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respondent PCI Leasing and Finance, Inc.

(PCI Leasing) filed with the RTC-QC a complaint for sum of money with an application for a writ of replevin for the seizure of machineries that has been subject of a chattel mortgage executed by Segs Products and Goquiolay (petitioner). Machineries were seized

TUMULAD CASE DIGEST FACTS: On 1 September 1955 defendants-appellants executed a chattel mortgage in favor of plaintiffsappellees over their house of strong materials located at No. 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which were being rented from Madrigal & Company, Inc. The mortgage was registered in the Registry of Deeds of Manila on 2 September 1955. The herein mortgage was executed to guarantee a loan of P4,800.00 received from plaintiffsappellees, payable within one year at 12% per annum. The mode of payment was P150.00 monthly, starting September, 1955, up to July 1956, and the lump sum of P3,150 was payable on or before August, 1956. It was also agreed that default in the payment of any of the amortizations, would cause the remaining unpaid balance to becomeimmediately due and Payable and the Chattel Mortgage will be enforceable in accordance with the provisions of Special Act No. 3135.

BERKENKOTTER vs CU UNJIENG FACTS: on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on two parcels and land "with all its buildings, improvements, sugarcane mill, steel railway, telephone line, apparatus, utensils and whatever forms part or is necessary complement of said sugar-cane mill, steel railway, telephone line, now existing or that may in the future exist is said lots."

Shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar central by buying additional machinery and equipment, In order to carry out this plan, B.A. Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the necessary amount for the purchase of said machinery and equipment, promising to reimburse him as soon as he could obtain an additional loan from the mortgagees, the herein defendants Cu Unjieng e Hijos. Having agreed to said proposition, B.H. Berkenkotter delivered the sum total amount of P25,750 to B.A. Green. With the loan of P25,750 and said credit of P22,000 for unpaid salary from B.H. Berkenkotter , the Mabalacat Sugar Co., Inc., purchased the additional machinery and equipment now in litigation. On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as security the additional machinery and equipment acquired and installed by said B.A. Green in the sugar central after the execution of the original mortgage deed, on April 27, 1927, together with whatever additional equipment acquired with said loan. B.A. Green failed to obtain said loan.

Upon failure of B.A. Green to reimburse the advance made from B.H. Berkenkotter, the latter filed a complaint against Cu Unjieng e Hijos for the additional machinery and equipment made as security for credit by Mabalacat Sugar Co. The Court of First Instance of Manila, dismissed plaintiff's complaint, hence this appeal. B.H. Berkenkotter contends that the installation of the machinery and equipment claimed by him in the sugar central of the Mabalacat Sugar Company, Inc., was not permanent in character inasmuch as B.A. Green, made it appear in the letter, that in case B.A. Green should fail to obtain an additional loan from the defendants Cu Unjieng e Hijos, said machinery and equipment would become security therefor, said B.A. Green binding himself not to mortgage nor encumber them to anybody until said plaintiff be fully reimbursed for the corporation's indebtedness to him.

ISSUE:

Whether or not the lower court erred in declaring that the additional machinery and equipment, as improvement incorporated with the central are subject to the mortgage deed executed in favor of the defendants Cu Unjieng e Hijos. HELD: No. Article 334, 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.

Machineries have become immovables by reason of the fact that the company installed the machineries in the central for use of the industry which is being carried on in the said central. They have therefore become immobilized because if their purpose. In other words, they tend directly to meet the needs of the industry which is being carried on in the central and in which the Company which installed them is engaged. It cannot be said that their incorporation therewith was not permanent in character because, as essential and principal 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.

For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for the purpose of carrying out the industrial functions of the latter and increasing production, constitutes a permanent improvement on said sugar central and subjects said machinery and equipment to the mortgage constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of the new machinery and equipment has bound himself to the person supplying him the purchase money to hold them as security for the payment of the latter's credit, and to refrain from mortgaging or otherwise encumbering them does not alter the permanent character of the incorporation of said machinery and equipment with the central; and (3) that the sale of the machinery and equipment in question by the purchaser who was supplied the purchase money, as a loan, to the person who supplied the money, after the incorporation thereof with the mortgaged sugar central, does not vest the creditor with ownership of said machinery and equipment but simply with the right of redemption.

FELS ENERGY INC vs PROV of BATANGAS


FACTS: On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five years. Article 10 reads: 10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import duties, fees, charges and other levies imposed by the National Government of the Republic of the Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to or in relation to the performance of their obligations under this agreement (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) and (b) all real estate taxes and assessments, rates and other charges in respect of the Power Barges.6 Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement On August 7, 1995, FELS received an assessment of real property taxes on the power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered those due for 1994, amounted to P56,184,088.40 per annum. 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 sought reconsideration of the Provincial Assessors decision to assess real property taxes on the power barges. However, the motion was denied, and the Provincial Assessor advised NPC to pay the assessment.8 This prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the necessary corrections.9 In its Answer to the petition, the Provincial Assessor averred that the barges were real property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160 Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is clearly stated that power barges are not real property subject to real property assessment. 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 ISSUE: Whether power barges, which are floating and movable, are personal properties and therefore, not subject to real property tax. HELD: NO. Article 415 (9) of the New Civil Code provides that "[d]ocks 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.51 Moreover, in Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al.,50 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.

On January 25, 1950, Ignacio filed an application for the registration of a parcel of land (mangrove), situated in barrio Gasac, Navotas, Rizal, with an area of 37,877 square meters alleging among others that he owned the parcel applied for by right of accretion. Director of Lands, Laureano Valeriano filed opposition