2f Property Case Digests

Jennylyn C Ong
Ladera vs. Hodges
No. 8027-R. September 23, 1952.
Reyes, J.B.L., J.
Doctrine: Article 315 of the Civil Code (now Article 415, New Civil Code) makes no distinction as to
whether the owner of the land is or is not the owner of the building.
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60 days after it fell due, this contract may be taken and considered as rescinded and annulled, in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Unfortunately, Ladera failed to pay the agreed installments, whereupon the appellant rescinded the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.

Caveat: Anyone who claims this digest as his own without proper authority shall be held liable under
the law of Karma.

Mindanao Bus Co. v. City Assessor Digest

G.R. No. L-17870 29 September 1962
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.
Note: This is merely a case digest to aid in remembering the important points of a case. It is still
advisable for any student of law to read the full text of assigned cases.
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
.
Mindanao Bus Co. vs. City Assessor and Treasurer
G.R. No. L-17870. September 29, 1962.
Labrador, J.
Doctrine: Movable equipment, to be immobilized in contemplation of Article 415 of the Civil Code,
must be the essential and principal elements of an industry or works which are carried on in a
building or on a piece of land. Thus, where the business is one of transportation, which is carried on
without a repair or service shop, and its rolling equipment is repaired or serviced in a shop belonging
to another, the tools and equipment in its repair shop which appear movable are merely incidentals
and may not be considered immovables , and, hence, not subject to assessment as real estate for
purposes of the real estate tax.
Facts: Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioners equipment
in its repair or service shop. 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. The Court of Tax Appeals having sustained the respondent city assessors ruling, and
having denied a motion for reconsideration, petitioner brought the case to this Court.
Issue: Whether 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.
Held: Yes. Movable equipments, to be immobilized in contemplation of Article 415 of the Civil Code,
must be the essential and principal elements of an industry or works which are carried on in a
building or on a piece of land. Thus, where the business is one of transportation, which is carried on
without a repair or service shop, and its rolling equipment is repaired or serviced in a shop belonging
to another, the tools and equipments in its repair shop which appear movable are merely incidentals

and may not be considered immovables, and, hence, not subject to assessment as real estate for
purposes of the real estate tax.
Similarly, the tool and equipment in question in this instant case are, by their nature, not essential
and principal elements of petitioners 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 equipment, 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.
Article 415 of the Civil Code requires that the industry or works be carried on in a building or on a
piece of land. 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 equipment may not, therefore, be deemed as real property.

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 abovementioned 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.

Makati Leasing and Finance Corp., vs Wearever Textile Mills, Inc.,

122 SCRA 296
GR No. L-58469
May 16, 1983
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 theparties to the contract so
agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why
a machinery, which is movable in its nature and becomesimmobilized 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.
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.

DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate
Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later
specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of
Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981
of the said appellate court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing
and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and
assigned several receivables with the former under a Receivable Purchase Agreement. To secure
the collection of the receivables assigned, private respondent executed a Chattel Mortgage over

certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering
Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the
properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed
to gain entry into private respondent's premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the
Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the
lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the
enforcement of which was however subsequently restrained upon private respondent's filing of a
motion for reconsideration. After several incidents, the lower court finally issued on February 11,
1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to
break open the premises of private respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private
respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized
by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of
replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the
new Civil Code, the same being attached to the ground by means of bolts and the only way to
remove it from respondent's plant would be to drill out or destroy the concrete floor, the reason why
all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The
appellate court rejected petitioner's argument that private respondent is estopped from claiming that
the machine is real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner
has brought the case to this Court for review by writ of certiorari. It is contended by private
respondent, however, that the instant petition was rendered moot and academic by petitioner's act of
returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was
promulgated.
The contention of private respondent is without merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said action was without prejudice to a motion for
reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative. 1 Considering that petitioner has reserved its right to question the propriety
of the Court of Appeals' decision, the contention of private respondent that this petition has been mooted
by such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the machinery in
suit is real or personal property from the point of view of the parties, with petitioner arguing that it is a
personality, while the respondent claiming the contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage constituted thereon is null and void, as contended
by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court,
speaking through Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personal

property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they should not now be allowed to
make an inconsistent stand by claiming otherwise. Moreover, the subject house
stood on a rented lot to which defendants-appellants merely had a temporary right as
lessee, and although this can not in itself alone determine the status of the property,
it does so when combined with other factors to sustain the interpretation that the
parties, particularly the mortgagors, intended to treat the house as personality.
Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung
Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the
validity of the chattel mortgage, it is the defendants-appellants themselves, as
debtors-mortgagors, who are attacking the validity of the chattel mortgage in this
case. The doctrine of estoppel therefore applies to the herein defendants-appellants,
having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude the rule out, as
the appellate court did, the present case from the application of the abovequoted pronouncement. If
a house of strong materials, like what was involved in the above Tumalad case, may be considered
as personal property for purposes of executing a chattel mortgage thereon as long as the parties to
the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is really because one who has so
agreed is estopped from denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals
lays stress on the fact that the house involved therein was built on a land that did not belong to the
owner of such house. But the law makes no distinction with respect to the ownership of the land on
which the house is built and We should not lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by
the parties. As stated inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that
the parties to a contract may by agreement treat as personal property that which by nature would be
real property, as long as no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had never represented
nor agreed that the machinery in suit be considered as personal property but was merely required
and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery as movable or immovable
was never placed in issue before the lower court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court. Moreover, even granting that the
charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has indubitably benefited from said
contract. Equity dictates that one should not benefit at the expense of another. Private respondent
could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has
benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the questioned
machinery is real, not personal property, becomes very apparent. Moreover, the case of Machinery
and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable
to the case at bar, the nature of the machinery and equipment involved therein as real properties
never having been disputed nor in issue, and they were not the subject of a Chattel Mortgage.
Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case to be the
more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed
and set aside, and the Orders of the lower court are hereby reinstated, with costs against the private
respondent.
SO ORDERED.

G.R. No. L-11139

April 23, 1958

SANTOS EVANGELISTA, petitioner,

vs.
ALTO SURETY & INSURANCE CO., INC., respondent.
Gonzalo D. David for petitioner.
Raul A. Aristorenas and Benjamin Relova for respondent.
CONCEPCION, J.:
This is an appeal by certiorari from a decision of the Court of Appeals.
Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista, instituted Civil
Case No. 8235 of the Court of First, Instance of Manila entitled " Santos Evangelista vs. Ricardo
Rivera," for a sum of money. On the same date, he obtained a writ of attachment, which levied
upon a house, built by Rivera on a land situated in Manila and leased to him, by filing copy of
said writ and the corresponding notice of attachment with the Office of the Register of Deeds of
Manila, on June 8, 1949. In due course, judgment was rendered in favor of Evangelista, who, on
October 8, 1951, bought the house at public auction held in compliance with the writ of
execution issued in said case. The corresponding definite deed of sale was issued to him on
October 22, 1952, upon expiration of the period of redemption. When Evangelista sought to take
possession of the house, Rivera refused to surrender it, upon the ground that he had leased the
property from the Alto Surety & Insurance Co., Inc. respondent herein and that the latter is
now the true owner of said property. It appears that on May 10, 1952, a definite deed of sale of
the same house had been issued to respondent, as the highest bidder at an auction sale held,
on September 29, 1950, in compliance with a writ of execution issued in Civil Case No. 6268 of
the same court, entitled "Alto Surety & Insurance Co., Inc. vs. Maximo Quiambao, Rosario
Guevara and Ricardo Rivera," in which judgment, for the sum of money, had been rendered in
favor respondent herein, as plaintiff therein. Hence, on June 13, 1953, Evangelista instituted the
present action against respondent and Ricardo Rivera, for the purpose of establishing his
(Evangelista) title over said house, securing possession thereof, apart from recovering
damages.
In its answer, respondent alleged, in substance, that it has a better right to the house, because
the sale made, and the definite deed of sale executed, in its favor, on September 29, 1950 and

May 10, 1952, respectively, precede the sale to Evangelista (October 8, 1951) and the definite
deed of sale in his favor (October 22, 1952). It, also, made some special defenses which are
discussed hereafter. Rivera, in effect, joined forces with respondent. After due trial, the Court of
First Instance of Manila rendered judgment for Evangelista, sentencing Rivera and respondent
to deliver the house in question to petitioner herein and to pay him, jointly and severally, forty
pesos (P40.00) a month from October, 1952, until said delivery, plus costs.
On appeal taken by respondent, this decision was reversed by the Court of Appeals, which
absolved said respondent from the complaint, upon the ground that, although the writ of
attachment in favor of Evangelista had been filed with the Register of Deeds of Manila prior to
the sale in favor of respondent, Evangelista did not acquire thereby a preferential lien, the
attachment having been levied as if the house in question were immovable property, although in
the opinion of the Court of Appeals, it is "ostensibly a personal property." As such, the Court of
Appeals held, "the order of attachment . . . should have been served in the manner provided in
subsection (e) of section 7 of Rule 59," of the Rules of Court, reading:
The property of the defendant shall be attached by the officer executing the order in the
following manner:
(e) Debts and credits, and other personal property not capable of manual delivery, by leaving
with the person owing such debts, or having in his possession or under his control, such
credits or other personal property, or with, his agent, a copy of the order, and a notice that
the debts owing by him to the defendant, and the credits and other personal property in his
possession, or under his control, belonging to the defendant, are attached in pursuance of
such order. (Emphasis ours.)

However, the Court of Appeals seems to have been of the opinion, also, that the house of
Rivera should have been attached in accordance with subsection (c) of said section 7, as
"personal property capable of manual delivery, by taking and safely keeping in his custody", for
it declared that "Evangelists could not have . . . validly purchased Ricardo Rivera's house from
the sheriff as the latter was not in possession thereof at the time he sold it at a public auction."
Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals. In this
connection, it is not disputed that although the sale to the respondent preceded that made to
Evangelists, the latter would have a better right if the writ of attachment, issued in his
favor before the sale to the respondent, had been properly executed or enforced. This question,
in turn, depends upon whether the house of Ricardo Rivera is real property or not. In the
affirmative case, the applicable provision would be subsection (a) of section 7, Rule 59 of the
Rules of Court, pursuant to which the attachment should be made "by filing with the registrar of
deeds a copy of the order, together with a description of the property attached, and a notice that
it is attached, and by leaving a copy of such order, description, and notice with the occupant of
the property, if any there be."
Respondent maintains, however, and the Court of Appeals held, that Rivera's house is personal
property, the levy upon which must be made in conformity with subsections (c) and (e) of said
section 7 of Rule 59. Hence, the main issue before us is whether a house, constructed the
lessee of the land on which it is built, should be dealt with, for purpose, of attachment, as
immovable property, or as personal property.

It is, our considered opinion that said house is not personal property, much less a debt, credit or
other personal property not capable of manual delivery, but immovable property. As explicitly
held, in Laddera vs. Hodges (48 Off. Gaz., 5374), "a true building (not merely superimposed on
the soil) is immovable or real property, whether it is erected by the owner of the land or by
usufructuary or lessee. This is the doctrine of our Supreme Court in Leung Yee vs. Strong
Machinery Company, 37 Phil., 644. And it is amply supported by the rulings of the French Court.
. . ."
It is true that the parties to a deed of chattel mortgage may agree to consider a house as
personal property for purposes of said contract (Luna vs. Encarnacion, * 48 Off. Gaz., 2664;
Standard Oil Co. of New York vs.Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72
Phil., 464). However, this view is good only insofar as the contracting parties are concerned. It is
based, partly, upon the principle of estoppel. Neither this principle, nor said view, is applicable to
strangers to said contract. Much less is it in point where there has been no contractwhatsoever,
with respect to the status of the house involved, as in the case at bar. Apart from this,
in Manarang vs. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we held:
The question now before us, however, is: Does the fact that the parties entering into a
contract regarding a house gave said property the consideration of personal property in their
contract, bind the sheriff in advertising the property's sale at public auction as personal
property? It is to be remembered that in the case at bar the action was to collect a loan
secured by a chattel mortgage on the house. It is also to be remembered that in practice it is
the judgment creditor who points out to the sheriff the properties that the sheriff is to levy
upon in execution, and the judgment creditor in the case at bar is the party in whose favor
the owner of the house had conveyed it by way of chattel mortgage and, therefore, knew its
consideration as personal property.
These considerations notwithstanding, we hold that the rules on execution do not allow, and,
we shouldnot interpret them in such a way as to allow, the special consideration that parties
to a contract may have desired to impart to real estate, for example, as personal property,
when they are, not ordinarily so. Sales on execution affect the public and third persons. The
regulation governing sales on execution are for public officials to follow. The form of
proceedings prescribed for each kind of property is suited to its character, not to the
character, which the parties have given to it or desire to give it. When the rules speak of
personal property, property which is ordinarily so considered is meant; and when real
property is spoken of, it means property which is generally known as real property. The
regulations were never intended to suit the consideration that parties may have privately
given to the property levied upon. Enforcement of regulations would be difficult were the
convenience or agreement of private parties to determine or govern the nature of the
proceedings. We therefore hold that the mere fact that a house was the subject of the chattel
mortgage and was considered as personal property by the parties does not make said house
personal property for purposes of the notice to be given for its sale of public auction. This
ruling is demanded by the need for a definite, orderly and well defined regulation for official
and public guidance and would prevent confusion and misunderstanding.
We, therefore, declare that the house of mixed materials levied upon on execution, although
subject of a contract of chattel mortgage between the owner and a third person, is real
property within the purview of Rule 39, section 16, of the Rules of Court as it has become a
permanent fixture of the land, which, is real property. (42 Am. Jur. 199-200; Leung
Yee vs. Strong Machinery Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90 Phil., 544;
Ladera,, et al. vs. Hodges, et al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.)

The foregoing considerations apply, with equal force, to the conditions for the levy of
attachment, for it similarly affects the public and third persons.
It is argued, however, that, even if the house in question were immovable property, its
attachment by Evangelista was void or ineffective, because, in the language of the Court of
Appeals, "after presenting a Copy of the order of attachment in the Office of the Register of
Deeds, the person who might then be in possession of the house, the sheriff took no pains to
serve Ricardo Rivera, or other copies thereof." This finding of the Court of Appeals is neither
conclusive upon us, nor accurate.
The Record on Appeal, annexed to the petition for Certiorari, shows that petitioner alleged, in
paragraph 3 of the complaint, that he acquired the house in question "as a consequence of the
levy of an attachment and execution of the judgment in Civil Case No. 8235" of the Court of First
Instance of Manila. In his answer (paragraph 2), Ricardo Rivera admitted said attachment
execution of judgment. He alleged, however, by way a of special defense, that the title of
respondent "is superior to that of plaintiff because it is based on a public instrument," whereas
Evangelista relied upon a "promissory note" which "is only a private instrument"; that said Public
instrument in favor of respondent "is superior also to the judgment in Civil Case No. 8235"; and
that plaintiff's claim against Rivera amounted only to P866, "which is much below the real value"
of said house, for which reason it would be "grossly unjust to acquire the property for such an
inadequate consideration." Thus, Rivera impliedly admitted that his house had been attached,
that the house had been sold to Evangelista in accordance with the requisite formalities, and
that said attachment was valid, although allegedly inferior to the rights of respondent, and the
consideration for the sale to Evangelista was claimed to be inadequate.
Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, but only " for the
reasons stated in its special defenses" namely: (1) that by virtue of the sale at public auction,
and the final deed executed by the sheriff in favor of respondent, the same became the
"legitimate owner of the house" in question; (2) that respondent "is a buyer in good faith and for
value"; (3) that respondent "took possession and control of said house"; (4) that "there was no
valid attachment by the plaintiff and/or the Sheriff of Manila of the property in question as neither
took actual or constructive possession or control of the property at any time"; and (5) "that the
alleged registration of plaintiff's attachment, certificate of sale and final deed in the Office of
Register of Deeds, Manila, if there was any, is likewise, not valid as there is no registry of
transactions covering houses erected on land belonging to or leased from another." In this
manner, respondent claimed a better right, merely under the theory that, in case of double sale
of immovable property, the purchaser who first obtains possession in good faith, acquires title, if
the sale has not been "recorded . . . in the Registry of Property" (Art. 1544, Civil Code of the
Philippines), and that the writ of attachment and the notice of attachment in favor of Evangelista
should be considered unregistered, "as there is no registry of transactions covering houses
erected on land belonging to or leased from another." In fact, said article 1544 of the Civil Code
of the Philippines, governing double sales, was quoted on page 15 of the brief for respondent in
the Court of Appeals, in support of its fourth assignment of error therein, to the effect that it "has
preference or priority over the sale of the same property" to Evangelista.
In other words, there was no issue on whether copy of the writ and notice of attachment had
been served on Rivera. No evidence whatsoever, to the effect that Rivera had not been served
with copies of said writ and notice, was introduced in the Court of First Instance. In its brief in
the Court of Appeals, respondent did not aver, or even, intimate, that no such copies were
served by the sheriff upon Rivera. Service thereof on Rivera had been impliedly admitted by the

defendants, in their respective answers, and by their behaviour throughout the proceedings in
the Court of First Instance, and, as regards respondent, in the Court of Appeals. In fact,
petitioner asserts in his brief herein (p. 26) that copies of said writ and notice were delivered to
Rivera, simultaneously with copies of the complaint, upon service of summons, prior to the filing
of copies of said writ and notice with the register deeds, and the truth of this assertion has not
been directly and positively challenged or denied in the brief filed before us by respondent
herein. The latter did not dare therein to go beyond making a statement for the first time in
the course of these proceedings, begun almost five (5) years ago (June 18, 1953)
reproducing substantially the aforementioned finding of the Court of Appeals and then quoting
the same.
Considering, therefore, that neither the pleadings, nor the briefs in the Court of Appeals, raised
an issue on whether or not copies of the writ of attachment and notice of attachment had been
served upon Rivera; that the defendants had impliedly admitted-in said pleadings and briefs, as
well as by their conduct during the entire proceedings, prior to the rendition of the decision of
the Court of Appeals that Rivera had received copies of said documents; and that, for this
reason, evidently, no proof was introduced thereon, we, are of the opinion, and so hold that the
finding of the Court of Appeals to the effect that said copies had not been served upon Rivera is
based upon a misapprehension of the specific issues involved therein and goes beyond the
range of such issues, apart from being contrary to the aforementioned admission by the parties,
and that, accordingly, a grave abuse of discretion was committed in making said finding, which
is, furthermore, inaccurate.
Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall be
entered affirming that of the Court of First Instance of Manila, with the costs of this instance
against respondent, the Alto Surety and Insurance Co., Inc. It is so ordered.
G.R. No. 120098

October 2, 2001

RUBY L. TSAI, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R
VILLALUZ, respondents.
x---------------------------------------------------------x
[G.R. No. 120109. October 2, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R
VILLALUZ, respondents.
QUISUMBING, J.:
These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No.
32986, affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case No.
89-48265. Also assailed is respondent court's resolution denying petitioners' motion for
reconsideration.

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

xxx

xxx

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

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

LIST OF MACHINERIES & EQUIPMENT

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

xxx

xxx

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

xxx

xxx

xxx

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

xxx

xxx

xxx

D. Four (4) Winding Machines.

xxx

xxx

xxx

SCHEDULE "A"
I. TCT # 372097 - RIZAL
xxx

xxx

xxx

II. Any and all buildings and improvements now existing or hereafter to exist on the abovementioned lot.
III. MACHINERIES & EQUIPMENT situated, located and/or installed on the abovementioned lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting Machines . . .
(b) Sixteen sets (16) Vayrow Knitting Machines . . .
(c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .
IV. Any and all replacements, substitutions, additions, increases and accretions to above
properties.
xxx

xxx

xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was
secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto.
These listed properties were similar to those listed in Annex A of the first mortgage deed.
After April 23, 1979, the date of the execution of the second mortgage mentioned above,
EVERTEX purchased various machines and equipments.
On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings
docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City,
Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation
insolvent. All its assets were taken into the custody of the Insolvency Court, including the
collateral, real and personal, securing the two mortgages as abovementioned.
In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter
commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwise
known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or
Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice of
Sheriff's Sale was issued on December 1, 1982.
On December 15, 1982, the first public auction was held where petitioner PBCom emerged as
the highest bidder and a Certificate of Sale was issued in its favor on the same date. On
December 23, 1982, another public auction was held and again, PBCom was the highest
bidder. The sheriff issued a Certificate of Sale on the same day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In
November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a
month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for
P9,000,000.00, including the contested machineries.

On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and
damages with the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial
foreclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed that
no rights having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore
Tsai acquired no rights over such assets sold to her, and should reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the
contested properties, which were not included in the Real and Chattel Mortgage of November
26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties
included in the Notice of Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . .
dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting
Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset
Equipment.
The RTC found that the lease and sale of said personal properties were irregular and illegal
because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since
these were not included in the schedules attached to the mortgage contracts. The trial court
decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the
defendants:
1. Ordering the annulment of the sale executed by defendant Philippine Bank of
Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the
personal properties listed in par. 9 of the complaint, and their return to the plaintiff
corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the
Insolvency Court, to be done within ten (10) days from finality of this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P5,200,000.00 as compensation for the use and possession of the properties in question
from November 1986 to February 1991 and P100,000.00 every month thereafter, with
interest thereon at the legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P50,000.00 as and for attorney's fees and expenses of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4

Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision
dated August 31, 1994, the dispositive portion of which reads:

WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and
reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November
1986 until subject personal properties are restored to appellees, the judgment appealed from is
hereby AFFIRMED, in all other respects. No pronouncement as to costs.5
Motion for reconsideration of the above decision having been denied in the resolution of April
28, 1995, PBCom and Tsai filed their separate petitions for review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:
I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT
MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED
MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR
EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF
CHATTEL MORTGAGE.

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

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

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

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

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

I.
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER
PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF
THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REAL
PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN
THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF

THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT
THAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL
PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED
FOR REAL ESTATE TAX PURPOSES?
II
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD
FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982
TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON
THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER
TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID
MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION
TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or not the inclusion of the questioned properties in
the foreclosed properties is proper. The secondary issue is whether or not the sale of these
properties to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by
treating the 1981 acquired units of machinery as chattels instead of real properties within their
earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel
Mortgage.8 Additionally, Tsai argues that respondent court erred in holding that the disputed
1981 machineries are not real properties.9 Finally, she contends that the Court of Appeals erred
in holding against petitioner's arguments on prescription and laches10 and in assessing
petitioner actual damages, attorney's fees and expenses of litigation, for want of valid factual
and legal basis.11
Essentially, PBCom contends that respondent court erred in affirming the lower court's judgment
decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be
legally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals' pronouncement
that the pieces of machinery in question were personal properties have no factual and legal
basis. Finally, it asserts that the Court of Appeals erred in assessing damages and attorney's
fees against PBCom.
In opposition, private respondents argue that the controverted units of machinery are not "real
properties" but chattels, and, therefore, they were not part of the foreclosed real properties,
rendering the lease and the subsequent sale thereof to Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find the petitions devoid
of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on
certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law,
not of fact, unless the factual findings complained of are devoid of support by the evidence on
record or the assailed judgment is based on misapprehension of facts.13 This rule is applied
more stringently when the findings of fact of the RTC is affirmed by the Court of Appeals. 14
The following are the facts as found by the RTC and affirmed by the Court of Appeals that are
decisive of the issues: (1) the "controverted machineries" are not covered by, or included in,

either of the two mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel
Mortgage; (2) the said machineries were not included in the list of properties appended to the
Notice of Sale, and neither were they included in the Sheriff's Notice of Sale of the foreclosed
properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy,
bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso
facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however,
does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to look
at the parties' intent.
While it is true that the controverted properties appear to be immobile, a perusal of the contract
of Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In
the case at bar, both the trial and the appellate courts reached the same finding that the true
intention of PBCOM and the owner, EVERTEX, is to treat machinery and equipment as chattels.
The pertinent portion of respondent appellate court's ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as chattels; never as
real properties. Indeed, the 1975 mortgage contract, which was actually real and chattel
mortgage, militates against appellants' posture. It should be noted that the printed form used
by appellant bank was mainly for real estate mortgages. But reflective of the true intention of
appellant PBCOM and appellee EVERTEX was the typing in capital letters, immediately
following the printed caption of mortgage, of the phrase "real and chattel." So also, the
"machineries and equipment" in the printed form of the bank had to be inserted in the blank
space of the printed contract and connected with the word "building" by typewritten slash
marks. Now, then, if the machineries in question were contemplated to be included in the
real estate mortgage, there would have been no necessity to ink a chattel mortgage
specifically mentioning as part III of Schedule A a listing of the machineries covered thereby.
It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the
land and building involved.
As regards the 1979 contract, the intention of the parties is clear and beyond question. It
refers solely tochattels. The inventory list of the mortgaged properties is an itemization of
sixty-three (63) individually described machineries while the schedule listed only machines
and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16

In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by
the evidence on record, we find no compelling reason to depart therefrom.
Too, assuming arguendo that the properties in question are immovable by nature, nothing
detracts the parties from treating it as chattels to secure an obligation under the principle of
estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be
considered a personal property if there is a stipulation as when it is used as security in the
payment of an obligation where a chattel mortgage is executed over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage
and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treat
all properties included therein as immovable, and (2) attached to the said contract a separate
"LIST OF MACHINERIES & EQUIPMENT". These facts, taken together, evince the conclusion
that the parties' intention is to treat these units of machinery as chattels. A fortiori, the contested

after-acquired properties, which are of the same description as the units enumerated under the
title "LIST OF MACHINERIES & EQUIPMENT," must also be treated as chattels.
Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuch
as the subject mortgages were intended by the parties to involve chattels, insofar as equipment
and machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7
thereof that: "a chattel mortgage shall be deemed to cover only the property described therein
and not like or substituted property thereafter acquired by the mortgagor and placed in the same
depository as the property originally mortgaged, anything in the mortgage to the contrary
notwithstanding."
And, since the disputed machineries were acquired in 1981 and could not have been involved in
the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to
include subject machineries with the properties enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor.
Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo
dat quod non habet, one cannot give what one does not have.17
Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a
nullity, she is nevertheless a purchaser in good faith and for value who now has a better right
than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial court that she is
not a purchaser in good faith. Well-settled is the rule that the person who asserts the status of a
purchaser in good faith and for value has the burden of proving such assertion.18 Petitioner Tsai
failed to discharge this burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest in such property and
pays a full and fair price for the same, at the time of purchase, or before he has notice of the
claims or interest of some other person in the property.19Records reveal, however, that when
Tsai purchased the controverted properties, she knew of respondent's claim thereon. As borne
out by the records, she received the letter of respondent's counsel, apprising her of
respondent's claim, dated February 27, 1987.20 She replied thereto on March 9, 1987.21 Despite
her knowledge of respondent's claim, she proceeded to buy the contested units of machinery on
May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed
properties are located is equally unavailing. This defense refers to sale of lands and not to sale
of properties situated therein. Likewise, the mere fact that the lot where the factory and the
disputed properties stand is in PBCom's name does not automatically make PBCom the owner
of everything found therein, especially in view of EVERTEX's letter to Tsai enunciating its claim.
Finally, petitioners' defense of prescription and laches is less than convincing. We find no
cogent reason to disturb the consistent findings of both courts below that the case for the
reconveyance of the disputed properties was filed within the reglementary period. Here, in our
view, the doctrine of laches does not apply. Note that upon petitioners' adamant refusal to heed
EVERTEX's claim, respondent company immediately filed an action to recover possession and
ownership of the disputed properties. There is no evidence showing any failure or neglect on its

part, for an unreasonable and unexplained length of time, to do that which, by exercising due
diligence, could or should have been done earlier. The doctrine of stale demands would apply
only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his
legal rights. Moreover, except for very strong reasons, this Court is not disposed to apply the
doctrine of laches to prejudice or defeat the rights of an owner.22
As to the award of damages, the contested damages are the actual compensation, representing
rentals for the contested units of machinery, the exemplary damages, and attorney's fees.
As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the
unpaid rentals of the contested properties based on the testimony of John Chua, who testified
that the P100,000.00 was based on the accepted practice in banking and finance, business and
investments that the rental price must take into account the cost of money used to buy them.
The Court of Appeals did not give full credence to Chua's projection and reduced the award to
P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not only be capable of
proof but must actually be proven with reasonable degree of certainty, premised upon
competent proof or best evidence obtainable of the actual amount thereof.23 However, the
allegations of respondent company as to the amount of unrealized rentals due them as actual
damages remain mere assertions unsupported by documents and other competent evidence. In
determining actual damages, the court cannot rely on mere assertions, speculations,
conjectures or guesswork but must depend on competent proof and on the best evidence
obtainable regarding the actual amount of loss.24 However, we are not prepared to disregard the
following dispositions of the respondent appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on record warranting the
said award of P5,200,000.00, representing monthly rental income of P100,000.00 from
November 1986 to February 1991, and the additional award of P100,000.00 per month
thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh
(sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actual
damages allegedly sustained by appellees, by way of unrealized rental income of subject
machineries and equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection based on what is
claimed to be a practice in business and industry. But such a testimony cannot serve as the
sole basis for assessing the actual damages complained of. What is more, there is no
showing that had appellant Tsai not taken possession of the machineries and equipments in
question, somebody was willing and ready to rent the same for P100,000.00 a month.
xxx

xxx

xxx

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

computation, We believe that a net unrealized rental income of P20,000.00 a month, since
November 1986, is more realistic and fair.25

As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of
Appeals deleted. But according to the CA, there was no clear showing that petitioners acted
malevolently, wantonly and oppressively. The evidence, however, shows otherwise.It is a
requisite to award exemplary damages that the wrongful act must be accompanied by bad
faith,26 and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent
manner.27 As previously stressed, petitioner Tsai's act of purchasing the controverted properties
despite her knowledge of EVERTEX's claim was oppressive and subjected the already insolvent
respondent to gross disadvantage. Petitioner PBCom also received the same letters of Atty.
Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom's act of taking all the properties
found in the factory of the financially handicapped respondent, including those properties not
covered by or included in the mortgages, is equally oppressive and tainted with bad faith. Thus,
we are in agreement with the RTC that an award of exemplary damages is proper.
The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the
Civil Code provides that no proof of pecuniary loss is necessary for the adjudication of
exemplary damages, their assessment being left to the discretion of the court in accordance
with the circumstances of each case.29 While the imposition of exemplary damages is justified in
this case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion
granted to the courts in the assessment of damages must always be exercised with balanced
restraint and measured objectivity. Thus, here the award of exemplary damages by way of
example for the public good should be reduced to P100,000.00.
By the same token, attorney's fees and other expenses of litigation may be recovered when
exemplary damages are awarded.30 In our view, RTC's award of P50,000.00 as attorney's fees
and expenses of litigation is reasonable, given the circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of
Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners
Philippine Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly and
severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation for
the use and possession of the properties in question from November 198631 until subject
personal properties are restored to respondent corporation; (2) P100,000.00 by way of
exemplary damages, and (3) P50,000.00 as attorney's fees and litigation expenses. Costs
against petitioners.
SO ORDERED.

SERGS
PRODUCTS,
INC.,
and
SERGIO
T.
GOQUIOLAY, petitioners, vs. PCI LEASING AND FINANCE,
INC., respondent.
DECISION
PANGANIBAN, J.:

After agreeing to a contract stipulating that a real or immovable property be

considered as personal or movable, a party is estopped from subsequently
claiming otherwise. Hence, such property is a proper subject of a writ of
replevin obtained by the other contracting party.

The Case
Before us is a Petition for Review on Certiorari assailing the January 6,
1999 Decision[1] of the Court of Appeals (CA)[2] in CA-GR SP No. 47332 and its
February 26, 1999 Resolution[3] denying reconsideration. The decretal portion of
the CA Decision reads as follows:

WHEREFORE, premises considered, the assailed Order dated February 18,

1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are
hereby AFFIRMED. The writ of preliminary injunction issued on June 15,
1998 is hereby LIFTED.
[4]

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

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

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI
Leasing for short) filed with the RTC-QC a complaint for [a] sum of money
(Annex E), with an application for a writ of replevin docketed as Civil Case
No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent
judge issued a writ of replevin (Annex B) directing its sheriff to seize and
deliver the machineries and equipment to PCI Leasing after 5 days and upon
the payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff proceeded to
petitioners factory, seized one machinery with [the] word that he [would]
return for the other machineries.

On March 25, 1998, petitioners filed a motion for special protective order
(Annex C), invoking the power of the court to control the conduct of its
officers and amend and control its processes, praying for a directive for the
sheriff to defer enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the
properties [were] still personal and therefore still subject to seizure and a writ
of replevin.
In their Reply, petitioners asserted that the properties sought to be seized
[were] immovable as defined in Article 415 of the Civil Code, the parties
agreement to the contrary notwithstanding. They argued that to give effect to
the agreement would be prejudicial to innocent third parties. They further
stated that PCI Leasing [was] estopped from treating these machineries as
personal because the contracts in which the alleged agreement [were]
embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and
take possession of the remaining properties. He was able to take two more,
but was prevented by the workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not
owned, by petitioners. It also ruled that the words of the contract are clear and
leave no doubt upon the true intention of the contracting parties. Observing
that Petitioner Goquiolay was an experienced businessman who was not
unfamiliar with the ways of the trade, it ruled that he should have realized the
import of the document he signed. The CA further held:

Furthermore, to accord merit to this petition would be to preempt the trial

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

the other a matter x x x which respondent court is in the best position to

determine.
Hence, this Petition.[11]

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

A. Whether or not the machineries purchased and imported by SERGS

became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.

[12]

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

Preliminary Matter:Procedural Questions

Respondent contends that the Petition failed to indicate expressly whether it
was being filed under Rule 45 or Rule 65 of the Rules of Court. It further
alleges that the Petition erroneously impleaded Judge Hilario Laqui as
respondent.
There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is Petition for
Review on Certiorari.[13]
While Judge Laqui should not have been impleaded as a
respondent,[14] substantial justice requires that such lapse by itself should not
warrant the dismissal of the present Petition. In this light, the Court deems it
proper to remove, motu proprio, the name of Judge Laqui from the caption of
the present case.

Main Issue: Nature of the Subject Machinery

Petitioners contend that the subject machines used in their factory were not
proper subjects of the Writ issued by the RTC, because they were in fact real
property. Serious policy considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for
the recovery of personal property only.[15] Section 3 thereof reads:

SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond,
the court shall issue an order and the corresponding writ of replevin describing
the personal property alleged to be wrongfully detained and requiring the
sheriff forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or
real property as follows:

ART. 415. The following are immovable property:

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

(5) Machinery, receptacles, instruments or implements intended by the owner

of the tenement for an industry or works which may be carried on in a building
or on a piece of land, and which tend directly to meet the needs of the said
industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of
Seizure were placed by petitioners in the factory built on their own
land. Indisputably, they were essential and principal elements of their
chocolate-making industry. Hence, although each of them was movable or
personal property on its own, all of them have become immobilized by
destination because they are essential and principal elements in the
industry.[16] In that sense, petitioners are correct in arguing that the said
machines are real, not personal, property pursuant to Article 415 (5) of the Civil
Code.[17]
Be that as it may, we disagree with the submission of the petitioners that
the said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal.[18] After agreeing to such stipulation, they
are consequently estopped from claiming otherwise. Under the principle of
estoppel, a party to a contract is ordinarily precluded from denying the truth of
any material fact found therein.

Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the

parties to treat a house as a personal property because it had been made the
subject of a chattel mortgage. The Court ruled:

x x x. Although there is no specific statement referring to the subject house

as personal property, yet by ceding, selling or transferring a property by way
of chattel mortgage defendants-appellants could only have meant to convey
the house as chattel, or at least, intended to treat the same as such, so that
they should not now be allowed to make an inconsistent stand by claiming
otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.
Wearever Textile Mills[20] also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a writ
of replevin because it was treated as personal property in a contract. Pertinent
portions of the Courts ruling are reproduced hereunder:

x x x. If a house of strong materials, like what was involved in the above

Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so
agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose, may not be likewise
treated as such. This is really because one who has so agreed is estopped
from denying the existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that the
machines in question are to be considered as personal property. Specifically,
Section 12.1 of the Agreement reads as follows:[21]

12.1 The PROPERTY is, and shall at all times be and remain, personal
property notwithstanding that the PROPERTY or any part thereof may now
be, or hereafter become, in any manner affixed or attached to or embedded
in, or permanently resting upon, real property or any building thereon, or
attached in any manner to what is permanent.
Clearly then, petitioners are estopped from denying the characterization of
the subject machines as personal property. Under the circumstances, they are
proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should
be deemed personal property pursuant to the Lease Agreement is good only
insofar as the contracting parties are concerned.[22] Hence, while the parties are
bound by the Agreement, third persons acting in good faith are not affected by

its stipulation characterizing the subject machinery as personal. [23] In any event,
there is no showing that any specific third party would be adversely affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and
not a lease.[24] Submitting documents supposedly showing that they own the
subject machines, petitioners also argue in their Petition that the Agreement
suffers from intrinsic ambiguity which places in serious doubt the intention of
the parties and the validity of the lease agreement itself.[25] In their Reply to
respondents Comment, they further allege that the Agreement is invalid. [26]
These arguments are unconvincing. The validity and the nature of the
contract are the lis mota of the civil action pending before the RTC. A
resolution of these questions, therefore, is effectively a resolution of the merits
of the case. Hence, they should be threshed out in the trial, not in the
proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the Court explained that the policy
under Rule 60 was that questions involving title to the subject property
questions which petitioners are now raising -- should be determined in the
trial. In that case, the Court noted that the remedy of defendants under Rule 60
was either to post a counter-bond or to question the sufficiency of the plaintiffs
bond. They were not allowed, however, to invoke the title to the subject
property. The Court ruled:

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

Besides, these questions require a determination of facts and a

presentation of evidence, both of which have no place in a petition for certiorari
in the CA under Rule 65 or in a petition for review in this Court under Rule 45. [29]

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or
annulled. In fact, petitioners assailed it first only in the RTC proceedings, which

had ironically been instituted by respondent. Accordingly, it must be presumed

valid and binding as the law between the parties.
Makati Leasing and Finance Corporation[30] is also instructive on this
point. In that case, the Deed of Chattel Mortgage, which characterized the
subject machinery as personal property, was also assailed because respondent
had allegedly been required to sign a printed form of chattel mortgage which
was in a blank form at the time of signing. The Court rejected the argument
and relied on the Deed, ruling as follows:

x x x. Moreover, even granting that the charge is true, such fact alone does
not render a contract void ab initio, but can only be a ground for rendering
said contract voidable, or annullable pursuant to Article 1390 of the new Civil
Code, by a proper action in court. There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps were taken to
nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries to be seized,
then its workers would be out of work and thrown into the streets.[31] They also
allege that the seizure would nullify all efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of the Writ. As
earlier discussed, law and jurisprudence support its propriety. Verily, the
above-mentioned consequences, if they come true, should not be blamed on
this Court, but on the petitioners for failing to avail themselves of the remedy
under Section 5 of Rule 60, which allows the filing of a counter-bond. The
provision states:

SEC. 5. Return of property. -- If the adverse party objects to the sufficiency

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

G.R. Nos. L-10817-18

February 28, 1958

ENRIQUE LOPEZ, petitioner,

vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.
Nicolas Belmonte and Benjamin T. de Peralta for petitioner.
Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay
for respondent Plaza Theatre, Inc.
FELIX, J.:
Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of
Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the same
province, dropped at Lopez' house and invited him to make an investment in the theatre
business. It was intimated that Orosa, his family and close friends were organizing a corporation
to be known as Plaza Theatre, Inc., that would engage in such venture. Although Lopez
expressed his unwillingness to invest of the same, he agreed to supply the lumber necessary for
the construction of the proposed theatre, and at Orosa's behest and assurance that the latter
would be personally liable for any account that the said construction might incur, Lopez further
agreed that payment therefor would be on demand and not cash on delivery basis. Pursuant to
said verbal agreement, Lopez delivered the lumber which was used for the construction of the
Plaza Theatre on May 17, 1946, up to December 4 of the same year. But of the total cost of the
materials amounting to P62,255.85, Lopez was paid only P20,848.50, thus leaving a balance of
P41,771.35.
We may state at this juncture that the Plaza Theatre was erected on a piece of land with an
area of 679.17 square meters formerly owned by Vicente Orosa, Jr., and was acquired by the
corporation on September 25, 1946, for P6,000. As Lopez was pressing Orosa for payment of
the remaining unpaid obligation, the latter and Belarmino Rustia, the president of the
corporation, promised to obtain a bank loan by mortgaging the properties of the Plaza Theatre.,
out of which said amount of P41,771.35 would be satisfied, to which assurance Lopez had to
accede. Unknown to him, however, as early as November, 1946, the corporation already got a
loan for P30,000 from the Philippine National Bank with the Luzon Surety Company as surety,
and the corporation in turn executed a mortgage on the land and building in favor of said
company as counter-security. As the land at that time was not yet brought under the operation
of the Torrens System, the mortgage on the same was registered on November 16, 1946, under
Act No. 3344. Subsequently, when the corporation applied for the registration of the land under
Act 496, such mortgage was not revealed and thus Original Certificate of Title No. O-391 was
correspondingly issued on October 25, 1947, without any encumbrance appearing thereon.
Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa,
Jr. to execute on March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock of
the Plaza Theater, Inc., at P100 per share or with a total value of P42,000 in favor of the
creditor, and as the obligation still remained unsettled, Lopez filed on November 12, 1947, a
complaint with the Court of First Instance of Batangas (Civil Case No. 4501 which later became
R-57) against Vicente Orosa, Jr. and Plaza Theater, Inc., praying that defendants be sentenced
to pay him jointly and severally the sum of P41,771.35, with legal interest from the firing of the
action; that in case defendants fail to pay the same, that the building and the land covered by
OCT No. O-391 owned by the corporation be sold at public auction and the proceeds thereof be

applied to said indebtedness; or that the 420 shares of the capital stock of the Plaza Theatre,
Inc., assigned by Vicente Orosa, Jr., to said plaintiff be sold at public auction for the same
purpose; and for such other remedies as may be warranted by the circumstances. Plaintiff also
caused the annotation of a notice of lis pendens on said properties with the Register of Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying
that the materials were delivered to him as a promoter and later treasurer of the corporation,
because he had purchased and received the same on his personal account; that the land on
which the movie house was constructed was not charged with a lien to secure the payment of
the aforementioned unpaid obligation; and that the 420 shares of stock of the Plaza Theatre,
Inc., was not assigned to plaintiff as collaterals but as direct security for the payment of his
indebtedness. As special defense, this defendant contended that as the 420 shares of stock
assigned and conveyed by the assignor and accepted by Lopez as direct security for the
payment of the amount of P41,771.35 were personal properties, plaintiff was barred from
recovering any deficiency if the proceeds of the sale thereof at public auction would not be
sufficient to cover and satisfy the obligation. It was thus prayed that he be declared exempted
from the payment of any deficiency in case the proceeds from the sale of said personal
properties would not be enough to cover the amount sought to be collected.
Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense by
alleging that the building materials delivered to Orosa were on the latter's personal account; and
that there was no understanding that said materials would be paid jointly and severally by Orosa
and the corporation, nor was a lien charged on the properties of the latter to secure payment of
the same obligation. As special defense, defendant corporation averred that while it was true
that the materials purchased by Orosa were sold by the latter to the corporation, such
transactions were in good faith and for valuable consideration thus when plaintiff failed to claim
said materials within 30 days from the time of removal thereof from Orosa, lumber became a
different and distinct specie and plaintiff lost whatever rights he might have in the same and
consequently had no recourse against the Plaza Theatre, Inc., that the claim could not have
been refectionary credit, for such kind of obligation referred to an indebtedness incurred in the
repair or reconstruction of something already existing and this concept did not include an
entirely new work; and that the Plaza Theatre, Inc., having been incorporated on October 14,
1946, it could not have contracted any obligation prior to said date. It was, therefore, prayed that
the complaint be dismissed; that said defendant be awarded the sum P 5,000 for damages, and
such other relief as may be just and proper in the premises.
The surety company, in the meantime, upon discovery that the land was already registered
under the Torrens System and that there was a notice of lis pendens thereon, filed on August
17, 1948, or within the 1-year period after the issuance of the certificate of title, a petition for
review of the decree of the land registration court dated October 18, 1947, which was made the
basis of OCT No. O-319, in order to annotate the rights and interests of the surety company
over said properties (Land Registration Case No. 17 GLRO Rec. No. 296). Opposition thereto
was offered by Enrique Lopez, asserting that the amount demanded by him constituted a
preferred lien over the properties of the obligors; that the surety company was guilty of
negligence when it failed to present an opposition to the application for registration of the
property; and that if any violation of the rights and interest of said surety would ever be made,
same must be subject to the lien in his favor.
The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court,
after making an exhaustive and detailed analysis of the respective stands of the parties and the

evidence adduced at the trial, held that defendants Vicente Orosa, Jr., and the Plaza Theatre,
Inc., were jointly liable for the unpaid balance of the cost of lumber used in the construction of
the building and the plaintiff thus acquired the materialman's lien over the same. In making the
pronouncement that the lien was merely confined to the building and did not extend to the land
on which the construction was made, the trial judge took into consideration the fact that when
plaintiff started the delivery of lumber in May, 1946, the land was not yet owned by the
corporation; that the mortgage in favor of Luzon Surety Company was previously registered
under Act No. 3344; that the codal provision (Art. 1923 of the old Spanish Civil Code) specifying
that refection credits are preferred could refer only to buildings which are also classified as real
properties, upon which said refection was made. It was, however, declared that plaintiff's lien on
the building was superior to the right of the surety company. And finding that the Plaza Theatre,
Inc., had no objection to the review of the decree issued in its favor by the land registration court
and the inclusion in the title of the encumbrance in favor of the surety company, the court a
quo granted the petition filed by the latter company. Defendants Orosa and the Plaza Theatre,
Inc., were thus required to pay jointly the amount of P41,771.35 with legal interest and costs
within 90 days from notice of said decision; that in case of default, the 420 shares of stock
assigned by Orosa to plaintiff be sold at public auction and the proceeds thereof be applied to
the payment of the amount due the plaintiff, plus interest and costs; and that the encumbrance
in favor of the surety company be endorsed at the back of OCT No. O-391, with notation I that
with respect to the building, said mortgage was subject to the materialman's lien in favor of
Enrique Lopez.
Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation of
therein defendants was joint instead of solidary, and that the lien did not extend to the land, but
same was denied by order the court of December 23, 1952. The matter was thus appealed to
the Court of appeals, which affirmed the lower court's ruling, and then to this Tribunal. In this
instance, plaintiff-appellant raises 2 issues: (1) whether a materialman's lien for the value of the
materials used in the construction of a building attaches to said structure alone and does not
extend to the land on which the building is adhered to; and (2) whether the lower court and the
Court of Appeals erred in not providing that the material mans liens is superior to the mortgage
executed in favor surety company not only on the building but also on the land.
It is to be noted in this appeal that Enrique Lopez has not raised any question against the part of
the decision sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of
P41,771.35, so We will not take up or consider anything on that point. Appellant, however,
contends that the lien created in favor of the furnisher of the materials used for the construction,
repair or refection of a building, is also extended to the land which the construction was made,
and in support thereof he relies on Article 1923 of the Spanish Civil Code, pertinent law on the
matter, which reads as follows:
ART. 1923. With respect to determinate real property and real rights of the debtor, the
following are preferred:
xxx

xxx

xxx

5. Credits for refection, not entered or recorded, with respect to the estate upon which the
refection was made, and only with respect to other credits different from those mentioned in
four preceding paragraphs.

It is argued that in view of the employment of the phrase real estate, or immovable property, and
inasmuch as said provision does not contain any specification delimiting the lien to the building,
said article must be construed as to embrace both the land and the building or structure
adhering thereto. We cannot subscribe to this view, for while it is true that generally, real estate
connotes the land and the building constructed thereon, it is obvious that the inclusion of the
building, separate and distinct from the land, in the enumeration of what may constitute real
properties1 could mean only one thing that a building is by itself an immovable property, a
doctrine already pronounced by this Court in the case of Leung Yee vs. Strong Machinery Co.,
37 Phil., 644. Moreover, and in view of the absence of any specific provision of law to the
contrary, a building is an immovable property, irrespective of whether or not said structure and
the land on which it is adhered to belong to the same owner.
A close examination of the provision of the Civil Code invoked by appellant reveals that the law
gives preference to unregistered refectionary credits only with respect to the real estate upon
which the refection or work was made. This being so, the inevitable conclusion must be that the
lien so created attaches merely to the immovable property for the construction or repair of which
the obligation was incurred. Evidently, therefore, the lien in favor of appellant for the unpaid
value of the lumber used in the construction of the building attaches only to said structure and to
no other property of the obligors.
Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged
only to the building for which the credit was made or which received the benefit of refection, the
lower court was right in, holding at the interest of the mortgagee over the land is superior and
cannot be made subject to the said materialman's lien.
Wherefore, and on the strength of the foregoing considerations, the decision appealed from is
hereby affirmed, with costs against appellant. It is so ordered.
G.R. No. L-32917 July 18, 1988
JULIAN S. YAP, petitioner,
vs.
HON. SANTIAGO O. TAADA, etc., and GOULDS PUMPS INTERNATIONAL (PHIL.),
INC., respondents.
Paterno P. Natinga for private respondent.

NARVASA, J.:
The petition for review on certiorari at bar involves two (2) Orders of respondent Judge Taada 1 in
Civil Case No. 10984. The first, dated September 16, 1970, denied petitioner Yap's motion to set aside
execution sale and to quash alias writ of execution. The second, dated November 21, 1970, denied Yap's
motion for reconsideration. The issues concerned the propriety of execution of a judgment claimed to be
"incomplete, vague and non-final," and the denial of petitioner's application to prove and recover
damages resulting from alleged irregularities in the process of execution.

The antecedents will take some time in the telling. The case began in the City Court of Cebu with the
filing by Goulds Pumps International (Phil.), Inc. of a complaint 2 against Yap and his wife 3 seeking
recovery of P1,459.30 representing the balance of the price and installation cost of a water pump in the

latter's premises. 4 The case resulted in a judgment by the City Court on November 25, 1968, reading as
follows:

When this case was called for trial today, Atty. Paterno Natinga appeared for the
plaintiff Goulds and informed the court that he is ready for trial. However, none of the
defendants appeared despite notices having been served upon them.
Upon petition Atty. Natinga, the plaintiff is hereby allowed to present its evidence exparte.
After considering the evidence of the plaintiff, the court hereby renders judgment in
favor of the plaintiff and against the defendant (Yap), ordering the latter to pay to the
former the sum of Pl,459.30 with interest at the rate of 12% per annum until fully
paid, computed from August 12, 1968, date of the filing of the complaint; to pay the
sum of P364.80 as reasonable attorney's fees, which is equivalent " to 25% of the
unpaid principal obligation; and to pay the costs, if any.
Yap appealed to the Court of First Instance. The appeal was assigned to the sala of respondent
Judge Taada. For failure to appear for pre-trial on August 28, 1968, this setting being intransferable
since the pre-trial had already been once postponed at his instance, 5 Yap was declared in default by
Order of Judge Taada dated August 28, 1969, 6 reading as follows:

When this case was called for pre-trial this morning, the plaintiff and counsel
appeared, but neither the defendants nor his counsel appeared despite the fact that
they were duly notified of the pre-trial set this morning. Instead he filed an Ex-Parte
Motion for Postponement which this Court received only this morning, and on petition
of counsel for the plaintiff that the Ex-Parte Motion for Postponement was not filed in
accordance with the Rules of Court he asked that the same be denied and the
defendants be declared in default; .. the motion for the plaintiff being well- grounded,
the defendants are hereby declared in default and the Branch Clerk of Court ..is
hereby authorized to receive evidence for the plaintiff and .. submit his report within
ten (10) days after reception of evidence.
Goulds presented evidence ex parte and judgment by default was rendered the following day by
Judge Taada requiring Yap to pay to Goulds (1) Pl,459.30 representing the unpaid balance of the
pump purchased by him; (2) interest of 12% per annum thereon until fully paid; and (3) a sum
equivalent to 25% of the amount due as attorney's fees and costs and other expenses in prosecuting
the action. Notice of the judgment was served on Yap on September 1, 1969. 7
On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he insisted that his motion for
postponement should have been granted since it expressed his desire to explore the possibility of an
amicable settlement; that the court should give the parties time to arrive at an amicable settlement failing
which, he should be allowed to present evidence in support of his defenses (discrepancy as to the price
and breach of warranty). The motion was not verified or accompanied by any separate affidavit. Goulds
opposed the motion. Its opposition 9 drew attention to the eleventh-hour motion for postponement of Yap
which had resulted in the cancellation of the prior hearing of June 30, 1969 despite Goulds' vehement
objection, and the re-setting thereof on August 28, 1969 with intransferable character; it averred that Yap
had again sought postponement of this last hearing by another eleventh-hour motion on the plea that an
amicable settlement would be explored, yet he had never up to that time ever broached the matter, 10and
that this pattern of seeking to obtain last-minute postponements was discernible also in the proceedings
before the City Court. In its opposition, Goulds also adverted to the examination made by it of the pump,
on instructions of the City Court, with a view to remedying the defects claimed to exist by Yap; but the

examination had disclosed the pump's perfect condition. Yap's motion for reconsideration was denied by
Order dated October 10, 1969, notice of which was received by Yap on October 4, 1969. 11

On October 15, 1969 Judge Taada issued an Order granting Goulds' Motion for Issuance of Writ of
Execution dated October 14, 1969, declaring the reasons therein alleged to be meritorious. 12 Yap
forthwith filed an "Urgent Motion for Reconsideration of Order" dated October 17, 1969, 13 contending that
the judgment had not yet become final, since contrary to Goulds' view, his motion for reconsideration was
not pro forma for lack of an affidavit of merit, this not being required under Section 1 (a) of Rule 37 of the
Rules of Court upon which his motion was grounded. Goulds presented an opposition dated October 22,
1969. 14 It pointed out that in his motion for reconsideration Yap had claimed to have a valid defense to
the action, i.e., ".. discrepancy as to price and breach of seller's warranty," in effect, that there was fraud
on Goulds' paint; Yap's motion for reconsideration should therefore have been supported by an affidavit
of merit respecting said defenses; the absence thereof rendered the motion for reconsideration fatally
defective with the result that its filing did not interrupt the running of the period of appeal. The opposition
also drew attention to the failure of the motion for reconsideration to specify the findings or conclusions in
the judgment claimed to be contrary to law or not supported by the evidence, making it a pro
forma motion also incapable of stopping the running of the appeal period. On October 23, 1969, Judge
Taada denied Yap's motion for reconsideration and authorized execution of the judgment. 15 Yap sought
reconsideration of this order, by another motion dated October 29, 1969. 16This motion was denied by
Order dated January 26, 1970. 17 Again Yap moved for reconsideration, and again was rebuffed, by Order
dated April 28, 1970. 18

In the meantime the Sheriff levied on the water pump in question, 19 and by notice dated November 4,
1969, scheduled the execution sale thereof on November 14, 1969. 20 But in view of the pendency of
Yap's motion for reconsideration of October 29, 1969, suspension of the sale was directed by Judge
Taada in an order dated November 6, 1969. 21

Counsel for the plaintiff is hereby given 10 days time to answer the Motion, dated
October 29, 1969, from receipt of this Order and in the meantime, the Order of
October 23, 1969, insofar as it orders the sheriff to enforce the writ of execution is
hereby suspended.
It appears however that a copy of this Order was not transmitted to the Sheriff "through oversight,
inadvertence and pressure of work" of the Branch Clerk of Court. 22 So the Deputy Provincial Sheriff
went ahead with the scheduled auction sale and sold the property levied on to Goulds as the highest
bidder. 23 He later submitted the requisite report to the Court dated November 17, 1969, 24 as well as the
"Sheriffs Return of Service" dated February 13, 1970, 25 in both of which it was stated that execution had
been "partially satisfied." It should be observed that up to this time, February, 1970, Yap had not bestirred
himself to take an appeal from the judgment of August 29, 1969.

On May 9, 1970 Judge Taada ordered the issuance of an alias writ of execution on Gould's ex
parte motion therefor. 26 Yap received notice of the Order on June 11. Twelve (1 2) days later, he filed a
"Motion to Set Aside Execution Sale and to Quash Alias Writ of Execution." 27 As regards
the original, partial execution of the judgment, he argued that

1) "the issuance of the writ of execution on October 16, 1969 was contrary to law, the judgment
sought to be executed not being final and executory;" and
2) "the sale was made without the notice required by Sec. 18, Rule 39, of the New Rules of Court,"
i.e., notice by publication in case of execution sale of real property, the pump and its accessories
being immovable because attached to the ground with character of permanency (Art. 415, Civil
Code).

And with respect to the alias writ, he argued that it should not have issued because
1) "the judgment sought to be executed is null and void" as "it deprived the defendant of his day in
court" and "of due process;"
2) "said judgment is incomplete and vague" because there is no starting point for computation of the
interest imposed, or a specification of the "other expenses incurred in prosecuting this case" which
Yap had also been ordered to pay;
3) "said judgment is defective because it contains no statement of facts but a mere recital of the
evidence; and
4) "there has been a change in the situation of the parties which makes execution unjust and
inequitable" because Yap suffered damages by reason of the illegal execution.
Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter denied by Order dated
September 16, 1970. Judge Taada pointed out that the motion had "become moot and academic"
since the decision of August 29, 1969, "received by the defendant on September 1, 1969 had long
become final when the Order for the Issuance of a Writ of Execution was promulgated on October
15, 1969." His Honor also stressed that
The defendant's Motion for Reconsideration of the Courts decision was in reality one
for new trial. Regarded as motion for new trial it should allege the grounds for new
trial, provided for in the Rules of Court, to be supported by affidavit of merits; and this
the defendant failed to do. If the defendant sincerely desired for an opportunity to
submit to an amicable settlement, which he failed to do extra judicially despite the
ample time before him, he should have appeared in the pre- trial to achieve the same
purpose.
Judge Taada thereafter promulgated another Order dated September 21, 1970 granting a motion of
Goulds for completion of execution of the judgment of August 29, 1969 to be undertaken by the City
Sheriff of Cebu. Once more, Yap sought reconsideration. He submitted a "Motion for
Reconsideration of Two Orders" dated October 13, 1970, 28 seeking the setting aside not only of this
Order of September 21, 1970 but also that dated September 16, 1970, denying his motion to set aside
execution dated June 23, 1970. He contended that the Order of September 21, 1970 (authorizing
execution by the City Sheriff) was premature, since the 30-day period to appeal from the earlier order of
September 16, 1970 (denying his motion to set aside) had not yet expired. He also reiterated his view that
his motion for reconsideration dated September 15, 1969 did not require that it be accompanied by an
affidavit of merits. This last motion was also denied for "lack of merits," by Order dated November 21,
1970. 29

On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his intention to appeal to the
Supreme Court on certiorari only on questions of law, "from the Order ... of September 16, 1970 ...
and from the Order ... of November 21, 1970, ... pursuant to sections 2 and 3 of Republic Act No.
5440." He filed his petition for review with this Court on January 5, 1971, after obtaining an extension
therefor. 30
The errors of law he attributes to the Court a quo are the following: 31
1) refusing to invalidate the execution pursuant to its Order of October 16, 1969 although the
judgment had not then become final and executory and despite its being incomplete and vague;

2) ignoring the fact that the execution sale was carried out although it (the Court) had itself ordered
suspension of execution on November 6, 1969;
3) declining to annul the execution sale of the pump and accessories subject of the action although
made without the requisite notice prescribed for the sale of immovables; and
4) refusing to allow the petitioner to prove irregularities in the process of execution which had
resulted in damages to him.
Notice of the Trial Court's judgment was served on Yap on September 1, 1969. His motion for
reconsideration thereof was filed 15 days thereafter, on September 16, 1969. Notice of the Order
denying the motion was received by him on October 14, 1969. The question is whether or not the
motion for reconsideration which was not verified, or accompanied by an affidavit of merits
(setting forth facts constituting his meritorious defenses to the suit) or other sworn statement (stating
facts excusing his failure to appear at the pre-trial was pro forma and consequently had not
interrupted the running of the period of appeal. It is Yap's contention that his motion was not pro
forma for lack of an affidavit of merits, such a document not being required by Section 1 (a) of Rule
37 of the Rules of Court upon which his motion was based. This is incorrect.
Section 2, Rule 37 precisely requires that when the motion for new trial is founded on Section 1 (a),
it should be accompanied by an affidavit of merit.
xxx xxx xxx
When the motion is made for the causes mentioned in subdivisions (a) and (b) of the
preceding section, it shall be proved in the manner provided for proof of
motions. Affidavit or affidavits of merits shall also be attached to a motion for the
cause mentioned in subdivision (a) which may be rebutted by counter-affidavits.
xxx xxx xxx 32
Since Yap himself asserts that his motion for reconsideration is grounded on Section 1 (a) of Rule
37, 33 i.e., fraud, accident, mistake or excusable negligence which ordinary prudence could not have
guarded against and by reason of which ... (the) aggrieved party has probably been impaired in his rights"
this being in any event clear from a perusal of the motion which theorizes that he had "been impaired
in his rights" because he was denied the right to present evidence of his defenses (discrepancy as to
price and breach of warranty) it was a fatal omission to fail to attach to his motion an affidavit of merits,
i.e., an affidavit "showing the facts (not conclusions) constituting the valid x x defense which the movant
may prove in case a new trial is granted." 34 The requirement of such an affidavit is essential because
obviously "a new trial would be a waste of the court's time if the complaint turns out to be groundless or
the defense ineffective." 35

In his motion for reconsideration, Yap also contended that since he had expressed a desire to
explore the possibility of an amicable settlement, the Court should have given him time to do so,
instead of declaring him in default and thereafter rendering judgment by default on Gould's ex
parte evidence.
The bona fides of this desire to compromise is however put in doubt by the attendant circumstances.
It was manifested in an eleventh-hour motion for postponement of the pre-trial which had been
scheduled with intransferable character since it had already been earlier postponed at Yap's
instance; it had never been mentioned at any prior time since commencement of the litigation; such
a possible compromise (at least in general or preliminary terms) was certainly most appropriate for

consideration at the pre-trial; in fact Yap was aware that the matter was indeed a proper subject of a
pre-trial agenda, yet he sought to avoid appearance at said pre-trial which he knew to be
intransferable in character. These considerations and the dilatory tactics thus far attributable to himseeking postponements of hearings, or failing to appear therefor despite notice, not only in the Court
of First Instance but also in the City Court proscribe belief in the sincerity of his avowed desire to
negotiate a compromise. Moreover, the disregard by Yap of the general requirement that "(n)otice of
a motion shall be served by the applicant to all parties concerned at least three (3) days before the
hearing thereof, together with a copy of the motion, and of any affidavits and other papers
accompanying it," 36 for which no justification whatever has been offered, also militates against the bona
fides of Yap's expressed wish for an amicable settlement. The relevant circumstances do not therefore
justify condemnation, as a grave abuse of discretion, or a serious mistake, of the refusal of the Trial
Judge to grant postponement upon this proferred ground.

The motion for reconsideration did not therefore interrupt the running of the period of appeal. The
time during which it was pending before the court from September 16, 1969 when it was filed with
the respondent Court until October 14, 1969 when notice of the order denying the motion was
received by the movant could not be deducted from the 30-day period of appeal. 37 This is the
inescapable conclusion from a consideration of Section 3 of Rule 41 which in part declares that, "The
"time during which a motion to set aside the judgment or order or for a new trial has been pending shall
be deducted, unless such motion fails to satisfy the requirements of Rule 37. 38

Notice of the judgment having been received by Yap on September 1, 1969, and the period of
appeal therefrom not having been interrupted by his motion for reconsideration filed on September
16, 1969, the reglementary period of appeal expired thirty (30) days after September 1, 1969, or on
October 1, 1969, without an appeal being taken by Yap. The judgment then became final and
executory; Yap could no longer take an appeal therefrom or from any other subsequent orders; and
execution of judgment correctly issued on October 15, 1969, "as a matter of right." 39
The next point discussed by Yap, that the judgment is incomplete and vague, is not well taken. It is
true that the decision does not fix the starting time of the computation of interest on the judgment
debt, but this is inconsequential since that time is easily determinable from the opinion, i.e., from the
day the buyer (Yap) defaulted in the payment of his obligation, 40 on May 31, 1968. 41 The absence of
any disposition regarding his counterclaim is also immaterial and does not render the judgment
incomplete. Yap's failure to appear at the pre-trial without justification and despite notice, which caused
the declaration of his default, was a waiver of his right to controvert the plaintiff s proofs and of his right to
prove the averments of his answer, inclusive of the counterclaim therein pleaded. Moreover, the
conclusion in the judgment of the merit of the plaintiff s cause of action was necessarily and at the same
time a determination of the absence of merit of the defendant's claim of untenability of the complaint and
of malicious prosecution.

Yap's next argument that the water pump had become immovable property by its being installed in
his residence is also untenable. The Civil Code considers as immovable property, among others,
anything "attached to an immovable in a fixed manner, in such a way that it cannot be separated
therefrom without breaking the material or deterioration of the object." 42 The pump does not fit this
description. It could be, and was in fact separated from Yap's premises without being broken or suffering
deterioration. Obviously the separation or removal of the pump involved nothing more complicated than
the loosening of bolts or dismantling of other fasteners.

Yap's last claim is that in the process of the removal of the pump from his house, Goulds' men had
trampled on the plants growing there, destroyed the shed over the pump, plugged the exterior
casings with rags and cut the electrical and conduit pipes; that he had thereby suffered actualdamages in an amount of not less than P 2,000.00, as well as moral damages in the sum of P
10,000.00 resulting from his deprivation of the use of his water supply; but the Court had refused to

allow him to prove these acts and recover the damages rightfully due him. Now, as to the loss of his
water supply, since this arose from acts legitimately done, the seizure on execution of the water
pump in enforcement of a final and executory judgment, Yap most certainly is not entitled to claim
moral or any other form of damages therefor.
WHEREFORE, the petition is DENIED and the appeal DISMISSED, and the Orders of September
16, 1970 and November 21, 1970 subject thereof, AFFIRMED in toto. Costs against petitioner.

G.R. No. L-7057

October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON, JUDGE OF THE
COURT OF FIRST INSTANCE OF MANILA, IPO LIMESTONE CO., INC., and ANTONIO
VILLARAMA, respondents.
Vicente J. Francisco for petitioner.
Capistrano and Capistrano for respondents.
CONCEPCION, J.:
This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies Inc.,
from a decision of the Court of Appeals denying an original petition for certiorari filed by said
petitioner against Hon. Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama, the
respondents herein.
The pertinent facts are set forth in the decision of the Court of Appeals, from which we quote:
On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of First
Instance of Manila, Civil Case No. 19067, entitled "Machinery and Engineering Supplies,
Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama, defendants", for the
recovery of the machinery and equipment sold and delivered to said defendants at their
factory in barrio Bigti, Norzagaray, Bulacan. Upon application ex-parte of the petitioner
company, and upon approval of petitioner's bond in the sum of P15,769.00, on March
13,1953, respondent judge issued an order, commanding the Provincial Sheriff of Bulacan to
seize and take immediate possession of the properties specified in the order (Appendix I,
Answer). On March 19, 1953, two deputy sheriffs of Bulacan, the said Ramon S. Roco, and a
crew of technical men and laborers proceeded to Bigti, for the purpose of carrying the court's
order into effect. Leonardo Contreras, Manager of the respondent Company, and Pedro
Torres, in charge thereof, met the deputy sheriffs, and Contreras handed to them a letter
addressed to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan, signed by Atty.
Adolfo Garcia of the defendants therein, protesting against the seizure of the properties in
question, on the ground that they are not personal properties. Contending that the Sheriff's
duty is merely ministerial, the deputy sheriffs, Roco, the latter's crew of technicians and
laborers, Contreras and Torres, went to the factory. Roco's attention was called to the fact
that the equipment could not possibly be dismantled without causing damages or injuries to
the wooden frames attached to them. As Roco insisted in dismantling the equipment on his
own responsibility, alleging that the bond was posted for such eventuality, the deputy sheriffs
directed that some of the supports thereof be cut (Appendix 2). On March 20, 1953, the
defendant Company filed an urgent motion, with a counter-bond in the amount of P15,769,
for the return of the properties seized by the deputy sheriffs. On the same day, the trial court

issued an order, directing the Provincial Sheriff of Bulacan to return the machinery and
equipment to the place where they were installed at the time of the seizure (Appendix 3). On
March 21, 1953, the deputy sheriffs returned the properties seized, by depositing them along
the road, near the quarry, of the defendant Company, at Bigti, without the benefit of inventory
and without re-installing hem in their former position and replacing the destroyed posts,
which rendered their use impracticable. On March 23, 1953, the defendants' counsel asked
the provincial Sheriff if the machinery and equipment, dumped on the road would be reinstalled tom their former position and condition (letter, Appendix 4). On March 24, 1953, the
Provincial Sheriff filed an urgent motion in court, manifesting that Roco had been asked to
furnish the Sheriff's office with the expenses, laborers, technical men and equipment, to
carry into effect the court's order, to return the seized properties in the same way said Roco
found them on the day of seizure, but said Roco absolutely refused to do so, and asking the
court that the Plaintiff therein be ordered to provide the required aid or relieve the said Sheriff
of the duty of complying with the said order dated March 20, 1953 (Appendix 5). On March
30, 1953, the trial court ordered the Provincial Sheriff and the Plaintiff to reinstate the
machinery and equipment removed by them in their original condition in which they were
found before their removal at the expense of the Plaintiff (Appendix 7). An urgent motion of
the Provincial Sheriff dated April 15, 1953, praying for an extension of 20 days within which
to comply with the order of the Court (appendix 10) was denied; and on May 4, 1953, the trial
court ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days with the
necessary funds, technical men, laborers, equipment and materials to effect the repeatedly
mentioned re-installation (Appendix 13). (Petitioner's brief, Appendix A, pp. I-IV.)

Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R, entitled
"Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson, Provincial Sheriff
of Bulacan, Ipo Limestone Co., Inc., and Antonio Villarama." In the petition therein filed, it was
alleged that, in ordering the petitioner to furnish the provincial sheriff of Bulacan "with necessary
funds, technical men, laborers, equipment and materials, to effect the installation of the
machinery and equipment" in question, the Court of Firs Instance of Bulacan had committed a
grave abuse if discretion and acted in excess of its jurisdiction, for which reason it was prayed
that its order to this effect be nullified, and that, meanwhile, a writ of preliminary injunction be
issued to restrain the enforcement o said order of may 4, 1953. Although the aforementioned
writ was issued by the Court of Appeals, the same subsequently dismissed by the case for lack
of merit, with costs against the petitioner, upon the following grounds:
While the seizure of the equipment and personal properties was ordered by the respondent
Court, it is, however, logical to presume that said court did not authorize the petitioner or its
agents to destroy, as they did, said machinery and equipment, by dismantling and unbolting
the same from their concrete basements, and cutting and sawing their wooden supports,
thereby rendering them unserviceable and beyond repair, unless those parts removed, cut
and sawed be replaced, which the petitioner, not withstanding the respondent Court's order,
adamantly refused to do. The Provincial Sheriff' s tortious act, in obedience to the insistent
proddings of the president of the Petitioner, Ramon S. Roco, had no justification in law,
notwithstanding the Sheriffs' claim that his duty was ministerial. It was the bounden duty of
the respondent Judge to give redress to the respondent Company, for the unlawful and
wrongful acts committed by the petitioner and its agents. And as this was the true object of
the order of March 30, 1953, we cannot hold that same was within its jurisdiction to issue.
The ministerial duty of the Sheriff should have its limitations. The Sheriff knew or must have
known what is inherently right and inherently wrong, more so when, as in this particular case,
the deputy sheriffs were shown a letter of respondent Company's attorney, that the
machinery were not personal properties and, therefore, not subject to seizure by the terms of
the order. While it may be conceded that this was a question of law too technical to decide

on the spot, it would not have costs the Sheriff much time and difficulty to bring the letter to
the court's attention and have the equipment and machinery guarded, so as not to frustrate
the order of seizure issued by the trial court. But acting upon the directives of the president of
the Petitioner, to seize the properties at any costs, in issuing the order sought to be annulled,
had not committed abuse of discretion at all or acted in an arbitrary or despotic manner, by
reason of passion or personal hostility; on the contrary, it issued said order, guided by the
well known principle that of the property has to be returned, it should be returned in as good
a condition as when taken (Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one had
gone beyond the scope of his authority, it is the respondent Provincial Sheriff. But
considering that fact that he acted under the pressure of Ramon S. Roco, and that the order
impugned was issued not by him, but by the respondent Judge, We simply declare that said
Sheriff' act was most unusual and the result of a poor judgment. Moreover, the Sheriff not
being an officer exercising judicial functions, the writ may not reach him, for certiorari lies
only to review judicial actions.
The Petitioner complains that the respondent Judge had completely disregarded his
manifestation that the machinery and equipment seized were and still are the Petitioner's
property until fully paid for and such never became immovable. The question of ownership
and the applicability of Art. 415 of the new Civil Code are immaterial in the determination of
the only issue involved in this case. It is a matter of evidence which should be decided in the
hearing of the case on the merits. The question as to whether the machinery or equipment in
litigation are immovable or not is likewise immaterial, because the only issue raised before
the trial court was whether the Provincial Sheriff of Bulacan, at the Petitioner's instance, was
justified in destroying the machinery and in refusing to restore them to their original form , at
the expense of the Petitioner. Whatever might be the legal character of the machinery and
equipment, would not be in any way justify their justify their destruction by the Sheriff's and
the said Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)

A motion for reconsideration of this decision of the Court of Appeals having been denied ,
petitioner has brought the case to Us for review by writ of certiorari. Upon examination of the
record, We are satisfied, however that the Court of Appeals was justified in dismissing the case.
The special civil action known as replevin, governed by Rule 62 of Court, is applicable only to
"personal property".
Ordinarily replevin may be brought to recover any specific personal property unlawfully taken
or detained from the owner thereof, provided such property is capable of identification and
delivery; but replevin will not lie for the recovery of real property or incorporeal personal
property. (77 C. J. S. 17) (Emphasis supplied.)

When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc., machinery
and equipment in question appeared to be attached to the land, particularly to the concrete
foundation of said premises, in a fixed manner, in such a way that the former could not be
separated from the latter "without breaking the material or deterioration of the object." Hence, in
order to remove said outfit, it became necessary, not only to unbolt the same, but , also, to cut
some of its wooden supports. Moreover, said machinery and equipment were "intended by the
owner of the tenement for an industry" carried on said immovable and tended." For these
reasons, they were already immovable property pursuant to paragraphs 3 and 5 of Article 415 of
Civil Code of the Philippines, which are substantially identical to paragraphs 3 and 5 of Article
334 of the Civil Code of Spain. As such immovable property, they were not subject to replevin.

In so far as an article, including a fixture annexed by a tenant, is regarded as part of the

realty, it is not the subject for personality; . . . .
. . . the action of replevin does not lie for articles so annexed to the realty as to be part as to
be part thereof, as, for example, a house or a turbine pump constituting part of a building's
cooling system; . . . (36 C. J. S. 1000 & 1001)

Moreover, as the provincial sheriff hesitated to remove the property in question, petitioner's
agent and president, Mr. Ramon Roco, insisted "on the dismantling at his own responsibility,"
stating that., precisely, "that is the reason why plaintiff posted a bond ." In this manner,
petitioner clearly assumed the corresponding risks.
Such assumption of risk becomes more apparent when we consider that, pursuant to Section 5
of Rule 62 of the Rules of Court, the defendant in an action for replevin is entitled to the return
of the property in dispute upon the filing of a counterbond, as provided therein. In other words,
petitioner knew that the restitution of said property to respondent company might be ordered
under said provision of the Rules of Court, and that, consequently, it may become necessary for
petitioner to meet the liabilities incident to such return.
Lastly, although the parties have not cited, and We have not found, any authority squarely in
point obviously real property are not subject to replevin it is well settled that, when the
restitution of what has been ordered, the goods in question shall be returned in substantially the
same condition as when taken (54 C.J., 590-600, 640-641). Inasmuch as the machinery and
equipment involved in this case were duly installed and affixed in the premises of respondent
company when petitioner's representative caused said property to be dismantled and then
removed, it follows that petitioner must also do everything necessary to the reinstallation of said
property in conformity with its original condition.
Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the
petitioner. So ordered.
G.R. No. 168557

February 16, 2007

FELS ENERGY, INC., Petitioner,

vs.
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.
x----------------------------------------------------x
G.R. No. 170628

February 16, 2007

NATIONAL POWER CORPORATION, Petitioner,

vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his
capacity as the Assessor of the Province of Batangas, and the PROVINCE OF
BATANGAS represented by its Provincial Assessor, Respondents.
DECISION

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628,
which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation
(NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2 dated June
20, 2005; the second, also a petition for review on certiorari, challenges the February 9, 2005
Decision3 and November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both
petitions were dismissed on the ground of prescription.
The pertinent facts are as follows:
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.
In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors
decision to assess real property taxes on the power barges. However, the motion was denied
on September 22, 1995, 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.

On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the
amount ofP56,184,088.40, for the year 1994.
SO ORDERED.12
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.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals
(CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and
Warrant by Distraint13 over the power barges, seeking to collect real property taxes amounting
to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS
on November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that
the Provincial Assessor be further restrained by the CBAA from enforcing the disputed
assessment during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the
properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any
resolution or judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings
before the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to admit bond to
guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event
that the judgment be unfavorable to them). The bonds were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real
property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of
Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of
Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958
from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer of
Batangas is hereby directed to act accordingly.
SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned 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. 7160.19 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. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier
decision. The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:
(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.

SO ORDERED.21
FELS and NPC filed separate motions for reconsideration, which were timely opposed by the
Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated October 19,
2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.
Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No.
67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a
Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its motion for
consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition who
should resolve the request for reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of
the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the
ground of prescription. The decretal portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions
dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are
AFFIRMED.
SO ORDERED.24
On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of
the appellate courts decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed
as G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The
petition was, however, denied in this Courts Resolution25 of November 8, 2004, for NPCs
failure to sufficiently show that the CA committed any reversible error in the challenged decision.
NPC filed a motion for reconsideration, which the Court denied with finality in a
Resolution26 dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the
right to question the assessment of the Provincial Assessor had already prescribed upon the
failure of FELS to appeal the disputed assessment to the LBAA within the period prescribed by
law. Since FELS had lost the right to question the assessment, the right of the Provincial
Government to collect the tax was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the
February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a
Resolution27 dated November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied
for lack of merit in a Resolution28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court,
raising the following issues:
A.
Whether power barges, which are floating and movable, are personal properties and therefore, not
subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are exempt from real
estate tax under Section 234 of the Local Government Code ("LGC").
C.
Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it
should be NPC which should be made to pay the same under the law.
D.
Assuming arguendo that the subject power barges are real properties, whether or not the same is
subject to depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real property tax assessment
on the petitioners personal properties is imprescriptible.29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),
indicating the following errors committed by the CA:

I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA
WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES
ARE NOT SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON
THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30

Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution31 dated March 8, 2006.
1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit
their respective Memoranda within 30 days from notice. Almost a year passed but the parties
had not submitted their respective memoranda. Considering that taxesthe lifeblood of our
economyare involved in the present controversy, the Court was prompted to dispense with
the said pleadings, with the end view of advancing the interests of justice and avoiding further
delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred.
FELS argues that when NPC moved to have the assessment reconsidered on September 7,
1995, the running of the period to file an appeal with the LBAA was tolled. For its part, NPC
posits that the 60-day period for appealing to the LBAA should be reckoned from its receipt of
the denial of its motion for reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991,
provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or municipal
assessor in the assessment of his property may, within sixty (60) days from the date of receipt
of the written notice of assessment, appeal to the Board of Assessment Appeals of the province
or city by filing a petition under oath in the form prescribed for the purpose, together with copies
of the tax declarations and such affidavits or documents submitted in support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7,
1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from the date of
receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition
under oath on the form prescribed for the purpose, together with copies of ARP/Tax Declaration
and such affidavits or documents submitted in support of the appeal.32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted
to file a motion for reconsideration of the Provincial Assessors decision, a remedy not
sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial,
city or municipal assessor in the assessment of the property. It follows then that the
determination made by the respondent Provincial Assessor with regard to the taxability of the
subject real properties falls within its power to assess properties for taxation purposes subject to
appeal before the LBAA.33
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP
No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of the
Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35 the last action of the
local assessor on a particular assessment shall be the notice of assessment; it is this last action
which gives the owner of the property the right to appeal to the LBAA. The procedure likewise
does not permit the property owner the remedy of filing a motion for reconsideration before the
local assessor. The pertinent holding of the Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have brought their
appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their
respective notices of assessment, the owners chose to bring their requests for a
review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow this
procedure would indeed invite corruption in the system of appraisal and assessment. It
conveniently courts a graft-prone situation where values of real property may be initially set
unreasonably high, and then subsequently reduced upon the request of a property owner. In the
latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can
conveniently take place. Such occasion for mischief must be prevented and excised from our
system.36
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the
owner or lawful possessor of real property of its revised assessed value, the former shall no
longer have any jurisdiction to entertain any request for a review or readjustment. The
appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided by
law. It follows ineluctably that the 60-day period for making the appeal to the LBAA runs without
interruption. This is what We held in SP 67490 and reaffirm today in SP 67491.37
To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to
collect the taxes due with respect to the taxpayers property becomes absolute upon the
expiration of the period to appeal.38 It also bears stressing that the taxpayers failure to question
the assessment in the LBAA renders the assessment of the local assessor final, executory and
demandable, thus, precluding the taxpayer from questioning the correctness of the assessment,
or from invoking any defense that would reopen the question of its liability on the merits. 39
In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed
out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal.
Elementary is the rule that the perfection of an appeal within the period therefor is both
mandatory and jurisdictional, and failure in this regard renders the decision final and
executory.40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred
by res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a
final determination on the issue of prescription), effectively precludes the claims herein; and that
the filing of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum
shopping.
FELS maintains that the argument of the Provincial Assessor is completely misplaced since it
was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it
did not participate in the aforesaid proceeding, and the Supreme Court never acquired
jurisdiction over it. As to the issue of forum shopping, petitioner claims that no forum shopping
could have been committed since the elements of litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded upon two
grounds embodied in various maxims of common law, namely: (1) public policy and necessity,
which makes it to the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on
the individual of being vexed twice for the same cause nemo debet bis vexari et eadem causa.
A conflicting doctrine would subject the public peace and quiet to the will and dereliction of
individuals and prefer the regalement of the litigious disposition on the part of suitors to the
preservation of the public tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon
Vda. de Roxas v. Court of Appeals:42
x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion,
by a court of competent jurisdiction acting upon a matter within its authority is conclusive on
the rights of the parties and their privies. This ruling holds in all other actions or suits, in the
same or any other judicial tribunal of concurrent jurisdiction, touching on the points or matters in
issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will not allow the same parties
or their privies to litigate anew a question once it has been considered and decided with finality.
Litigations must end and terminate sometime and somewhere. The effective and efficient
administration of justice requires that once a judgment has become final, the prevailing party
should not be deprived of the fruits of the verdict by subsequent suits on the same issues filed
by the same parties.
This is in accordance with the doctrine of res judicata which has the following elements: (1) the
former judgment must be final; (2) the court which rendered it had jurisdiction over the subject
matter and the parties; (3) the judgment must be on the merits; and (4) there must be between
the first and the second actions, identity of parties, subject matter and causes of action. The
application of the doctrine of res judicata does not require absolute identity of parties but merely
substantial identity of parties. There is substantial identity of parties when there is community of
interest or privity of interest between a party in the first and a party in the second case even if
the first case did not implead the latter.43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding
regarding real property assessment. Therefore, when petitioner NPC filed its petition for review
docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS.
Moreover, the assailed decision in the earlier petition for review filed in this Court was the
decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the petitioner.
Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the principle of privity
of interest. In fine, FELS and NPC are substantially "identical parties" as to warrant the
application of res judicata. FELSs argument that it is not bound by the erroneous petition filed
by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists
when, as a result of an adverse judgment in one forum, a party seeks another and possibly
favorable judgment in another forum other than by appeal or special civil action or certiorari.
There is also forum shopping when a party institutes two or more actions or proceedings
grounded on the same cause, on the gamble that one or the other court would make a favorable
disposition.44
Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are
not present in the cases at bar; however, as already discussed, res judicata may be properly
applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and
170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went from one court
to another trying to get a favorable decision from one of the tribunals which allowed them to
pursue their cases.
It must be stressed that an important factor in determining the existence of forum shopping is
the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim
substantially the same reliefs.45 The rationale against forum shopping is that a party should not
be allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or
complaints constitutes abuse of court processes, which tends to degrade the administration of
justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily
burdened dockets of the courts.46
Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as
represent the same interests in both actions, (b) identity of rights asserted and relief prayed for,
the relief being founded on the same facts, and (c) the identity of the two preceding particulars
is such that any judgment rendered in the pending case, regardless of which party is successful,
would amount to res judicata in the other.47
Having found that the elements of res judicata and forum shopping are present in the
consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for
the peace and contentment of petitioners, we shall shed light on the merits of the case.
As found by the appellate court, 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.48 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.49 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.,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.
Moreover, 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
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.52
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, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:
xxx
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power; x x x
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. 53

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.54
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.55 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.56 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.57 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 governments58 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.59
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.60
WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions
AFFIRMED.
SO ORDERED.

FELS ENERGY, INC.,

G.R. No. 168557

Petitioner,

-versus-

THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL
ASSESSOR OF BATANGAS,
Respondents.
x----------------------------------------------------x
NATIONAL POWER CORPORATION,

G.R. No. 170628

Petitioner,
Present:

YNARES-SANTIAGO, J.,
- versus -

Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR. and

LOCAL BOARD OF ASSESSMENT

APPEALS OF BATANGAS, LAURO C.

CHICO-NAZARIO, JJ.

ANDAYA, in his capacity as the Assessor

of the Province of Batangas, and the

Promulgated:

PROVINCE OF BATANGAS represented

by its Provincial Assessor,

February 16, 2007

Respondents.
x--------------------------------------------------------------------------------------------x
DECISION

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R.
No. 170628, which were filed by petitioners FELS Energy, Inc. (FELS) and
National Power Corporation (NPC), respectively. The first is a petition for review
on certiorari assailing the August 25, 2004 Decision[1] of the Court of Appeals
(CA) in CA-G.R. SP No. 67490 and its Resolution[2] dated June 20, 2005; the
second, also a petition for review on certiorari, challenges the February 9, 2005
Decision[3] and November 23, 2005 Resolution[4]of the CA in CA-G.R. SP No.
67491. Both petitions were dismissed on the ground of prescription.
The pertinent facts are as follows:
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
Agreement[5] (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.
In a letter[7] dated September 7, 1995, NPC sought reconsideration of the
Provincial Assessors decision to assess real property taxes on the power barges.
However, the motion was denied on September 22, 1995, 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
opinion[10] dated May 20, 1996, where it is clearly stated that power barges are not
real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution[11] denying the
petition. The fallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay

the real estate tax in the amount of P56,184,088.40, for the year 1994.
SO ORDERED.[12]

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.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of
Assessment Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a
Notice of Levy and Warrant by Distraint[13] over the power barges, seeking to
collect real property taxes amounting to P232,602,125.91 as of July 31, 1996. The
notice and warrant was officially served to FELS on November 8, 1996. It then
filed a Motion to Lift Levy datedNovember 14, 1996, praying that the Provincial
Assessor be further restrained by the CBAA from enforcing the disputed
assessment during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order[14] lifting the levy and
distraint on the properties of FELS in order not to preempt and render ineffectual,
nugatory and illusory any resolution or judgment which the Board would issue.

Meantime, the NPC filed a Motion for Intervention[15] dated August 7,

1998 in the proceedings before the CBAA. This was approved by the CBAA in an
Order[16] datedSeptember 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions
to admit bond to guarantee the payment of real property taxes assessed by the
Provincial Assessor (in the event that the judgment be unfavorable to them). The
bonds were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision[17] finding the power
barges exempt from real property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals
of the Province of Batangas is hereby reversed. Respondent-appellee Provincial
Assessor of the Province of Batangas is hereby ordered to drop subject property
under ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in
the Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to
act accordingly.
SO ORDERED.[18]

Ruling in favor of FELS and NPC, the CBAA reasoned 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.[19] 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. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution[20] on July 31,
2001 reversing its earlier decision. The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:

(a)

The decision of the Board dated 6 April 2000 is hereby reversed.

(b)

The petition of FELS, as well as the intervention of NPC, is dismissed.

(c)

The resolution of the Local Board of Assessment Appeals of Batangas is

hereby affirmed,

(d)

The real property tax assessment on FELS by the Provincial Assessor of

Batangas is likewise hereby affirmed.
SO ORDERED.[21]

FELS and NPC filed separate motions for reconsideration, which were
timely opposed by the Provincial Assessor. The CBAA denied the said motions in
a Resolution[22]dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CAG.R. SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as CAG.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation
in CA-G.R. SP No. 67490 praying for the consolidation of its petition with CAG.R. SP No. 67491. In a Resolution[23] dated February 12, 2002, the appellate court
directed NPC to re-file its motion for consolidation with CA-G.R. SP No. 67491,
since it is the ponente of the latter petition who should resolve the request for
reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the
Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No.
67490 denying the petition on the ground of prescription. The decretal portion of
the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and
the assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central
Board of Assessment Appeals areAFFIRMED.

SO ORDERED.[24]

On September 20, 2004, FELS timely filed a motion for reconsideration

seeking the reversal of the appellate courts decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before
this Court, docketed as G.R. No. 165113, assailing the appellate courts decision in
CA-G.R. SP No. 67490. The petition was, however, denied in this Courts
Resolution[25] of November 8, 2004, for NPCs failure to sufficiently show that the
CA committed any reversible error in the challenged decision. NPC filed a motion
for reconsideration, which the Court denied with finality in a
Resolution[26] dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No.
67491. It held that the right to question the assessment of the Provincial Assessor
had already prescribed upon the failure of FELS to appeal the disputed assessment
to the LBAA within the period prescribed by law. Since FELS had lost the right to
question the assessment, the right of the Provincial Government to collect the tax
was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking
reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No.
67491. The motion was denied in a Resolution[27] dated November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP

No.
67490 had been earlier denied for lack of merit in a Resolution [28] dated June 20,
2005.
On August 3, 2005, FELS filed the petition docketed as G.R.
168557 before this Court, raising the following issues:

No.

A.
Whether power barges, which are floating and movable, are personal properties
and therefore, not subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are
exempt from real estate tax under Section 234 of the Local Government Code
(LGC).
C.
Assuming arguendo that the subject power barges are subject to real estate tax,
whether or not it should be NPC which should be made to pay the same under the
law.
D.
Assuming arguendo that the subject power barges are real properties, whether or
not the same is subject to depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real
property tax assessment on the petitioners personal properties is
imprescriptible.[29]

On January 13, 2006, NPC filed its own petition for review before this Court
(G.R. No. 170628), indicating the following errors committed by the CA:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE
APPEAL TO THE LBAA WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.

III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN
ACCORDANCE WITH LAW.[30]

Considering that the factual antecedents of both cases are similar, the Court
ordered the consolidation of the two cases in a Resolution[31] dated March 8, 2006.
In an earlier Resolution dated February 1, 2006, the Court had required the
parties to submit their respective Memoranda within 30 days from notice. Almost a
year passed but the parties had not submitted their respective memoranda.
Considering that taxesthe lifeblood of our economyare involved in the present
controversy, the Court was prompted to dispense with the said pleadings, with the
end view of advancing the interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA
was not time-barred. FELS argues that when NPC moved to have the assessment
reconsidered on September 7, 1995, the running of the period to file an appeal with
the LBAA was tolled. For its part, NPC posits that the 60-day period for appealing
to the LBAA should be reckoned from its receipt of the denial of its motion for
reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government
Code of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or
person having legal interest in the property who is not satisfied with the action of
the provincial, city or municipal assessor in the assessment of his property may,
within sixty (60) days from the date of receipt of the written notice of assessment,
appeal to the Board of Assessment Appeals of the province or city by filing a
petition under oath in the form prescribed for the purpose, together with copies of

the tax declarations and such affidavits or documents submitted in support of the
appeal.

We note that the notice of assessment which the Provincial Assessor sent to
FELS on August 7, 1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60)
days from the date of receipt hereof, appeal to the Board of Assessment
Appeals of the province by filing a petition under oath on the form prescribed for
the purpose, together with copies of ARP/Tax Declaration and such affidavits or
documents submitted in support of the appeal.[32]

Instead of appealing to the Board of Assessment Appeals (as stated in the

notice), NPC opted to file a motion for reconsideration of the Provincial Assessors
decision, a remedy not sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or

action of the provincial, city or municipal assessor in the assessment of the
property. It follows then that the determination made by the respondent Provincial
Assessor with regard to the taxability of the subject real properties falls within its
power to assess properties for taxation purposes subject to appeal before the
LBAA.[33]
We fully agree with the rationalization of the CA in both CA-G.R. SP No.
67490 and CA-G.R. SP No. 67491. The two divisions of the appellate court cited
the case ofCallanta v. Office of the Ombudsman,[34] where we ruled that under
Section 226 of R.A. No 7160,[35] the last action of the local assessor on a particular
assessment shall be the notice of assessment; it is this last action which gives the
owner of the property the right to appeal to the LBAA. The procedure likewise
does not permit the property owner the remedy of filing a motion for
reconsideration before the local assessor. The pertinent holding of the Court
in Callanta is as follows:

x x x [T]he same Code is equally clear that the aggrieved owners should
have brought their appeals before the LBAA. Unfortunately, despite the advice to
this effect contained in their respective notices of assessment, the owners chose to
bring their requests for a review/readjustment before the city assessor, a remedy
not sanctioned by the law. To allow this procedure would indeed invite corruption
in the system of appraisal and assessment. It conveniently courts a graft-prone
situation where values of real property may be initially set unreasonably high, and
then subsequently reduced upon the request of a property owner. In the latter
instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in
fact can conveniently take place. Such occasion for mischief must be prevented
and excised from our system.[36]

For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor
sends a notice to the owner or lawful possessor of real property of its revised
assessed value, the former shall no longer have any jurisdiction to entertain any
request for a review or readjustment. The appropriate forum where the aggrieved
party may bring his appeal is the LBAA as provided by law. It follows ineluctably
that the 60-day period for making the appeal to the LBAA runs without
interruption. This is what We held in SP 67490 and reaffirm today in SP
67491.[37]

To reiterate, if the taxpayer fails to appeal in due course, the right of

the local government to collect the taxes due with respect to the taxpayers
property becomes absolute upon the expiration of the period to appeal. [38] It also
bears stressing that the taxpayers failure to question the assessment in the LBAA
renders the assessment of the local assessor final, executory and demandable, thus,
precluding the taxpayer from questioning the correctness of the assessment, or
from invoking any defense that would reopen the question of its liability on the
merits.[39]
In fine, the LBAA acted correctly when it dismissed the petitioners appeal
for having been filed out of time; the CBAA and the appellate court were likewise
correct in affirming the dismissal. Elementary is the rule that the perfection of an

appeal within the period therefor is both mandatory and jurisdictional, and failure
in this regard renders the decision final and executory.[40]
In the Comment filed by the Provincial Assessor, it is asserted that the
instant petition is barred by res judicata; that the final and executory judgment in
G.R. No. 165113 (where there was a final determination on the issue of
prescription), effectively precludes the claims herein; and that the filing of the
instant petition after an adverse judgment in G.R. No. 165113 constitutes forum
shopping.
FELS maintains that the argument of the Provincial Assessor is completely
misplaced since it was not a party to the erroneous petition which the NPC filed in
G.R. No. 165113. It avers that it did not participate in the aforesaid proceeding,
and the Supreme Court never acquired jurisdiction over it. As to the issue of
forum shopping, petitioner claims that no forum shopping could have been
committed since the elements of litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is
founded upon two grounds embodied in various maxims of common law, namely:
(1) public policy and necessity, which makes it to the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the
hardship on the individual of being vexed twice for the same cause nemo debet
bis vexari et eadem causa. A conflicting doctrine would subject the public peace
and quiet to the will and dereliction of individuals and prefer the regalement of the
litigious disposition on the part of suitors to the preservation of the public
tranquility and happiness.[41] As we ruled in Heirs of Trinidad De Leon Vda. de
Roxas v. Court of Appeals:[42]

x x x An existing final judgment or decree rendered upon

the merits, without fraud or collusion, by a court of competent
jurisdiction acting upon a matter within its authority is
conclusive on the rights of the parties and their privies. This ruling
holds in all other actions or suits, in the same or any other judicial
tribunal of concurrent jurisdiction, touching on the points or
matters in issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will not
allow the same parties or their privies to litigate anew a question once it has been
considered and decided with finality. Litigations must end and terminate
sometime and somewhere. The effective and efficient administration of justice
requires that once a judgment has become final, the prevailing party should not be
deprived of the fruits of the verdict by subsequent suits on the same issues filed
by the same parties.
This is in accordance with the doctrine of res judicata which has the
following elements: (1) the former judgment must be final; (2) the court which
rendered it had jurisdiction over the subject matter and the parties; (3) the
judgment must be on the merits; and (4) there must be between the first and the
second actions, identity of parties, subject matter and causes of action. The
application of the doctrine of res judicata does not require absolute identity of
parties but merely substantial identity of parties. There is substantial identity
of parties when there is community of interest or privity of interest between a
party in the first and a party in the second case even if the first case did not
implead the latter.[43]

To recall, FELS gave NPC the full power and authority to represent it in any
proceeding regarding real property assessment. Therefore, when petitioner NPC
filed its petition for review docketed as G.R. No. 165113, it did so not only on its
behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier
petition for review filed in this Court was the decision of the appellate court in CAG.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R.
No. 165116 is binding on petitioner FELS under the principle of privity of interest.
In fine, FELS and NPC are substantially identical parties as to warrant the
application of res judicata. FELSs argument that it is not bound by the erroneous
petition filed by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum
shopping exists when, as a result of an adverse judgment in one forum, a party
seeks another and possibly favorable judgment in another forum other than by
appeal or special civil action or certiorari. There is also forum shopping when a
party institutes two or more actions or proceedings grounded on the same cause,
on the gamble that one or the other court would make a favorable disposition.[44]

Petitioner FELS alleges that there is no forum shopping since the elements
of res judicata are not present in the cases at bar; however, as already
discussed, res judicatamay be properly applied herein. Petitioners engaged in
forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition
for review in G.R. No. 165116. Indeed, petitioners went from one court to another
trying to get a favorable decision from one of the tribunals which allowed them to
pursue their cases.

It must be stressed that an important factor in determining the existence of

forum shopping is the vexation caused to the courts and the parties-litigants by
the filing of similar cases to claim substantially the same reliefs.[45] The rationale
against forum shopping is that a party should not be allowed to pursue
simultaneous remedies in two different fora. Filing multiple petitions or
complaints constitutes abuse of court processes, which tends to degrade the
administration of justice, wreaks havoc upon orderly judicial procedure, and adds
to the congestion of the heavily burdened dockets of the courts.[46]

Thus, there is forum shopping when there exist: (a) identity of parties, or at
least such parties as represent the same interests in both actions,
(b) identity
of rights asserted and relief prayed for, the relief being founded on the same
facts, and (c) the identity of the two preceding particulars is such that any

judgment rendered in the pending case, regardless of which party is successful,

would amount to res judicata in the other.[47]

Having found that the elements of res judicata and forum shopping are
present in the consolidated cases, a discussion of the other issues is no longer
necessary. Nevertheless, for the peace and contentment of petitioners, we shall
shed light on the merits of the case.
As found by the appellate court, 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.[48] 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.[49] 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.,[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.
Moreover, 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]
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.[52]

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, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
xxx
(c)
All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;
xxx

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.[53]

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.[54]
Time and again, the Supreme Court has stated that taxation is the rule and
exemption is the exception.[55] 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.[56] 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.[57] 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 [58] 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 selfreliant communities and make them effective partners in the attainment of national
goals.[59]
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.[60]

WHEREFORE, the Petitions are DENIED and the assailed Decisions and
Resolutions AFFIRMED.