule 37 of the Rules of Court upon which his motion was grounded.
Goulds presented an opposition dated October 22, 1969. 14 It pointed out
that in his motion for reconsideration Yap had claimed to have a valid
defense to the action, i.e., ".. discrepancy as to price and breach of seller's
warranty," in effect, that there was fraud on Goulds' paint; Yap's motion for
reconsideration should therefore have been supported by an affidavit of
merit respecting said defenses; the absence thereof rendered the motion for
reconsideration fatally defective with the result that its filing did not
interrupt the running of the period of appeal. The opposition also drew
attention to the failure of the motion for reconsideration to specify the
findings or conclusions in the judgment claimed to be contrary to law or not
supported by the evidence, making it a pro forma motion also incapable of
stopping the running of the appeal period. On October 23, 1969, Judge
Tañada denied Yap's motion for reconsideration and authorized execution
of the judgment.15 Yap sought reconsideration of this order, by another
motion dated October 29, 1969. 16 This motion was denied by Order dated
January 26, 1970. 17 Again Yap moved for reconsideration, and again was
rebuffed, by Order dated April 28, 1970. 18
In the meantime the Sheriff levied on the water pump in question, 19 and by
notice dated November 4, 1969, scheduled the execution sale thereof on
November 14, 1969. 20 But in view of the pendency of Yap's motion for
reconsideration of October 29, 1969, suspension of the sale was directed by
Judge Tañada in an order dated November 6, 1969.21
Counsel for the plaintiff is hereby given 10 days time to
answer the Motion, dated October 29, 1969, from receipt
of this Order and in the meantime, the Order of October
23, 1969, insofar as it orders the sheriff to enforce the writ
of execution is hereby suspended.
It appears however that a copy of this Order was not transmitted to the
Sheriff "through oversight, inadvertence and pressure of work" of the
Branch Clerk of Court. 22 So the Deputy Provincial Sheriff went ahead with
the scheduled auction sale and sold the property levied on to Goulds as the
highest bidder. 23 He later submitted the requisite report to the Court dated
30
November 17, 1969, 24 as well as the "Sheriffs Return of Service" dated
February 13, 1970, 25 in both of which it was stated that execution had been
"partially satisfied." It should be observed that up to this time, February,
1970, Yap had not bestirred himself to take an appeal from the judgment of
August 29, 1969.
On May 9, 1970 Judge Tañada ordered the issuance of an alias writ of
execution on Gould's ex parte motion therefor. 26 Yap received notice of the
Order on June 11. Twelve (1 2) days later, he filed a "Motion to Set Aside
Execution Sale and to Quash Alias Writ of Execution." 27 As regards
the original, partial execution of the judgment, he argued that —
1) "the issuance of the writ of execution on October 16, 1969 was contrary
to law, the judgment sought to be executed not being final and executory;"
and
2) "the sale was made without the notice required by Sec. 18, Rule 39, of
the New Rules of Court," i.e., notice by publication in case of execution sale
of real property, the pump and its accessories being immovable because
attached to the ground with character of permanency (Art. 415, Civil Code).
And with respect to the alias writ, he argued that it should not have issued
because —
1) "the judgment sought to be executed is null and void" as "it deprived the
defendant of his day in court" and "of due process;"
2) "said judgment is incomplete and vague" because there is no starting
point for computation of the interest imposed, or a specification of the
"other expenses incurred in prosecuting this case" which Yap had also been
ordered to pay;
3) "said judgment is defective because it contains no statement of facts but a
mere recital of the evidence; and
4) "there has been a change in the situation of the parties which makes
execution unjust and inequitable" because Yap suffered damages by reason
of the illegal execution.
Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter
denied by Order dated September 16, 1970. Judge Tañada pointed out that
the motion had "become moot and academic" since the decision of August
29, 1969, "received by the defendant on September 1, 1969 had long
become final when the Order for the Issuance of a Writ of Execution was
promulgated on October 15, 1969." His Honor also stressed that —
The defendant's Motion for Reconsideration of the Courts decision
was in reality one for new trial. Regarded as motion for new trial it
should allege the grounds for new trial, provided for in the Rules of
Court, to be supported by affidavit of merits; and this the defendant
failed to do. If the defendant sincerely desired for an opportunity to
submit to an amicable settlement, which he failed to do extra
judicially despite the ample time before him, he should have
appeared in the pre- trial to achieve the same purpose.
Judge Tañada thereafter promulgated another Order dated September 21,
1970 granting a motion of Goulds for completion of execution of the
judgment of August 29, 1969 to be undertaken by the City Sheriff of Cebu.
Once more, Yap sought reconsideration. He submitted a "Motion for
Reconsideration of Two Orders" dated October 13, 1970, 28 seeking the
setting aside not only of this Order of September 21, 1970 but also that
dated September 16, 1970, denying his motion to set aside execution dated
June 23, 1970. He contended that the Order of September 21, 1970
(authorizing execution by the City Sheriff) was premature, since the 30-day
period to appeal from the earlier order of September 16, 1970 (denying his
motion to set aside) had not yet expired. He also reiterated his view that his
motion for reconsideration dated September 15, 1969 did not require that it
be accompanied by an affidavit of merits. This last motion was also denied
for "lack of merits," by Order dated November 21, 1970. 29
On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his
intention to appeal to the Supreme Court on certiorari only on questions of
law, "from the Order ... of September 16, 1970 ... and from the Order ... of
November 21, 1970, ... pursuant to sections 2 and 3 of Republic Act No.
5440." He filed his petition for review with this Court on January 5, 1971,
after obtaining an extension therefor. 30
The errors of law he attributes to the Court a quo are the following: 31
31
1) refusing to invalidate the execution pursuant to its Order of October 16,
1969 although the judgment had not then become final and executory and
despite its being incomplete and vague;
2) ignoring the fact that the execution sale was carried out although it (the
Court) had itself ordered suspension of execution on November 6, 1969;
3) declining to annul the execution sale of the pump and accessories subject
of the action although made without the requisite notice prescribed for the
sale of immovables; and
4) refusing to allow the petitioner to prove irregularities in the process of
execution which had resulted in damages to him.
Notice of the Trial Court's judgment was served on Yap on September 1,
1969. His motion for reconsideration thereof was filed 15 days thereafter,
on September 16, 1969. Notice of the Order denying the motion was
received by him on October 14, 1969. The question is whether or not the
motion for reconsideration — which was not verified, or accompanied by an
affidavit of merits (setting forth facts constituting his meritorious defenses
to the suit) or other sworn statement (stating facts excusing his failure to
appear at the pre-trial was pro forma and consequently had not interrupted
the running of the period of appeal. It is Yap's contention that his motion
was notpro forma for lack of an affidavit of merits, such a document not
being required by Section 1 (a) of Rule 37 of the Rules of Court upon which
his motion was based. This is incorrect.
Section 2, Rule 37 precisely requires that when the motion for new trial is
founded on Section 1 (a), it should be accompanied by an affidavit of merit.
xxx xxx xxx
When the motion is made for the causes mentioned in subdivisions
(a) and (b) of the preceding section, it shall be proved in the
manner provided for proof of motions. Affidavit or affidavits of
merits shall also be attached to a motion for the cause mentioned
in subdivision (a) which may be rebutted by counter-affidavits.
xxx xxx xxx 32
Since Yap himself asserts that his motion for reconsideration is grounded on
Section 1 (a) of Rule 37, 33 i.e., fraud, accident, mistake or excusable
negligence which ordinary prudence could not have guarded against and by
reason of which ... (the) aggrieved party has probably been impaired in his
rights" — this being in any event clear from a perusal of the motion which
theorizes that he had "been impaired in his rights" because he was denied
the right to present evidence of his defenses (discrepancy as to price and
breach of warranty) — it was a fatal omission to fail to attach to his motion
an affidavit of merits, i.e., an affidavit "showing the facts (not conclusions)
constituting the valid x x defense which the movant may prove in case a
new trial is granted." 34 The requirement of such an affidavit is essential
because obviously "a new trial would be a waste of the court's time if the
complaint turns out to be groundless or the defense ineffective." 35
In his motion for reconsideration, Yap also contended that since he had
expressed a desire to explore the possibility of an amicable settlement, the
Court should have given him time to do so, instead of declaring him in
default and thereafter rendering judgment by default on Gould's ex
parte evidence.
The bona fides of this desire to compromise is however put in doubt by the
attendant circumstances. It was manifested in an eleventh-hour motion for
postponement of the pre-trial which had been scheduled with intransferable
character since it had already been earlier postponed at Yap's instance; it
had never been mentioned at any prior time since commencement of the
litigation; such a possible compromise (at least in general or preliminary
terms) was certainly most appropriate for consideration at the pre-trial; in
fact Yap was aware that the matter was indeed a proper subject of a pre-trial
agenda, yet he sought to avoid appearance at said pre-trial which he knew to
be intransferable in character. These considerations and the dilatory tactics
thus far attributable to him-seeking postponements of hearings, or failing to
appear therefor despite notice, not only in the Court of First Instance but
also in the City Court — proscribe belief in the sincerity of his avowed
desire to negotiate a compromise. Moreover, the disregard by Yap of the
general requirement that "(n)otice of a motion shall be served by the
applicant to all parties concerned at least three (3) days before the hearing
thereof, together with a copy of the motion, and of any affidavits and other
papers accompanying it," 36 for which no justification whatever has been
32
offered, also militates against the bona fides of Yap's expressed wish for an
amicable settlement. The relevant circumstances do not therefore justify
condemnation, as a grave abuse of discretion, or a serious mistake, of the
refusal of the Trial Judge to grant postponement upon this proferred ground.
The motion for reconsideration did not therefore interrupt the running of the
period of appeal. The time during which it was pending before the court —
from September 16, 1969 when it was filed with the respondent Court until
October 14, 1969 when notice of the order denying the motion was received
by the movant — could not be deducted from the 30-day period of
appeal. 37 This is the inescapable conclusion from a consideration of Section
3 of Rule 41 which in part declares that, "The "time during which a motion
to set aside the judgment or order or for a new trial has been pending shall
be deducted, unless such motion fails to satisfy the requirements of Rule
37. 38
Notice of the judgment having been received by Yap on September 1, 1969,
and the period of appeal therefrom not having been interrupted by his
motion for reconsideration filed on September 16, 1969, the reglementary
period of appeal expired thirty (30) days after September 1, 1969, or on
October 1, 1969, without an appeal being taken by Yap. The judgment then
became final and executory; Yap could no longer take an appeal therefrom
or from any other subsequent orders; and execution of judgment correctly
issued on October 15, 1969, "as a matter of right." 39
The next point discussed by Yap, that the judgment is incomplete and
vague, is not well taken. It is true that the decision does not fix the starting
time of the computation of interest on the judgment debt, but this is
inconsequential since that time is easily determinable from the opinion, i.e.,
from the day the buyer (Yap) defaulted in the payment of his
obligation, 40 on May 31, 1968. 41 The absence of any disposition regarding
his counterclaim is also immaterial and does not render the judgment
incomplete. Yap's failure to appear at the pre-trial without justification and
despite notice, which caused the declaration of his default, was a waiver of
his right to controvert the plaintiff s proofs and of his right to prove the
averments of his answer, inclusive of the counterclaim therein pleaded.
Moreover, the conclusion in the judgment of the merit of the plaintiff s
cause of action was necessarily and at the same time a determination of the
absence of merit of the defendant's claim of untenability of the complaint
and of malicious prosecution.
Yap's next argument that the water pump had become immovable property
by its being installed in his residence is also untenable. The Civil Code
considers as immovable property, among others, anything "attached to an
immovable in a fixed manner, in such a way that it cannot be separated
therefrom without breaking the material or deterioration of the
object." 42 The pump does not fit this description. It could be, and was in
fact separated from Yap's premises without being broken or suffering
deterioration. Obviously the separation or removal of the pump involved
nothing more complicated than the loosening of bolts or dismantling of
other fasteners.
Yap's last claim is that in the process of the removal of the pump from his
house, Goulds' men had trampled on the plants growing there, destroyed the
shed over the pump, plugged the exterior casings with rags and cut the
electrical and conduit pipes; that he had thereby suffered actual-damages in
an amount of not less than P 2,000.00, as well as moral damages in the sum
of P 10,000.00 resulting from his deprivation of the use of his water supply;
but the Court had refused to allow him to prove these acts and recover the
damages rightfully due him. Now, as to the loss of his water supply, since
this arose from acts legitimately done, the seizure on execution of the water
pump in enforcement of a final and executory judgment, Yap most certainly
is not entitled to claim moral or any other form of damages therefor.
WHEREFORE, the petition is DENIED and the appeal DISMISSED, and
the Orders of September 16, 1970 and November 21, 1970 subject thereof,
AFFIRMED in toto. Costs against petitioner.
33
G.R. No. L-7057 October 29, 1954
MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO
PECSON, JUDGE OF THE COURT OF FIRST INSTANCE OF
MANILA, IPO LIMESTONE CO., INC., and ANTONIO
This is an appeal by certiorari, taken by petitioner Machinery and
Engineering Supplies Inc., from a decision of the Court of Appeals denying
an original petition for certiorari filed by said petitioner against Hon.
Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama, the
respondents herein.
The pertinent facts are set forth in the decision of the Court of Appeals,
from which we quote:
On March 13, 1953, the herein petitioner filed a complaint for
replevin in the Court of First Instance of Manila, Civil Case No.
19067, entitled "Machinery and Engineering Supplies, Inc.,
Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama,
defendants", for the recovery of the machinery and equipment sold
and delivered to said defendants at their factory in barrio Bigti,
Norzagaray, Bulacan. Upon application ex-parte of the petitioner
company, and upon approval of petitioner's bond in the sum of
P15,769.00, on March 13,1953, respondent judge issued an order,
commanding the Provincial Sheriff of Bulacan to seize and take
immediate possession of the properties specified in the order
(Appendix I, Answer). On March 19, 1953, two deputy sheriffs of
Bulacan, the said Ramon S. Roco, and a crew of technical men and
laborers proceeded to Bigti, for the purpose of carrying the court's
order into effect. Leonardo Contreras, Manager of the respondent
Company, and Pedro Torres, in charge thereof, met the deputy
sheriffs, and Contreras handed to them a letter addressed to Atty.
Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan, signed
by Atty. Adolfo Garcia of the defendants therein, protesting against
the seizure of the properties in question, on the ground that they are
not personal properties. Contending that the Sheriff's duty is
merely ministerial, the deputy sheriffs, Roco, the latter's crew of
technicians and laborers, Contreras and Torres, went to the factory.
Roco's attention was called to the fact that the equipment could not
possibly be dismantled without causing damages or injuries to the
wooden frames attached to them. As Roco insisted in dismantling
the equipment on his own responsibility, alleging that the bond was
posted for such eventuality, the deputy sheriffs directed that some
of the supports thereof be cut (Appendix 2). On March 20, 1953,
the defendant Company filed an urgent motion, with a counter-
bond in the amount of P15,769, for the return of the properties
seized by the deputy sheriffs. On the same day, the trial court
issued an order, directing the Provincial Sheriff of Bulacan to
return the machinery and equipment to the place where they were
installed at the time of the seizure (Appendix 3). On March 21,
1953, the deputy sheriffs returned the properties seized, by
depositing them along the road, near the quarry, of the defendant
Company, at Bigti, without the benefit of inventory and without re-
installing hem in their former position and replacing the destroyed
posts, which rendered their use impracticable. On March 23, 1953,
the defendants' counsel asked the provincial Sheriff if the
machinery and equipment, dumped on the road would be re-
installed tom their former position and condition (letter, Appendix
4). On March 24, 1953, the Provincial Sheriff filed an urgent
motion in court, manifesting that Roco had been asked to furnish
the Sheriff's office with the expenses, laborers, technical men and
equipment, to carry into effect the court's order, to return the seized
properties in the same way said Roco found them on the day of
seizure, but said Roco absolutely refused to do so, and asking the
court that the Plaintiff therein be ordered to provide the required
aid or relieve the said Sheriff of the duty of complying with the
said order dated March 20, 1953 (Appendix 5). On March 30,
1953, the trial court ordered the Provincial Sheriff and the Plaintiff
to reinstate the machinery and equipment removed by them in their
original condition in which they were found before their removal at
the expense of the Plaintiff (Appendix 7). An urgent motion of the
Provincial Sheriff dated April 15, 1953, praying for an extension of
20 days within which to comply with the order of the Court
(appendix 10) was denied; and on May 4, 1953, the trial court
ordered the Plaintiff therein to furnish the Provincial Sheriff within
5 days with the necessary funds, technical men, laborers,
equipment and materials to effect the repeatedly mentioned re-
34
 installation (Appendix 13). (Petitioner's brief, Appendix A, pp. I-
IV.)
Thereupon petitioner instituted in the Court of Appeals civil case G.R. No.
11248-R, entitled "Machinery and Engineering Supplies, Inc. vs. Honorable
Potenciano Pecson, Provincial Sheriff of Bulacan, Ipo Limestone Co., Inc.,
and Antonio Villarama." In the petition therein filed, it was alleged that, in
ordering the petitioner to furnish the provincial sheriff of Bulacan "with
necessary funds, technical men, laborers, equipment and materials, to effect
the installation of the machinery and equipment" in question, the Court of
Firs Instance of Bulacan had committed a grave abuse if discretion and
acted in excess of its jurisdiction, for which reason it was prayed that its
order to this effect be nullified, and that, meanwhile, a writ of preliminary
injunction be issued to restrain the enforcement o said order of may 4, 1953.
Although the aforementioned writ was issued by the Court of Appeals, the
same subsequently dismissed by the case for lack of merit, with costs
against the petitioner, upon the following grounds:
While the seizure of the equipment and personal properties was
ordered by the respondent Court, it is, however, logical to presume
that said court did not authorize the petitioner or its agents to
destroy, as they did, said machinery and equipment, by dismantling
and unbolting the same from their concrete basements, and cutting
and sawing their wooden supports, thereby rendering them
unserviceable and beyond repair, unless those parts removed, cut
and sawed be replaced, which the petitioner, not withstanding the
respondent Court's order, adamantly refused to do. The Provincial
Sheriff' s tortious act, in obedience to the insistent proddings of the
president of the Petitioner, Ramon S. Roco, had no justification in
law, notwithstanding the Sheriffs' claim that his duty was
ministerial. It was the bounden duty of the respondent Judge to
give redress to the respondent Company, for the unlawful and
wrongful acts committed by the petitioner and its agents. And as
this was the true object of the order of March 30, 1953, we cannot
hold that same was within its jurisdiction to issue. The ministerial
duty of the Sheriff should have its limitations. The Sheriff knew or
must have known what is inherently right and inherently wrong,
more so when, as in this particular case, the deputy sheriffs were
shown a letter of respondent Company's attorney, that the
machinery were not personal properties and, therefore, not subject
to seizure by the terms of the order. While it may be conceded that
this was a question of law too technical to decide on the spot, it
would not have costs the Sheriff much time and difficulty to bring
the letter to the court's attention and have the equipment and
machinery guarded, so as not to frustrate the order of seizure
issued by the trial court. But acting upon the directives of the
president of the Petitioner, to seize the properties at any costs, in
issuing the order sought to be annulled, had not committed abuse
of discretion at all or acted in an arbitrary or despotic manner, by
reason of passion or personal hostility; on the contrary, it issued
said order, guided by the well known principle that of the property
has to be returned, it should be returned in as good a condition as
when taken (Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If
any one had gone beyond the scope of his authority, it is the
respondent Provincial Sheriff. But considering that fact that he
acted under the pressure of Ramon S. Roco, and that the order
impugned was issued not by him, but by the respondent Judge, We
simply declare that said Sheriff' act was most unusual and the
result of a poor judgment. Moreover, the Sheriff not being an
officer exercising judicial functions, the writ may not reach him,
for certiorari lies only to review judicial actions.
The Petitioner complains that the respondent Judge had completely
disregarded his manifestation that the machinery and equipment
seized were and still are the Petitioner's property until fully paid
for and such never became immovable. The question of ownership
and the applicability of Art. 415 of the new Civil Code are
immaterial in the determination of the only issue involved in this
case. It is a matter of evidence which should be decided in the
hearing of the case on the merits. The question as to whether the
machinery or equipment in litigation are immovable or not is
likewise immaterial, because the only issue raised before the trial
court was whether the Provincial Sheriff of Bulacan, at the
Petitioner's instance, was justified in destroying the machinery and
in refusing to restore them to their original form , at the expense of
the Petitioner. Whatever might be the legal character of the
machinery and equipment, would not be in any way justify their
justify their destruction by the Sheriff's and the said Petitioner's.
(Petitioner's brief, Appendix A, pp. IV-VII.)
35
A motion for reconsideration of this decision of the Court of Appeals
having been denied , petitioner has brought the case to Us for review by writ
of certiorari. Upon examination of the record, We are satisfied, however
that the Court of Appeals was justified in dismissing the case.
The special civil action known as replevin, governed by Rule 62 of Court, is
applicable only to "personal property".
Ordinarily replevin may be brought to recover any specific
personal property unlawfully taken or detained from the owner
thereof, provided such property is capable of identification and
delivery; but replevin will not lie for the recovery of real
property or incorporeal personal property. (77 C. J. S. 17)
(Emphasis supplied.)
When the sheriff repaired to the premises of respondent, Ipo Limestone Co.,
Inc., machinery and equipment in question appeared to be attached to the
land, particularly to the concrete foundation of said premises, in a fixed
manner, in such a way that the former could not be separated from the latter
"without breaking the material or deterioration of the object." Hence, in
order to remove said outfit, it became necessary, not only to unbolt the
same, but , also, to cut some of its wooden supports. Moreover, said
machinery and equipment were "intended by the owner of the tenement for
an industry" carried on said immovable and tended." For these reasons, they
were already immovable property pursuant to paragraphs 3 and 5 of Article
415 of Civil Code of the Philippines, which are substantially identical to
paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As such
immovable property, they were not subject to replevin.
In so far as an article, including a fixture annexed by a tenant, is
regarded as part of the realty, it is not the subject for personality; . .
..
. . . the action of replevin does not lie for articles so annexed to the
realty as to be part as to be part thereof, as, for example, a house or
a turbine pump constituting part of a building's cooling system; . . .
(36 C. J. S. 1000 & 1001)
Moreover, as the provincial sheriff hesitated to remove the property in
question, petitioner's agent and president, Mr. Ramon Roco, insisted "on the
dismantling at his own responsibility," stating that., precisely, "that is the
reason why plaintiff posted a bond ." In this manner, petitioner clearly
assumed the corresponding risks.
Such assumption of risk becomes more apparent when we consider that,
pursuant to Section 5 of Rule 62 of the Rules of Court, the defendant in an
action for replevin is entitled to the return of the property in dispute upon
the filing of a counterbond, as provided therein. In other words, petitioner
knew that the restitution of said property to respondent company might be
ordered under said provision of the Rules of Court, and that, consequently,
it may become necessary for petitioner to meet the liabilities incident to
such return.
Lastly, although the parties have not cited, and We have not found, any
authority squarely in point — obviously real property are not subject to
replevin — it is well settled that, when the restitution of what has been
ordered, the goods in question shall be returned in substantially the same
condition as when taken (54 C.J., 590-600, 640-641). Inasmuch as the
machinery and equipment involved in this case were duly installed and
affixed in the premises of respondent company when petitioner's
representative caused said property to be dismantled and then removed, it
follows that petitioner must also do everything necessary to the
reinstallation of said property in conformity with its original condition.
Wherefore, the decision of the Court of Appeals is hereby affirmed, with
costs against the petitioner. So ordered.
G.R. No. 166102, August 05, 2015
MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY
ASSESSOR AND CITY TREASURER OF LUCENA
CITY, Respondents.
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 Resolution2dated
November 18, 2004 of the Court of Appeals in CA-G.R. SP No. 67027. The
36
appellate court affirmed the Decision3 dated May 3, 2001 of the Central
Board of Assessment Appeals (CBAA) in CBAA Case No. L-20-98, which,
in turn, affirmed with modification the Decision4 dated June 17, 19985 of
the Local Board of Assessment Appeals (LBAA) of Lucena City, Quezon
Province, as regards Tax Declaration Nos. 019-6500 and 019-7394, ruling
that MERALCO is liable for real property tax on its transformers, electric
posts (or poles), transmission lines, insulators, and electric meters,
beginning 1992.
MERALCO is a private corporation organized and existing under Philippine
laws to operate as a public utility engaged in electric distribution.
MERALCO has been successively granted franchises to operate in Lucena
City beginning 1922 until present time, particularly, by: (1) Resolution No.
366 dated May 15, 1922 of the Municipal Council of Lucena; (2) Resolution
No. 1087 dated July 1, 1957 of the Municipal Council of Lucena; (3)
Resolution No. 26798 dated June 13, 1972 of the Municipal Board of
Lucena City;9(4) Certificate of Franchise10 dated October 28, 1993 issued
by the National Electrification Commission; and (5) Republic Act No.
920911 approved on June 9, 2003 by Congress.12
On February 20, 1989, MERALCO received from the City Assessor of
Lucena a copy of Tax Declaration No. 019-650013 covering the following
electric facilities, classified as capital investment, of the company: (a)
transformer and electric post; (b) transmission line; (c) insulator; and (d)
electric meter, located in Quezon Ave. Ext., Brgy. Gulang-Gulang, Lucena
City. Under Tax Declaration No. 019-6500, these electric facilities had a
market value of P81,811,000.00 and an assessed value of P65,448,800.00,
and were subjected to real property tax as of 1985.
MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of
Lucena City, which was docketed as LBAA-89-2. MERALCO claimed that
its capital investment consisted only of its substation facilities, the true and
correct value of which was only P9,454,400.00; and that MERALCO was
exempted from payment of real property tax on said substation facilities.
The LBAA rendered a Decision14 in LBAA-89-2 on July 5, 1989, finding
that under its franchise, MERALCO was required to pay the City
Government of Lucena a tax equal to 5% of its gross earnings, and "[s]aid
tax shall be due and payable quarterly and shall be in lieu of any and all
taxes of any kind, nature, or description levied, established, or collected x x
x, on its poles, wires, insulators, transformers and structures, installations,
conductors, and accessories, x x x, from which taxes the grantee
(MERALCO) is hereby expressly exempted." 15 As regards the issue of
whether or not the poles, wires, insulators, transformers, and electric meters
of MERALCO were real properties, the LBAA cited the 1964 case of Board
of Assessment Appeals v. Manila Electric Company16 (1964 MERALCO
case) in which the Court held that: (1) the steel towers fell within the term
"poles" expressly exempted from taxes under the franchise of MERALCO;
and (2) the steel towers were personal properties under the provisions of the
Civil Code and, hence, not subject to real property tax. The LBAA lastly
ordered that Tax Declaration No. 019-6500 would remain and the poles,
wires, insulators, transformers, and electric meters of MERALCO would be
continuously assessed, but the City Assessor would stamp on the said Tax
Declaration the word "exempt." The LBAA decreed in the end:
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:
TAX ASSESSED COVERE TAX DUE PENALTY TOTAL
DEC VALUE D
37
 .# PERIOD
019- P65,448,800.0 1990-94 P3,272,440.0 P2,356,156.8 P5,628,596.80
6500 0 0 0 Values, less the depreciation cost allowed by law. The LBAA ultimately
019- 78,538,560.00 1995 785,385.60 534,062.21 1,319,447.81
7394
1996 785,385.60 345,569.66 1,130,955.26
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---- P17,925,117.3
4 1991 level of assessment, less depreciation cost allowed by law.25
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
disposed:
WHEREFORE, in view of the foregoing, it is hereby ordered that:
1) MERALCO's appeal be dismissed for lack of merit;
2) MERALCO be required to pay the realty tax on the questioned
properties, because they are not exempt by law, same to be based on the
MERALCO went before the CBAA on appeal, which was docketed
as CBAA Case No. L-20-98. The CBAA, in its Decision dated May 3,
2001, agreed with the LBAA that MERALCO could no longer claim
exemption from real property tax on its machineries with the enactment of
Republic Act No. 7160, otherwise known as the Local Government Code of
1991, thus:
Indeed, the Central Board of Assessment Appeals has had the opportunity
of ruling in [MERALCO's] favor in connection with this very same issue.
The matter was settled on April 10, 1991 where this Authority ruled that
"wires, insulators, transformers and electric meters which are mounted on
poles and can be separated from the poles and moved from place to place
without breaking the material or causing [the] deterioration of the object,
are deemed movable or personal property". The same position of
MERALCO would have been tenable and that decision may have stood firm
prior to the enactment of R.A. 7160 but not anymore in this jurisdiction.
The Code provides and now sets a more stringent yet broadened concept of
machinery, x x x:
xxxx
The pivotal point where the difference lie between the former and the
current case is that by the very wordings of [Section 199(0)], the ground
being anchored upon by MERALCO concerning the properties in question
being personal in nature does not hold anymore for the sole reason that
these come now within the purview and new concept of Machineries. The
new law has treated these in an unequivocal manner as machineries in the
38
sense that they are instruments, mechanical contrivances or apparatus
though not attached permanently to the real properties of [MERALCO] are
actually, directly and exclusively used to meet their business of distributing
electricity.
xxxx
Clearly, [Section 234 of the Local Government Code] lists down the
instances of exemption in real property taxation and very apparent is the
fact that the enumeration is exclusive in character in view of the wordings in
the last paragraph. Applying the maxim "Expressio Unius est Exclusio
Alterius", we can say that "Where the statute enumerates those who can
avail of the exemption, it is construed as excluding all others not mentioned
therein". Therefore, the above-named company [had] lost its previous
exemptions under its franchise because of non-inclusion in the enumeration
in Section 234. Furthermore, all tax exemptions being enjoyed by all
persons, whether natural or juridical, including all government-owned or
controlled corporations are expressly withdrawn, upon effectivity of R.A.
7160.
In the given facts, it has been manifested that the Municipal Board of
Lucena passed Resolution No. 108 on July 1, 1957 extending the franchise
of MERALCO to operate in Lucena city an electric light system for thirty-
five years, which should have expired on November 9, 1992 and under
Resolution No. 2679 passed on June 13, 1972 by the City Council of
Lucena City awarding [MERALCO] a franchise to operate for twenty years
an electric light, heat and power system in Lucena City, also to expire in the
year 1992. Under those franchises, they were only bound to pay franchise
taxes and nothing more.
Now, granting arguendo that there is no express revocation of the
exemption under the franchise of [MERALCO] since, unquestionably
[MERALCO] is a recipient of another franchise granted this time by the
National Electrification Commission as evidenced by a certificate issued on
October 28, 1993, such conferment does not automatically include and/or
award exemption from taxes, nor does it impliedly give the franchisee the
right to continue the privileges like exemption granted under its previous
franchise. It is just a plain and simple franchise. In countless times, the
Supreme Court has ruled that exemption must be clear in the language of
the law granting such exemption for it is strictly construed and favored
against the person invoking it. In addition, a franchise though in the form of
a contract is also a privilege that must yield to the sublime yet inherent
powers of the state, one of these is the power of taxation.
Looking into the law creating the National Electrification Administration
(Commission), P.D. 269 as amended by P.D. 1645, nowhere in those laws
can we find such authority to bestow upon the grantee any tax exemption of
whatever nature except those of cooperatives. This we believe is basically in
consonance with the provisions of the Local Government Code more
particularly Section 234.
Furthermore, Section 534(f) of R.A. 7160 which is taken in relation to
Section 234 thereof states that "All general and special laws, acts, city
charters, decrees, executive orders, proclamations and administrative
regulations or part or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified accordingly".
Anent this unambiguous mandate, P.D. 551 is mandatorily repealed due to
its contradictory and irreconcilable provisions with R.A. 7160. 26
Yet, the CBAA modified the ruling of the LBAA by excluding from the real
property tax deficiency assessment the years 1990 to 1991, considering that:
In the years 1990 and 1991, the exemption granted to MERALCO under its
franchise which incidentally expired upon the effectivity of the Local
Government Code of 1991 was very much in effect and the decision
rendered by the Central Board of Assessment Appeals (CBAA) classifying
its poles, wires, insulators, transformers and electric meters as personal
property was still controlling as the law of the case. So, from 1990 to 1991,
it would be inappropriate and illegal to make the necessary assessment on
those properties, much more to impose any penalty for non-payment 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
39
[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
40
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
41
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.
42

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
43
by the character of the electric current it carries, nor the material or form of
which it is made, but the use to which they are dedicated. In accordance
with the definitions, a pole is not restricted to a long cylindrical piece of
wood or metal, but includes "upright standards to the top of which
something is affixed or by which something is supported." As heretofore
described, respondent's steel supports consist of a framework of four steel
bars or strips which are bound by steel cross-arms atop of which are cross-
arms supporting five high voltage transmission wires (See Annex A) and
their sole function is to support or carry such wires.
The conclusion of the CTA that the steel supports in question are embraced
in the term "poles" is not a novelty. Several courts of last resort in the
United States have called these steel supports "steel towers", and they have
denominated these supports or towers, as electric poles. In their decisions
the words "towers" and "poles" were used interchangeably, and it is well
understood in that jurisdiction that a transmission tower or pole means the
same thing.
xxxx
It is evident, therefore, that the word "poles", as used in Act No. 484 and
incorporated in the petitioner's franchise, should not be given a restrictive
and narrow interpretation, as to defeat the very object for which the
franchise was granted. The poles as contemplated thereon, should be
understood and taken as a part of the electric power system of the
respondent Meralco, for the conveyance of electric current from the source
thereof to its consumers, x x x.42
Similarly, it was clear that under the 20-year franchise granted to
MERALCO by the Municipal Board of Lucena City through Resolution No.
2679 dated June 13, 1972, the transformers, electric posts, transmission
lines, insulators, and electric meters of MERALCO were exempt from real
property tax. Paragraph 13 of Resolution No. 2679 is quoted in full below:
13. The grantee shall be liable to pay the same taxes upon its real estate,
building, machinery, and personal property (not including poles, wires,
transformers, and insulators) as other persons are now or may hereafter
be required by law to pay. In consideration of the franchise and rights
hereby granted, the grantee shall pay into the City Treasury of Lucena a tax
equal to FIVE (5%) PER CENTUM of the gross earnings received from
electric current sold or supplied under this franchise. Said tax shall be due
and payable quarterly and shall be in lieu of any and all taxes of any kind,
nature or description levied, established, or collected by any authority
whatsoever, municipal, provincial, or national, now or in the future, on its
poles, wires, insulators, switches, transformers and structures,
installations, conductors, and accessories, placed in and over and under
all the private and/or public property, including public streets and highways,
provincial roads, bridges, and public squares, and on its franchise rights,
privileges, receipts, revenues and profits, from which taxes the grantee is
hereby expressly exempted. (Emphases supplied.)
In CBAA Case No. 248 (and LBAA-89-2), the City Assessor assessed the
transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO located in Lucena City beginning 1985 under Tax
Declaration No. 019-6500. The CBAA in its Decision dated April 10, 1991
in CBAA Case No. 248 sustained the exemption of the said properties of
MERALCO from real property tax on the basis of paragraph 13 of
Resolution No. 2679 and the 1964 MERALCO case.
Just when the franchise of MERALCO in Lucena City was about to expire,
the Local Government Code took effect on January 1, 1992, Sections 193
and 234 of which provide:
Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non�profit 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,
44
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
45
Government Code. It is a basic precept of statutory construction that the The Assessment Section 2. Incidence of real Section 3. Property exempt
express mention of one person, thing, act, or consequence excludes all Law property tax.- Except in from tax. - The exemptions
others as expressed in the familiar maxim expressio unius est exclusio (Commonwealth chartered cities, there shall shall be as follows:
alterius.45 Not being among the recognized exemptions from real property Act No. 470) be levied, assessed, and xxxx
tax in Section 234 of the Local Government Code, then the exemption of collected, an annual ad (f) Machinery, which term
the transformers, electric posts, transmission lines, insulators, and electric Effectivity: valorem tax on real shall embrace machines,
meters of MERALCO from real property tax granted under its franchise was January 1, 1940 property, including land, mechanical contrivances,
among the exemptions withdrawn upon the effectivity of the Local buildings, machinery, and instruments, appliances, and
Government Code on January 1, 1998. other improvements not apparatus attached to the
hereinafter specifically real estate, used for
It is worthy to note that the subsequent franchises for operation granted to exempted. industrial agricultural or
MERALCO, i.e., under the Certificate of Franchise dated October 28, 1993 manufacturing purposes,
issued by the National Electrification Commission and Republic Act No. during the first five years of
9209 enacted on June 9, 2003 by Congress, are completely silent on the the operation of the
matter of exemption from real property tax of MERALCO or any of its machinery.
properties.
Real Property Section 38. Incidence of Section 3. Definition of
Tax Code Real Property Tax. - There Terms. -
It is settled that tax exemptions must be clear and unequivocal. A taxpayer
shall be levied, assessed and When used in this Code -
claiming a tax exemption must point to a specific provision of law
Effectivity: June collected in all provinces,
conferring on the taxpayer, in clear and plain terms, exemption from a
1, 1974 cities and municipalities an xxxx
common burden. Any doubt whether a tax exemption exists is resolved
annual ad valorem tax on
against the taxpayer.46MERALCO has failed to present herein any express
real property, such as land, (m) Machinery - shall
grant of exemption from real property tax of its transformers, electric posts,
buildings, machinery and embrace machines,
transmission lines, insulators, and electric meters that is valid and binding
other improvements affixed mechanical contrivances,
even under the Local Government Code.
or attached to real property instruments, appliances and
not hereinafter specifically apparatus attached to the
The transformers, electric posts,
exempted. real estate. It includes the
transmission lines, insulators, and electric
physical facilities available
meters of MERALCO may qualify as
for production, as well as
"machinery" under the Local Government
the installations and
Code subject to real property tax.
appurtenant service
facilities, together with all
Through the years, the relevant laws have consistently considered
other equipment designed
"machinery" as real property subject to real property tax. It is the definition
for or essential to its
of "machinery" that has been changing and expanding, as the following
manufacturing, industrial or
table will show:
agricultural purposes.
Real Property Section 38. Incidence of Section 3. Definition of
Real Property Incidence of Real Property
Definition of Machinery47 Tax Code, as Real Property Tax. - There Terms.
Tax Law Tax
amended by shall be levied, assessed and � When used in this Code -

46
 Presidential collected in all provinces,
Decree No. cities and municipalities an
1383 annual ad valorem tax on
real property, such as land,
Effectivity: May buildings, machinery and
25, 1978 other improvements affixed
or attached to real property
not hereinafter specifically
exempted.
Local Section 232. Power to Levy
Government Real Property Tax. � A
� Code province or city or a
municipality within the
Effectivity: Metropolitan Manila Area
January 1, 1992 may levy an annual ad
valorem tax on real property
such as land,
building, machinery, and
other improvement not
hereinafter specifically
exempted.
xxxx
(m) Machinery - shall
embrace machines,
equipment, mechanical
contrivances, instruments,
appliances and apparatus
attached to the real estate. It
shall include the physical
facilities available for
production, as well as the
installations and appurtenant
service facilities, together
with all those not
permanently attached to the
real estate but are actually,
directly and essentially used
to meet the needs of the
particular industry, business,
or works, which by their
very nature and purpose are
designed for, or essential to
manufacturing, commercial,
mining, industrial or
agricultural purposes.
Section 199. Definitions. -
When used in this Title:
xxxx
(o) "Machinery" embraces
machines, equipment,
mechanical contrivances,
instruments, appliances or
apparatuswhich 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
47
purposes. Thus, Article 290(o) of the Rules and Regulations Implementing
the Local Government Code of 1991 recognizes the following exemption:
Machinery which are of general purpose use including but not limited to
office equipment, typewriters, telephone equipment, breakable or easily
damaged containers (glass or cartons), microcomputers, facsimile machines,
telex machines, cash dispensers, furnitures and fixtures, freezers,
refrigerators, display cases or racks, fruit juice or beverage automatic
dispensing machines which are not directly and exclusively used to meet the
needs of a particular industry, business or activity shall not be considered
within the definition of machinery under this Rule. (Emphasis supplied.)
The 1964 MERALCO case was decided when The Assessment Law was
still in effect and Section 3(f) of said law still required that the machinery be
attached to the real property. Moreover, as the Court pointed out earlier, the
ruling in the 1964 MERALCO case - that the electric poles (including the
steel towers) of MERALCO are not subject to real property tax - was
primarily based on the express exemption granted to MERALCO under its
previous franchise. The reference in said case to the Civil Code definition of
real property was only an alternative argument:
Granting for the purpose of argument that the steel supports or towers
in question are not embraced within the term poles, the logical question
posited is whether they constitute real properties, so that they can be
subject to a real property tax. The tax law does not provide for a
definition of real property; but Article 415 of the Civil Code does, by
stating the following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
xxxx
(3) Everything attached to an immovable in a fixed manner, in such a way
that it cannot be separated therefrom without breaking the material or
deterioration of the object;
xxxx
(5) Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried in a
building or on a piece of land, and which tends directly to meet the needs of
the said industry or works;
xxxx
The steel towers or supports in question, do not come within the objects
mentioned in paragraph 1, because they do not constitute buildings or
constructions adhered to the soil. They are not constructions analogous to
buildings nor adhering to the soil. As per description, given by the lower
court, they are removable and merely attached to a square metal frame by
means of bolts, which when unscrewed could easily be dismantled and
moved from place to place. They can not be included under paragraph 3, as
they are not attached to an immovable in a fixed manner, and they can be
separated without breaking the material or causing deterioration upon the
object to which they are attached. Each of these steel towers or supports
consists of steel bars or metal strips, joined together by means of bolts,
which can be disassembled by unscrewing the bolts and reassembled by
screwing the same. These steel towers or supports do not also fall under
paragraph 5, for they are not machineries or receptacles, instruments or
implements, and even if they were, they are not intended for industry or
works on the land. Petitioner is not engaged in an industry or works on the
land in which the steel supports or towers are constructed. 56(Emphases
supplied.)
The aforequoted conclusions of the Court in the 1964 MERALCO case do
not hold true anymore under the Local Government Code.
While the Local Government Code still does not provide for a specific
definition of "real property," Sections 199(o) and 232 of the said Code,
respectively, gives an extensive definition of what constitutes "machinery"
and unequivocally subjects such machinery to real property tax. The Court
reiterates that the machinery subject to real property tax under the Local
Government Code "may or may not be attached, permanently or temporarily
to the real property;" and the physical facilities for production, installations,
and appurtenant service facilities, those which are mobile, self-powered or
self-propelled, or are not permanently attached must (a) be actually,
directly, and exclusively used to meet the needs of the particular industry,
business, or activity; and (2) by their very nature and purpose, be designed
for, or necessary for manufacturing, mining, logging, commercial,
industrial, or agricultural purposes.
48
Article 415, paragraph (1) of the Civil Code declares as immovables or real
properties "[l]and, buildings, roads and constructions of all kinds adhered to
the soil." The land, buildings, and roads are immovables by nature "which
cannot be moved from place to place," whereas the constructions adhered to
the soil are immovables by incorporation "which are essentially movables,
but are attached to an immovable in such manner as to be an integral part
thereof."57 Article 415, paragraph (3) of the Civil Code, referring to
"[ejverything attached to an immovable in a fixed manner, in such a way
that it cannot be separated therefrom without breaking the material or
deterioration of the object," are likewise immovables by incorporation. In
contrast, the Local Government Code considers as real property machinery
which "may or may not be attached, permanently or temporarily to the real
property," and even those which are "mobile."
Article 415, paragraph (5) of the Civil Code considers as immovables or
real properties "[machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or works which may
be carried on in a building or on a piece of land, and which tend directly to
meet the needs of the said industry or works." The Civil Code, however,
does not define "machinery."
The properties under Article 415, paragraph (5) of the Civil Code are
immovables by destination, or "those which are essentially movables, but by
the purpose for which they have been placed in an immovable, partake of
the nature of the latter because of the added utility derived
therefrom."58 These properties, including machinery, become immobilized
if the following requisites concur: (a) they are placed in the tenement by the
owner of such tenement; (b) they are destined for use in the industry or
work in the tenement; and (c) they tend to directly meet the needs of said
industry or works.59 The first two requisites are not found anywhere in the
Local Government Code.
MERALCO insists on harmonizing the aforementioned provisions of the
Civil Code and the Local Government Code. The Court disagrees, however,
for this would necessarily mean imposing additional requirements for
classifying machinery as real property for real property tax purposes not
provided for, or even in direct conflict with, the provisions of the Local
Government Code.
As between the Civil Code, a general law governing property and property
relations, and the Local Government Code, a special law granting local
government units the power to impose real property tax, then the latter shall
prevail. As the Court pronounced in Disomangcop v. The Secretary of the
Department of Public Works and Highways Simeon A. Datumanong 60:
It is a finely-imbedded principle in statutory construction that a special
provision or law prevails over a general one. Lex specialis derogant
generali. As this Court expressed in the case of Leveriza v. Intermediate
Appellate Court, "another basic principle of statutory construction mandates
that general legislation must give way to special legislation on the same
subject, and generally be so interpreted as to embrace only cases in which
the special provisions are not applicable, that specific statute prevails over a
general statute and that where two statutes are of equal theoretical
application to a particular case, the one designed therefor specially should
prevail." (Citations omitted.)
The Court also very clearly explicated in Vinzons-Chato v. Fortune
Tobacco 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
49
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
50
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
51
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,
52
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.
G.R. No. 180110
CAPITOL WIRELESS, INC., Petitioner,
vs.
THE PROVINCIAL TREASURER OF BATANGAS, THE
PROVINCIAL ASSESSOR OF BATANGAS, THE MUNICIPAL
TREASURER AND ASSESSOR OF NASUGBU,
BATANGAS, Respondents.
Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking to annul and set aside the Court of Appeals’
Decision1 dated May 30, 2007 and Resolution2 dated October 8, 2007 in
CA-G.R. SP No. 82264, which both denied the appeal of petitioner against
the decision of the Regional Trial Court.
Below are the acts of the case.
Petitioner Capitol Wireless Inc. (Capwire) is a Philippine corporation in the
business of providing international telecommunications services. 3 As such
provider, Capwire has signed agreements with other local and foreign
telecommunications companies covering an international network of
submarine cable systems such as the Asia Pacific Cable Network System
(APCN) (which connects Australia, Thailand, Malaysia, Singapore, Hong
Kong, Taiwan, Korea, Japan, Indonesia and the Philippines); the
BruneiMalaysia-Philippines Cable Network System (BMP-CNS), the
PhilippinesItaly
(SEA-ME-WE-3 CNS), and the Guam Philippines (GP-CNS)
systems. 4 The agreements provide for co-ownership and other rights among
the parties over the network. 5
Petitioner Capwire claims that it is co-owner only of the so-called "Wet
Segment" of the APCN, while the landing stations or terminals and Segment
E of APCN located in Nasugbu, Batangas are allegedly owned by the
Philippine Long Distance Telephone Corporation (PLDT). 6 Moreover, it
alleges that the Wet Segment is laid in inten1ational, and not Philippine,
waters. 7
Capwire claims that as co-owner, it does not own any particular physical
part of the cable system but, consistent with its financial contributions, it
owns the right to use a certain capacity of the said systern. 8 This property
right is allegedly reported in its financial books as "Indefeasible Rights in
Cable Systems."9
However, for loan restructuring purposes, Capwire claims that "it was
required to register the value of its right," hence, it engaged an appraiser to
"assess the market value of the international submarine cable system and the
cost to Capwire." 10 On May 15, 2000, Capwire submitted a Sworn
Statement of True Value of Real Properties at the Provincial Treasurer's
Office, Batangas City, Batangas Province, for the Wet Segment of the
system, stating:
System Sound Value
APCN P203,300,000.00
BMP-CNS p 65,662,000.00
SEA-ME-WE-3 CNSP P7,540,000.00
GP-CNS P1,789,000.00
Capwire claims that it also reported that the system "interconnects at the
PLDT Landing Station in Nasugbu, Batangas," which is covered by a
transfer certificate of title and tax declarations in the name of PLDT. 11
As a result, the respondent Provincial Assessor of Batangas (Provincial
Assessor) issued the following Assessments of Real Property (ARP) against
Capwire:
53
 ARP Cable System Assessed Value
019-00967 BMP-CNS P52,529,600.00
019-00968 APCN P162,640,000.00
019-00969 SEA-ME-WE3-CNS P: 6,032,000.00
019-00970 GP-CNS P: 1,431,200.00
In essence, the Provincial Assessor had determined that the submarine cable
systems described in Capwire's Sworn Statement of True Value of Real
Properties are taxable real property, a determination that was contested by
Capwire in an exchange of letters between the company and the public
respondent. 12 The reason cited by Capwire is that the cable system lies
outside of Philippine territory, i.e., on international waters. 13
On February 7, 2003 and March 4, 2003, Capwire received a Warrant of
Levy and a Notice of Auction Sale, respectively, from the respondent
Provincial Treasurer of Batangas (Provincial Treasurer). 14
On March I 0, 2003, Capwire filed a Petition for Prohibition and
Declaration of Nullity of Warrant of Levy, Notice of Auction Sale and/or
Auction Sale with the Regional Trial Court (RTC) of Batangas City. 15
After the filing of the public respondents' Comment, 16 on May 5, 2003, the
RTC issued an Order dismissing the petition for failure of the petitioner
Capwire to follow the requisite of payment under protest as well as failure
to appeal to the Local Board of Assessment Appeals (LBAA), as provided
for in Sections 206 and 226 of Republic Act (R.A.) No. 7160, or the Local
Government Code. 17
Capwire filed a Motion for Reconsideration,18 but the same was likewise
dismissed by the RTC in an Order19 dated August 26, 2003. It then filed an
appeal to the Court of Appeals. 20
On May 30, 2007, the Court of Appeals promulgated its Decision
dismissing the appeal filed by Capwire and affirming the order of the trial
court.1âwphi1 The dispositive portion of the CA's decision states:
WHEREFORE, premises considered, the assailed Orders dated May 5, 2003
and August 26, 2003 of the Regional Trial Court, Branch II of Batangas
City, are AFFIRMED.
SO ORDERED.21
The appellate court held that the trial court correctly dismissed Capwire's
petition because of the latter's failure to comply with the requirements set in
Sections 226 and 229 of the Local Government Code, that is, by not
availing of remedies before administrative bodies like the LBAA and the
Central Board of Assessment Appeals (CBAA). 22Although Capwire claims
that it saw no need to undergo administrative proceedings because its
petition raises purely legal questions, the appellate comi did not share this
view and noted that the case raises questions of fact, such as the extent to
which parts of the submarine cable system lie within the territorial
jurisdiction of the taxing authorities, the public respondents. 23 Further, the
CA noted that Capwire failed to pay the tax assessed against it under
protest, another strict requirement under Section 252 of the Local
Government Code24
Hence, the instant petition for review of Capwire.
Petitioner Capwire asserts that recourse to the Local Board of Assessment
Appeals, or payment of the tax under protest, is inapplicable to the case at
bar since there is no question of fact involved, or that the question involved
is not the reasonableness of the amount assessed but, rather, the authority
and power of the assessor to impose the tax and of the treasurer to collect
it.25 It contends that there is only a pure question of law since the issue is
whether its submarine cable system, which it claims lies in international
waters, is taxable.26 Capwire holds the position that the cable system is not
subject to tax.27
Respondents assessors and treasurers of the Province of Batangas and
Municipality of Nasugbu, Batangas disagree with Capwire and insist that
the case presents questions of fact such as the extent and portion of the
submarine cable system that lies within the jurisdiction of the said local
governments, as well as the nature of the so-called indefeasible rights as
property of Capwire.28 Such questions are allegedly resolvable only before
administrative agencies like the Local Board of Assessment Appeals. 29
54
The Court confronts the following issues: Is the case cognizable by the
administrative agencies and covered by the requirements in Sections 226
and 229 of the Local Government Code which makes the dismissal of
Capwire's petition by the RTC proper? May submarine communications
cables be classified as taxable real property by the local governments?
The petition is denied. No error attended the ruling of the appellate court
that the case involves factual questions that should have been resolved
before the appropriate administrative bodies.
In disputes involving real property taxation, the general rule is to require the
taxpayer to first avail of administrative remedies and pay the tax under
protest before allowing any resort to a judicial action, except when the
assessment itself is alleged to be illegal or is made without legal authority.30
For example, prior resort to administrative action is required when among
the issues raised is an allegedly erroneous assessment, like when the
reasonableness of the amount is challenged, while direct court action is
permitted when only the legality, power, validity or authority of the;
assessment itself is in question.JI Stated differently, the general rule of a
prerequisite recourse to administrative remedies applies when questions of
fact are raised, but the exception of direct court action is allowed when
purely questions of law are involved.32
This Court has previously and rather succinctly discussed the difference
between a question of fact and a question of law. In Cosmos Bottling
Corporation v. Nagrama, Jr., 33 it held:
The Court has made numerous dichotomies between questions of law and
fact. A reading of these dichotomies shows that labels attached to law and
fact are descriptive rather than definitive. We are not alone in Our difficult
task of clearly distinguishing questions of fact from questions of law. The
United States Supreme Court has ruled that: "we [do not] yet know of any
other rule or principle that will unerringly distinguish a factual finding from
a legal conclusion."
In Ramos v. Pepsi-Cola Bottling Co. of the PI., the Court ruled:
There is a question of law in a given case when the doubt or difference
arises as to what the law is on a certain state of facts; there is a question of
fact when the doubt or difference arises as to the truth or the falsehood of
alleged facts.
We shall label this the doubt dichotomy.
In Republic v. Sandiganbayan, the Court ruled:
x x x A question of law exists when the doubt or controversy concerns the
correct application of law or jurisprudence to a certain set of facts; or when
the issue does not call for an examination of the probative value of the
evidence presented, the truth or falsehood of facts being admitted. In
contrast, a question of fact exists when the doubt or difference arises as to
the truth or falsehood of facts or when the query invites calibration of the
whole evidence considering mainly the credibility of the witnesses, the
existence and relevancy of specific surrounding circumstances as well as
their relation to each other and to the whole, and the probability of the
situation.
For the sake of brevity, We shall label this the law application and
calibration dichotomy.
In contrast, the dynamic legal scholarship in the United States has birthed
many commentaries on the question of law and question of fact dichotomy.
As early as 1944, the law was described as growing downward toward
"roots of fact" which grew upward to meet it. In 1950, the late Professor
Louis Jaffe saw fact and law as a spectrum, with one shade blending
imperceptibly into the other. Others have defined questions of law as those
that deal with the general body of legal principles; questions of fact deal
with "all other phenomena xx x." Kenneth Culp Davis also weighed in and
noted that the difference between fact and law has been characterized as that
between "ought" questions and "is" questions.34
Guided by the quoted pronouncement, the Court sustains the CA's finding
that petitioner's case is one replete with questions of fact instead of pure
questions of law, which renders its filing in a judicial forum improper
because it is instead cognizable by local administrative bodies like the
Board of Assessment Appeals, which are the proper venues for trying these
55
factual issues. Verily, what is alleged by Capwire in its petition as "the crux
of the controversy," that is, "whether or not an indefeasible right over a
submarine cable system that lies in international waters can be subject to
real property tax in the Philippines,"35 is not the genuine issue that the case
presents - as it is already obvious and fundamental that real property that
lies outside of Philippine territorial jurisdiction cannot be subjected to its
domestic and sovereign power of real property taxation - but, rather, such
factual issues as the extent and status of Capwire's ownership of the system,
the actual length of the cable/s that lie in Philippine territory, and the
corresponding assessment and taxes due on the same, because the public
respondents imposed and collected the assailed real property tax on the
finding that at least a portion or some portions of the submarine cable
system that Capwire owns or co-owns lies inside Philippine territory.
Capwire's disagreement with such findings of the administrative bodies
presents little to no legal question that only the courts may directly resolve.
Instead, Capwire argues and makes claims on mere assumptions of certain
facts as if they have been already admitted or established, when they have
not, since no evidence of such have yet been presented in the proper
agencies and even in the current petition. As such, it remains unsettled
whether Capwire is a mere co-owner, not full owner, of the subject
submarine cable and, if the former, as to what extent; whether all or certain
portions of the cable are indeed submerged in water; and whether the waters
wherein the cable/s is/are laid are entirely outside of Philippine territorial or
inland waters, i.e., in international waters. More simply, Capwire argues
based on mere legal conclusions, culminating on its claim of illegality of
respondents' acts, but the conclusions are yet unsupported by facts that
should have been threshed out quasi-judicially before the administrative
agencies. It has been held that "a bare characterization in a petition of
unlawfulness, is merely a legal conclusion and a wish of the pleader, and
such a legal conclusion unsubstantiated by facts which could give it life, has
no standing in any court where issues must be presented and determined by
facts in ordinary and concise language." 36 Therefore, Capwire's resort to
judicial action, premised on its legal conclusion that its cables (the
equipment being taxed) lie entirely on international waters, without first
administratively substantiating such a factual premise, is improper and was
rightly denied. Its proposition that the cables lie entirely beyond Philippine
territory, and therefore, outside of Philippine sovereignty, is a fact that is
not subject to judicial notice since, on the contrary, and as will be explained
later, it is in fact certain that portions of the cable would definitely lie within
Philippine waters. Jurisprudence on the Local Government Code is clear
that facts such as these must be threshed out administratively, as the courts
in these types of cases step in at the first instance only when pure questions
of law are involved.
Nonetheless, We proceed to decide on whether submarine wires or cables
used for communications may be taxed like other real estate.
We hold in the affirmative.
Submarine or undersea communications cables are akin to electric
transmission lines which this Court has recently declared in Manila Electric
Company v. City Assessor and City Treasurer of Lucena City, 37 as "no
longer exempted from real prope1iy tax" and may qualify as "machinery"
subject to real property tax under the Local Government Code. To the extent
that the equipment's location is determinable to be within the taxing
authority's jurisdiction, the Court sees no reason to distinguish between
submarine cables used for communications and aerial or underground wires
or lines used for electric transmission, so that both pieces of property do not
merit a different treatment in the aspect of real property taxation. Both
electric lines and communications cables, in the strictest sense, are not
directly adhered to the soil but pass through posts, relays or landing stations,
but both may be classified under the term "machinery" as real property
under Article 415(5)38 of the Civil Code for the simple reason that such
pieces of equipment serve the owner's business or tend to meet the needs of
his industry or works that are on real estate. Even objects in or on a body of
water may be classified as such, as "waters" is classified as an immovable
under Article 415(8)39 of the Code. A classic example is a boathouse
which, by its nature, is a vessel and, therefore, a personal property but, if it
is tied to the shore and used as a residence, and since it floats on waters
which is immovable, is considered real property.40 Besides, the Court has
already held that "it is a familiar phenomenon to see things classed as real
property for purposes of taxation which on general principle might be
considered personal property."41
Thus, absent any showing from Capwire of any express grant of an
exemption for its lines and cables from real property taxation, then this
interpretation applies and Capwire's submarine cable may be held subject to
real property tax.
56
Having determined that Capwire is liable, and public respondents have the
right to impose a real property tax on its submarine cable, the issue that is
unresolved is how much of such cable is taxable based on the extent of
Capwire's ownership or co-ownership of it and the length that is laid within
respondents' taxing jurisdiction. The matter, however, requires a factual
determination that is best performed by the Local and Central Boards of
Assessment Appeals, a remedy which the petitioner did not avail of.
At any rate, given the importance of the issue, it is proper to lay down the
other legal bases for the local taxing authorities' power to tax portions of the
submarine cables of petitioner. It is not in dispute that the submarine cable
system's Landing Station in Nasugbu, Batangas is owned by PLDT and not
by Capwire. Obviously, Capwire is not liable for the real property tax on
this Landing Station. Nonetheless, Capwire admits that it co-owns the
submarine cable system that is subject of the tax assessed and being
collected by public respondents. As the Court takes judicial notice that
Nasugbu is a coastal town and the surrounding sea falls within what the
United Nations Convention on the Law of the Sea (UN CLOS) would
define as the country's territorial sea (to the extent of 12 nautical miles
outward from the nearest baseline, under Part II, Sections 1 and 2) over
which the country has sovereignty, including the seabed and subsoil, it
follows that indeed a portion of the submarine cable system lies within
Philippine territory and thus falls within the jurisdiction of the said local
taxing authorities.42 It easily belies Capwire's contention that the cable
system is entirely in international waters. And even if such portion does not
lie in the 12-nautical-mile vicinity of the territorial sea but further inward,
in Prof Magallona v. Hon. Ermita, et al.43 this Court held that "whether
referred to as Philippine 'internal waters' under A1iicle I of the
Constitution44 or as 'archipelagic waters' under UNCLOS Part III, Article
49(1, 2, 4),45 the Philippines exercises sovereignty over the body of water
lying landward of (its) baselines, including the air space over it and the
submarine areas underneath." Further, under Part VI, Article 7946 of the
UNCLOS, the Philippines clearly has jurisdiction with respect to cables laid
in its territory that are utilized in support of other installations and structures
under its jurisdiction.
And as far as local government units are concerned, the areas described
above are to be considered subsumed under the term "municipal waters"
which, under the Local Government Code, includes "not only streams,
lakes, and tidal waters within the municipality, not being the subject of
private ownership and not comprised within the national parks, public
forest, timber lands, forest reserves or fishery reserves, but also marine
waters included between two lines drawn perpendicularly to the general
coastline from points where the boundary lines of the municipality or city
touch the sea at low tide and a third line parallel with the general coastline
and fifteen (15) kilometers from it." 47Although the term "municipal waters"
appears in the Code in the context of the grant of quarrying and fisheries
privileges for a fee by local governments,48 its inclusion in the Code's Book
II which covers local taxation means that it may also apply as guide in
determining the territorial extent of the local authorities' power to levy real
property taxation.
Thus, the jurisdiction or authority over such part of the subject submarine
cable system lying within Philippine jurisdiction includes the authority to
tax the same, for taxation is one of the three basic and necessary attributes
of sovereignty,49 and such authority has been delegated by the national
legislature to the local governments with respect to real property. 50 taxation.
As earlier stated, a way for Capwire to claim that its cable system is not
covered by such authority is by showing a domestic enactment or even
contract, or an international agreement or treaty exempting the same from
real property taxation. It failed to do so, however, despite the fact that the
burden of proving exemption from local taxation is upon whom the subject
real property is declared. 51 Under the Local Government Code, every
person by or for whom real property is declared, who shall claim tax
exemption for such property from real property taxation "shall file with the
provincial, city or municipal assessor within thirty (30) days from the date
of the declaration of real property sufficient documentary evidence in
support of such claim."52 Capwire omitted to do so. And even under
Capwire's legislative franchise, RA 4387, which amended RA 2037, where
it may be derived that there was a grant of real property tax exemption for
properties that are part of its franchise, or directly meet the needs of its
business,53 such had been expressly withdrawn by the Local Government
Code, which took effect on January l, 1992, Sections 193 and 234 of which
provide:54
Section 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives
57
duly registered under R.A. No. 6938, nonstock and nonprofit hospitals and
educational institutions, arc 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 of otherwise, to a taxable
person;
legislature after the enactment of the Local Government Code. Therefore,
the presumption stays that it enjoys no such privilege or exemption. Tax
exemptions arc strictly construed against the taxpayer because taxes are
considered the lifeblood of the nation.57
WHEREFORE, the petition is DENIED. The Court of Appeals’ Decision
dated May 30, 2007 and Resolution dated October 8. 2007 are AFFIRMED.
SO ORDERED

(b) Charitable institutions, churches, parsonages or convents

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

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

(d) All real property owned by duly registered cooperatives as

provided for under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and

environmental protection.

Except as provided herein, any exemption from payment of real

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

Such express withdrawal had been previously held effective upon

exemptions bestowed by legislative franchises granted prior to the
effectivity of the Local Government Code.56 Capwire fails to allege or
provide any other privilege or exemption that were granted to it by the

58