Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 106041 January 29, 1993

BENGUET CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
ZAMBALES, PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and
MUNICIPALITY OF SAN MARCELINO, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

CRUZ, J.:
The realty tax assessment involved in this case amounts to P11,319,304.00. It has been imposed on the
petitioner's tailings dam and the land thereunder over its protest.
The controversy arose in 1985 when the Provincial Assessor of Zambales assessed the said properties
as taxable improvements. The assessment was appealed to the Board of Assessment Appeals of the
Province of Zambales. On August 24, 1988, the appeal was dismissed mainly on the ground of the
petitioner's "failure to pay the realty taxes that fell due during the pendency of the appeal."
The petitioner seasonably elevated the matter to the Central Board of Assessment Appeals, 1 one of the
herein respondents. In its decision dated March 22, 1990, the Board reversed the dismissal of the appeal but, on
the merits, agreed that "the tailings dam and the lands submerged thereunder (were) subject to realty tax."

For purposes of taxation the dam is considered as real property as it comes within the
object mentioned in paragraphs (a) and (b) of Article 415 of the New Civil Code. It is a
construction adhered to the soil which cannot be separated or detached without breaking
the material or causing destruction on the land upon which it is attached. The immovable
nature of the dam as an improvement determines its character as real property, hence
taxable under Section 38 of the Real Property Tax Code. (P.D. 464).
Although the dam is partly used as an anti-pollution device, this Board cannot accede to
the request for tax exemption in the absence of a law authorizing the same.
xxx xxx xxx
We find the appraisal on the land submerged as a result of the construction of the tailings
dam,
covered
by
Tax
Declaration
Nos.
002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for

Zambales which was reviewed and allowed for use by the Ministry (Department) of
Finance in the 1981-1982 general revision. No serious attempt was made by PetitionerAppellant Benguet Corporation to impugn its reasonableness, i.e., that the P50.00 per
square meter applied by Respondent-Appellee Provincial Assessor is indeed excessive
and unconscionable. Hence, we find no cause to disturb the market value applied by
Respondent Appellee Provincial Assessor of Zambales on the properties of PetitionerAppellant Benguet Corporation covered by Tax Declaration Nos. 002-0260 and 0020266.
This petition for certiorari now seeks to reverse the above ruling.
The principal contention of the petitioner is that the tailings dam is not subject to realty tax because it is
not an "improvement" upon the land within the meaning of the Real Property Tax Code. More
particularly, it is claimed
(1) as regards the tailings dam as an "improvement":
(a) that the tailings dam has no value separate from and independent of
the mine; hence, by itself it cannot be considered an improvement
separately assessable;
(b) that it is an integral part of the mine;
(c) that at the end of the mining operation of the petitioner corporation in
the area, the tailings dam will benefit the local community by serving as
an irrigation facility;
(d) that the building of the dam has stripped the property of any
commercial value as the property is submerged under water wastes from
the mine;
(e) that the tailings dam is an environmental pollution control device for
which petitioner must be commended rather than penalized with a realty
tax assessment;
(f) that the installation and utilization of the tailings dam as a pollution
control device is a requirement imposed by law;
(2) as regards the valuation of the tailings dam and the submerged lands:
(a) that the subject properties have no market value as they cannot be sold
independently of the mine;
(b) that the valuation of the tailings dam should be based on its incidental
use by petitioner as a water reservoir and not on the alleged cost of
construction of the dam and the annual build-up expense;
(c) that the "residual value formula" used by the Provincial Assessor and

adopted by respondent CBAA is arbitrary and erroneous; and

(3)
as
regards
the
petitioner's
liability
for
penalties
for
non-declaration of the tailings dam and the submerged lands for realty tax purposes:
(a) that where a tax is not paid in an honest belief that it is not due, no
penalty shall be collected in addition to the basic tax;
(b) that no other mining companies in the Philippines operating a tailings
dam have been made to declare the dam for realty tax purposes.
The petitioner does not dispute that the tailings dam may be considered realty within the meaning of
Article 415. It insists, however, that the dam cannot be subjected to realty tax as a separate and
independent property because it does not constitute an "assessable improvement" on the mine although
a considerable sum may have been spent in constructing and maintaining it.
To support its theory, the petitioner cites the following cases:
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court considered the dikes and gates
constructed by the taxpayer in connection with a fishpond operation as integral parts of the fishpond.
2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil. 303), involving a road
constructed by the timber concessionaire in the area, where this Court did not impose a realty tax on the
road primarily for two reasons:
In the first place, it cannot be disputed that the ownership of the road that was
constructed by appellee belongs to the government by right of accession not only
because it is inherently incorporated or attached to the timber land . . . but also because
upon the expiration of the concession said road would ultimately pass to the national
government. . . . In the second place, while the road was constructed by appellee
primarily for its use and benefit, the privilege is not exclusive, for . . . appellee cannot
prevent the use of portions of the concession for homesteading purposes. It is also duty
bound to allow the free use of forest products within the concession for the personal use
of individuals residing in or within the vicinity of the land. . . . In other words, the
government has practically reserved the rights to use the road to promote its varied
activities. Since, as above shown, the road in question cannot be considered as an
improvement which belongs to appellee, although in part is for its benefit, it is clear that
the same cannot be the subject of assessment within the meaning of Section 2 of C.A.
No. 470.
Apparently, the realty tax was not imposed not because the road was an integral part of the lumber
concession but because the government had the right to use the road to promote its varied activities.
3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American case, where it was declared
that the reservoir dam went with and formed part of the reservoir and that the dam would be "worthless
and useless except in connection with the outlet canal, and the water rights in the reservoir represent

and include whatever utility or value there is in the dam and headgates."
4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States. This case
involved drain tunnels constructed by plaintiff when it expanded its mining operations downward,
resulting in a constantly increasing flow of water in the said mine. It was held that:
Whatever value they have is connected with and in fact is an integral part of the mine
itself. Just as much so as any shaft which descends into the earth or an underground
incline, tunnel, or drift would be which was used in connection with the mine.
On the other hand, the Solicitor General argues that the dam is an assessable improvement because it
enhances the value and utility of the mine. The primary function of the dam is to receive, retain and
hold the water coming from the operations of the mine, and it also enables the petitioner to impound
water, which is then recycled for use in the plant.
There is also ample jurisprudence to support this view, thus:
. . . The said equipment and machinery, as appurtenances to the gas station building or
shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are
necessary to the operation of the gas station, for without them the gas station would be
useless and which have been attached or affixed permanently to the gas station site or
embedded therein, are taxable improvements and machinery within the meaning of the
Assessment Law and the Real Property Tax Code. (Caltex [Phil.] Inc. v. CBAA, 114
SCRA 296).
We hold that while the two storage tanks are not embedded in the land, they may,
nevertheless, be considered as improvements on the land, enhancing its utility and
rendering it useful to the oil industry. It is undeniable that the two tanks have been
installed with some degree of permanence as receptacles for the considerable quantities
of oil needed by MERALCO for its operations. (Manila Electric Co. v. CBAA, 114
SCRA 273).
The pipeline system in question is indubitably a construction adhering to the soil. It is
attached to the land in such a way that it cannot be separated therefrom without
dismantling the steel pipes which were welded to form the pipeline. (MERALCO
Securities Industrial Corp. v. CBAA, 114 SCRA 261).
The tax upon the dam was properly assessed to the plaintiff as a tax upon real estate.
(Flax-Pond Water Co. v. City of Lynn, 16 N.E. 742).
The oil tanks are structures within the statute, that they are designed and used by the
owner as permanent improvement of the free hold, and that for such reasons they were
properly assessed by the respondent taxing district as improvements. (Standard Oil Co.
of New Jersey v. Atlantic City, 15 A 2d. 271)
The Real Property Tax Code does not carry a definition of "real property" and simply says that the

realty tax is imposed on "real property, such as lands, buildings, machinery and other improvements
affixed or attached to real property." In the absence of such a definition, we apply Article 415 of the
Civil Code, the pertinent portions of which state:
Art. 415. The following are immovable property.
(1) Lands, buildings and constructions of all kinds adhered to the soil;
xxx xxx xxx
(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.
Section 2 of C.A. No. 470, otherwise known as the Assessment Law, provides that the realty tax is due
"on the real property, including land, buildings, machinery and other improvements" not specifically
exempted in Section 3 thereof. A reading of that section shows that the tailings dam of the petitioner
does not fall under any of the classes of exempt real properties therein enumerated.
Is the tailings dam an improvement on the mine? Section 3(k) of the Real Property Tax Code defines
improvement as follows:
(k) Improvements is a valuable addition made to property or an amelioration in its
condition, amounting to more than mere repairs or replacement of waste, costing labor
or capital and intended to enhance its value, beauty or utility or to adopt it for new or
further purposes.
The term has also been interpreted as "artificial alterations of the physical condition of the ground that
are reasonably permanent in character." 2
The Court notes that in the Ontario case the plaintiff admitted that the mine involved therein could not
be operated without the aid of the drain tunnels, which were indispensable to the successful
development and extraction of the minerals therein. This is not true in the present case.
Even without the tailings dam, the petitioner's mining operation can still be carried out because the
primary function of the dam is merely to receive and retain the wastes and water coming from the
mine. There is no allegation that the water coming from the dam is the sole source of water for the
mining operation so as to make the dam an integral part of the mine. In fact, as a result of the
construction of the dam, the petitioner can now impound and recycle water without having to spend for
the building of a water reservoir. And as the petitioner itself points out, even if the petitioner's mine is
shut down or ceases operation, the dam may still be used for irrigation of the surrounding areas, again
unlike in the Ontario case.
As correctly observed by the CBAA, the Kendrick case is also not applicable because it involved water
reservoir dams used for different purposes and for the benefit of the surrounding areas. By contrast, the
tailings dam in question is being used exclusively for the benefit of the petitioner.
Curiously, the petitioner, while vigorously arguing that the tailings dam has no separate existence, just

as vigorously contends that at the end of the mining operation the tailings dam will serve the local
community as an irrigation facility, thereby implying that it can exist independently of the mine.
From the definitions and the cases cited above, it would appear that whether a structure constitutes an
improvement so as to partake of the status of realty would depend upon the degree of permanence
intended in its construction and use. The expression "permanent" as applied to an improvement does
not imply that the improvement must be used perpetually but only until the purpose to which the
principal realty is devoted has been accomplished. It is sufficient that the improvement is intended to
remain as long as the land to which it is annexed is still used for the said purpose.
The Court is convinced that the subject dam falls within the definition of an "improvement" because it
is permanent in character and it enhances both the value and utility of petitioner's mine. Moreover, the
immovable nature of the dam defines its character as real property under Article 415 of the Civil Code
and thus makes it taxable under Section 38 of the Real Property Tax Code.
The Court will also reject the contention that the appraisal at P50.00 per square meter made by the
Provincial Assessor is excessive and that his use of the "residual value formula" is arbitrary and
erroneous.
Respondent Provincial Assessor explained the use of the "residual value formula" as follows:
A 50% residual value is applied in the computation because, while it is true that when
slime fills the dike, it will then be covered by another dike or stage, the stage covered is
still there and still exists and since only one face of the dike is filled, 50% or the other
face is unutilized.
In sustaining this formula, the CBAA gave the following justification:
We find the appraisal on the land submerged as a result of the construction of the tailings
dam,
covered
by
Tax
Declaration
Nos.
002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for San
Marcelino, Zambales, which is fifty (50.00) pesos per square meter for third class
industrial land (TSN, page 17, July 5, 1989) and Schedule of Market Values for
Zambales which was reviewed and allowed for use by the Ministry (Department) of
Finance in the 1981-1982 general revision. No serious attempt was made by PetitionerAppellant Benguet Corporation to impugn its reasonableness, i.e, that the P50.00 per
square meter applied by Respondent-Appellee Provincial Assessor is indeed excessive
and unconscionable. Hence, we find no cause to disturb the market value applied by
Respondent-Appellee Provincial Assessor of Zambales on the properties of PetitionerAppellant Benguet Corporation covered by Tax Declaration Nos. 002-0260 and 0020266.
It has been the long-standing policy of this Court to respect the conclusions of quasi-judicial agencies
like the CBAA, which, because of the nature of its functions and its frequent exercise thereof, has
developed expertise in the resolution of assessment problems. The only exception to this rule is where

it is clearly shown that the administrative body has committed grave abuse of discretion calling for the
intervention of this Court in the exercise of its own powers of review. There is no such showing in the
case at bar.
We disagree, however, with the ruling of respondent CBAA that it cannot take cognizance of the issue
of the propriety of the penalties imposed upon it, which was raised by the petitioner for the first time
only on appeal. The CBAA held that this "is an entirely new matter that petitioner can take up with the
Provincial Assessor (and) can be the subject of another protest before the Local Board or a negotiation
with the local sanggunian . . ., and in case of an adverse decision by either the Local Board or the local
sanggunian, (it can) elevate the same to this Board for appropriate action."
There is no need for this time-wasting procedure. The Court may resolve the issue in this petition
instead of referring it back to the local authorities. We have studied the facts and circumstances of this
case as above discussed and find that the petitioner has acted in good faith in questioning the
assessment on the tailings dam and the land submerged thereunder. It is clear that it has not done so for
the purpose of evading or delaying the payment of the questioned tax. Hence, we hold that the
petitioner
is
not
subject
to
penalty
for
its
non-declaration of the tailings dam and the submerged lands for realty tax purposes.
WHEREFORE, the petition is DISMISSED for failure to show that the questioned decision of
respondent Central Board of Assessment Appeals is tainted with grave abuse of discretion except as to
the imposition of penalties upon the petitioner which is hereby SET ASIDE. Costs against the
petitioner. It is so ordered.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY,
respondents.

AQUINO, J.:
This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in
its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated tank, elevated water tanks, water

tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air
compressors and tireflators. The city assessor described the said equipment and machinery in this
manner:
A gasoline service station is a piece of lot where a building or shed is erected, a water
tank if there is any is placed in one corner of the lot, car hoists are placed in an adjacent
shed, an air compressor is attached in the wall of the shed or at the concrete wall fence.
The controversial underground tank, depository of gasoline or crude oil, is dug deep
about six feet more or less, a few meters away from the shed. This is done to prevent
conflagration because gasoline and other combustible oil are very inflammable.
This underground tank is connected with a steel pipe to the gasoline pump and the
gasoline pump is commonly placed or constructed under the shed. The footing of the
pump is a cement pad and this cement pad is imbedded in the pavement under the shed,
and evidence that the gasoline underground tank is attached and connected to the shed or
building through the pipe to the pump and the pump is attached and affixed to the
cement pad and pavement covered by the roof of the building or shed.
The building or shed, the elevated water tank, the car hoist under a separate shed, the air
compressor, the underground gasoline tank, neon lights signboard, concrete fence and
pavement and the lot where they are all placed or erected, all of them used in the
pursuance of the gasoline service station business formed the entire gasoline servicestation.
As to whether the subject properties are attached and affixed to the tenement, it is clear
they are, for the tenement we consider in this particular case are (is) the pavement
covering the entire lot which was constructed by the owner of the gasoline station and
the improvement which holds all the properties under question, they are attached and
affixed to the pavement and to the improvement.
The pavement covering the entire lot of the gasoline service station, as well as all the
improvements, machines, equipments and apparatus are allowed by Caltex (Philippines)
Inc. ...
The underground gasoline tank is attached to the shed by the steel pipe to the pump, so
with the water tank it is connected also by a steel pipe to the pavement, then to the
electric motor which electric motor is placed under the shed. So to say that the gasoline
pumps, water pumps and underground tanks are outside of the service station, and to
consider only the building as the service station is grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station operators under an appropriate
lease agreement or receipt. It is stipulated in the lease contract that the operators, upon demand, shall
return to Caltex the machines and equipment in good condition as when received, ordinary wear and
tear excepted.

The lessor of the land, where the gas station is located, does not become the owner of the machines and
equipment installed therein. Caltex retains the ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said items of gas station equipment and machinery as
taxable realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city
board of tax appeals ruled that they are personalty. The assessor appealed to the Central Board of
Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting Secretary of
Justice Catalino Macaraig, Jr. and Secretary of Local Government and Community Development Jose
Roo, held in its decision of June 3, 1977 that the said machines and equipment are real property within
the meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code, Presidential Decree No. 464,
which took effect on June 1, 1974, and that the definitions of real property and personal property in
articles 415 and 416 of the Civil Code are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its
resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the
Board's decision and for a declaration that t he said machines and equipment are personal property not
subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction
over this case is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was as
yet no Central Board of Assessment Appeals. Section 7(3) of that law in providing that the Tax Court
had jurisdiction to review by appeal decisions of provincial or city boards of assessment appeals had in
mind the local boards of assessment appeals but not the Central Board of Assessment Appeals which
under the Real Property Tax Code has appellate jurisdiction over decisions of the said local boards of
assessment appeals and is, therefore, in the same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of fifteen days from the receipt of
its decision by the appellant. Within that fifteen-day period, a petition for reconsideration may be filed.
The Code does not provide for the review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a review by this Court of the decision of the
Central Board of Assessment Appeals is the special civil action of certiorari, the recourse resorted to
herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and machinery already enumerated are subject
to realty tax. This issue has to be resolved primarily under the provisions of the Assessment Law and
the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land,
buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This

provision is reproduced with some modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and collected
in all provinces, cities and municipalities an annual ad valorem tax on real property, such
as land, buildings, machinery and other improvements affixed or attached to real
property not hereinafter specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition made to property or an amelioration in its
condition, amounting to more than mere repairs or replacement of waste, costing labor
or capital and intended to enhance its value, beauty or utility or to adapt it for new or
further purposes.
m) Machinery shall embrace machines, mechanical contrivances, instruments,
appliances and apparatus attached to the real estate. It includes the physical facilities
available for production, as well as the installations and appurtenant service facilities,
together with all other equipment designed for or essential to its manufacturing,
industrial or agricultural purposes (See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as appurtenances to the gas station building or shed
owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas station would be useless, and which have been
attached or affixed permanently to the gas station site or embedded therein, are taxable improvements
and machinery within the meaning of the Assessment Law and the Real Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of the
owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery that
becomes real property by destination. In the Davao Saw Mills case the question was whether the
machinery mounted on foundations of cement and installed by the lessee on leased land should be
regarded as real property for purposes of execution of a judgment against the lessee. The sheriff treated
the machinery as personal property. This Court sustained the sheriff's action. (Compare with Machinery
& Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case machinery was
treated as realty).
Here, the question is whether the gas station equipment and machinery permanently affixed by Caltex
to its gas station and pavement (which are indubitably taxable realty) should be subject to the realty tax.
This question is different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some purposes they might be
considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might be considered

personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co., 119
Phil. 328, where Meralco's steel towers were considered poles within the meaning of paragraph 9 of its
franchise which exempts its poles from taxation. The steel towers were considered personalty because
they were attached to square metal frames by means of bolts and could be moved from place to place
when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the repair
shop of a bus company which were held to be personal property not subject to realty tax (Mindanao
Bus Co. vs. City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding the
city assessor's is imposition of the realty tax on Caltex's gas station and equipment.
WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals are
affirmed. The petition for certiorari is dismissed for lack of merit. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
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.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.

LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710
holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-mentioned
equipment. Petitioner appealed the assessment to the respondent Board of Tax Appeals on the ground
that the same are not realty. The Board of Tax Appeals of the City sustained the city assessor, so

petitioner herein filed with the Court of Tax Appeals a petition for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
Petitioner and respondents, thru their respective counsels agreed to the following stipulation of
facts:
1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by
motor trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by
the Public Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch
Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and
Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real properties are the
following:
(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked
Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the attached photograph,
marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex
"G".
4. That these machineries are sitting on cement or wooden platforms as may be seen in the
attached photographs which form part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and operates a garage for its TPU
motor trucks; a repair shop; blacksmith and carpentry shops, and with these machineries which
are placed therein, its TPU trucks are made; body constructed; and same are repaired in a
condition to be serviceable in the TPU land transportation business it operates;
6. That these machineries have never been or were never used as industrial equipments to
produce finished products for sale, nor to repair machineries, parts and the like offered to the
general public indiscriminately for business or commercial purposes for which petitioner has
never engaged in, to date.1awphl.nt
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 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.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 90639 February 21, 1990
TESTATE ESTATE OF CONCORDIA T. LIM, plaintiff-appellant,
vs.
CITY OF MANILA, JESUS I. CALLEJA, in his capacity as City Treasurer of Manila, NICOLAS
CATIIL, in his capacity as City Assessor of Manila, and/or GOVERNMENT SERVICE
INSURANCE SYSTEM, defendants-appellees.
Melquiades P. De Leon for plaintiff-appellant.

GUTIERREZ, JR., J.:

This is an appeal from the decision of the Regional Trial Court of Manila, Branch 29 dismissing a
complaint for a "sum of money and/or recovery of real estate taxes paid under protest" which was
certified and elevated to this Court by the Court of Appeals as a case involving pure questions of law.
On February 13, 1969, the late Concordia Lim obtained a real estate loan from the defendant-appellee
Government Service Insurance System (GSIS) in the amount of P875,488.54, secured by a mortgage
constituted on two (2) parcels of land formerly covered by Transfer Certificates of Title Nos. 64075 and
63076 (later changed to TCT Nos. 125718 and 125719) registered in Manila with a three-story building
thereon and located on No. 810 Nicanor Reyes St. (formerly Morayta), Sampaloc, Manila. When Lim
failed to pay the loan, the mortgage was extrajudicially foreclosed and the subject properties sold at
public auction. The GSIS, being the highest bidder, bought the properties. Upon Lim's failure to
exercise her right of redemption, the titles to the properties were consolidated in favor of the GSIS in
1977.
However, pursuant to Resolution No. 188 of the Board of Trustees of the GSIS dated March 29, 1979,
the estate of Lim, through Ernestina Crisologo Jose (the administratrix) was allowed to repurchase the
foreclosed properties. On April 11, 1979, a Deed of Absolute Sale was executed. (Exhibit B, Table of
Exhibits, pp. 3-5)
The defendant City Treasurer of Manila required the plaintiff-appellant to pay the real estate taxes due
on the properties for the years 1977, 1978 and the first quarter of 1979 in the amount of P67,960.39,

before the titles could be transferred to the plaintiff-appellant. The latter paid the amount under protest.
On July 11, 1979, the plaintiff-appellants counsel sent a demand letter requesting the GSIS to
reimburse the taxes paid under protest. The GSIS refused.
On September 6, 1979, a demand letter was sent to the City Treasurer of Manila to refund the amount
but the latter also refused.
On March 14, 1980, the plaintiff filed an action before the trial court for a sum of money for the refund
or reimbursement of the real estate taxes paid under protest.
During the pendency of the case, the plaintiff-appellant admitted that the foreclosed properties had been
sold, through the administratrix, to another person. (2nd par. of Plaintiffs Manifestation dated
December 21, 1981, Records, p. 105; TSN, March 4, 1982, p. 37)
After trial, the lower court dismissed the complaint for lack of jurisdiction. It ruled that the case
involves a protested action of the City Assessor which should have been flied before the Local Board of
Assessment Appeals of Manila (citing Section 30 of the Real Property Tax Code [P.D. No. 464]) in line
with the principle that all administrative remedies must first be exhausted. The lower court also cited by
way of obiter dictum, the case of City of Baguio v. Busuego, 100 SCRA 116 (1980) wherein this Court
ruled that while the GSIS may be exempt from the payment of real estate tax, the exemption does not
cover properties the beneficial use of which was granted to other taxable persons. This ruling supports
the lower court's view that the tax had attached to the subject properties for the years 1977, 1978 and
first quarter of 1979. The lower court further stated that the plaintiff-appellant had assumed liability for
the real estate taxes because of the provision in the Deed of Sale with the GSIS that: "any and all the
taxes, ... relative to the execution and/or implementation of this Deed, ... shall be for the account of and
paid by the VENDEE" (Exhibit B, Table of Exhibits, p. 5)
Hence, this appeal raising several issues that can be summed up into the following: (1) whether or not
the trial court has jurisdiction over the action for refund of real estate taxes paid under protest; (2)
whether or not plaintiff-appellant has the right to recover; and (3) whether or not the plaintiff-appellant
has personality to sue.
The plaintiff-appellant argues that the lower court has jurisdiction over a complaint for refund as well
as for reimbursement of the real estate taxes erroneously collected by the City of Manila from it and
paid under protest.
The records show that the subject properties were leased to other persons during the time when GSIS
held their titles, as was the case during the ownership of the late Concordia Lim.
However, the real estate taxes later assessed on the said properties for the years 1977, 1978 and the first
quarter of 1979 were charged against the plaintiff-appellant even if the latter was not the beneficial user
of the parcels of land.
In real estate taxation, the unpaid tax attaches to the property and is chargeable against the taxable
person who had actual or beneficial use and possession of it regardless of whether or not he is the

owner. (Sections 3(a) and 19 of P.D. No. 464; Province of Nueva Ecija v. Imperial Mining Co., Inc.,
118 SCRA 632 [1982]). Raising doubts on the validity of the imposition and collection of the real
property tax for the designated periods before the title to the properties may be transferred, the
plaintiff-appellant paid under protest. This step was taken in accordance with the provision of Section
62 of P.D. No. 464, which states:
Sec. 62. Payment under protest. (a) When a taxpayer desires for any reason to pay his
tax under protest, he shall indicate the amount or portion thereof he is contesting and
such protest shall be annotated on the tax receipts by writing thereon the words paid
under protest.' Verbal protest shall be confirmed in writing, with a statement of the
ground, therefor, within thirty days. The tax may be paid under protest, and in such case
it shall be the duty of the Provincial, City or Municipal Treasurers to annotate the ground
or grounds therefor on the receipt.
(b) In case of payments made under protest, the amount or portion of the tax contested
shall be held in trust by the treasurer and the difference shall be treated as revenue.
(c) In the event that the protest is finally decided in favor of the government, the amount
or portion of the tax held in trust by the treasurer shall accrue to the revenue account, but
if the protest shall be decided finally in favor of the protestant, the amount or portion of
the tax protested against may either be refunded to the protestant or applied as tax
credit to any other existing or future tax liability of the said protestant. (Emphasis
Supplied)
The Court rules that the plaintiff-appellant correctly filed the action for refund/reimbursement with the
lower court as it is the courts which have jurisdiction to try cases involving the right to recover sums of
money.
Section 30 of the Real Property Tax Code is not applicable because what is questioned is the imposition
of the tax assessed and who should shoulder the burden of the tax. There is no dispute over the amount
assessed on the properties for tax purposes. Section 30 pertains to the administrative act of listing and
valuation of the property for purposes of real estate taxation. It provides:
Section 30. Local Board of Assessment Appeals Any owner who is not satisfied with
the action of the provincial or city assessor in the assessment of his property may, within
sixty days from the date of receipt by him of the written notice of assessment as
provided in this Code, appeal to the Board of Assessment Appeals of the province or city
by filing with it a petition under oath using the form prescribed for the purpose, together
with copies of the tax declarations and such affidavit or documents submitted in support
of the appeal.
In further support of the conclusion that the lower court has jurisdiction to try the instant case, we note
Section 64 of the Real Property Tax Code which provides that a "court shall entertain a suit assailing
the validity of a tax assessed" after the taxpayer shall have paid under protest.

The issue on the existence or non-existence of the appellant's right to recover the amounts paid hinges
on the basic question of the validity of the tax imposition. If the imposition is valid and in accordance
with law, then there is no right to recover. Otherwise, the amounts paid must be refunded by the
respondent City Treasurer of Manila acting in his official capacity. (Sec. 62 [c], PD 464)
The opinion of the lower court that the ruling in City of Baguio v. Busuego, supra justifies the
imposition of the tax on plaintiff-appellant is erroneous. The facts in that case are different from those
in the case at bar. It was shown that Busuego purchased, by way of installment, a parcel of land and
building within a housing project of the GSIS. In a Contract to Sell with the GSIS, he agreed to: (1) the
delivery of the possession of the properties to him pending the full payment of the price although the
title remained with the GSIS; and (2) his liability to pay and shoulder all taxes and assessments on the
lot and building or improvements thereon during the term of the contract to sell.
Despite the tax exemption enjoyed by the GSIS, the realty tax liability imposed on the purchaser was
held to be valid on the basis of the contractual obligation that he entered into and the fact that beneficial
use had been given to him.
The instant case does not present a similar contractual stipulation. The contract here which is alleged to
include the condition that the buyer shall shoulder the taxes is a Contract of Sale. In the Busuego case,
there was merely a Contract to Sell for the duration of which the party who shall be liable for the taxes
about to be due is the buyer as per agreement. In the case at bar, what was assumed by the vendee was
the liability for taxes and other expenses "relative to the execution and/or implementation" of the Deed
of Absolute Sale "including among others, documentation, documentary and science stamps, expenses
for registration and transfer of titles ... " This clause was stipulated for the purpose of clarifying which
of the parties should bear the costs of execution and implementation of the sale and to comply with
Article 1487 of the Civil Code which states:
ART. 1487 The expenses for the execution and registration of the sale shall be borne
by the vendor, unless there is a stipulation to the contrary.
Moreover, the taxes mentioned in the clause here refer to those necessary to the completion of the sale
and accruing after the making of such sale on April 11, 1990 such as documentary stamp tax and capital
gains tax.
In the Busuego case, the assumption by the vendee of the liability for real estate taxes prospectively due
was in harmony with the tax policy that the user of the property bears the tax. In the instant case, the
interpretation that the plaintiff-appellant assumed a liability for overdue real estate taxes for the periods
prior to the contract of sale is incongruent with the said policy because there was no immediate transfer
of possession of the properties previous to full payment of the repurchase price.
The facts of the case constrain us to rule that the plaintiff-appellant is not liable to pay the real property
tax due for the years 1977, 1978 and first quarter of 1979. The clause in the Deed of Sale cannot be
interpreted to include taxes for the periods prior to April 11, 1979, the date of repurchase.
To impose the real property tax on the estate which was neither the owner nor the beneficial user of the

property during the designated periods would not only be contrary to law but also unjust. If plaintiffappellant intended to assume the liability for realty taxes for the prior periods, the contract should have
specifically stated "real estate taxes" due for the years 1977,1978 and first quarter of 1979. The
payments made by the plaintiff-appellant cannot be construed to be an admission of a tax liability since
they were paid under protest and were done only in compliance with one of the requirements for the
consummation of the sale as directed by the City Treasurer of Manila.
Hence, the tax assessed and collected from the plaintiff-appellants is not valid and a refund by the City
government is in order.
The Court rules, however, that the plaintiff-appellant is not entitled to a reimbursement from the
respondent GSIS because: (1) the GSIS is exempt from payment of the real property tax under Sec. 33
of the Revised Charter of the GSIS; and (2) the tax should be based on "actual use" of the property.
Section 40 of the Real Property Tax Code supports the view that not even the GSIS is liable to pay real
property tax on public land leased to other persons. Section 40 provides:
Sec. 40. Exemption from Real Property Tax. The exemption shall be as follows:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government owned corporation so exempt by its charter: Provided,
however, That this exemption shall not apply to real property of the abovenamed entities
the beneficial use of which has been granted, for consideration or otherwise, to a taxable
person.
In fact, if there is anyone liable the law and applicable jurisprudence point to the lessees of land owned
by the government-owned and controlled corporations. (Province of Nueva Ecija v. Imperial Mining
Co., Inc., supra) In this case, the Court can only declare the non-liability of a right to a refund. We
cannot rule on the liability of the lessees whose Identities are not even clear because they were never
impleaded.
The contention of the plaintiff-appellant that the respondent GSIS is liable to reimburse the tax because
the latter allegedly failed to exercise its claim to the tax exemption privilege is without merit. The
exemption is explicitly granted by law and need not be applied for.
Regarding the issue on the existence of the personality to sue, the plaintiff-appellant asserts that since it
was the one which paid under protest the amount of P67,960.39 as real property tax, then it is the real
party in interest to sue for refund.
The lower court, noting the transfer of the title to the properties to a third person, ruled that assuming
arguendo that there is a right to seek recovery, the subsequent sale "must have included the tax" and "as
such all the credits including the taxes that were paid was (sic) transfered already to the buyer." It ruled
that plaintiff-appellant had no personality to sue and the right of action must be between the subsequent
buyer and the plaintiff-appellant. The Court finds that the above ruling and the facts on which it is
based are not sufficiently supported by the records of the case. The evidence merely shows an
admission of a subsequent sale of the properties by the plaintiff-appellant, nothing more.

WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby REVERSED
and SET ASIDE. The defendants appellees City of Manila, the City Treasurer and City Assessor of
Manila are hereby ordered to refund to the TESTATE ESTATE OF CONCORDIA LIM, through
administratrix ERNESTINA CRISOLOGO-JOSE, the amount of P67,960.39 as real estate taxes paid
under protest.
SO ORDERED.

EN BANC
[G.R. No. L-24769. February 25, 1967.]
VICTORIAS MILLING CO. INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE,
ET AL., Respondents.
[G.R. No. L-24779 February 25, 1967.]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. VICTORIAS MILLING
COMPANY, ET AL., Respondents.
L-24779.
Carlos B. Hilado for Petitioner.
Solicitor General for Respondents.
L-24769.
Solicitor General for Petitioner.
Carlos B. Hilado for Respondents.
SYLLABUS
1. CONSTITUTIONAL LAW; TAXATION; INTERNAL REVENUE CODE; Secs. 183(b) and 190;
ADVANCE SALES TAX. Where sugar bags and materials were imported by a sugar milling
company and subsequently used and disposed of by it as containers for the sugar sold, the same are not
subject to advance sales tax, since Sec. 183(b) of the Internal Revenue Code exempts expressly from
sales tax those "articles subject to tax under Sec. 189 of this Code." The payment by the milling
company of the 2% tax imposed by section 189 on the gross value in money of all-sugar manufactured
or milled by it, based on the market value or actual selling price of the article at the time it leaves the
factory or mill warehouse, necessarily results in the exclusion from sales tax of the value of the bags in
which the sugar is contained, there being no evidence that the price of the bags was not included, or
that they are sold or charged separately from the sugar contained therein at the time of sale.

Alternatively, if the price or market value of the sugar upon which the tax was paid by the sugar
company did not include that of the bags, then the bags were not sold by it and, therefore, there was no
sale of bags to be taxed, since no evidence exists on record that the sugar company received a separate
consideration for such bags. The ruling in Victorias Milling Co. v. Commissioner of Internal Revenue,
L-21171, January 31, 1967 where the issues tendered are identical to the case at bar is reiterated.
2. ID.; ID.; TAX REFUND WITHOUT INTEREST; ARBITRARINESS DEFINED. Where sales
tax had been collected by the revenue authorities but subsequently the Commissioner of Internal
Revenue ruled that the importation was exempt from such sales tax, the refund thereof should not bear
interest, inasmuch as the mere fact of the reversal of a ruling previously rendered is not per se evidence
of arbitrariness; neither is the fact that the administrative ruling is found by the courts not to be in
accordance with law. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions
which, in this case, we do not think exists, the Commissioners holding being, to some extent plausible
on the strict letter of the law.
DECISION
REYES, J.B.L., J.:
From the decision of the Court of Tax Appeals in CTA Case No. 1106 (Victorias Milling Co. v.
Commissioner of Internal Revenue), declaring that sugar bags and materials imported by the Victorias
Milling Co. from September 7, 1959 to August 26, 1960, and subsequently used and disposed of by it
as containers for the sugar sold, were not subject to advance sales tax and ordering the Commissioner
of Internal Revenue to refund the sum of P158, 269.61, without interest, both parties have appealed to
this Court. The issues tendered are identical to those posed in Case G.R. No. L-21171, Victorias Milling
Co.
v.
Commissioner
of
Internal
Revenue,
decided
on
January
31,
1967.
The appeal of the Revenue Commissioner (G.R. No. 24779) assails the decision of the Tax Court in
rejecting his contention that the sugar bags and containers were imported for sale and, as such, were
subject to the payment of advance sales tax under sections 183 (b) and 190 of the Internal Revenue
Code. This contention was already overruled by this Court in the aforementioned case (G.R. No. L21171) where we held that, since section 188 (d) of the Revenue Code exempts expressly from sales
tax those "articles subject to tax under section 189 of this Code", the payment by the milling company
of the 2% tax imposed by Section 189, on the gross value in money of all sugar manufactured or milled
by it, based on the market value or actual selling price of the article at the time it leaves the factory or
mill warehouse, necessarily results in the exclusion from sales tax of the value of the bags in which the
sugar is contained, there being no evidence that the price of the bags was not included, or that it is
charged or sold separately from that of the sugar contained therein at the time of the sale. And we
reasoned out that, alternatively, if the price or market value of the sugar upon which the tax was paid by
the sugar company did not include that of the bags, then the bags were not sold by it and, therefore,
there was no sale of bags to be taxed, since no evidence exists on record that the sugar company
received
a
separate
consideration
for
such
bags.
The argument of the Commissioner that the exemption of the price of sugar under section 189 of the
Revenue Code can not include that of the bags or containers, because said section mentions only the
former, but not the latter, does not take into account that there is no proof that the sugar company

deducted the value of the bags or containers in reporting the market value or price of the sugar it sold,
for
purposes
of
the
tax
under
section
189.
Upon the other hand, the Milling Company appealed from the Tax Courts decision in Case G.R. No. L24769, contending that the refund of the protested sales tax collected by the revenue authorities should
have been ordered with payment of interest thereon, for the reason that in ruling that the bags and
materials imported by said company the Commissioner of Internal Revenue was guilty of arbitrariness,
since he had previously ruled that such importations were exempt from sales tax. As we have
concluded in the preceding case G.R. No. L-21171, the mere fact of the reversal of a ruling previously
rendered is not per se evidence of arbitrariness; neither is the fact that the administrative ruling is found
by the courts not in accordance with law. Arbitrariness presupposes inexcusable or obstinate disregard
of legal provisions, which, in this case, we do not think exists, the Commissioners holding being, to
some
extent,
plausible
on
the
strict
letter
of
the
law.
Wherefore, the decision of the Court of Tax Appeals, in its CTA Case No. 1106, is affirmed. No costs.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-53820

June 15, 1992

YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner,

vs.
HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION,
represented by its President-Chairman, CONSTANCIO B. MALAGNA, respondents.

In 1973, Constancio Maglana, president of Prime White Cement Corporation, sent an offer letter to Yao
Ka Sin Trading. The offer states that Prime White is willing to sell 45,000 bags of cement at P24.30 per
bag. The offer letter was received by Yao Ka Sins manager, Henry Yao. Yao accepted the letter and
pursuant to the letter, he sent a check in the amount of P243,000.00 equivalent to the value of 10,000
bags of cement. However, the Board of Directors of Prime White rejected the offer letter sent by
Maglana but it considered Yaos acceptance letter as a new contract offer hence the Board sent a letter
to Yao telling him that Prime White is instead willing to sell only 10,000 bags to Yao Ka Sin and that he
has ten days to reply; that if no reply is made by Yao then they will consider it as an acceptance and
that thereafter Prime White shall deposit the P243k check in its account and then deliver the cements to
Yao Ka Sin. Henry Yao never replied.
Later, Yao Ka Sin sued Prime White to compel the latter to comply with what Yao Ka Sin considered as

the true contract, i.e., 45,000 bags at P24.30 per bag. Prime White in its defense averred that although
Maglana is empowered to sign contracts in behalf of Prime White, such contracts are still subject to
approval by Prime Whites Board, and then it still requires further approval by the National Investment
and Development Corporation (NIDC), a government owned and controlled corporation because Prime
White is a subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a binding contract because it was made under the
apparent authority of Maglana. The trial court ruled in favor of Yao Ka Sin. The Court of Appeals
reversed the trial court.
ISSUE: Whether or not the president of a corporation is clothed with apparent authority to enter into
binding contracts with third persons without the authority of the Board.
HELD: No. The Board may enter into contracts through the president. The president may only enter
into contracts upon authority of the Board. Hence, any agreement signed by the president is subject to
approval by the Board. Unlike a general manager (like the case of Francisco vs GSIS), the president
has no apparent authority to enter into binding contracts with third persons. Further, if indeed the bylaws of Prime White did provide Maglana with apparent authority, this was not proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the general manner, by which the corporation holds
out an officer or agent as having power to act or, in other words, the apparent authority with which it
clothes him to act in general or (2) acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or without the scope of his ordinary powers. These are
not present in this case.
Also, the subsequent letter by Prime White to Yao Ka Sin is binding because Yao Ka Sins failure to
respond constitutes an acceptance, per stated in the letter itself which was not contested by Henry Yao
during trial.