LADERA vs HODGES

Facts: Ladera entered into a contract with Hodges

whereby the latter promised to sell a lot subject to
certain terms and conditions. In case of failure of
the purchaser to make a monthly payment within
60 days after it fell due, this contract may be
taken and considered as rescinded and annulled,
in which case all sums of money paid would be
considered rentals and the vendor shall be at
liberty to dispose of the parcel of land with all the
improvements theron to any other person in a
manner as if this contract had never been made.
After the execution of the contract, Ladera built
on a lot a house of mixed materials assessed at
P4500.
Unfortunately, Ladera failed to pay the agreed
installments, whereupon the appellant rescinded
the contract and filed an action for ejectment. The
MTC rendered a decision upon agreement of the
parties- Ladera to vacate and surrender
possession of the lot and pay P10 a month until
delivery of the premises. The court issued an alias
writ of execution and pursuant thereto the sheriff
levied upon all rights, interests, and participation
over your house standing on the lot. The sheriff
posted the notices of the sale but did not publish
the same in a newspaper of general circulation.

At the auction sale Ladera did not attend because
she had gone to Manila and the sheriff sold the
property to Avelina Magno as the highest bidder.
On July 6, 1948, Hodges sold the lot to Manuel
Villa and on the same day the latter purchased
the house from Magno for P200 but this last
transaction was not recorded.

Ladera returned to Iloilo after the sale and learned
of its results. She went to see the sheriff and upon
the latters representation that she could redeem
the property, she paid him P230 and the sheriff
issued a receipt. It does not appear, however, that
this money was turned over to Hodges.
Thereupon, Ladera spouses filed an action against
Hodges, the sheriff, and the judgment sale
purchasers, Magno and Villa to set aside the sale
and recover the house. The lower court ruled in
favor of Ladera. Hodges et al contend that the
house being built on land owned by another
person should be regarded in law as movable or
personal property.

Issue: Whether the house being built on land
owned by another should be regarded as movable
property.

Held: According to Article 334 of the Civil Code
(now 415), Immovable property are the following:
Lands, building, roads, and constructions of all
kinds adhering to the soil; Applying the principle
Ubi lex non distinguit nec nos distinguere
debemu, the law makes no distinction as to
whether the owner of the land is or is not the
owner of the building. In view of the plain terms of
the statute, the only possible doubt could arise in
the case of a house sold for demolition.

In the case of immovables by destination, the code
requires that they be placed by the owner of the
tenement, in order to acquire the same nature or
consideration of real property. In cases of
immovable by incorporation, the code nowhere
requires that the attachment or incorporation be
made by the owner of the land. The only criterion
is union or incorporation with the soil.

Ladera did not declare his house to be a chattel
mortgage. The object of the levy or sale was real
property. The publication in a newspaper of
general circulation was indispensible. It being
admitted that no publication was ever made, the
execution sale was void and conferred no title on
the purchaser.

The alleged purchaser at the auction sale, Magno,
is a mere employee of the creditor Hodges and the
low bid made by her as well as the fact that she
sold the house to Villa on the same day that
Hodges sold him the land, proves that she was
merely acting for and in behalf of Hodges.
It should be noted that in sales of immovables, the
lack of title of the vendor taints the rights of
subsequent purchasers. Unlike in sales of chattels
and personalty, in transactions covering real
property, possession in good faith is not
equivalent to title.

MINDANAO BUS CO. vs CITY ASSESOR AND
TREASURER
Facts: Petitioner is a public utility company
engaged in the transport of passengers and cargo
by motor vehicles in Mindanao with main offices
in Cagayan de Oro (CDO). Petitioner likewise
owned a land where it maintains a garage, a
repair shop and blacksmith or carpentry shops.
The machineries are placed thereon in wooden
and cement platforms. The City Assessor of CDO
then assessed a P4,400 realty tax on said
machineries and repair equipment. Petitioner
appealed to the Board of Tax Appeals but it
sustained the City Assessor's decision, while the
Court of Tax Appeals (CTA) sustained the same.

Issue: Whether or not the machineries and
equipments are considered immobilized and thus
subject to a realty tax

Held: The Supreme Court decided otherwise and
held that said machineries and equipments are
not subject to the assessment of real estate tax.
Said equipments are not considered immobilized
as they are merely incidental, not esential and
principal to the business of the petitioner. The
transportation business could be carried on
without repair or service shops of its rolling
equipment as they can be repaired or services in
another shop belonging to another

MAKATI LEASING & FINANCE CORP VS.
WEAREVER TEXTILES
Facts: Wearever Textile Mills, Inc. executed a
chattel mortgage contract in favor of Makati
Leasing and Finance Corporation covering certain
raw materials and machinery. Upon default,
Makati Leasing fi led a petition for judicial
foreclosure of the properties mortgaged. Acting on
Makati Leasings application for replevin, the
lower court issued a writ of seizure. Pursuant
thereto, the sheriff enforcing the seizure order
seized the machinery subject matter of the
mortgage. In a petition for certiorari and
prohibition, the Court of Appeals ordered the
return of the machinery on the ground that the
same can-not be the subject of replevin because it
is a real property pursuant to Article415 of the
new Civil Code, the same being attached to the
ground by means of bolts and the only way to
remove it from Wearever textiles plant would be to
drill out or destroy the concrete fl oor. When the
motion for reconsideration of Makati Leasing was
denied by the Court of Appeals, Makati Leasing
elevated the matter to the Supreme Court.

Issue: Whether the machinery in suit is real or
personal property from the point of view of the
parties.

Held: There is no logical justification to exclude
the rule out the present case from the application
of the pronouncement in Tumalad v Vicencio, 41
SCRA 143. If a house of strong materials, like
what was involved in the 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 prejudicedthereby,
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 the denying the existence of the
chattel mortgage.

In rejecting petitioners assertion on the
applicability of the Tumalad doctrine, the CA 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
by the private respondent is indicative of the
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 a real
property as long as no interest of third parties
would be prejudiced thereby.

The status of the subject matter as movable or
immovable property was not raised as an issue
before the lower court and the CA, except in a
supplemental memorandum in support of the
petition filed in the appellate court. There is no
record showing that the mortgage has been
annulled, or that steps were taken to nullify the
same. On the other hand, respondent has
benefited from the said contract.

Equity dictates that one should not benefit at the
expense of another.
As such, private respondent could no longer be
allowed to impugn the efficacy of the chattel
mortgage after it has benefited therefrom.
Therefore, the questioned machinery should be
considered as personal property.

SANTOS EVANGELISTA VS. ALTO SURETY &
INSURANCE CO.
Facts: In 1949, Santos Evangelista instituted
Civil Case No. 8235 of the CFI Manila (Santos
Evangelista vs. Ricardo Rivera) for a sum of
money. On the same date, he obtained a writ of
attachment, which was 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. In due course,
judgment was rendered in favor of Evangelista,
who bought the house at public auction held in
compliance with the writ of execution issued in
said case on 8 October 1951. The corresponding
definite deed of sale was issued to him on 22
October 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. and that the latter is now the true owner
of said property. It appears that on 10 May 1952,
a definite deed of sale of the same house had been
issued to Alto Surety, as the highest bidder at an
auction sale held, on 29 September 1950, in
compliance with a writ of execution issued in Civil
Case 6268 of the same court (Alto Surety &
Insurance vs. Maximo Quiambao, Rosario
Guevara and Ricardo Rivera)" in which judgment
for the sum of money, had been rendered in favor
of Alto Surety. Hence, on 13 June 1953,
Evangelista instituted an action against Alto
Surety and Ricardo Rivera, for the purpose of
establishing his title over said house, and
securing possession thereof, apart from recovering
damages. After due trial, the CFI Manila rendered
judgment for Evangelista, sentencing Rivera and
Alto Surety to deliver the house in question to
Evangelista and to pay him, jointly and severally,
P40.00 a month from October 1952, until said
delivery. The decision was however reversed by
the Court of Appeals, which absolved Alto Surety
from the complaint on account 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 Alto Surety,
Evangelista did not acquire thereby a preferential
lien, the attachment having been levied as if the
house in question were immovable property.

Issue: Whether or not a house constructed by the
lessee of the land on which it is built, should be
dealt with, for purpose of attachment, as
immovable property?

Held: The court ruled that the house is not
personal property, much less a debt, credit or
other personal property not capable of manual
delivery, but immovable property. As held in
Laddera vs. Hodges (48 OG 5374), "a true building
is immovable or real property, whether it is
erected by the owner of the land or by a
usufructuary or lessee. The opinion that the
house of Rivera should have been attached, as
"personal property capable of manual delivery, by
taking and safely keeping in his custody", for it
declared that "Evangelista 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 is untenable.
Parties to a deed of chattel mortgage may agree to
consider a house as personal property for
purposes of said contract. 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. The rules
on execution do not allow, and should not be
interpreted as to allow, the special consideration
that parties to a contract may have desired to
impart to real estate 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. The regulations
were never intended to suit the consideration that
parties, may have privately given to the property
levied upon. The court therefore affirms the
decision of the CA with cost against Alto Surety.

TSAI VS CA
Facts: Ever Textile Mills, Inc. (EVERTEX) obtained
loan from Philippine Bank of Communications
(PBCom), secured by a deed of Real and Chattel
Mortgage over the lot where its factory stands,
and the chattels located therein as enumerated in
a schedule attached to the mortgage
contract. PBCom again granted a second loan to
EVERTEX which was secured by a Chattel
Mortgage over personal properties enumerated in
a list attached thereto. These listed properties
were similar to those listed in the first mortgage
deed. After the date of the execution of the
second mortgage mentioned above, EVERTEX
purchased various machines and
equipments. Upon EVERTEX's failure to meet
its obligation to PBCom, the latter commenced
extrajudicial foreclosure proceedings against
EVERTEX under Act 3135 and Act 1506 or "The
Chattel Mortgage Law". PBCom then consolidated
its ownership over the lot and all the properties in
it. It leased the entire factory premises to Ruby
Tsai and sold to the same the factory, lock, stock
and barrel including the contested machineries.

EVERTEX filed a complaint for annulment
of sale, reconveyance, and damages against
PBCom, alleging inter alia that the extrajudicial
foreclosure of subject mortgage was not valid, and
that PBCom, without any legal or factual basis,
appropriated the contested properties which were
not included in the Real and Chattel Mortgage of
the first mortgage contract nor in the second
contract which is a Chattel Mortgage, and neither
were those properties included in the Notice of
Sheriff's Sale.

Issues: W/N the contested properties are personal
or movable properties

HELD:
Nature of the Properties and Intent of the Parties.

The nature of the disputed machineries, i.e., that
they were heavy, bolted or cemented on the real
property mortgaged does not make them ipso
facto immovable under Article 415 (3) and (5) of
the New Civil Code. While it is true that the
properties appear to be immobile, a perusal of the
contract of Real and Chattel Mortgage executed by
the parties herein reveal their intent, that is - to
treat machinery and equipment as chattels.

In the first mortgage contract, reflective of the
true intention of PBCOM and EVERTEX was the
typing in capital letters, immediately following the
printed caption of mortgage, of the phrase "real
and chattel." So also, the "machineries and
equipment" in the printed form of the bank had to
be inserted in the blank space of the printed
contract and connected with the word "building"
by typewritten slash marks. 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 second contract,
the intention of the parties is clear and beyond
question. It refers solely to chattels. The
inventory list of the mortgaged properties is an
itemization of 63 individually described
machineries while the schedule listed only
machines and 2,996,880.50 worth of finished
cotton fabrics and natural cotton fabrics.

UNDER PRINCIPLE OF STOPPEL
Assuming arguendo that the properties in
question are immovable by nature, nothing
detracts the parties from treating it as chattels to
secure an obligation under the principle of
estoppel. As far back as Navarro v. Pineda, an
immovable may be considered a personal property
if there is a stipulation as when it is used as
security in the payment of an obligation where a
chattel mortgage is executed over it.

SERGS PRODUCTS, INC VS PCI LEASING
Facts: Respondent PCI Leasing and Finance, Inc,
filed with the RTC-QC a complaint for a sum of
money with an application for a writ of replevin.
Respondent Judge issued a writ of replevin
directing its sheriff to seize and deliver the
machineries and equipment to PCI after 5 days
and upon the payment of the necessary expenses.
In the implementation of the said writ, the sheriff
proceeded to petitioners factory, seized one
machinery with word that he would return for the
other.

Petitioners filed a motion for special protective
order, 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.
The motion was opposed by PCI Leasing, on the
ground that the properties were still personal and
therefore still subject to seizure and a writ of
replevin.
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.

Issue:
1. Whether or not the machineries purchased
and imported by Sergs became real property by
virtue of immobilization.
2. Whether or not the contract between the
parties is valid.

Ruling:
The petition is not meritorious.
1. No.
The machines that were subjects of the Writ of
seizure were placed by petitioners in the factory
built on their own land. Indisputably, they were
essential and principal elements of their
chocolate-making industry. Hence, although each
of them was movable or personal property on its
own, all of them have become immobilized by
destination because they are essential and
principal elements in the industry. In that sense
petitioners are correct in arguing that the said
machines are real property pursuant to Article
415 (5) of the Civil Code.
But the Court disagrees with the submission of
the petitioners that the said machines are not
proper subject of the Writ of Seizure.
The Court has held that contracting parties may
validly stipulate that a real property be considered
as personal. After agreeing to such stipulation,
they are consequently stopped from claiming
otherwise. Under the principle of estoppels, a
party to a contract is ordinarily precluded from
denying the truth of any material fact found
therein.
Clearly then, petitioners are stopped from denying
the characterization of the subject machines as
personal property. Under circumstances, they are
proper subjects of the Writ of Seizure.
It should be stressed, however, that the Courts
holding-that the machines should be deemed
personal property pursuant to the Lease
Agreement-is good only insofar as the contracting
parties are concerned. Hence, while the parties
are bound by the Agreement, third persons acting
in good faith are not affected by its stipulation
characterizing the subject machinery as personal.
In any event, there is no showing that any specific
third party would be adversely affected.

2. Yes.
It should be pointed out that the Court may rely
on the Lease Agreement, for nothing on the 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.

LOPEZ VS. OROSA, JR. & PLAZA THEATRE,
INC.
FACTS: Orosa invited Lopez to invest with him in
building a theatre. Lopez supplied wood for the
construction of the said theatre. The materials
totaled 62k but Orosa was only able to pay 20k
thus leaving a balance of almost 42k. Later on
respondents acquired a bank loan of 30k, wherein
Luzon Surety Company as their surety and the
land and buildings as mortgages. Petitioner sued
to collect the unpaid materials and was able to get
a judgment against the respondents making them
jointly liable to pay the remaining amount. Also,
he was able to obtain a materialmans lien on the
building of the theatre. The stocks amounting to
42k shall be sold in public auction in case the
respondents default. Petitioner wasnt happy
because he also wanted a lien on the land, urging
that the judgment lien should include it since the
building and the land are inseparable.
ISSUE: Whether or not the building and the land
are inseperable and W/N petitioner can obtain a
lien on the land as well?
RULING:NO to both! The contention that the lien
executed in favor of the furnisher of the materials
used for the construction, repair or refection of a
building is also extended to land on which the
construction was made is without merit, because
while it is true that generally, real estate connotes
the land and the building constructed thereon, it
is obvious that the inclusion of the building,
separate and distinct from the land in the
enumeration (in the CC) of what may constitute
real properties could mean only one thing- that a
building is by itself an immovable property.
The preference to unregistered lien is only with
respect to the real estate upon which the refection
or work was made. The materialmans lien could
be charged only to the building for which the
credit was made or which received the benefit of
refection.
YAP VS TANADA
Doctrine: Article 415, par. 3 of the Civil Code
considers and immovable property as everything
attached to an immovable in a fixed manner, in
such a way that it cannot be separated therefrom
without breaking the material or deteriorating the
object. The pump does not fit this description. It
could be, and was, in fact,separated from Yaps
premises without being broken of suffering
deterioration. Obviously, the separation or
removal of the pump involved nothing more
complicated that the loosening of bolts or
dismantling of other fasteners.
Facts: The case began in the City Court of Cebu
with the filing of Goulds Pumps International
(Phil), Inc. of a complaint against Yap and his wife
seeking recovery of P1,459.30, representing the
balance of the price and installation cost of a
water pump in the latters premises. The Court
rendered judgment in favor of herein respondent
after they presented evidence ex-parte due to
failure of petitioner Yap to appear before the
Court. Petitioner then appealed to the CFI,
particularly to the sale of Judge Tanada. For again
failure to appear for pre-trial, Yap was declared in
default. He filed for a motion for reconsideration
which was denied by Judge Tanada. On October
15, 1969, Tanada granted Goulds Motion for
Issuance of Writ of Execution. Yap forthwith filed
an Urgent Motion for Reconsideration of the said
Order. In the meantime, the Sheriff levied on the
water pump in question and by notice scheduled
the execution sale thereof. But in view of the
pendency of Yaps motion, suspension of sale was
directed by Judge Tanada. It appears, however,
that this was not made known to the Sheriff
whocontinued with the auction sale and sold the
property to the highest bidder, Goulds. Because of
such, petitioner filed a Motion to Set Aside
Execution Sale and to Quash Alias Writ of
Execution. One of his arguments was that the sale
was made without the notice required by Sec. 18,
Rule 29 of the New Rules of Court, i.e. notice by
publication in case of execution of sale of real
property, the pump and its accessories being
immovable because attached to the ground with
the character of permanency. Such motion was
denied by the CFI.
Issue: Whether or not the pump and its accessories
are immovable property
Held: No. The water pump and its accessories are
NOT immovable properties. The argument of Yap
that the water pump had become immovable
property by its being installed in his residence is
untenable. Article 415, par. 3 of the Civil Code
considers and immovable property as everything
attached to an immovable in a fixed manner, in
such a way that it cannot be separated therefrom
without breaking the material or deteriorating the
object. The pump does not fit this description. It
could be, and was, in fact,separated from Yaps
premises without being broken of suffering
deterioration. Obviously, the separation or
removal of the pump involved nothing more
complicated that the loosening of bolts or
dismantling of other fasteners.
MACHINERY & ENGINEERING SUPPLIES INC.
VS. CA
Doctrine: The special civil action of replevin is
applicable only to personal property. When the
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, it had
become an immovable property under Art.
415(3). Facts: Herein petitioner filed a complaint
for replevin in the CFI of Manila against Ipo
Limestone Co., and Dr. Antonio Villarama, for the
recovery of the machineries and equipments sold
and delivered to said defendants at their factory in
Barrio Bigti, Norzagaray, Bulacan. The respondent
judge issued an order, commanding Provincial
Sheriff of Bulacan to seize and take immediate
possession of the properties specified in the order.
Two deputy sheriffs of Bulacan, Ramon S.
Roco(president of Machinery), and a crew of
technical men and laborers proceeded to Bigti, for
the purpose of carrying the courts 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. Palad
(ex-officio Provincial Sheriff of Bulacan), protesting
against the seizure of the properties in question,
on the ground that they are not personal
properties.

Later on, they went to the factory. Rocos attention
was called to the fact that the equipments could
not possibly be dismantled without causing
damages or injuries to the wooden frames
attached to them. But Roco insisted in
dismantling the equipments 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.
The defendant Company filed an urgent motion
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 machineries to the place
where they were installed. 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 them in their
former position and replacing the destroyed posts,
which rendered their use impracticable.
The trial court ordered Roco to furnish the
Provincial Sheriff with the necessary funds,
technical men, laborers, equipments and
materials. Roco raised the issue to the CA; a writ
of preliminary injunction was issued but the CA
subsequently dismissed for lack of merit. A
motion for reconsideration was denied.

Issue: Whether or not the machineries and
equipments were personal properties and,
therefore, could be seized by replevin.

Held: No. The special civil action known as
replevin, governed by the Rules of Court, is
applicable only to personal property. When the
sheriff repaired to the premises of respondent
company, the 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
directly to meet the needs of the said industry.
For these reasons, they were already immovable
property pursuant to paragraphs 3 and 5 of
Article 415 of the Civil Code.

Mr. Ramon Roco, insisted on the dismantling of
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. It is well settled that, when
restitution of what has been ordered, the goods in
question shall be returned in substantially the
same condition as when taken. It follows that
petitioner must also do everything necessary to
the reinstallation of said property in conformity
with its original condition.

FELS ENERGY, INC VS. PROVINCE OF
BATANGAS
Doctrine: In Consolidated Edison Company of New
York, Inc., et al. v. The City of New York, et al., a
power company brought an action to review
property tax assessment. On the citys motion to
dismiss, the Supreme Court of New York held that
the barges on which were mounted gas turbine
power plants designated to generate electrical
power, the fuel oil barges which supplied fuel oil
to the power plant barges, and the accessory
equipment mounted on the barges were subject to
real property taxation.

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

Facts: On January 18, 1993, NPC entered into a
lease contract with Polar Energy, Inc. over 330
MW diesel engine power barges moored at
Balayan Bay in Calaca, Batangas. The contract,
denominated as an Energy Conversion Agreement,
was for a period of five years. Article 10 states that
NPC shall be responsible for the payment of taxes.
(other than (i) taxes imposed or calculated on the
basis of the net income of POLAR and Personal
Income Taxes of its employees and (ii)
construction permit fees, environmental permit
fees and other similar fees and charges. Polar
Energy then assigned its rights under the
Agreement to Fels despite NPCs initial opposition.
FELS received an assessment of real property
taxes on the power barges from Provincial
Assessor Lauro C. Andaya of Batangas City. FELS
referred the matter to NPC, reminding it of its
obligation under the Agreement to pay all real
estate taxes. It then gave NPC the full power and
authority to represent it in any conference
regarding the real property assessment of the
Provincial Assessor. NPC filed a petition with the
LBAA. The LBAA ordered Fels to pay the real
estate taxes. The LBAA ruled that the power plant
facilities, while they may be classified as movable
or personal property, are nevertheless considered
real property for taxation purposes because they
are installed at a specific location with a character
of permanency. The LBAA also pointed out that
the owner of the bargesFELS, a private
corporationis the one being taxed, not NPC. A
mere agreement making NPC responsible for the
payment of all real estate taxes and assessments
will not justify the exemption of FELS; such a
privilege can only be granted to NPC and cannot
be extended to FELS. Finally, the LBAA also ruled
that the petition was filed out of time.

Fels appealed to the CBAA. The CBAA reversed
and ruled that the power barges belong to NPC;
since they are actually, directly and exclusively
used by it, the power barges are covered by the
exemptions under Section 234(c) of R.A. No. 7160.
As to the other jurisdictional issue, the CBAA
ruled that prescription did not preclude the NPC
from pursuing its claim for tax exemption in
accordance with Section 206 of R.A. No. 7160.
Upon MR, the CBAA reversed itself.

Issue: Whether or not the petitioner may be
assessed of real property taxes.

Held: YES. The CBAA and LBAA power barges are
real property and are thus subject to real property
tax. This is also the inevitable conclusion,
considering that G.R. No. 165113 was dismissed
for failure to sufficiently show any reversible error.
Tax assessments by tax examiners are presumed
correct and made in good faith, with the taxpayer
having the burden of proving otherwise. Besides,
factual findings of administrative bodies, which
have acquired expertise in their field, are generally
binding and conclusive upon the Court; we will
not assume to interfere with the sensible exercise
of the judgment of men especially trained in
appraising property. Where the judicial mind is
left in doubt, it is a sound policy to leave the
assessment undisturbed. We find no reason to
depart from this rule in this case.

In Consolidated Edison Company of New York,
Inc., et al. v. The City of New York, et al., a power
company brought an action to review property tax
assessment. On the citys motion to dismiss, the
Supreme Court of New York held that the barges
on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil
barges which supplied fuel oil to the power plant
barges, and the accessory equipment mounted on
the barges were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code
provides that docks and structures which,
though floating, are intended by their nature and
object to remain at a fixed place on a river, lake,
or coast are considered immovable property.
Thus, power barges are categorized as immovable
property by destination, being in the nature of
machinery and other implements intended by the
owner for an industry or work which may be
carried on in a building or on a piece of land and
which tend directly to meet the needs of said
industry or work.

Petitioners maintain nevertheless that the power
barges are exempt from real estate tax under
Section 234 (c) of R.A. No. 7160 because they are
actually, directly and exclusively used by
petitioner NPC, a government- owned and
controlled corporation engaged in the supply,
generation, and transmission of electric power.
We affirm the findings of the LBAA and CBAA that
the owner of the taxable properties is petitioner
FELS, which in fine, is the entity being taxed by
the local government. As stipulated under Section
2.11, Article 2 of the Agreement:

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

It follows then that FELS cannot escape liability
from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160.
Indeed, the law states that the machinery must be
actually, directly and exclusively used by the
government owned or controlled corporation;
nevertheless, petitioner FELS still cannot find
solace in this provision because Section 5.5,
Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the
end of the Lease Period, subject to the supply of
the necessary Fuel pursuant to Article 6 and to
the other provisions hereof, it will operate the
Power Barges to convert such Fuel into electricity
in accordance with Part A of Article 7.

It is a basic rule that obligations arising from a
contract have the force of law between the parties.
Not being contrary to law, morals, good customs,
public order or public policy, the parties to the
contract are bound by its terms and conditions.
Time and again, the Supreme Court has stated
that taxation is the rule and exemption is the
exception. The law does not look with favor on tax
exemptions and the entity that would seek to be
thus privileged must justify it by words too plain
to be mistaken and too categorical to be
misinterpreted. Thus, applying the rule of strict
construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of
provincial corporations, we hold that FELS is
considered a taxable entity.

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

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

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