G.R. No.

L-11139             April 23, 1958

SANTOS EVANGELISTA, petitioner,
vs.
ALTO SURETY & INSURANCE CO., INC., 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 by the lessee
of the land on which it is built, should be dealt with, for purpose, of attachment, as immovable
property, or as personal property.

It is, our considered opinion that said house is not personal property, much less a debt, credit
or other personal property not capable of manual delivery, but immovable property. As explicitly
held, in Laddera vs. Hodges (48 Off. Gaz., 5374), "a true building (not merely superimposed on
the soil) is immovable or real property, whether it is erected by the owner of the land or by
usufructuary or lessee. This is the doctrine of our Supreme Court in Leung Yee vs. Strong
Machinery Company, 37 Phil., 644. And it is amply supported by the rulings of the French Court. . . ."

It is true that the parties to a deed of chattel mortgage may agree to consider a house as personal
property for purposes of said contract (Luna vs. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co.
of New York vs. Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil., 464). However,
this view is good only insofar as the contracting parties are concerned. It is based, partly, upon the
principle of estoppel. Neither this principle, nor said view, is applicable to strangers to said contract.
Much less is it in point where there has been no contract whatsoever, with respect to the status of
the house involved, as in the case at bar. Apart from this, in Manarang vs. Ofilada (99 Phil., 108; 52
Off. Gaz., 3954), we held:

The question now before us, however, is: Does the fact that the parties entering into a
contract regarding a house gave said property the consideration of personal property in their
contract, bind the sheriff in advertising the property's sale at public auction as
personal property? It is to be remembered that in the case at bar the action was to collect a
loan secured by a chattel mortgage on the house. It is also to be remembered that in
practice it is the judgment creditor who points out to the sheriff the properties that the sheriff
 is to levy upon in execution, and the judgment creditor in the case at bar is the party in
whose favor the owner of the house had conveyed it by way of chattel mortgage and,
therefore, knew its consideration as personal property.

These considerations notwithstanding, we hold that the rules on execution do not allow, and,
we should not interpret them in such a way as to allow, the special consideration that parties
to a contract may have desired to impart to real estate, for example, as personal property,
when they are, not ordinarily so. Sales on execution affect the public and third persons. The
regulation governing sales on execution are for public officials to follow. The form of
proceedings prescribed for each kind of property is suited to its character, not to the
character, which the parties have given to it or desire to give it. When the rules speak of
personal property, property which is ordinarily so considered is meant; and when real
property is spoken of, it means property which is generally known as real property. The
regulations were never intended to suit the consideration that parties may have
privately given to the property levied upon. Enforcement of regulations would be difficult
were the convenience or agreement of private parties to determine or govern the nature of
the proceedings. We therefore hold that the mere fact that a house was the subject of
the chattel mortgage and was considered as personal property by the parties does
not make said house personal property for purposes of the notice to be given for its
sale of public auction. This ruling is demanded by the need for a definite, orderly and well
defined regulation for official and public guidance and would prevent confusion and
misunderstanding.

We, therefore, declare that the house of mixed materials levied upon on execution, although
subject of a contract of chattel 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. L-15334             January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON

CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.

PAREDES, J.:

From the stipulation of facts and evidence adduced during the hearing, the following appear:

On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the
Municipal Board of Manila to grant a franchise to construct, maintain and operate an electric
street railway and electric light, heat and power system in the City of Manila and its suburbs to
the person or persons making the most favorable bid. Charles M. Swift was awarded the said
franchise on March 1903, the terms and conditions of which were embodied in Ordinance No.
44 approved on March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became the
transferee and owner of the franchise.

Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna
and is transmitted to the City of Manila by means of electric transmission wires, running from the
province of Laguna to the said City. These electric transmission wires which carry high voltage
current, are fastened to insulators attached on steel towers constructed by respondent at intervals,
from its hydro-electric plant in the province of Laguna to the City of Manila. The respondent
Meralco has constructed 40 of these steel towers within Quezon City, on land belonging to it. A
photograph of one of these steel towers is attached to the petition for review, marked Annex A.
Three steel towers were inspected by the lower court and parties and the following were the
descriptions given thereof by said court:

The first steel tower is located in South Tatalon, España Extension, Quezon City. The
findings were as follows: the ground around one of the four posts was excavated to a depth
of about eight (8) feet, with an opening of about one (1) meter in diameter, decreased to
about a quarter of a meter as it we deeper until it reached the bottom of the post; at the
bottom of the post were two parallel steel bars attached to the leg means of bolts; the tower
proper was attached to the leg three bolts; with two cross metals to prevent mobility; there
was no concrete foundation but there was adobe stone underneath; as the bottom of the
excavation was covered with water about three inches high, it could not be determined with
certainty to whether said adobe stone was placed purposely or not, as the place abounds
with this kind of stone; and the tower carried five high voltage wires without cover or any
insulating materials.

The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more than one kilometer from the first tower. As in the
first tower, the ground around one of the four legs was excavate from seven to eight (8) feet
deep and one and a half (1-½) meters wide. There being very little water at the bottom, it
was seen that there was no concrete foundation, but there soft adobe beneath. The leg was
likewise provided with two parallel steel bars bolted to a square metal frame also bolted to
each corner. Like the first one, the second tower is made up of metal rods joined together by
means of bolts, so that by unscrewing the bolts, the tower could be dismantled and
reassembled.
 The third tower examined is located along Kamias Road, Quezon City. As in the first two
towers given above, the ground around the two legs of the third tower was excavated to a
depth about two or three inches beyond the outside level of the steel bar foundation. It was
found that there was no concrete foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be resting on soft adobe, which, probably due
to high humidity, looks like mud or clay. It was also found that the square metal frame
supporting the legs were not attached to any material or foundation.

On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel
towers for real property tax under Tax declaration Nos. 31992 and 15549. After denying
respondent's petition to cancel these declarations, an appeal was taken by respondent to the Board
of Assessment Appeals of Quezon City, which required respondent to pay the amount of
P11,651.86 as real property tax on the said steel towers for the years 1952 to 1956.
Respondent paid the amount under protest, and filed a petition for review in the Court of Tax
Appeals (CTA

for short) which rendered a decision on December 29, 1958, ordering the cancellation of the said
tax declarations and the petitioner City Treasurer of Quezon City to refund to the respondent
the sum of P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the
instant petition for review was filed.

In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the term
"poles" which are declared exempt from taxes under part II paragraph 9 of respondent's
franchise; (2) the steel towers are personal properties and are not subject to real property tax;
and (3) the City Treasurer of Quezon City is held responsible for the refund of the amount
paid. These are assigned as errors by the petitioner in the brief.

The tax exemption privilege of the petitioner is quoted hereunder:

PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required by law to pay ... Said percentage
shall be due and payable at the time stated in paragraph nineteen of Part One hereof, ... and
shall be in lieu of all taxes and assessments of whatsoever nature and by whatsoever
authority upon the privileges, earnings, income, franchise, and poles, wires, transformers,
and insulators of the grantee from which taxes and assessments the grantee is hereby
expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's Franchise; emphasis
supplied.)

The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or timber, as
typically the stem of a small tree stripped of its branches; also by extension, a similar typically
cylindrical piece or object of metal or the like". The term also refers to "an upright standard to the top
of which something is affixed or by which something is supported; as a dovecote set on a pole;
telegraph poles; a tent pole; sometimes, specifically a vessel's master (Webster's New International
Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of Manila, may be seen cylindrical metal
poles, cubical concrete poles, and poles of the PLDT Co. which are made of two steel bars joined
together by an interlacing metal rod. They are called "poles" notwithstanding the fact that they are no
made of wood. It must be noted from paragraph 9, above quoted, that the concept of the "poles" for
which exemption is granted, is not determined by their place or location, nor by the character of the
electric current it carries, nor the material or form of which it is made, but the use to which they are
dedicated. In accordance with the definitions, pole is not restricted to a long cylindrical piece of wood
or metal, but includes "upright standards to the top of which something is affixed or by which
something is supported. As heretofore described, respondent's steel supports consists of a
framework of four steel bars or strips which are bound by steel cross-arms atop of which are cross-
arms supporting five high voltage transmission wires (See Annex A) and their sole function is to
support or carry such wires.

The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is not
a novelty. Several courts of last resort in the United States have called these steel supports "steel
towers", and they denominated these supports or towers, as electric poles. In their decisions the
words "towers" and "poles" were used interchangeably, and it is well understood in that jurisdiction
that a transmission tower or pole means the same thing.

In a proceeding to condemn land for the use of electric power wires, in which the law provided that
wires shall be constructed upon suitable poles, this term was construed to mean either wood or
metal poles and in view of the land being subject to overflow, and the necessary carrying of
numerous wires and the distance between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words and
Phrases, p. 365.)

The term "poles" was also used to denominate the steel supports or towers used by an association
used to convey its electric power furnished to subscribers and members, constructed for the purpose
of fastening high voltage and dangerous electric wires alongside public highways. The steel supports
or towers were made of iron or other metals consisting of two pieces running from the ground up
some thirty feet high, being wider at the bottom than at the top, the said two metal pieces being
connected with criss-cross iron running from the bottom to the top, constructed like ladders and
loaded with high voltage electricity. In form and structure, they are like the steel towers in question.
(Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)

The term "poles" was used to denote the steel towers of an electric company engaged in the
generation of hydro-electric power generated from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15 feet square at the base and extended to a height of
about 35 feet to a point, and are embedded in the cement foundations sunk in the earth, the top of
which extends above the surface of the soil in the tower of Oxford, and to the towers are attached
insulators, arms, and other equipment capable of carrying wires for the transmission of electric
power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).

In a case, the defendant admitted that the structure on which a certain person met his death was
built for the purpose of supporting a transmission wire used for carrying high-tension electric power,
but claimed that the steel towers on which it is carried were so large that their wire took their
structure out of the definition of a pole line. It was held that in defining the word pole, one should not
be governed by the wire or material of the support used, but was considering the danger from any
elevated wire carrying electric current, and that regardless of the size or material wire of its individual
members, any continuous series of structures intended and used solely or primarily for the purpose
of supporting wires carrying electric currents is a pole line (Inspiration Consolidation Cooper Co. v.
Bryan 252 P. 1016).

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat the
very object for which the franchise was granted. The poles as contemplated thereon, should be
understood and taken as a part of the electric power system of the respondent Meralco, for the
conveyance of electric current from the source thereof to its consumers. If the respondent would be
required to employ "wooden poles", or "rounded poles" as it used to do fifty years back, then one
should admit that the Philippines is one century behind the age of space. It should also be conceded
by now that steel towers, like the ones in question, for obvious reasons, can better effectuate the
purpose for which the respondent's franchise was granted.

Granting for the purpose of argument that the steel supports or towers in question are not embraced
within the term poles, the logical question posited is whether they constitute real properties, so that
they can be subject to a real property tax. The tax law does not provide for a definition of real
property; but Article 415 of the Civil Code does, by stating the following are immovable property:

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;

xxx     xxx     xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object;

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 in a building or on a piece of land,
and which tends directly to meet the needs of the said industry or works;

xxx     xxx     xxx

The steel towers or supports in question, do not come within the objects mentioned in paragraph 1,
because they do not constitute buildings or constructions adhered to the soil. They are not
construction analogous to buildings nor adhering to the soil. As per description, given by the lower
court, they are removable and merely attached to a square metal frame by means of bolts,
which when unscrewed could easily be dismantled and moved from place to place. They can
not be included under paragraph 3, as they are not attached to an immovable in a fixed manner, and
they can be separated without breaking the material or causing deterioration upon the object to
which they are attached. Each of these steel towers or supports consists of steel bars or metal
strips, joined together by means of bolts, which can be disassembled by unscrewing the bolts and
reassembled by screwing the same. These steel towers or supports do not also fall under paragraph
5, for they are not machineries, receptacles, instruments or implements, and even if they were, they
are not intended for industry or works on the land. Petitioner is not engaged in an industry or
works in the land in which the steel supports or towers are constructed.

It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund the
sum of P11,651.86, despite the fact that Quezon City is not a party to the case. It is argued that as
the City Treasurer is not the real party in interest, but Quezon City, which was not a party to the suit,
notwithstanding its capacity to sue and be sued, he should not be ordered to effect the refund. This
question has not been raised in the court below, and, therefore, it cannot be properly raised for the
first time on appeal. The herein petitioner is indulging in legal technicalities and niceties which do not
help him any; for factually, it was he (City Treasurer) whom had insisted that respondent herein pay
the real estate taxes, which respondent paid under protest. Having acted in his official capacity as
City Treasurer of Quezon City, he would surely know what to do, under the circumstances.

IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the
petitioners.
G.R. No. L-17898            October 31, 1962

PASTOR D. AGO, petitioner,
vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court of First
Instance of Agusan, THE PROVINCIAL SHERIFF OF SURIGAO and GRACE PARK
ENGINEERING, INC., respondents.

LABRABOR, J.:

Appeal by certiorari to review the decision of respondent Court of Appeals in CA-G.R. No. 26723-R
entitled "Pastor D. Ago vs. The Provincial Sheriff of Surigao, et al." which in part reads:

In this case for certiorari and prohibition with preliminary injunction, it appears from the
records that the respondent Judge of the Court of First Instance of Agusan rendered
judgment (Annex "A") in open court on January 28, 1959, basing said judgment on a
compromise agreement between the parties.

On August 15, 1959, upon petition, the Court of First Instance issued a writ of execution.

Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or his
counsel, did not receive a formal and valid notice of said decision, which motion for
reconsideration was denied by the court below in the order of November 14, 1959.

Petitioner now contends that the respondent Judge exceeded in his jurisdiction in
rendering the execution without valid and formal notice of the decision.

A compromise agreement is binding between the parties and becomes the law between
them. (Gonzales vs. Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil. 38; Martin vs. Martin,
G.R. No. L-12439, May 22, 1959) .

It is a general rule in this jurisdiction that a judgment based on a compromise agreement is

not appealable and is immediately executory, unless a motion is filed on the ground fraud,
mistake or duress. (De los Reyes vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R. No. L-
10089, July 31, 1957)

Petitioner's claim that he was not notified or served notice of the decision is untenable. The
judgment on the compromise agreement rendered by the court below dated January 28,
1959, was given in open court. This alone is a substantial compliance as to notice. (De los
Reyes vs. Ugarte, supra)
 IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its jurisdiction
in ordering the execution of the judgment. The petition for certiorari is hereby dismissed and
the writ of preliminary injunction heretofore dissolved, with costs against the petitioner.

IT IS SO ORDERED.

The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D. Ago bought
sawmill machineries and equipments from respondent Grace Park Engineer domineering,
Inc., executing a chattel mortgage over said machineries and equipments to secure the
payment of balance of the price remaining unpaid of P32,000.00, which petitioner agreed to pay on
installment basis.

Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park Engineering,
Inc. instituted extra-judicial foreclosure proceedings of the mortgage. To enjoin said
foreclosure, petitioner herein instituted Special Civil Case No. 53 in the Court of First Instance
of Agusan. The parties to the case arrived at a compromise agreement and submitted the
same in court in writing, signed by Pastor D. Ago and the Grace Park Engineering, Inc. The Hon.
Montano A. Ortiz, Judge of the Court of First Instance of Agusan, then presiding, dictated a
decision in open court on January 28, 1959.

Petitioner continued to default in his payments as provided in the judgment by compromise, so

Grace Park Engineering, Inc. filed with the lower court a motion for execution, which was
granted by the court on August 15, 1959. A writ of execution, dated September 23, 1959, later
followed.

The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of execution issued
by the lower court, levied upon and ordered the sale of the sawmill machineries and
equipments in question. These machineries and equipments had been taken to and installed in a
sawmill building located in Lianga, Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc.,
to whom, petitioner alleges, he had sold them on February 16, 1959 (a date after the decision of the
lower court but before levy by the Sheriff).

Having been advised by the sheriff that the public auction sale was set for December 4, 1959,
petitioner, on December 1, 1959, filed the petition for certiorari and prohibition with preliminary
injunction with respondent Court of Appeals, alleging that a copy of the aforementioned
judgment given in open court on January 28, 1959 was served upon counsel for petitioner
only on September 25, 1959 (writ of execution is dated September 23, 1959); that the order
and writ of execution having been issued by the lower court before counsel for petitioner
received a copy of the judgment, its resultant last order that the "sheriff may now proceed with the
sale of the properties levied constituted a grave abuse of discretion and was in excess of its
jurisdiction; and that the respondent Provincial Sheriff of Surigao was acting illegally upon the
allegedly void writ of execution by levying the same upon the sawmill machineries and
equipments which have become real properties of the Golden Pacific sawmill, Inc., and is about to
proceed in selling the same without prior publication of the notice of sale thereof in some
newspaper of general circulation as required by the Rules of Court.

The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction against the
sheriff but it turned out that the latter had already sold at public auction the machineries in
question, on December 4, 1959, as scheduled. The respondent Grace Park Engineering, Inc. was
the only bidder for P15,000.00, although the certificate sale was not yet executed. The Court of
Appeals constructed the sheriff to suspend the issuance of a certificate of sale of the said
sawmill machineries and equipment sold by him on December 4, 1959 until the final decision of the
case. On November 9, 1960 the Court of Appeals rendered the aforequoted decision.

Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding that the
rendition of judgment on compromise in open court on January 1959 was a sufficient notice;
and (2) in not resolving the other issues raised before it, namely, (a) the legality of the public auction
sale made by the sheriff, and (b) the nature of the machineries in question, whether they are
movables or immovables.

The Court of Appeals held that as a judgment was entered by the court below in open court upon the
submission of the compromise agreement, the parties may be considered as having been
notified of said judgment and this fact constitutes due notice of said judgment. This raises the
following legal question: Is the order dictated in open court of the judgment of the court, and is the
fact the petitioner herein was present in open court was the judgment was dictated, sufficient notice
thereof? The provisions of the Rules of Court decree otherwise. Section 1 of Rule 35 describes the
manner in which judgment shall be rendered, thus:

SECTION 1. How judgment rendered. — All judgments determining the merits of cases shall
be in writing personally and directly prepared by the judge, and signed by him, stating
clearly and distinctly the facts and the law on which it is based, filed with the clerk of the
court.

The court of first instance being a court of record, in order that a judgment may be considered as
rendered, must not only be in writing, signed by the judge, but it must also be filed with the clerk of
court. The mere pronouncement of the judgment in open court with the stenographer taking note
thereof does not, therefore, constitute a rendition of the judgment. It is the filing of the signed
decision with the clerk of court that constitutes rendition. While it is to be presumed that the
judgment that was dictated in open court will be the judgment of the court, the court may still
modify said order as the same is being put into writing. And even if the order or judgment has
already been put into writing and signed, while it has not yet been delivered to the clerk for filing it is
still subject to amendment or change by the judge. It is only when the judgment signed by the
judge is actually filed with the clerk of court that it becomes a valid and binding judgment.
Prior thereto, it could still be subject to amendment and change and may not, therefore, constitute
the real judgment of the court.

Regarding the notice of judgment, the mere fact that a party heard the judge dictating the judgment
in open court, is not a valid notice of said judgment. If rendition thereof is constituted by the filing
with the clerk of court of a signed copy (of the judgment), it is evident that the fact that a party or
an attorney heard the order or judgment being dictated in court cannot be considered as
notice of the real judgment. No judgment can be notified to the parties unless it has previously
been rendered. The notice, therefore, that a party has of a judgment that was being dictated is of no
effect because at the time no judgment has as yet been signed by the judge and filed with the clerk.

Besides, the Rules expressly require that final orders or judgments be served personally or by
registered mail. Section 7 of Rule 27 provides as follows:

SEC. 7. Service of final orders or judgments. — Final orders or judgments shall be served
either personally or by registered mail.

In accordance with this provision, a party is not considered as having been served with the judgment
merely because he heard the judgment dictating the said judgment in open court; it is necessary that
he be served with a copy of the signed judgment that has been filed with the clerk in order that he
may legally be considered as having been served with the judgment.

For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the judgment in
open court, is not sufficient to constitute the service of judgement as required by the above-
quoted section 7 of Rule 2 the signed judgment not having been served upon the petitioner, said
judgment could not be effective upon him (petitioner) who had not received it. It follows as a
consequence that the issuance of the writ of execution null and void, having been issued before
petitioner her was served, personally or by registered mail, a copy of the decision.

The second question raised in this appeal, which has been passed upon by the Court of Appeals,
concerns the validity of the proceedings of the sheriff in selling the sawmill machineries and
equipments at public auction with a notice of the sale having been previously published.

The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill machineries
and equipments he assigned the same to the Golden Pacific Sawmill, Inc. in payment of his
subscription to the shares of stock of said corporation. Thereafter the sawmill machinery and
equipments were installed in a building and permanently attached to the ground. By reason
of such installment in a building, the said sawmill machineries and equipment became real
estate properties in accordance with the provision of Art. 415 (5) of the Civil Code, thus:

ART. 415. The following are immovable property:

xxx           xxx           xxx

(5)

Machinery, receptacles, instruments or implements tended 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;

This Court in interpreting a similar question raised before it in the case of Berkenkotter vs. Cu
Unjieng e Hijos, 61 Phil. 683, held that the installation of the machine and equipment in the central of
the Mabalacat Sugar Co., Inc. for use in connection with the industry carried by the company,
converted the said machinery and equipment into real estate by reason of their purpose.
Paraphrasing language of said decision we hold that by the installment of the sawmill machineries in
the building of the Gold Pacific Sawmill, Inc., for use in the sawing of logs carried on in said building,
the same became a necessary and permanent part of the building or real estate on which the same
was constructed, converting the said machineries and equipments into real estate within the
meaning of Article 415(5) above-quoted of the Civil Code of the Philippines.

Considering that the machineries and equipments in question valued at more than P15,000.00
appear to have been sold without the necessary advertisement of sale by publication in a
newspaper, as required in Sec. 16 of Rule 39 of the Rules of Court, which is as follows:

SEC. 16. Notice of sale of property on execution. — Before the sale of property on
execution, notice thereof must be given as follows:

xxx           xxx           xxx

 (c) In case of real property, by posting a similar notice particularly describing the
property for twenty days in three public places in the municipality or city where the
property is situated, and also where the property is to be sold, and, if the assessed value of
the property exceeds four hundred pesos, by publishing a copy of the notice once a week,
for the same period, in some newspaper published or having general circulation in the
province, if there be one. If there are newspapers published in the province in both the
English and Spanish languages, then a like publication for a like period shall be made in one
newspaper published in the English language, and in one published in the Spanish
language.

the sale made by the sheriff must be declared null and void.

WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set aside
and We declare that the issuance of the writ of execution in this case against the sawmill
machineries and equipments purchased by petitioner Pastor D. Ago from the Grace Park
Engineering, Inc., as well as the sale of the same by the Sheriff of Surigao, are null and void. Costs
shall be against the respondent Grace Park Engineering, Inc.

G.R. No. L-18456           November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.

PAREDES, J.:

On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married
to Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable
6 months after said date or on June 14, 1959. To secure the indebtedness, Rufino executed a
document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana
Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land, belonging to her,
registered with the Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and
Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house,
having a floor area of 912 square meters, erected on a lot belonging to Atty. Vicente Castro,
located at Bo. San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor
Vehicle Registration Certificate No. A-171806. Both mortgages were contained in one instrument,
which was registered in both the Office of the Register of Deeds and the Motor Vehicles Office of
Tarlac.

When the mortgage debt became due and payable, the defendants, after demands made on them,
failed to pay. They, however, asked and were granted extension up to June 30, 1960, within
which to pay. Came June 30, defendants again failed to pay and, for the second time, asked for
another extension, which was given, up to July 30, 1960. In the second extension, defendant
Pineda in a document entitled "Promise", categorically stated that in the remote event he
should fail to make good the obligation on such date (July 30, 1960), the defendant would no
longer ask for further extension and there would be no need for any formal demand, and plaintiff
could proceed to take whatever action he might desire to enforce his rights, under the said
mortgage contract. In spite of said promise, defendants, failed and refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for
damages, which consisted of liquidated damages in the sum of P500.00 and 12% per annum
interest on the principal, effective on the date of maturity, until fully paid.

Defendants, answering the complaint, among others, stated —

Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the First
Cause of Action which states that the defendants unreasonably failed and refuse to pay their
obligation to the plaintiff the truth being the defendants are hard up these days and
pleaded to the plaintiff to grant them more time within which to pay their obligation and the
plaintiff refused;

WHEREFORE, in view of the foregoing it is most respectfully prayed that this Honorable
Court render judgment granting the defendants until January 31, 1961, within which to
pay their obligation to the plaintiff.

On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming that the
Answer failed to tender any genuine and material issue. The motion was set for hearing, but the
record is not clear what ruling the lower court made on the said motion. On November 11, 1960,
however, the parties submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and Chattel Mortgages;
that the indebtedness has been due and unpaid since June 14, 1960; that a liability of 12% per
annum as interest was agreed, upon failure to pay the principal when due and P500.00 as liquidated
damages; that the instrument had been registered in the Registry of Property and Motor Vehicles
Office, both of the province of Tarlac; that the only issue in the case is whether or not the residential
house, subject of the mortgage therein, can be considered a Chattel and the propriety of the
attorney's fees.

On February 24, 1961, the lower court held —

... WHEREFORE, this Court renders decision in this Case:

(a) Dismissing the complaint with regard to defendant Gregorio Pineda;

(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon
Reyes, to pay jointly and severally and within ninety (90) days from the receipt of the copy
of this decision to the plaintiff Conrado P. Navarro the principal sum of P2,550.00 with 12%
compounded interest per annum from June 14, 1960, until said principal sum and interests
are fully paid, plus P500.00 as liquidated damages and the costs of this suit, with the
warning that in default of said payment of the properties mentioned in the deed of real estate
mortgage and chattel mortgage (Annex "A" to the complaint) be sold to realize said mortgage
debt, interests, liquidated damages and costs, in accordance with the pertinent provisions of
Act 3135, as amended by Act 4118, and Art. 14 of the Chattel Mortgage Law, Act 1508; and

(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to
the Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A",
immediately after the lapse of the ninety (90) days above-mentioned, in default of such
payment.

The above judgment was directly appealed to this Court, the defendants therein assigning only a
single error, allegedly committed by the lower court, to wit —
 In holding that the deed of real estate and chattel mortgages appended to the complaint is
valid, notwithstanding the fact that the house of the defendant Rufino G. Pineda was
made the subject of the chattel mortgage, for the reason that it is erected on a land
that belongs to a third person.

Appellants contend that article 415 of the New Civil Code, in classifying a house as immovable
property, makes no distinction whether the owner of the land is or not the owner of the
building; the fact that the land belongs to another is immaterial, it is enough that the house adheres
to the land; that in case of immovables by incorporation, such as houses, trees, plants, etc; the
Code does not require that the attachment or incorporation be made by the owner of the land,
the only criterion being the union or incorporation with the soil. In other words, it is claimed that
"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" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. 28,
1958). (See also the case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants argue
that since only movables can be the subject of a chattel mortgage (sec. 1, Act No. 3952) then
the mortgage in question which is the basis of the present action, cannot give rise to an
action for foreclosure, because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v.
Adriano Valino, et al., L-10838, May 30, 1958.)

The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely on
the ground that the house mortgaged was erected on the land which belonged to a third person, but
also and principally on the doctrine of estoppel, in that "the parties have so expressly agreed" in
the mortgage to consider the house as chattel "for its smallness and mixed materials
of sawali and wood". In construing arts. 334 and 335 of the Spanish Civil Code (corresponding to
arts. 415 and 416, N.C.C.), for purposes of the application of the Chattel Mortgage Law, it was held
that under certain conditions, "a property may have a character different from that imputed to it in
said articles. It is undeniable that the parties to a contract may by agreement, treat as personal
property that which by nature would be real property" (Standard Oil Co. of N.Y. v. Jaranillo, 44
Phil. 632-633)."There cannot be any question that a building of mixed materials may be the subject
of a chattel mortgage, in which case, it is considered as between the parties as personal property. ...
The matter depends on the circumstances and the intention of the parties". "Personal property may
retain its character as such where it is so agreed by the parties interested even though annexed to
the realty ...". (42 Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May
18, 1956; 52 O.G. No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee may
agree to consider a house as personal property for the purposes of said contract, "is good
only insofar as the contracting parties are concerned. It is based partly, upon the principles
of estoppel ..." (Evangelista v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage
house built on a rented land, was held to be a personal property, not only because the deed of
mortgage considered it as such, but also because it did not form part of the land (Evangelista v.
Abad [CA];36 O.G. 2913), for it is now well settled that an object placed on land by one who has only
a temporary right to the same, such as a lessee or usufructuary, does not become immobilized by
attachment (Valdez v. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v. Castillo, et
al., 61 Phil. 709). Hence, if a house belonging to a person stands on a rented land belonging to
another person, it may be mortgaged as a personal property is so stipulated in the document
of mortgage. (Evangelista v. Abad, supra.) It should be noted, however, that the principle is
predicated on statements by the owner declaring his house to be a chattel, a conduct that may
conceivably estop him from subsequently claiming otherwise (Ladera, et al.. v. C. N. Hodges, et al.,
[CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these cases is that although in some
instances, a house of mixed materials has been considered as a chattel between them, has been
recognized, it has been a constant criterion nevertheless that, with respect to third persons, who are
not parties to the contract, and specially in execution proceedings, the house is considered as an
immovable property (Art. 1431, New Civil Code).
In the case at bar, the house in question was treated as personal or movable property, by the
parties to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda
conveyed by way of "Chattel Mortgage" "my personal properties", a residential house and a truck.
The mortgagor himself grouped the house with the truck, which is, inherently a movable property.
The house which was not even declared for taxation purposes was small and made of light
construction materials: G.I. sheets roofing, sawali and wooden walls and wooden posts; built on land
belonging to another.

The cases cited by appellants are not applicable to the present case. The Iya cases (L-10837-
38, supra), refer to a building or a house of strong materials, permanently adhered to the land,
belonging to the owner of the house himself. In the case of Lopez v. Orosa, (L-10817-18), the
subject building was a theatre, built of materials worth more than P62,000, attached permanently to
the soil. In these cases and in the Leung Yee case, supra, third persons assailed the validity of the
deed of chattel mortgages; in the present case, it was one of the parties to the contract of mortgages
who assailed its validity.

CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as it is
hereby affirmed, with costs against appellants.

G.R. No. 137705               August 22, 2000

SERG'S 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 of the Court
1 

of Appeals (CA) in CA-GR SP No. 47332 and its February 26, 1999 Resolution denying
2  3 

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, the Regional Trial Court (RTC) of Quezon City (Branch 218) issued a
5  6 

Writ of Seizure. The March 18, 1998 Resolution denied petitioners’ Motion for Special Protective
7  8 

Order, praying that the deputy sheriff be enjoined "from seizing immobilized or other real properties
in (petitioners’) factory in Cainta, Rizal and to return to their original place whatever immobilized
machineries or equipments he may have removed." 9

The Facts

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

"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI Leasing" for short) filed
with the RTC-QC a complaint for [a] sum of money (Annex ‘E’), with an application for a writ of
replevin docketed as Civil Case No. Q-98-33500.

"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ
of replevin (Annex ‘B’) directing its sheriff to seize and deliver the machineries and equipment
to PCI Leasing after 5 days and upon the payment of the necessary expenses.

"On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioner’s factory,
seized one machinery with [the] word that he [would] return for the other machineries.

"On March 25, 1998, petitioners filed a motion for special protective order (Annex ‘C’), invoking
the power of the court to control the conduct of its officers and amend and control its processes,
praying for a directive for the sheriff to defer enforcement of the writ of replevin.

"This motion was opposed by PCI Leasing (Annex ‘F’), on the ground that the properties [were] still
personal and therefore still subject to seizure and a writ of replevin.

"In their Reply, petitioners asserted that the properties sought to be seized [were] immovable
as defined in Article 415 of the Civil Code, the parties’ agreement to the contrary
notwithstanding. They argued that to give effect to the agreement would be prejudicial to
innocent third parties. They further stated that PCI Leasing [was] estopped from treating these
machineries as personal because the contracts in which the alleged agreement [were]
embodied [were] totally sham and farcical.

"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the
remaining properties. He was able to take two more, but was prevented by the workers from taking
the rest.

"On April 7, 1998, they went to [the CA] via an original action for certiorari."

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the subject machines were
personal property, and that they had only been leased, not owned, by petitioners. It also ruled that
the "words of the contract are clear and leave no doubt upon the true intention of the
contracting parties." Observing that Petitioner Goquiolay was an experienced businessman who
was "not unfamiliar with the ways of the trade," it ruled that he "should have realized the import of
the document he signed." The CA further held:

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

Hence, this Petition. 11

The Issues

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

"A. Whether or not the machineries purchased and imported by SERG’S became real property by
virtue of immobilization.

B. Whether or not the contract between the parties is a loan or a lease."12

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

The Court’s Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Questions

Respondent contends that the Petition failed to indicate expressly whether it was being filed under
Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition erroneously impleaded
Judge Hilario Laqui as respondent.

There is no question that the present recourse is under Rule 45. This conclusion finds support in the
very title of the Petition, which is "Petition for Review on Certiorari."
13

While Judge Laqui should not have been impleaded as a respondent, substantial justice requires
14 

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. Section 3 thereof reads:
15 

"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." In that sense, petitioners are correct
16 

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. After agreeing to such stipulation, they are consequently estopped
18 

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, the Court upheld the intention of the parties to treat a house as a
19 

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 also 20 

held that the machinery used in a factory and essential to the industry, as in the present case, was a
proper subject of a writ of replevin because it was treated as personal property in a contract.
Pertinent portions of the Court’s ruling are reproduced hereunder:

"x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and becomes immobilized
only by destination or purpose, may not be likewise 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. Hence, while the parties are bound by the Agreement, third persons acting in good
22 

faith are not affected by its stipulation characterizing the subject machinery as personal. In 23 

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. Submitting
24 

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." In their Reply to respondent’s
25 

Comment, they further allege that the Agreement is invalid. 26

These arguments are unconvincing. The validity and the nature of the contract are the lis mota of the
civil action pending before the RTC. A resolution of these questions, therefore, is effectively a
resolution of the merits of the case. Hence, they should be threshed out in the trial, not in the
proceedings involving the issuance of the Writ of Seizure.

Indeed, in La Tondeña Distillers v. CA, the Court explained that the policy under Rule 60 was that
27 

questions involving title to the subject property – questions which petitioners are now raising --
should be determined in the trial. In that case, the Court noted that the remedy of defendants under
Rule 60 was either to post a counter-bond or to question the sufficiency of the plaintiff’s bond. They
were not allowed, however, to invoke the title to the subject property. The Court ruled:

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

Besides, these questions require a determination of facts and a presentation of evidence, both of
which have no place in a petition for certiorari in the CA under Rule 65 or in a petition for review in
this Court under Rule 45.29

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease Agreement, for nothing on
record shows that it has been nullified or annulled. In fact, petitioners assailed it first only in the RTC
proceedings, which had ironically been instituted by respondent. Accordingly, it must be presumed
valid and binding as the law between the parties.

Makati Leasing and Finance Corporation is also instructive on this point. In that case, the Deed of
30 

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." They also allege that the seizure would nullify all efforts
31 

to rehabilitate the corporation.

Petitioners’ arguments do not preclude the implementation of the Writ.  As earlier discussed, law and
1âwphi1

jurisprudence support its propriety. Verily, the above-mentioned consequences, if they come true,
should not be blamed on this Court, but on the petitioners for failing to avail themselves of the
remedy under Section 5 of Rule 60, which allows the filing of a counter-bond. The provision states:

"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicant’s bond,
or of the surety or sureties thereon, he cannot immediately require the return of the property, but if
he does not so object, he may, at any time before the delivery of the property to the applicant,
require the return thereof, by filing with the court where the action is pending a bond executed to the
applicant, in double the value of the property as stated in the applicant’s affidavit for the delivery
thereof to the applicant, if such delivery be adjudged, and for the payment of such sum to him as
may be recovered against the adverse party, and by serving a copy bond on the applicant."

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of

Appeals AFFIRMED. Costs against petitioners.

SO ORDERED.

FIRST DIVISION

G.R. No. 166102, August 05, 2015

MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY ASSESSOR AND CITY

TREASURER OF LUCENA CITY, Respondents.
 DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court filed by Manila Electric Company (MERALCO), seeking the reversal of the
Decision1 dated May 13, 2004 and Resolution2 dated November 18, 2004 of the Court of
Appeals in CA-G.R. SP No. 67027. The appellate court affirmed the Decision3 dated May
3, 2001 of the Central Board of Assessment Appeals (CBAA) in CBAA Case No. L-20-98,
which, in turn, affirmed with modification the Decision4 dated June 17, 19985 of the
Local Board of Assessment Appeals (LBAA) of Lucena City, Quezon Province, as regards
Tax Declaration Nos. 019-6500 and 019-7394, ruling that MERALCO is liable for real
property tax on its transformers, electric posts (or poles), transmission lines, insulators,
and electric meters, beginning 1992.

MERALCO is a private corporation organized and existing under Philippine laws to

operate as a public utility engaged in electric distribution. MERALCO has been
successively granted franchises to operate in Lucena City beginning 1922 until present
time, particularly, by: (1) Resolution No. 366 dated May 15, 1922 of the Municipal
Council of Lucena; (2) Resolution No. 1087 dated July 1, 1957 of the Municipal Council
of Lucena; (3) Resolution No. 26798 dated June 13, 1972 of the Municipal Board of
Lucena City;9 (4) Certificate of Franchise10 dated October 28, 1993 issued by the
National Electrification Commission; and (5) Republic Act No. 920911 approved on June
9, 2003 by Congress.12

On February 20, 1989, MERALCO received from the City Assessor of Lucena a copy of
Tax Declaration No. 019-650013 covering the following electric facilities, classified as
capital investment, of the company: (a) transformer and electric post; (b) transmission
line; (c) insulator; and (d) electric meter, located in Quezon Ave. Ext., Brgy. Gulang-
Gulang, Lucena City. Under Tax Declaration No. 019-6500, these electric facilities had a
market value of P81,811,000.00 and an assessed value of P65,448,800.00, and were
subjected to real property tax as of 1985.

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena City,
which was docketed as LBAA-89-2. MERALCO claimed that its capital investment
consisted only of its substation facilities, the true and correct value of which was only
P9,454,400.00; and that MERALCO was exempted from payment of real property tax on
said substation facilities.

The LBAA rendered a Decision14 in LBAA-89-2 on July 5, 1989, finding that under its
franchise, MERALCO was required to pay the City Government of Lucena a tax equal to
5% of its gross earnings, and "[s]aid tax shall be due and payable quarterly and shall
be in lieu of any and all taxes of any kind, nature, or description levied, established, or
collected x x x, on its poles, wires, insulators, transformers and structures, installations,
conductors, and accessories, x x x, from which taxes the grantee (MERALCO) is hereby
expressly exempted."15 As regards the issue of whether or not the poles, wires,
insulators, transformers, and electric meters of MERALCO were real properties, the
LBAA cited the 1964 case of Board of Assessment Appeals v. Manila Electric
Company16 (1964 MERALCO case) in which the Court held that: (1) the steel towers fell
within the term "poles" expressly exempted from taxes under the franchise of
MERALCO; and (2) the steel towers were personal properties under the provisions of
the Civil Code and, hence, not subject to real property tax. The LBAA lastly ordered that
Tax Declaration No. 019-6500 would remain and the poles, wires, insulators,
transformers, and electric meters of MERALCO would be continuously assessed, but the
City Assessor would stamp on the said Tax Declaration the word "exempt." The LBAA
decreed in the end:cralawlawlibrary

WHEREFORE, from the evidence adduced by the parties, the Board overrules the claim
of the [City Assessor of Lucena] and sustain the claim of [MERALCO].

Further, the Appellant (Meralco) is hereby ordered to render an accounting to the City
Treasurer of Lucena and to pay the City Government of Lucena the amount
corresponding to the Five (5%) per centum of the gross earnings in compliance with
paragraph 13 both Resolutions 108 and 2679, respectively, retroactive from November
9, 1957 to date, if said tax has not yet been paid.17 chanrobleslaw

The City Assessor of Lucena filed an appeal with the CBAA, which was docketed
as CBAA Case No. 248. In its Decision18 dated April 10, 1991, the CBAA affirmed the
assailed LBAA judgment. Apparently, the City Assessor of Lucena no longer appealed
said CBAA Decision and it became final and executory.

Six years later, on October 29, 1997, MERALCO received a letter19 dated October 16,
1997 from the City Treasurer of Lucena, which stated that the company was being
assessed real property tax delinquency on its machineries beginning 1990, in the total
amount of P17,925,117.34, computed as follows: chanRoblesvirtualLawlibrary

TAX ASSESSED COVERED TAX DUE PENALTY TOTAL

DEC. # VALUE PERIOD
019-6500 P65,448,800.00 1990-94 P3,272,440.00
P2,356,156.80 P5,628,596.80
019-7394 78,538,560.00 1995 785,385.60 534,062.21 1,319,447.81
1996 785,385.60 345,569.66 1,130,955.26
lst-3rd/1997 589,039.20 117,807.84 706,847.04
4th 1997 196,346.40(19,634.64) 176,711.76
BASIC---- P8,962,558.67
SEF---- 8,962,558.67
TOTAL TAX DELINQUENCY---- P17,925,117.34

The City Treasurer of Lucena requested that MERALCO settle the payable amount soon
to avoid accumulation of penalties. Attached to the letter were the following
documents: (a) Notice of Assessment20 dated October 20, 1997 issued by the City
Assessor of Lucena, pertaining to Tax Declaration No. 019-7394, which increased the
market value and assessed value of the machinery; (b) Property Record Form;21 and (c)
Tax Declaration No. 019-6500.22

MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the LBAA of
Lucena City on December 23, 1997 and posted a surety bond23 dated December 10,
1997 to guarantee payment of its real property tax delinquency. MERALCO asked the
LBAA to cancel and nullify the Notice of Assessment dated October 20, 1997 and
declare the properties covered by Tax Declaration Nos. 019-6500 and 019-7394
exempt from real property tax.

In its Decision dated June 17, 1998 regarding Tax Declaration Nos. 019-6500 and 019-
7394, the LBAA declared that Sections 234 and 534(f) of the Local Government Code
repealed the provisions in the franchise of MERALCO and Presidential Decree No.
55124 pertaining to the exemption of MERALCO from payment of real property tax on its
poles, wires, insulators, transformers, and meters. The LBAA refused to apply as res
judicata its earlier judgment in LBAA-89-2, as affirmed by the CBAA, because it
involved collection of taxes from 1985 to 1989, while the present case concerned the
collection of taxes from 1989 to 1997; and LBAA is only an administrative body, not a
court or quasi-judicial body. The LBAA though instructed that the computation of the
real property tax for the machineries should be based on the prevailing 1991 Schedule
of Market Values, less the depreciation cost allowed by law. The LBAA ultimately
disposed: cralawlawlibrary

WHEREFORE, in view of the foregoing, it is hereby ordered that: chanRoblesvirtualLawlibrary

1) MERALCO's appeal be dismissed for lack of merit; ChanRoblesVirtualawlibrary

2) MERALCO be required to pay the realty tax on the questioned properties, because
they are not exempt by law, same to be based on the 1991 level of assessment, less
depreciation cost allowed by law.25 chanrobleslaw

MERALCO went before the CBAA on appeal, which was docketed as CBAA Case No. L-
20-98. The CBAA, in its Decision dated May 3, 2001, agreed with the LBAA that
MERALCO could no longer claim exemption from real property tax on its machineries
with the enactment of Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, thus: cralawlawlibrary

Indeed, the Central Board of Assessment Appeals has had the opportunity of ruling in
[MERALCO's] favor in connection with this very same issue. The matter was settled on
April 10, 1991 where this Authority ruled that "wires, insulators, transformers and
electric meters which are mounted on poles and can be separated from the poles and
moved from place to place without breaking the material or causing [the] deterioration
of the object, are deemed movable or personal property". The same position of
MERALCO would have been tenable and that decision may have stood firm prior to the
enactment of R.A. 7160 but not anymore in this jurisdiction. The Code provides and
now sets a more stringent yet broadened concept of machinery, x x x: chanRoblesvirtualLawlibrary

xxxx

The pivotal point where the difference lie between the former and the current case is
that by the very wordings of [Section 199(0)], the ground being anchored upon by
MERALCO concerning the properties in question being personal in nature does not hold
anymore for the sole reason that these come now within the purview and new concept
of Machineries. The new law has treated these in an unequivocal manner as
machineries in the sense that they are instruments, mechanical contrivances or
apparatus though not attached permanently to the real properties of [MERALCO] are
actually, directly and exclusively used to meet their business of distributing electricity.
xxxx

Clearly, [Section 234 of the Local Government Code] lists down the instances of
exemption in real property taxation and very apparent is the fact that the enumeration
is exclusive in character in view of the wordings in the last paragraph. Applying the
maxim "Expressio Unius est Exclusio Alterius", we can say that "Where the statute
enumerates those who can avail of the exemption, it is construed as excluding all
others not mentioned therein". Therefore, the above-named company [had] lost its
previous exemptions under its franchise because of non-inclusion in the enumeration in
Section 234. Furthermore, all tax exemptions being enjoyed by all persons, whether
natural or juridical, including all government-owned or controlled corporations are
expressly withdrawn, upon effectivity of R.A. 7160.

In the given facts, it has been manifested that the Municipal Board of Lucena passed
Resolution No. 108 on July 1, 1957 extending the franchise of MERALCO to operate in
Lucena city an electric light system for thirty-five years, which should have expired on
November 9, 1992 and under Resolution No. 2679 passed on June 13, 1972 by the City
Council of Lucena City awarding [MERALCO] a franchise to operate for twenty years an
electric light, heat and power system in Lucena City, also to expire in the year 1992.
Under those franchises, they were only bound to pay franchise taxes and nothing more.

Now, granting arguendo that there is no express revocation of the exemption under the
franchise of [MERALCO] since, unquestionably [MERALCO] is a recipient of another
franchise granted this time by the National Electrification Commission as evidenced by a
certificate issued on October 28, 1993, such conferment does not automatically include
and/or award exemption from taxes, nor does it impliedly give the franchisee the right
to continue the privileges like exemption granted under its previous franchise. It is just
a plain and simple franchise. In countless times, the Supreme Court has ruled that
exemption must be clear in the language of the law granting such exemption for it is
strictly construed and favored against the person invoking it. In addition, a franchise
though in the form of a contract is also a privilege that must yield to the sublime yet
inherent powers of the state, one of these is the power of taxation.

Looking into the law creating the National Electrification Administration (Commission),
P.D. 269 as amended by P.D. 1645, nowhere in those laws can we find such authority
to bestow upon the grantee any tax exemption of whatever nature except those of
cooperatives. This we believe is basically in consonance with the provisions of the Local
Government Code more particularly Section 234.

Furthermore, Section 534(f) of R.A. 7160 which is taken in relation to Section 234
thereof states that "All general and special laws, acts, city charters, decrees, executive
orders, proclamations and administrative regulations or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly". Anent this unambiguous mandate, P.D. 551 is mandatorily repealed due
to its contradictory and irreconcilable provisions with R.A. 7160.26
chanrobleslaw

Yet, the CBAA modified the ruling of the LBAA by excluding from the real property tax
deficiency assessment the years 1990 to 1991, considering that: cralawlawlibrary
In the years 1990 and 1991, the exemption granted to MERALCO under its franchise
which incidentally expired upon the effectivity of the Local Government Code of 1991
was very much in effect and the decision rendered by the Central Board of Assessment
Appeals (CBAA) classifying its poles, wires, insulators, transformers and electric meters
as personal property was still controlling as the law of the case. So, from 1990 to 1991,
it would be inappropriate and illegal to make the necessary assessment on those
properties, much more to impose any penalty for nonpayment of such.

But, assessments made beginning 1992 until 1997 by the City Government of Lucena is
legal, both procedurally and substantially. When R.A. 7160, which incorporated
amended provisions of the Real Property Tax Code, took effect on January 1, 1992, as
already discussed, the nature of the aforecited questioned properties considered
formerly as personal metamorphosed to machineries and the exemption being invoked
by [MERALCO] was automatically withdrawn pursuant to the letter and spirit of the law.
x x x.27
chanrobleslaw

Resultantly, the decretal portion of said CBAA Decision reads: cralawlawlibrary

WHEREFORE, in view of the foregoing, the Decision appealed from is hereby modified.
The City Assessor of Lucena City is hereby directed to make a new assessment on the
subject properties to retroact from the year 1992 and the City Treasurer to collect the
tax liabilities in accordance with the provisions of the cited Section 222 of the Local
Government Code.28 chanrobleslaw

The CBAA denied the Motion for Reconsideration of MERALCO in a Resolution29 dated

August 16, 2001.

Disgruntled, MERALCO sought recourse from the Court of Appeals by filing a Petition for
Review under Rule 43 of the Rules of Court, which was docketed as CA-G.R. SP No.
67027.

The Court of Appeals rendered a Decision on May 13, 2004 rejecting all arguments
proffered by MERALCO. The appellate court found no deficiency in the Notice of
Assessment issued by the City Assessor of Lucena: cralawlawlibrary

It was not disputed that [MERALCO] failed to provide the [City Assessor and City
Treasurer of Lucena] with a sworn statement declaring the true value of each of the
subject transformer and electric post, transmission line, insulator and electric meter
which should have been made the basis of the fair and current market value of the
aforesaid property and which would enable the assessor to identify the same for
assessment purposes. [MERALCO] merely claims that the assessment made by the
[City Assessor and City Treasurer of Lucena] was incorrect but did not even mention in
their pleading the true and correct assessment of the said properties. Absent any sworn
statement given by [MERALCO], [the City Assessor and City Treasurer of Lucena] were
constrained to make an assessment based on the materials within [their reach].30 chanrobleslaw

The Court of Appeals further ruled that there was no more basis for the real property
tax exemption of MERALCO under the Local Government Code and that the withdrawal
of said exemption did not violate the non-impairment clause of the Constitution, thus: cralawlawlibrary
Although it could not be denied that [MERALCO] was previously granted a Certificate of
Franchise by the National Electrification Commission on October 28, 1993 x x x, such
conferment does not automatically include an exemption from the payment of realty
tax, nor does it impliedly give the franchisee the right to continue the privileges granted
under its previous franchise considering that Sec. 534(f) of the Local Government Code
of 1991 expressly repealed those provisions which are inconsistent with the Code.

At the outset, the Supreme Court has held that "Section 193 of the LGC prescribes the
general rule, viz., tax exemptions or incentives granted to or presently enjoyed by
natural or juridical persons are withdrawn upon the effectivity of the LGC except with
respect to those entities expressly enumerated. In the same vein, We must hold that
the express withdrawal upon effectivity of the LGC of all exemptions except only as
provided therein, can no longer be invoked by MERALCO to disclaim liability for the local
tax." (City Government of San Pablo, Laguna vs. Reyes, 305 SCRA 353, 362-363)

In fine, [MERALCO's] invocation of the non-impairment clause of the Constitution is

accordingly unavailing. The LGC was enacted in pursuance of the constitutional policy to
ensure autonomy to local governments and to enable them to attain fullest
development as self-reliant communities. The power to tax is primarily vested in
Congress. However, in our jurisdiction, it may be exercised by local legislative bodies,
no longer merely by virtue of a valid delegation as before, but pursuant to [a] direct
authority conferred by Section 5, Article X of the Constitution. The important legal
effect of Section 5 is that henceforth, in interpreting statutory provisions on municipal
fiscal powers, doubts will be resolved in favor of the municipal corporations. (Ibid. pp.
363-365)31 chanrobleslaw

MERALCO similarly failed to persuade the Court of Appeals that the transformers,
transmission lines, insulators, and electric meters mounted on the electric posts of
MERALCO were not real properties. The appellate court invoked the definition of
"machinery" under Section 199(o) of the Local Government Code and then wrote that: cralawlawlibrary

We firmly believe and so hold that the wires, insulators, transformers and electric
meters mounted on the poles of [MERALCO] may nevertheless be considered as
improvements on the land, enhancing its utility and rendering it useful in distributing
electricity. The said properties are actually, directly and exclusively used to meet the
needs of [MERALCO] in the distribution of electricity.

In addition, "improvements on land are commonly taxed as realty even though for
some purposes they might be considered personalty. It is a familiar personalty
phenomenon to see things classed as real property for purposes of taxation which on
general principle might be considered personal property." (Caltex (Phil) Inc. vs. Central
Board of Assessment Appeals, 114 SCRA 296, 301-302)32 chanrobleslaw

Lastly, the Court of Appeals agreed with the CBAA that the new assessment of the
transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO shall retroact to 1992.

Hence, the Court of Appeals adjudged: cralawlawlibrary

WHEREFORE, premises considered, the assailed Decision [dated] May 3, 2001 and
Resolution dated August 16, 2001 are hereby AFFIRMED in toto and the
present petition is hereby DENIED DUE COURSE and accordingly DISMISSED
for lack of merit.33
chanrobleslaw

In a Resolution dated November 18, 2004, the Court of Appeals denied the Motion for
Reconsideration of MERALCO.

MERALCO is presently before the Court via the instant Petition for Review
on Certiorari grounded on the following lone assignment of error: cralawlawlibrary

THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING IN

TOTO THE DECISION OF THE CENTRAL BOARD OF ASSESSMENT APPEALS WHICH HELD
THAT THE SUBJECT PROPERTIES ARE REAL PROPERTIES SUBJECT TO REAL PROPERTY
TAX; AND THAT ASSESSMENT ON THE SUBJECT PROPERTIES SHOULD BE MADE TO
TAKE EFFECT RETROACTIVELY FROM 1992 UNTIL 1997, WITH PENALTIES; THE SAME
BEING UNJUST, WHIMSICAL AND NOT IN ACCORD WITH THE LOCAL GOVERNMENT
CODE.34 chanrobleslaw

MERALCO argues that its transformers, electric posts, transmission lines, insulators,
and electric meters are not subject to real property tax, given that: (1) the definition of
"machinery" under Section 199(o) of the Local Government Code, on which real
property tax is imposed, must still be within the contemplation of real or immovable
property under Article 415 of the Civil Code because it is axiomatic that a statute
should be construed to harmonize with other laws on the same subject matter as to
form a complete, coherent, and intelligible system; (2) the Decision dated April 10,
1991 of the CBAA in CBAA Case No. 248, which affirmed the Decision dated July 5,
1989 of the LBAA in LBAA-89-2, ruling that the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO are movable or personal
properties, is conclusive and binding; and (3) the electric poles are not exclusively used
to meet the needs of MERALCO alone since these are also being utilized by other
entities such as cable and telephone companies.

MERALCO further asserts that even if it is assumed for the sake of argument that the
transformers, electric posts, transmission lines, insulators, and electric meters are real
properties, the assessment of said properties by the City Assessor in 1997 is a patent
nullity. The collection letter dated October 16, 1997 of the City Treasurer of Lucena,
Notice of Assessment dated October 20, 1997 of the City Assessor of Lucena, the
Property Record Form dated October 20, 1997, and Tax Declaration No. 019-6500
simply state a lump sum market value for all the transformers, electric posts,
transmission lines, insulators, and electric meters covered and did not provide an
inventory/list showing the actual number of said properties, or a schedule of values
presenting the fair market value of each property or type of property, which would have
enabled MERALCO to verify the correctness and reasonableness of the valuation of its
properties. MERALCO was not furnished at all with a copy of Tax Declaration No. 019-
7394, and while it received a copy of Tax Declaration No. 019-6500, said tax
declaration did not contain the requisite information regarding the date of operation of
MERALCO and the original cost, depreciation, and market value for each property
covered. For the foregoing reasons, the assessment of the properties of MERALCO in
1997 was arbitrary, whimsical, and without factual basis - in patent violation of the
right to due process of MERALCO. MERALCO additionally explains that it cannot be
expected to make a declaration of its transformers, electric posts, transmission lines,
insulators, and electric meters, because all the while, it was of the impression that the
said properties were personal properties by virtue of the Decision dated July 5, 1989 of
the LBAA in LBAA-89-2 and the Decision dated April 10, 1991 of the CBAA in CBAA Case
No. 248.

Granting that the assessment of its transformers, electric posts, transmission lines,
insulators, and electric meters by the City Assessor of Lucena in 1997 is valid,
MERALCO alternatively contends that: (1) under Sections 22135 and 22236 of the Local
Government Code, the assessment should take effect only on January 1, 1998 and not
retroact to 1992; (2) MERALCO should not be held liable for penalties and interests
since its nonpayment of real property tax on its properties was in good faith; and (3) if
interest may be legally imposed on MERALCO, it should only begin to run on the date it
received the Notice of Assessment on October 29, 1997 and not all the way back to
1992.

At the end of its Petition, MERALCO prays: cralawlawlibrary

WHEREFORE, it is respectfully prayed of this Honorable Court that the appealed

Decision dated May 13, 2004 of the Court of Appeals, together with its Resolution dated
November 18, 2004 be reversed and set aside, and judgment be rendered x x x
nullifying and cancel[l]ing the Notice of Assessment, dated October 20, 1997, issued by
respondent City Assessor, and the collection letter dated October 16, 1997 of
respondent City Treasurer.

Petitioner also prays for such other relief as may be deemed just and equitable in the
premises.37
chanrobleslaw

The City Assessor and City Treasurer of Lucena counter that: (1) MERALCO was obliged
to pay the real property tax due, instead of posting a surety bond, while its appeal was
pending, because Section 231 of the Local Government Code provides that the appeal
of an assessment shall not suspend the collection of the real property taxes; (2) the
cases cited by MERALCO can no longer be applied to the case at bar since they had
been decided when Presidential Decree No. 464, otherwise known as the Real Property
Tax Code, was still in effect; (3) under the now prevailing Local Government Code,
which expressly repealed the Real Property Tax Code, the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO fall within the new
definition of "machineries," deemed as real properties subject to real property tax; and
(4) the Notice of Assessment dated October 20, 1997 covering the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO only
retroacts to 1992, which is less than 10 years prior to the date of initial assessment, so
it is in compliance with Section 222 of the Local Government Code, and since MERALCO
has yet to pay the real property taxes due on said assessment, then it is just right and
appropriate that it also be held liable to pay for penalties and interests from 1992 to
present time. Ultimately, the City Assessor and City Treasurer of Lucena seek judgment
denying the instant Petition and ordering MERALCO to pay the real property taxes due.

The Petition is partly meritorious.

The Court finds that the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO are no longer exempted from real property tax and may
qualify as "machinery" subject to real property tax under the Local Government Code.
Nevertheless, the Court declares null and void the appraisal and assessment of said
properties of MERALCO by the City Assessor in 1997 for failure to comply with the
requirements of the Local Government Code and, thus, violating the right of MERALCO
to due process.

By posting a surety bond before

filing its appeal of the assessment with
the LBAA, MERALCO substantially complied
with the requirement of payment under
protest in Section 252 of the Local
Government Code.

Section 252 of the Local Government Code mandates that "[n]o protest shall be
entertained unless the taxpayer first pays the tax." It is settled that the requirement of
"payment under protest" is a condition sine qua non before an appeal may be
entertained.38 Section 231 of the same Code also dictates that "[a]ppeal on
assessments of real property x x x shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or
city assessor, without prejudice to subsequent adjustment depending upon the final
outcome of the appeal." Clearly, under the Local Government Code, even when the
assessment of the real property is appealed, the real property tax due on the basis
thereof should be paid to and/or collected by the local government unit concerned.

In the case at bar, the City Treasurer of Lucena, in his letter dated October 16, 1997,
sought to collect from MERALCO the amount of P17,925,l 17.34 as real property taxes
on its machineries, plus penalties, for the period of 1990 to 1997, based on Tax
Declaration Nos. 019-6500 and 019-7394 issued by the City Assessor of Lucena.
MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 with the LBAA, but
instead of paying the real property taxes and penalties due, it posted a surety bond in
the amount of PI 7,925,117.34.

By posting the surety bond, MERALCO may be considered to have substantially

complied with Section 252 of the Local Government Code for the said bond already
guarantees the payment to the Office of the City Treasurer of Lucena of the total
amount of real property taxes and penalties due on Tax Declaration Nos. 019-6500 and
019-7394. This is not the first time that the Court allowed a surety bond as an
alternative to cash payment of the real property tax before protest/appeal as required
by Section 252 of the Local Government Code. In Camp John Hay Development
Corporation v. Central Board of Assessment Appeals 39 the Court affirmed the ruling of
the CBAA and the Court of Tax Appeals en bane applying the "payment under protest"
requirement in Section 252 of the Local Government Code and remanding the case to
the LBAA for "further proceedings subject to a full and up-to-date payment, either in
cash or surety, of realty tax on the subject properties x x x."

Accordingly, the LBAA herein correctly took cognizance of and gave due course to the
appeal of Tax Declaration Nos. 019-6500 and 019-7394 filed by MERALCO.
Beginning January 1, 1992,
MERALCO can no longer claim
exemption from real property tax of
its transformers, electric posts,
transmission lines, insulators, and
electric meters based on its
franchise.

MERALCO relies heavily on the Decision dated April 10, 1991 of the CBAA in CBAA Case
No. 248, which affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-89-2. Said
decisions of the CBAA and the LBAA, in turn, cited Board of Assessment Appeals v.
Manila Electric Co.,40 which was decided by the Court way back in 1964 (1964
MERALCO case). The decisions in CBAA Case No. 248 and the 1964 MERALCO
case recognizing the exemption from real property tax of the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO are no longer
applicable because of subsequent developments that changed the factual and legal
milieu for MERALCO in the present case.

In the 1964 MERALCO case, the City Assessor of Quezon City considered the steel
towers of MERALCO as real property and required MERALCO to pay real property taxes
for the said steel towers for the years 1952 to 1956. MERALCO was operating pursuant
to the franchise granted under Ordinance No. 44 dated March 24, 1903 of the Municipal
Board of Manila, which it acquired from the original grantee, Charles M. Swift. Under its
franchise, MERALCO was expressly granted the following tax exemption privilege: cralawlawlibrary

Par 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required by law to pay. x x x Said
percentage shall be due and payable at the times stated in paragraph nineteen of Part
One hereof, x x x  and shall be in lieu of all taxes and assessments of whatsoever
nature, and by whatsoever authority upon the privileges, earnings, income, franchise,
and poles, wires, transformers, and insulators of the grantee from which taxes and
assessments the grantee is hereby expressly exempted,  x x x.41 chanrobleslaw

Given the express exemption from taxes and assessments of the "poles, wires,
transformers, and insulators" of MERALCO in the aforequoted paragraph, the sole issue
in the 1964 MERALCO case was whether or not the steel towers of MERALCO qualified
as "poles" which were exempted from real property tax. The Court ruled in the
affirmative, ratiocinating that:
cralawlawlibrary

Along the streets, in the City of Manila, may be seen cylindrical metal poles, cubical
concrete poles, and poles of the PLDT Co. which are made of two steel bars joined
together by an interlacing metal rod. They are called "poles" notwithstanding the fact
that they are not made of wood. It must be noted from paragraph 9, above quoted,
that the concept of the "poles" for which exemption is granted, is not determined by
their place or location, nor by the character of the electric current it carries, nor the
material or form of which it is made, but the use to which they are dedicated. In
accordance with the definitions, a pole is not restricted to a long cylindrical piece of
wood or metal, but includes "upright standards to the top of which something is affixed
or by which something is supported." As heretofore described, respondent's steel
supports consist of a framework of four steel bars or strips which are bound by steel
cross-arms atop of which are cross-arms supporting five high voltage transmission
wires (See Annex A) and their sole function is to support or carry such wires.

The conclusion of the CTA that the steel supports in question are embraced in the term
"poles" is not a novelty. Several courts of last resort in the United States have called
these steel supports "steel towers", and they have denominated these supports or
towers, as electric poles. In their decisions the words "towers" and "poles" were used
interchangeably, and it is well understood in that jurisdiction that a transmission tower
or pole means the same thing.

xxxx

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated
in the petitioner's franchise, should not be given a restrictive and narrow interpretation,
as to defeat the very object for which the franchise was granted. The poles as
contemplated thereon, should be understood and taken as a part of the electric power
system of the respondent Meralco, for the conveyance of electric current from the
source thereof to its consumers, x x x.42 chanrobleslaw

Similarly, it was clear that under the 20-year franchise granted to MERALCO by the
Municipal Board of Lucena City through Resolution No. 2679 dated June 13, 1972, the
transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO were exempt from real property tax. Paragraph 13 of Resolution No. 2679 is
quoted in full below: cralawlawlibrary

13. The grantee shall be liable to pay the same taxes upon its real estate, building,
machinery, and personal property (not including poles, wires, transformers, and
insulators) as other persons are now or may hereafter be required by law to pay. In
consideration of the franchise and rights hereby granted, the grantee shall pay into the
City Treasury of Lucena a tax equal to FIVE (5%) PER CENTUM of the gross
earnings received from electric current sold or supplied under this franchise. Said tax
shall be due and payable quarterly and shall be in lieu of any and all taxes of any
kind, nature or description levied, established, or collected by any authority
whatsoever, municipal, provincial, or national, now or in the future, on its poles,
wires, insulators, switches, transformers and structures, installations,
conductors, and accessories, placed in and over and under all the private and/or
public property, including public streets and highways, provincial roads, bridges, and
public squares, and on its franchise rights, privileges, receipts, revenues and
profits, from which taxes the grantee is hereby expressly exempted. (Emphases
supplied.)chanrobleslaw

In CBAA Case No. 248 (and LBAA-89-2), the City Assessor assessed the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO located in
Lucena City beginning 1985 under Tax Declaration No. 019-6500. The CBAA in its
Decision dated April 10, 1991 in CBAA Case No. 248 sustained the exemption of the
said properties of MERALCO from real property tax on the basis of paragraph 13 of
Resolution No. 2679 and the 1964 MERALCO case.

Just when the franchise of MERALCO in Lucena City was about to expire, the Local
Government Code took effect on January 1, 1992, Sections 193 and 234 of which
provide: cralawlawlibrary

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in

this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. No. 6938, non-
stock and nonprofit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code.

Section 234. Exemptions from Real Property Tax. - The following are exempted from
payment of the real property tax: chanRoblesvirtualLawlibrary

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person; ChanRoblesVirtualawlibrary

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,

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

(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; ChanRoblesVirtualawlibrary

(d) All real property owned by duly registered cooperatives as provided for under R.A.
No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including
all government-owned or controlled corporations are hereby withdrawn upon the
effectivity of this Code. chanrobleslaw

The Local Government Code, in addition, contains a general repealing clause under
Section 534(f) which states that "[a]ll general and special laws, acts, city charters,
decrees, executive orders, proclamations and administrative regulations, or part or
parts thereof which are inconsistent with any of the provisions of this Code are hereby
repealed or modified accordingly."

Taking into account the above-mentioned provisions, the evident intent of the Local
Government Code is to withdraw/repeal all exemptions from local taxes, unless
otherwise provided by the Code. The limited and restrictive nature of the tax exemption
privileges under the Local Government Code is consistent with the State policy to
ensure autonomy of local governments and the objective of the Local Government Code
to grant genuine and meaningful autonomy to enable local government units to attain
their fullest development as self-reliant communities and make them effective partners
in the attainment of national goals. The obvious intention of the law is to broaden the
tax base of local government units to assure them of substantial sources of revenue.43

Section 234 of the Local Government Code particularly identifies the exemptions from
payment of real property tax, based on the ownership, character, and use of the
property, viz.:cralawlawlibrary

(a) Ownership Exemptions.  Exemptions from real property taxes on the basis of

ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv)
a municipality, (v) a barangay, and (vi) registered cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of their
character are: (i) charitable institutions, (ii) houses and temples of prayer like
churches, parsonages or convents appurtenant thereto, mosques, and (iii) nonprofit or
religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the actual,
direct and exclusive use to which they are devoted are: (i) all lands, buildings and
improvements which are actually directly and exclusively used for religious, charitable
or educational purposes; (ii) all machineries and equipment actually, directly and
exclusively used by local water districts or by government-owned or controlled
corporations engaged in the supply and distribution of water and/or generation and
transmission of electric power; and (iii) all machinery and equipment used for pollution
control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the country,
all machinery and equipment for pollution control and environmental protection may
not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or

juridical persons including government-owned or controlled corporations are withdrawn
upon the effectivity of the Code.44chanrobleslaw

The last paragraph of Section 234 had unequivocally withdrawn, upon the effectivity of
the Local Government Code, exemptions from payment of real property taxes granted
to natural or juridical persons, including government-owned or controlled corporations,
except as provided in the same section.

MERALCO, a private corporation engaged in electric distribution, and its transformers,

electric posts, transmission lines, insulators, and electric meters used commercially do
not qualify under any of the ownership, character, and usage exemptions enumerated
in Section 234 of the Local Government Code. It is a basic precept of statutory
construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.45 Not being among the recognized exemptions from real property tax in
Section 234 of the Local Government Code, then the exemption of the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO from real
property tax granted under its franchise was among the exemptions withdrawn upon
the effectivity of the Local Government Code on January 1, 1998.
It is worthy to note that the subsequent franchises for operation granted to
MERALCO, i.e., under the Certificate of Franchise dated October 28, 1993 issued by the
National Electrification Commission and Republic Act No. 9209 enacted on June 9, 2003
by Congress, are completely silent on the matter of exemption from real property tax of
MERALCO or any of its properties.

It is settled that tax exemptions must be clear and unequivocal. A taxpayer claiming a
tax exemption must point to a specific provision of law conferring on the taxpayer, in
clear and plain terms, exemption from a common burden. Any doubt whether a tax
exemption exists is resolved against the taxpayer.46 MERALCO has failed to present
herein any express grant of exemption from real property tax of its transformers,
electric posts, transmission lines, insulators, and electric meters that is valid and
binding even under the Local Government Code.

The transformers, electric posts,

transmission lines, insulators, and electric
meters of MERALCO may qualify as
"machinery" under the Local Government
Code subject to real property tax.

Through the years, the relevant laws have consistently considered "machinery" as real
property subject to real property tax. It is the definition of "machinery" that has been
changing and expanding, as the following table will show: chanRoblesvirtualLawlibrary

Real Property
Incidence of Real Property Tax Definition of Machinery47
Tax Law
The Assessment Section 2. Incidence of real property Section 3.  Property exempt from tax.
Law tax. - Except in chartered cities, there - The exemptions shall be as follows:
(Commonwealth shall be levied, assessed, and xxxx
Act No. 470) collected, an annual ad valorem tax (f) Machinery, which term shall
on real property, including land, embrace machines, mechanical
Effectivity: buildings, machinery, and other contrivances, instruments, appliances,
January 1, 1940 improvements not hereinafter and apparatus attached to the real
specifically exempted. estate, used for industrial agricultural
or manufacturing purposes, during the
first five years of the operation of the
machinery.
Real Property Section 38. Incidence of Real Section 3. Definition of Terms. -
Tax Code Property Tax. - There shall be levied, When used in this Code -
assessed and collected in all
Effectivity: June provinces, cities and municipalities an xxxx
1, 1974 annual ad valorem tax on real
property, such as land, buildings, (m) Machinery - shall embrace
machinery and other improvements machines, mechanical contrivances,
affixed or attached to real property instruments, appliances and apparatus
not hereinafter specifically exempted. attached to the real estate. It includes
the physical facilities available for
 production, as well as the installations
and appurtenant service facilities,
together with all other equipment
designed for or essential to its
manufacturing, industrial or
agricultural purposes.
Real Property Section 38. Incidence of Real Section 3.  Definition of Terms.
Tax Code, as Property Tax. - There shall be levied,   When used in this Code -
amended by assessed and collected in all xxxx
Presidential provinces, cities and municipalities an
Decree No. 1383 annual ad valorem tax on real (m) Machinery - shall embrace
property, such as land, buildings, machines, equipment, mechanical
Effectivity: May machinery and other improvements contrivances, instruments, appliances
25, 1978 affixed or attached to real property and apparatus attached to the real
not hereinafter specifically exempted. estate. It shall include the physical
facilities available for production, as
well as the installations and
appurtenant service facilities, together
with all those not permanently
attached to the real estate but are
actually, directly and essentially used
to meet the needs of the particular
industry, business, or works, which
by their very nature and purpose are
designed for, or essential to
manufacturing, commercial, mining,
industrial or agricultural purposes.
Local Section 232. Power to Levy Real Section 199. Definitions. - When used
Government Property Tax. — A province or city in this Title:
  Code or a municipality within the xxxx
Metropolitan Manila Area may levy
Effectivity: an annual ad valorem tax on real (o) "Machinery" embraces machines,
January 1, 1992 property such as land, equipment, mechanical contrivances,
building, machinery, and other instruments, appliances or
improvement not hereinafter apparatus which may or may not be
specifically exempted. attached, permanently or
temporarily, to the real property. It
includes the physical facilities for
production, the installations and
appurtenant service facilities, those
which are mobile, self-powered or
self- propelled, and those not
permanently attached to the real
property which are actually, directly,
and exclusively used to meet the
 needs of the particular industry,
business or activity and which by
their very nature and purpose are
designed for, or necessary to its
manufacturing, mining, logging,
commercial, industrial or agricultural 
purposes[.]

MERALCO is a public utility engaged in electric distribution, and its transformers,

electric posts, transmission lines, insulators, and electric meters constitute the physical
facilities through which MERALCO delivers electricity to its consumers. Each may be
considered as one or more of the following: a
"machine,"48 "equipment,"49 "contrivance,"50 "instrument,"51 "appliance,"52 "apparatus,"53 
or "installation."54

The Court highlights that under Section 199(o) of the Local Government Code,
machinery, to be deemed real property subject to real property tax, need no longer be
annexed to the land or building as these "may or may not be attached, permanently or
temporarily to the real property," and in fact, such machinery may even be
"mobile."55 The same provision though requires that to be machinery subject to real
property tax, the physical facilities for production, installations, and appurtenant service
facilities, those which are mobile, self-powered or self-propelled, or not permanently
attached to the real property (a) must be actually, directly, and exclusively used to
meet the needs of the particular industry, business, or activity; and (2) by their very
nature and purpose, are designed for, or necessary for manufacturing, mining, logging,
commercial, industrial, or agricultural purposes. Thus, Article 290(o) of the Rules and
Regulations Implementing the Local Government Code of 1991 recognizes the following
exemption: cralawlawlibrary

Machinery which are of general purpose use including but not limited to office
equipment, typewriters, telephone equipment, breakable or easily damaged containers
(glass or cartons), microcomputers, facsimile machines, telex machines, cash
dispensers, furnitures and fixtures, freezers, refrigerators, display cases or racks, fruit
juice or beverage automatic dispensing machines which are not directly and exclusively
used to meet the needs of a particular industry, business or activity shall not be
considered within the definition of machinery under this Rule. (Emphasis supplied.) chanrobleslaw

The 1964 MERALCO case was decided when The Assessment Law was still in effect and
Section 3(f) of said law still required that the machinery be attached to the real
property. Moreover, as the Court pointed out earlier, the ruling in the 1964 MERALCO
case  - that the electric poles (including the steel towers) of MERALCO are not subject to
real property tax - was primarily based on the express exemption granted to MERALCO
under its previous franchise. The reference in said case to the Civil Code definition of
real property was only an alternative argument: cralawlawlibrary

Granting for the purpose of argument that the steel supports or towers in
question are not embraced within the term poles, the logical question posited
is whether they constitute real properties, so that they can be subject to a real
property tax. The tax law does not provide for a definition of real property;
but Article 415 of the Civil Code does, by stating the following are immovable
property: cralawlawlibrary

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil; ChanRoblesVirtualawlibrary

xxxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the
object;ChanRoblesVirtualawlibrary

xxxx

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

tenement for an industry or works which may be carried in a building or on a piece of
land, and which tends directly to meet the needs of the said industry or works; ChanRoblesVirtualawlibrary

xxxx
The steel towers or supports in question, do not come within the objects mentioned in
paragraph 1, because they do not constitute buildings or constructions adhered to the
soil. They are not constructions analogous to buildings nor adhering to the soil. As per
description, given by the lower court, they are removable and merely attached to a
square metal frame by means of bolts, which when unscrewed could easily be
dismantled and moved from place to place. They can not be included under paragraph
3, as they are not attached to an immovable in a fixed manner, and they can be
separated without breaking the material or causing deterioration upon the object to
which they are attached. Each of these steel towers or supports consists of steel bars or
metal strips, joined together by means of bolts, which can be disassembled by
unscrewing the bolts and reassembled by screwing the same. These steel towers or
supports do not also fall under paragraph 5, for they are not machineries or
receptacles, instruments or implements, and even if they were, they are not intended
for industry or works on the land. Petitioner is not engaged in an industry or works on
the land in which the steel supports or towers are constructed.56 (Emphases supplied.) chanrobleslaw

The aforequoted conclusions of the Court in the 1964 MERALCO case do not hold true
anymore under the Local Government Code.

While the Local Government Code still does not provide for a specific definition of "real
property," Sections 199(o) and 232 of the said Code, respectively, gives an extensive
definition of what constitutes "machinery" and unequivocally subjects such machinery
to real property tax. The Court reiterates that the machinery subject to real property
tax under the Local Government Code "may or may not be attached, permanently or
temporarily to the real property;" and the physical facilities for production, installations,
and appurtenant service facilities, those which are mobile, self-powered or self-
propelled, or are not permanently attached must (a) be actually, directly, and
exclusively used to meet the needs of the particular industry, business, or activity; and
(2) by their very nature and purpose, be designed for, or necessary for manufacturing,
mining, logging, commercial, industrial, or agricultural purposes.
Article 415, paragraph (1) of the Civil Code declares as immovables or real properties
"[l]and, buildings, roads and constructions of all kinds adhered to the soil." The land,
buildings, and roads are immovables by nature "which cannot be moved from place to
place," whereas the constructions adhered to the soil are immovables by incorporation
"which are essentially movables, but are attached to an immovable in such manner as
to be an integral part thereof."57 Article 415, paragraph (3) of the Civil Code, referring
to "[ejverything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of the
object," are likewise immovables by incorporation. In contrast, the Local Government
Code considers as real property machinery which "may or may not be attached,
permanently or temporarily to the real property," and even those which are "mobile."

Article 415, paragraph (5) of the Civil Code considers as immovables or real properties
"[machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece
of land, and which tend directly to meet the needs of the said industry or works." The
Civil Code, however, does not define "machinery."

The properties under Article 415, paragraph (5) of the Civil Code are immovables by
destination, or "those which are essentially movables, but by the purpose for which
they have been placed in an immovable, partake of the nature of the latter because of
the added utility derived therefrom."58 These properties, including machinery, become
immobilized if the following requisites concur: (a) they are placed in the tenement by
the owner of such tenement; (b) they are destined for use in the industry or work in
the tenement; and (c) they tend to directly meet the needs of said industry or
works.59 The first two requisites are not found anywhere in the Local Government Code.

MERALCO insists on harmonizing the aforementioned provisions of the Civil Code and
the Local Government Code. The Court disagrees, however, for this would necessarily
mean imposing additional requirements for classifying machinery as real property for
real property tax purposes not provided for, or even in direct conflict with, the
provisions of the Local Government Code.

As between the Civil Code, a general law governing property and property relations,
and the Local Government Code, a special law granting local government units the
power to impose real property tax, then the latter shall prevail. As the Court
pronounced in Disomangcop v. The Secretary of the Department of Public Works and
Highways Simeon A. Datumanong60: cralawlawlibrary

It is a finely-imbedded principle in statutory construction that a special provision or law

prevails over a general one. Lex specialis derogant generali. As this Court expressed in
the case of Leveriza v. Intermediate Appellate Court, "another basic principle of
statutory construction mandates that general legislation must give way to special
legislation on the same subject, and generally be so interpreted as to embrace only
cases in which the special provisions are not applicable, that specific statute prevails
over a general statute and that where two statutes are of equal theoretical application
to a particular case, the one designed therefor specially should prevail." (Citations
omitted.)chanrobleslaw
The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco
Corporation61 that:cralawlawlibrary

A general law and a special law on the same subject are statutes in pah materia and
should, accordingly, be read together and harmonized, if possible, with a view to giving
effect to both. The rule is that where there are two acts, one of which is special and
particular and the other general which, if standing alone, would include the same
matter and thus conflict with the special act, the special law must prevail since it
evinces the legislative intent more clearly than that of a general statute and must not
be taken as intended to affect the more particular and specific provisions of the earlier
act, unless it is absolutely necessary so to construe it in order to give its words any
meaning at all.

The circumstance that the special law is passed before or after the general act does not
change the principle. Where the special law is later, it will be regarded as an exception
to, or a qualification of, the prior general act; and where the general act is later, the
special statute will be construed as remaining an exception to its terms, unless repealed
expressly or by necessary implication. (Citations omitted.) chanrobleslaw

Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment Appeals, 62 the

Court acknowledged that "[i]t is a familiar phenomenon to see things classed as real
property for purposes of taxation which on general principle might be considered
personal property[.]"

Therefore, for determining whether machinery is real property subject to real property
tax, the definition and requirements under the Local Government Code are controlling.

MERALCO maintains that its electric posts are not machinery subject to real property
tax because said posts are not being exclusively used by MERALCO; these are also
being utilized by cable and telephone companies. This, however, is a factual issue which
the Court cannot take cognizance of in the Petition at bar as it is not a trier of facts.
Whether or not the electric posts of MERALCO are actually being used by other
companies or industries is best left to the determination of the City Assessor or his
deputy, who has been granted the authority to take evidence under Article 304 of the
Rules and Regulations Implementing the Local Government Code of 1991.

Nevertheless, the appraisal and

assessment of the transformers, electric
posts, transmission lines, insulators, and
electric meters of MERALCO as machinery
under Tax Declaration Nos. 019-6500 and
019-7394 were not in accordance with the
Local Government Code and in violation of
the right to due process of MERALCO and,
therefore, null and void.

The Local Government Code defines "appraisal" as the "act or process of determining
the value of property as of a specific date for a specific purpose." "Assessment" is "the
act or process of determining the value of a property, or proportion thereof subject to
tax, including the discovery, listing, classification, and appraisal of the
properties[.]"63 When it comes to machinery, its appraisal and assessment are
particularly governed by Sections 224 and 225 of the Local Government Code, which
read: cralawlawlibrary

Section 224. Appraisal and Assessment of Machinery. - (a) The fair market value of a
brand-new machinery shall be the acquisition cost. In all other cases, the fair market
value shall be determined by dividing the remaining economic life of the machinery by
its estimated economic life and multiplied by the replacement or reproduction cost.

(b) If the machinery is imported, the acquisition cost includes freight, insurance, bank
and other charges, brokerage, arrastre and handling, duties and taxes, plus cost of
inland transportation, handling, and installation charges at the present site. The cost in
foreign currency of imported machinery shall be converted to peso cost on the basis of
foreign currency exchange rates as fixed by the Central Bank.

Section 225. Depreciation Allowance for Machinery. - For purposes of assessment, a

depreciation allowance shall be made for machinery at a rate not exceeding five percent
(5%) of its original cost or its replacement or reproduction cost, as the case may be, for
each year of use: Provided, however, That the remaining value for all kinds of
machinery shall be fixed at not less than twenty percent (20%) of such original,
replacement, or reproduction cost for so long as the machinery is useful and in
operation. chanrobleslaw

It is apparent from these two provisions that every machinery must be individually
appraised and assessed depending on its acquisition cost, remaining economic life,
estimated economic life, replacement or reproduction cost, and depreciation.

Article 304 of the Rules and Regulations Implementing the Local Government Code of
1991 expressly authorizes the local assessor or his deputy to receive evidence for the
proper appraisal and assessment of the real property: cralawlawlibrary

Article 304. Authority of Local Assessors to Take Evidence. - For the purpose of

obtaining information on which to base the market value of any real property, the
assessor of the province, city, or municipality or his deputy may summon the owners of
the properties to be affected or persons having legal interest therein and witnesses,
administer oaths, and take deposition concerning the property, its ownership, amount,
nature, and value.
chanrobleslaw

The Local Government Code further mandates that the taxpayer be given a notice of
the assessment of real property in the following manner: cralawlawlibrary

Section 223. Notification of New or Revised Assessment. - When real property is

assessed for the first time or when an existing assessment is increased or decreased,
the provincial, city or municipal assessor shall within thirty (30) days give written notice
of such new or revised assessment to the person in whose name the property is
declared. The notice may be delivered personally or by registered mail or through the
assistance of the punong barangay to the last known address of the person to served. chanrobleslaw
A notice of assessment, which stands as the first instance the taxpayer is officially
made aware of the pending tax liability, should be sufficiently informative to apprise the
taxpayer the legal basis of the tax.64 In Manila Electric Company v. Barlis,65 the Court
described the contents of a valid notice of assessment of real property and
differentiated the same from a notice of collection: cralawlawlibrary

A notice of assessment as provided for in the Real Property Tax Code should effectively
inform the taxpayer of the value of a specific property, or proportion thereof subject to
tax, including the discovery, listing, classification, and appraisal of properties. The
September 3, 1986 and October 31, 1989 notices do not contain the essential
information that a notice of assessment must specify, namely, the value of a specific
property or proportion thereof which is being taxed, nor does it state the discovery,
listing, classification and appraisal of the property subject to taxation. In fact, the tenor
of the notices bespeaks an intention to collect unpaid taxes, thus the reminder to the
taxpayer that the failure to pay the taxes shall authorize the government to auction off
the properties subject to taxes x x x. chanrobleslaw

Although the ruling quoted above was rendered under the Real Property Tax Code, the
requirement of a notice of assessment has not changed under the Local Government
Code.

A perusal of the documents received by MERALCO on October 29, 1997 reveals that
none of them constitutes a valid notice of assessment of the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO.

The letter dated October 16, 1997 of the City Treasurer of Lucena (which interestingly
precedes the purported Notice of Assessment dated October 20, 1997 of the City
Assessor of Lucena) is a notice of collection, ending with the request for MERALCO to
settle the payable amount soon in order to avoid accumulation of penalties. It only
presented in table form the tax declarations covering the machinery, assessed values in
the tax declarations in lump sums for all the machinery, the periods covered, and the
taxes and penalties due again in lump sums for all the machinery.

The Notice of Assessment dated October 20, 1997 issued by the City Assessor gave a
summary of the new/revised assessment of the "machinery" located in "Quezon Avenue
Ext., Brgy. Gulang-Gulang, Lucena City," covered by Tax Declaration No. 019-7394,
with total market value of P98,173,200.00 and total assessed value of P78,538,560.00.
The Property Record Form basically contained the same information. Without specific
description or identification of the machinery covered by said tax declaration, said
Notice of Assessment and Property Record Form give the false impression that there is
only one piece of machinery covered.

In Tax Declaration No. 019-6500, the City Assessor reported its findings under "Building
and Improvements" and not "Machinery." Said tax declaration covered "capital
investment-commercial," specifically: (a) Transformer and Electric Post; (b)
Transmission Line, (c) Insulator, and (d) Electric Meter, with a total market value of
P81,811,000.00, assessment level of 80%, and assessed value of £65,448,800.00.
Conspicuously, the table for "Machinery" - requiring the description, date of operation,
replacement cost, depreciation, and market value of the machinery - is totally blank.
MERALCO avers, and the City Assessor and the City Treasurer of Lucena do not refute
at all, that MERALCO has not been furnished the Owner's Copy of Tax Declaration No.
019-7394, in which the total market value of the machinery of MERALCO was increased
by PI6,632,200.00, compared to that in Tax Declaration No. 019-6500.

The Court cannot help but attribute the lack of a valid notice of assessment to the
apparent lack of a valid appraisal and assessment conducted by the City Assessor of
Lucena in the first place. It appears that the City Assessor of Lucena simply lumped
together all the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO located in Lucena City under Tax Declaration Nos. 019-6500 and
019-7394, contrary to the specificity demanded under Sections 224 and 225 of the
Local Government Code for appraisal and assessment of machinery. The City Assessor
and the City Treasurer of Lucena did not even provide the most basic information such
as the number of transformers, electric posts, insulators, and electric meters or the
length of the transmission lines appraised and assessed under Tax Declaration Nos.
019-6500 and 019-7394. There is utter lack of factual basis for the assessment of the
transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO.

The Court of Appeals laid the blame on MERALCO for the lack of information regarding
its transformers, electric posts, transmission lines, insulators, and electric meters for
appraisal and assessment purposes because MERALCO failed to file a sworn declaration
of said properties as required by Section 202 of the Local Government Code. As
MERALCO explained, it cannot be expected to file such a declaration when all the while
it believed that said properties were personal or movable properties not subject to real
property tax. More importantly, Section 204 of the Local Government Code exactly
covers such a situation, thus:cralawlawlibrary

Section 204. Declaration of Real Property by the Assessor. -When any person, natural
or juridical, by whom real property is required to be declared under Section 202 hereof,
refuses or fails for any reason to make such declaration within the time prescribed, the
provincial, city or municipal assessor shall himself declare the property in the name of
the defaulting owner, if known, or against an unknown owner, as the case may be, and
shall assess the property for taxation in accordance with the provision of this Title. No
oath shall be required of a declaration thus made by the provincial, city or municipal
assessor.chanrobleslaw

Note that the only difference between the declarations of property made by the
taxpayer, on one hand, and the provincial/city/municipal assessor, on the other, is that
the former must be made under oath. After making the declaration of the property
himself for the owner, the provincial/city/municipal assessor is still required to assess
the property for taxation in accordance with the provisions of the Local Government
Code.

It is true that tax assessments by tax examiners are presumed correct and made in
good faith, with the taxpayer having the burden of proving otherwise.66 In this case,
MERALCO was able to overcome the presumption because it has clearly shown that the
assessment of its properties by the City Assessor was baselessly and arbitrarily done,
without regard for the requirements of the Local Government Code.
The exercise of the power of taxation constitutes a deprivation of property under the
due process clause, and the taxpayer's right to due process is violated when arbitrary
or oppressive methods are used in assessing and collecting taxes. 67 The Court applies
by analogy its pronouncements in Commissioner of Internal Revenue v. United Salvage
and Towage (Phils.), Inc.,68 concerning an assessment that did not comply with the
requirements of the National Internal Revenue Code: cralawlawlibrary

On the strength of the foregoing observations, we ought to reiterate our earlier

teachings that "in balancing the scales between the power of the State to tax and its
inherent right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the equal protection of the
laws on the other, the scales must tilt in favor of the individual, for a citizen's right is
amply protected by the Bill of Rights under the Constitution." Thus, while "taxes are the
lifeblood of the government," the power to tax has its limits, in spite of all its plenitude.
Even as we concede the inevitability and indispensability of taxation, it is a requirement
in all democratic regimes that it be exercised reasonably and in accordance with the
prescribed procedure. (Citations omitted.) chanrobleslaw

The appraisal and assessment of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO under Tax Declaration Nos. 019-6500 and
019-7394, not being in compliance with the Local Government Code, are attempts at
deprivation of property without due process of law and, therefore, null and void.

WHEREFORE, premises considered, the Court PARTLY GRANTS the instant Petition

and AFFIRMS with MODIFICATION the Decision dated May 13, 2004 of the Court of
Appeals in CA-G.R. SP No. 67027, affirming in toto the Decision dated May 3, 2001 of
the Central Board of Assessment Appeals in CBAA Case No. L-20-98. The
Court DECLARES that the transformers, electric posts, transmission lines,
insulators, and electric meters of Manila Electric Company are NOT
EXEMPTED from real property tax under the Local Government Code. However, the
Court also DECLARES the appraisal and assessment of the said properties under Tax
Declaration Nos. 019-6500 and 019-7394 as NULL and VOID for not complying with
the requirements of the Local Government Code and violating the right to due process
of Manila Electric Company, and ORDERS the CANCELLATION of the collection letter
dated October 16, 1997 of the City Treasurer of Lucena and the Notice of Assessment
dated October 20, 1997 of the City Assessor of Lucena, but WITHOUT PREJUDICE to
the conduct of a new appraisal and assessment of the same properties by the City
Assessor of Lucena in accord with the provisions of the Local Government Code and
guidelines issued by the Bureau of Local Government Financing.

MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY ASSESSOR AND CITY

TREASURER OF LUCENA CITY, Respondents.

FACTS: MERALCO is a private corporation organized and existing under

Philippine laws to operate as a public utility engaged in electric distribution.
MERALCO has been successively granted franchises to operate in
Lucena City beginning 1922 until present time, particularly, by: (1) Resolution
No. 36 dated May 15, 1922 of the Municipal Council of Lucena; (2) Resolution
No. 108 dated July 1, 1957 of the Municipal Council of Lucena; (3) Resolution
No. 2679 dated June 13, 1972 of the Municipal Board of Lucena City; (4)
Certificate of Franchise dated October 28, 1993 issued by the National
Electrification Commission; and (5) Republic Act No. 9209 approved on June
9, 2003 by Congress.

On February 20, 1989, MERALCO received from the City Assessor of

Lucena a copy of Tax Declaration No. 019-6500 covering the following
electric facilities, classified as capital investment, of the company: (a)
transformer and electric post; (b) transmission line; (c) insulator; and (d)
electric meter, located in Quezon Ave. Ext., Brgy. Gulang-Gulang, Lucena
City. Under Tax Declaration No. 019-6500, these electric facilities had a
market value of P81,811,000.00 and an assessed value of P65,448,800.00,
and were subjected to real property tax as of 1985. 

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of

Lucena City, which was docketed as LBAA-89-2. MERALCO claimed that its
capital investment consisted only of its substation facilities, the true and
correct value of which was only P9,454,400.00; and that MERALCO was
exempted from payment of real property tax on said substation facilities.

The LBAA rendered a Decision in LBAA-89-2 on July 5, 1989, finding that

under its franchise, MERALCO was required to pay the City Government
of Lucena a tax equal to 5% of its gross earnings, and “[s]aid tax shall be
due and payable quarterly and shall be in lieu of any and all taxes of any
kind, nature, or description levied, established, or collected . . ., on its poles,
wires, insulators, transformers and structures, installations, conductors, and
accessories, . . ., from which taxes the grantee (MERALCO) is hereby
expressly exempted.” As regards the issue of whether or not the poles, wires,
insulators, transformers, and electric meters of MERALCO were real
properties, the LBAA cited the 1964 case of Board of Assessment Appeals
v. Manila Electric Company (1964 MERALCO case) in which the Court held
that: (1) the steel towers fell within the term “poles” expressly exempted
from taxes under the franchise of MERALCO; and (2) the steel towers
were personal properties under the provisions of the Civil Code and,
hence, not subject to real property tax. The LBAA lastly ordered that Tax
Declaration No. 019-6500 would remain and the poles, wires, insulators,
transformers, and electric meters of MERALCO would be continuously
assessed, but the City Assessor would stamp on the said Tax Declaration the
word “exempt.

ISSUES:

A. WON MERALCO PROPERLY POSTED A BOND.

B. WON MERALCO IS SUBJECT TO REAL PROPERTY TAX.

C. WON THE ASSESSMENT MADE BY THE CITY ASSESSOR IS NULL

AND VOID.

HELD: 

A. YES. Section 252 of the Local Government Code mandates that “[n]o

protest shall be entertained unless the taxpayer first pays the tax.” It is
settled that the requirement of “payment under protest” is a condition sine
qua non before an appeal may be entertained. Section 231 of the same Code
also dictates that “[a]ppeal on assessments of real property . . . shall, in no
case, suspend the collection of the corresponding realty taxes on the property
involved as assessed by the provincial or city assessor, without prejudice to
subsequent adjustment depending upon the final outcome of the appeal.”
Clearly, under the Local Government Code, even when the assessment of the
real property is appealed, the real property tax due on the basis thereof
should be paid to and/or collected by the local government unit concerned.

In the case at bar, the City Treasurer of Lucena, in his letter dated October 16,
1997, sought to collect from MERALCO the amount of P17,925,117.34 as real
property taxes on its machineries, plus penalties, for the period of 1990 to
1997, based on Tax Declaration Nos. 019-6500 and 019-7394 issued by the
City Assessor of Lucena. MERALCO appealed Tax Declaration Nos. 019-
6500 and 019-7394 with the LBAA, but instead of paying the real property
taxes and penalties due, it posted a surety bond in the amount of
P17,925,117.34.

By posting the surety bond, MERALCO may be considered to have

substantially complied with Section 252 of the Local Government Code for
the said bond already guarantees the payment to the Office of the City
Treasurer of Lucena of the total amount of real property taxes and penalties
due on Tax Declaration Nos. 019-6500 and 019-7394. This is not the first time
that the Court allowed a surety bond as an alternative to cash payment of the
real property tax before protest/appeal as required by Section 252 of the Local
Government Code. In Camp John Hay Development Corporation v. Central
Board of Assessment Appeals, the Court affirmed the ruling of the CBAA and
the Court of Tax Appeals en banc applying the “payment under protest”
requirement in Section 252 of the Local Government Code and remanding the
case to the LBAA for “further proceedings subject to a full and up-to-date
payment, either in cash or surety, of realty tax on the subject properties . . . .”

Accordingly, the LBAA herein correctly took cognizance of and gave due
course to the appeal of Tax Declaration Nos. 019-6500 and 019-7394 filed by
MERALCO.

B. YES. The last paragraph of Section 234 had unequivocally withdrawn,

upon the effectivity of the Local Government Code, exemptions from
payment of real property taxes granted to natural or juridical persons,
including government-owned or controlled corporations, except as provided in
the same section.

MERALCO, a private corporation engaged in electric distribution, and its

transformers, electric posts, transmission lines, insulators, and electric meters
used commercially do not qualify under any of the ownership, character, and
usage exemptions enumerated in Section 234 of the Local Government Code.
It is a basic precept of statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the
familiar maximexpressio unius est exclusio alterius.  Not being among the
recognized exemptions from real property tax in Section 234 of the Local
Government Code, then the exemption of the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO from real
property tax granted under its franchise was among the exemptions
withdrawn upon the effectivity of the Local Government Code on January
1, 1998.

It is worthy to note that the subsequent franchises for operation granted to

MERALCO, i.e., under the Certificate of Franchise dated October 28, 1993
issued by the National Electrification Commission and Republic Act No.
9209 enacted on June 9, 2003 by Congress, are completely silent on the
matter of exemption from real property tax of MERALCO or any of its
properties.

It is settled that tax exemptions must be clear and unequivocal. A taxpayer

claiming a tax exemption must point to a specific provision of law conferring
on the taxpayer, in clear and plain terms, exemption from a common burden.
Any doubt whether a tax exemption exists is resolved against the taxpayer.
MERALCO has failed to present herein any express grant of exemption from
real property tax of its transformers, electric posts, transmission lines,
insulators, and electric meters that is valid and binding even under the Local
Government Code. c

C. YES. The Court cannot help but attribute the lack of a valid notice of
assessment to the apparent lack of a valid appraisal and assessment
conducted by the City Assessor of Lucena in the first place. It appears that the
City Assessor of Lucena simply lumped together all the transformers,
electric posts, transmission lines, insulators, and electric meters of
MERALCO located in Lucena City under Tax Declaration Nos. 019-6500
and 019-7394, contrary to the specificity demanded under Sections 224 and
225 of the Local Government Code for appraisal and assessment of
machinery. The City Assessor and the City Treasurer of Lucena did not even
provide the most basic information such as the number of transformers,
electric posts, insulators, and electric meters or the length of the transmission
lines appraised and assessed under Tax Declaration Nos. 019-6500 and 019-
7394. There is utter lack of factual basis for the assessment of the
transformers, electric posts, transmission lines, insulators, and electric meters
of MERALCO.The Court of Appeals laid the blame on MERALCO for the lack
of information regarding its transformers, electric posts, transmission lines,
insulators, and electric meters for appraisal and assessment purposes
because MERALCO failed to file a sworn declaration of said properties as
required by Section 202 of the Local Government Code. As MERALCO
explained, it cannot be expected to file such a declaration when all the while it
believed that said properties were personal or movable properties not subject
to real property tax.

G.R. No. L-19468            October 30, 1964

SALVADOR PIANSAY and CLAUDIA V. VDA. DE UY KIM, plaintiffs-appellants,
vs.
CONRADO S. DAVID and MARCOS MANGUBAT, defendants-appellees.

CONCEPCION, J.:

This is an appeal from an order of the Court of First Instance of Manila in Civil Case No. 47664
thereof. The pertinent facts are set forth in said order from which we quote:

It appears from the complaint that on December 11, 1948, defendant herein Conrado S.
David received a loan of P3,000 with interest at 12% per annum from Claudia B. Vda. de
Uy Kim, one of the plaintiffs, and to secure the payment of the same, Conrado S. David
executed a chattel mortgage on a house situated at 1259 Sande Street, Tondo, Manila;
that the chattel mortgage was registered with the Register of Deeds of Manila on
December 19, 1948; that on February 10, 1953, the mortgaged house was sold at public
auction to satisfy the indebtedness to Claudia B. Vda. de Uy Kim, and the house was
sold to Claudia B. Vda. de Uy Kim in the said foreclosure proceedings; that on March 22,
1954, Claudia B. Vda. de Uy Kim sold the said house to Marcos Mangubat, and on
March 1, 1956. Marcos Mangubat filed a complaint against Conrado S. David, Civil Case
No. 29078, in the Court of First Instance of Manila, for the collection of the loan of P2,000;
that on March 24, 1956, the complaint was amended to include the plaintiffs herein
Salvador Piansay and Claudia B. Vda. de Uy Kim as party defendants and praying that
auction sale executed by the Sheriff on February 10, 1953, and the deed of absolute sale
executed by Claudia B. Vda. de Uy Kim in favor of Salvador Piansay be annulled; that
decision was rendered in Civil Case No. 29078 ordering Conrado S. David to pay the
plaintiff the sum of P2,000, damages and attorney's fees, and dismissing the complaint
with respect to Claudia B. Vda. de Uy Kim, Leonardo Uy Kim and Salvador Piansay; that
upon appeal, the Court of Appeals affirmed the decision but setting aside the award of
damages in favor of Claudia B. Vda. de Uy Kim; that in the execution of Civil Case No.
29078, which was affirmed by the Court of Appeals in CA-G.R. No. 21797-R, the house,
which had been bought by Uy Kim at the foreclosure proceedings and sold by her to
Salvador Piansay, was levied upon at the instance of the defendant Marcos Mangubat;
that to prevent the sale at public auction of the house here in question, the plaintiffs
herein filed a petition for certiorari and mandamus with preliminary injunction in the
Court of Appeals, CA-G.R. No. 28974-R, entitled Claudia B. Vda. de Uy Kim and Salvador
Piansay versus Hon. Judge Jesus Y. Perez, et al.; that acting upon the said petition, the
Court of Appeals in its order of April 28, 1961, denied the petition to lift or discharge the writ
of execution.

Thereupon, or on July 31, 1961, Piansay and Mrs. Uy Kim, hereinafter referred to as the plaintiffs,
instituted the present action which was docketed as Civil Case No. 47664 of the Court of First
Instance of Manila, against David and Mangubat, hereinafter referred to as the defendants. In their
complaint, plaintiffs, after averring the foregoing facts, allege that, in the proceedings for the
execution of the decision in Civil Case No. 29078. David demanded from Piansay the payment of
rentals for the use and occupation of the house aforementioned, which, Piansay claims, is
his property, and that the defendants are threatening to cause said house to be levied upon and
sold at public auction in violation of the alleged rights of the plaintiffs. Accordingly plaintiffs prayed
that a writ of preliminary injunction to restrain said levy and sale at public auction be issued and that,
after appropriate proceedings, judgment be rendered declaring that Piansay is the true and lawful
owner of said house sentencing the defendants to pay damages and making the preliminary
injunction permanent.
Mangubat moved to dismiss said complaint, upon the theory that the same is barred by the
principle of res adjudicata and that plaintiffs have no personality to bring this action or to question
the levy upon the house in question, because they have no interest therein. After due hearing the
lower court issued the order appealed from, granting said motion and dismissing the complaint,
with costs against the plaintiffs. A reconsideration of said order having been denied, plaintiffs
interposed the present appeal directly to this Court only questions of law being raised in the appeal,
namely: (1) applicability of the principle of res adjudicata; and (2) validity of the chattel mortgage
constituted in favor of Mrs. Uy Kim.

With reference to the first question, it should be noted that in case CA-G.R. No. 21797-R, the Court
of Appeals affirmed the decision in Case No. 29078 of the Court of First Instance of Manila stating:

In the case of Ladera, et al., vs. Hodges, et al. (CA-G.R. No. 8027-R, promulgated Sept. 23,
1952) this Court, thru Justice J. B. L. Reyes, said, among others:

Since it is a rule in our law that buildings and constructions are regarded as mere
accesories to the land (following the Roman maxim omne quod solo inaedificatur
solo credit) it is logical that said accessories should partaked of the nature of the
principal thing, which is the land forming, as they do, but a single object (res) with it
in contemplation of law.

... While it is true that said document was correspondingly registered in the Chattel
Mortgage Register of Rizal, this Act produced no effect whatsoever for where the
interest conveyed is in the nature of real property, the registration of the document in
the registry of chattels is merely a futile act. Thus the registration of the chattel
mortgage of a building of strong materials produced no effect as far as the building is
concerned (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). Nor can we give any
consideration to that contention of the surety that it has acquired ownership over the
property in question by reason of the sale conducted by the Provincial Sheriff of Rizal
for as this court has aptly pronounced:

A mortgage creditor who purchases real properties at an extra-judicial

foreclosure sale thereof by virtue of a chattel mortgage constituted in his
favor, which mortgage has been declared null and void with respect to said
real properties acquires no right thereto by virtue of said sale. (De la Riva vs.
Ah Kee, 60 Phil. 899).

Thus, Mrs. Uy Kim had no right to foreclose the alleged chattel mortgage constituted in
her favor, because it was in reality a mere contract of an unsecured loan. It follows that the
Sheriff was not authorized to sell the house as a result of the foreclosure of such
chattel mortgage. And as Mrs. Uy Kim could not have acquired the house when the Sheriff
sold it at public auction, she could not, in the same token, it validly to Salvador Piansay .
Conceding that the contract of sale between Mrs. Uy Kim and Salvador Piansay was of no
effect, we cannot nevertheless set it aside upon instance of Mangubat because, as the court
below opined, he is not a party thereto nor has he any interest in the subject matter therein,
as it was never sold or mortgaged to him (Emphasis supplied);

that, thereafter, the records of the case were remanded to the Court of First Instance of Manila,
which caused the corresponding writ of execution to be issued; that upon the request of Mangubat,
the house in question was levied upon; that Piansay filed with the trial court, presided over by Hon.
Jesus Y. Perez, Judge, a motion to set aside said levy; that this motion was denied by said court, in
an order dated February 4, 1961, upon the following ground:
 Considering that the decision rendered by the Court of Appeals in this case when the same
was elevated to said Court recognizes that defendant Claudia B. de Uy Kim did not
acquire the house of defendant Conrado S. David and can therefore be executed by the
plaintiff to satisfy the judgment rendered against said defendant David in favor of the plaintiff.
The mere fact that the dispositive part of the decision states that the complaint is dismissed
with respect to defendants Claudia B. de Uy Kim, Leonardo Uy Kim and Salvador Piansay is
of no moment because the chattel mortgage executed by David in favor of Claudia B. de Uy
Kim might not be annulled but it did not transmit any right from defendant David to Claudia
B. de Uy Kim. The house in question can therefore be levied upon because it had
remained the property of defendant David (Emphasis supplied);

that a reconsideration of this order of February 4, 1961 having been denied by Judge Perez, on
February 25, 1961, plaintiffs instituted case CA-G.R. No. 28974-R of the Court of Appeals, for a writ
of certiorari and mandamus to annul said orders of Judge Perez and to compel him to release said
house from the aforementioned levy; and that on March 3, 1961, the Court of Appeals denied said
petition for certiorari and mandamus "insofar as it prays that the order of respondent Judge denying
the lifting and discharge of the writ of execution be set aside and revoked."

In other words, in Civil Case No. 29078 of the Court of First Instance of Manila, Piansay assailed the
right of Mangubat to levy execution upon the house in question alleging that the same belongs to
him, he having bought it from Mrs. Uy Kim, who had acquired it at the auction sale held in
connection with the extrajudicial foreclosure of the chattel mortgage constituted in her favor by
David. This pretense was, however, overruled by Judge Perez, who presided at said court, in its
order of February 4, 1961, upon the theory that the chattel mortgage and sale in favor of Mrs. Uy
Kim had been annulled in the original decision in said case, as affirmed by the Court of Appeals in
CA-G.R. No. 21797-R. Regardless of whether this theory is accurate or not, the fact is that said
order became final and executory upon the denial of the petition for certiorari and mandamus, to
annul the same in CA-G.R. No. 28974-R of the Court of Appeals. Hence, plaintiffs are now barred
from asserting that the aforementioned chattel mortgage and sale are valid.

At any rate, regardless of the validity of a contract constituting a chattel mortgage on a

house, as between the parties to said contract (Standard Oil Co. of N. Y. vs. Jaramillo, 44 Phil. 632-
633), the same cannot and does not bind third persons, who are not parties to the
aforementioned contract or their privies (Leung Yee vs. Strong Machinery Co., 37 Phil. 644;
Evangelista vs. Alto Surety, G.R. No. L-11139, April 23, 1958; Navarro vs. Pineda, G.R. No. L-
18456, November 30, 1963). As a consequence, the sale of the house in question in the
proceedings for the extrajudicial foreclosure of said chattel mortgage, is null and void insofar
as defendant Mangubat is concerned, and did not confer upon Mrs. Uy Kim, as buyer in said sale,
any dominical right in and to said house (De la Riva vs. Ah Yee, 60 Phil. 800), so that she could not
have transmitted to her assignee, plaintiff Piansay any such right as against defendant Mangubat. In
short plaintiffs have no cause of action against the defendants herein.

WHEREFORE, the others appealed from are hereby affirmed, with costs against plaintiffs Salvador
Piansay and Claudia B. Vda. de Uy Kim. It is so ordered.

G.R. No. L-26278             August 4, 1927

LEON SIBAL , plaintiff-appellant,

vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.

JOHNSON, J.:

The action was commenced in the Court of First Instance of the Province of Tarlac on the 14th day
of December 1924. The facts are about as conflicting as it is possible for facts to be, in the trial
causes.

As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal, deputy
sheriff of the Province of Tarlac, by virtue of a writ of execution issued by the Court of First
Instance of Pampanga, attached and sold to the defendant Emiliano J. Valdez the sugar cane
planted by the plaintiff and his tenants on seven parcels of land described in the complaint in the
third paragraph of the first cause of action; that within one year from the date of the attachment and
sale the plaintiff offered to redeem said sugar cane and tendered to the defendant Valdez the
amount sufficient to cover the price paid by the latter, the interest thereon and any assessments or
taxes which he may have paid thereon after the purchase, and the interest corresponding thereto
and that Valdez refused to accept the money and to return the sugar cane to the plaintiff.

As a second cause of action, the plaintiff alleged that the defendant Emiliano J. Valdez was
attempting to harvest the palay planted in four of the seven parcels mentioned in the first
cause of action; that he had harvested and taken possession of the palay in one of said seven
parcels and in another parcel described in the second cause of action, amounting to 300 cavans;
and that all of said palay belonged to the plaintiff.

Plaintiff prayed that a writ of preliminary injunction be issued against the defendant Emiliano
J. Valdez his attorneys and agents, restraining them (1) from distributing him in the possession of
the parcels of land described in the complaint; (2) from taking possession of, or harvesting the sugar
cane in question; and (3) from taking possession, or harvesting the palay in said parcels of land.
Plaintiff also prayed that a judgment be rendered in his favor and against the defendants ordering
them to consent to the redemption of the sugar cane in question, and that the defendant Valdez
be condemned to pay to the plaintiff the sum of P1,056 the value of palay harvested by him in the
two parcels above-mentioned ,with interest and costs.

On December 27, 1924, the court, after hearing both parties and upon approval of the bond for
P6,000 filed by the plaintiff, issued the writ of preliminary injunction prayed for in the complaint.

The defendant Emiliano J. Valdez, in his amended answer, denied generally and specifically each
and every allegation of the complaint and step up the following defenses:

(a) That the sugar cane in question had the nature of personal property and was not,
therefore, subject to redemption;

(b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of the
complaint;

(c) That he was the owner of the palay in parcels 1, 2 and 7; and

(d) That he never attempted to harvest the palay in parcels 4 and 5.

The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of the
preliminary injunction he was unable to gather the sugar cane, sugar-cane shoots (puntas de
cana dulce) palay in said parcels of land, representing a loss to him of P8,375.20 and that, in
addition thereto, he suffered damages amounting to P3,458.56. He prayed, for a judgment (1)
absolving him from all liability under the complaint; (2) declaring him to be the absolute owner
of the sugar cane in question and of the palay in parcels 1, 2 and 7; and (3) ordering the plaintiff to
pay to him the sum of P11,833.76, representing the value of the sugar cane and palay in question,
including damages.

Upon the issues thus presented by the pleadings the cause was brought on for trial. After hearing
the evidence, and on April 28, 1926, the Honorable Cayetano Lukban, judge, rendered a
judgment against the plaintiff and in favor of the defendants —

(1) Holding that the sugar cane in question was personal property and, as such, was
not subject to redemption;

(2) Absolving the defendants from all liability under the complaint; and

(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and Marcos
Sibal to jointly and severally pay to the defendant Emiliano J. Valdez the sum of P9,439.08
as follows:

(a) P6,757.40, the value of the sugar cane;

(b) 1,435.68, the value of the sugar-cane shoots;

(c) 646.00, the value of palay harvested by plaintiff;

(d) 600.00, the value of 150 cavans of palay which the defendant was not able to
raise by reason of the injunction, at P4 cavan. 9,439.08 From that judgment the
plaintiff appealed and in his assignments of error contends that the lower court erred:
(1) In holding that the sugar cane in question was personal property and, therefore,
not subject to redemption;

(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as well as parcels 7
and 8, and that the palay therein was planted by Valdez;

(3) In holding that Valdez, by reason of the preliminary injunction failed to realized P6,757.40
from the sugar cane and P1,435.68 from sugar-cane shoots (puntas de cana dulce);

(4) In holding that, for failure of plaintiff to gather the sugar cane on time, the defendant was
unable to raise palay on the land, which would have netted him the sum of P600; and.

(5) In condemning the plaintiff and his sureties to pay to the defendant the sum of P9,439.08.

It appears from the record:

(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by virtue of writ of
execution in civil case No. 20203 of the Court of First Instance of Manila (Macondray & Co.,
Inc. vs. Leon Sibal),levied an attachment on eight parcels of land belonging to said
 Leon Sibal, situated in the Province of Tarlac, designated in the second of attachment as
parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).

(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels of land, at
the auction held by the sheriff of the Province of Tarlac, for the sum to P4,273.93, having
paid for the said parcels separately as follows (Exhibit C, and 2-A):

Parcel

1 ..................................................................... P1.00
2 ..................................................................... 2,000.00
3 ..................................................................... 120.93
4 ..................................................................... 1,000.00
5 ..................................................................... 1.00
6 ..................................................................... 1.00
7 with the house thereon .......................... 150.00

8 ..................................................................... 1,000.00
==========
4,273.93

(3) That within one year from the sale of said parcel of land, and on the 24th day of
September, 1923, the judgment debtor, Leon Sibal, paid P2,000 to Macondray & Co., Inc.,
for the account of the redemption price of said parcels of land, without specifying the
particular parcels to which said amount was to applied. The redemption price said eight
parcels was reduced, by virtue of said transaction, to P2,579.97 including interest (Exhibit C
and 2).

The record further shows:

(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the
Province of Tarlac, by virtue of a writ of execution in civil case No. 1301 of the Province of
Pampanga (Emiliano J. Valdez vs. Leon Sibal 1.º — the same parties in the present case),
attached the personal property of said Leon Sibal located in Tarlac, among which was
included the sugar cane now in question in the seven parcels of land described in the
complaint (Exhibit A).

(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal
properties of Leon Sibal, including the sugar cane in question to Emilio J. Valdez, who paid
therefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A).

(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of execution, also
attached the real property of said Leon Sibal in Tarlac, including all of his rights, interest and
participation therein, which real property consisted of eleven parcels of land and a house and
camarin situated in one of said parcels (Exhibit A).
 (4) That on June 25, 1924, eight of said eleven parcels, including the house and the camarin,
were bought by Emilio J. Valdez at the auction held by the sheriff for the sum of
P12,200. Said eight parcels were designated in the certificate of sale as parcels 1, 3, 4, 5, 6,
7, 10 and 11. The house and camarin were situated on parcel 7 (Exhibit A).

(5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels 2, 12,
and 13, were released from the attachment by virtue of claims presented by Agustin
Cuyugan and Domiciano Tizon (Exhibit A).

(6) That on the same date, June 25, 1924, Macondray & Co. sold and conveyed to Emilio
J. Valdez for P2,579.97 all of its rights and interest in the eight parcels of land acquired by it
at public auction held by the deputy sheriff of Tarlac in connection with civil case No. 20203
of the Court of First Instance of Manila, as stated above. Said amount represented the
unpaid balance of the redemption price of said eight parcels, after payment by Leon Sibal of
P2,000 on September 24, 1923, fro the account of the redemption price, as stated above.
(Exhibit C and 2).

The foregoing statement of facts shows:

(1) The Emilio J. Valdez bought the sugar cane in question, located in the seven parcels
of land described in the first cause of action of the complaint at public auction on May 9 and
10, 1924, for P600.

(2) That on July 30, 1923, Macondray & Co. became the owner of eight parcels of land
situated in the Province of Tarlac belonging to Leon Sibal and that on September 24, 1923,
Leon Sibal paid to Macondray & Co. P2,000 for the account of the redemption price of
said parcels.

(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray & Co. all of its
rights and interest in the said eight parcels of land.

(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights and interest
which Leon Sibal had or might have had on said eight parcels by virtue of the P2,000
paid by the latter to Macondray.

(5) That Emilio J. Valdez became the absolute owner of said eight parcels of land.

The first question raised by the appeal is, whether the sugar cane in question is personal or real
property. It is contended that sugar cane comes under the classification of real property as
"ungathered products" in paragraph 2 of article 334 of the Civil Code. Said paragraph 2 of article
334 enumerates as real property the following: Trees, plants, and ungathered products, while they
are annexed to the land or form an integral part of any immovable property." That article, however,
has received in recent years an interpretation by the Tribunal Supremo de España, which holds that,
under certain conditions, growing crops may be considered as personal property. (Decision of March
18, 1904, vol. 97, Civil Jurisprudence of Spain.)

Manresa, the eminent commentator of the Spanish Civil Code, in discussing section 334 of the Civil
Code, in view of the recent decisions of the supreme Court of Spain, admits that growing crops
are sometimes considered and treated as personal property. He says:
 No creemos, sin embargo, que esto excluya la excepcionque muchos autores hacen tocante
a la venta de toda cosecha o de parte de ella cuando aun no esta cogida (cosa frecuente
con la uvay y la naranja), y a la de lenas, considerando ambas como muebles. El Tribunal
Supremo, en sentencia de 18 de marzo de 1904, al entender sobre un contrato de
arrendamiento de un predio rustico, resuelve que su terminacion por desahucio no extingue
los derechos del arrendario, para recolectar o percibir los frutos correspondientes al año
agricola, dentro del que nacieron aquellos derechos, cuando el arrendor ha percibido a su
vez el importe de la renta integra correspondiente, aun cuando lo haya sido por precepto
legal durante el curso del juicio, fundandose para ello, no solo en que de otra suerte se daria
al desahucio un alcance que no tiene, sino en que, y esto es lo interesante a nuestro
proposito, la consideracion de inmuebles que el articulo 334 del Codigo Civil atribuge a los
frutos pendientes, no les priva del caracter de productos pertenecientes, como tales, a
quienes a ellos tenga derecho, Ilegado el momento de su recoleccion.

xxx     xxx     xxx

Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en 16 de

diciembre de 1909, con las reformas introducidas por la de 21 de abril anterior, la hipoteca,
salvo pacto expreso que disponga lo contrario, y cualquiera que sea la naturaleza y forma
de la obligacion que garantice, no comprende los frutos cualquiera que sea la situacion en
que se encuentre. (3 Manresa, 5. edicion, pags. 22, 23.)

From the foregoing it appears (1) that, under Spanish authorities, pending fruits and ungathered
products may be sold and transferred as personal property; (2) that the Supreme Court of Spain, in a
case of ejectment of a lessee of an agricultural land, held that the lessee was entitled to gather the
products corresponding to the agricultural year, because said fruits did not go with the land but
belonged separately to the lessee; and (3) that under the Spanish Mortgage Law of 1909, as
amended, the mortgage of a piece of land does not include the fruits and products existing thereon,
unless the contract expressly provides otherwise.

An examination of the decisions of the Supreme Court of Louisiana may give us some light on the
question which we are discussing. Article 465 of the Civil Code of Louisiana, which corresponds to
paragraph 2 of article 334 of our Civil Code, provides: "Standing crops and the fruits of trees not
gathered, and trees before they are cut down, are likewise immovable, and are considered as part of
the land to which they are attached."

The Supreme Court of Louisiana having occasion to interpret that provision, held that in some cases
"standing crops" may be considered and dealt with as personal property. In the case of Lumber Co.
vs. Sheriff and Tax Collector (106 La., 418) the Supreme Court said: "True, by article 465 of the Civil
Code it is provided that 'standing crops and the fruits of trees not gathered and trees before they are
cut down . . . are considered as part of the land to which they are attached, but the immovability
provided for is only one in abstracto and without reference to rights on or to the crop acquired by
others than the owners of the property to which the crop is attached. . . . The existence of a right on
the growing crop is a mobilization by anticipation, a gathering as it were in advance, rendering the
crop movable quoad the right acquired therein. Our jurisprudence recognizes the possible
mobilization of the growing crop." (Citizens' Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28
La., Ann., 761; Sandel vs. Douglass, 27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)

"It is true," as the Supreme Court of Louisiana said in the case of Porche vs. Bodin (28 La. An., 761)
that "article 465 of the Revised Code says that standing crops are considered as immovable and as
part of the land to which they are attached, and article 466 declares that the fruits of an immovable
gathered or produced while it is under seizure are considered as making part thereof, and incurred
to the benefit of the person making the seizure. But the evident meaning of these articles, is where
the crops belong to the owner of the plantation they form part of the immovable, and where it is
seized, the fruits gathered or produced inure to the benefit of the seizing creditor.

A crop raised on leased premises in no sense forms part of the immovable. It belongs to the
lessee, and may be sold by him, whether it be gathered or not, and it may be sold by his
judgment creditors. If it necessarily forms part of the leased premises the result would be that
it could not be sold under execution separate and apart from the land. If a lessee obtain
supplies to make his crop, the factor's lien would not attach to the crop as a separate thing
belonging to his debtor, but the land belonging to the lessor would be affected with the
recorded privilege. The law cannot be construed so as to result in such absurd
consequences.

In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:

If the crop quoad the pledge thereof under the act of 1874 was an immovable, it would be
destructive of the very objects of the act, it would render the pledge of the crop objects of the
act, it would render the pledge of the crop impossible, for if the crop was an inseparable part
of the realty possession of the latter would be necessary to that of the former; but such is not
the case. True, by article 465 C. C. it is provided that "standing crops and the fruits of trees
not gathered and trees before they are cut down are likewise immovable and are considered
as part of the land to which they are attached;" but the immovability provided for is only
one in abstracto and without reference to rights on or to the crop acquired by other than the
owners of the property to which the crop was attached. The immovability of a growing crop is
in the order of things temporary, for the crop passes from the state of a growing to that of a
gathered one, from an immovable to a movable. The existence of a right on the growing crop
is a mobilization by anticipation, a gathering as it were in advance, rendering the crop
movable quoad the right acquired thereon. The provision of our Code is identical with the
Napoleon Code 520, and we may therefore obtain light by an examination of the
jurisprudence of France.

The rule above announced, not only by the Tribunal Supremo de España but by the Supreme Court
of Louisiana, is followed in practically every state of the Union.

From an examination of the reports and codes of the State of California and other states we find that
the settle doctrine followed in said states in connection with the attachment of property and
execution of judgment is, that growing crops raised by yearly labor and cultivation are
considered personal property. (6 Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p.
329: Raventas vs. Green, 57 Cal., 254; Norris vs. Watson, 55 Am. Dec., 161; Whipple vs. Foot, 3
Am. Dec., 442; 1 Benjamin on Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts
and Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on
Execution, vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on Sales, sec. 200 and 763.)

Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in
existence, is reasonably certain to come into existence as the natural increment or usual incident of
something already in existence, and then belonging to the vendor, and then title will vest in the buyer
the moment the thing comes into existence. (Emerson vs. European Railway Co., 67 Me., 387;
Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have a
potential existence. A man may sell property of which he is potentially and not actually possessed.
He may make a valid sale of the wine that a vineyard is expected to produce; or the gain a field may
grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall
thereafter grow upon sheep; or what may be taken at the next cast of a fisherman's net; or fruits to
grow; or young animals not yet in existence; or the good will of a trade and the like. The thing sold,
however, must be specific and identified. They must be also owned at the time by the vendor.
(Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].)

It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil Code has been
modified by section 450 of the Code of Civil Procedure as well as by Act No. 1508, the Chattel
Mortgage Law. Said section 450 enumerates the property of a judgment debtor which may be
subjected to execution. The pertinent portion of said section reads as follows: "All goods, chattels,
moneys, and other property, both real and personal, * * * shall be liable to execution. Said section
450 and most of the other sections of the Code of Civil Procedure relating to the execution of
judgment were taken from the Code of Civil Procedure of California. The Supreme Court of
California, under section 688 of the Code of Civil Procedure of that state (Pomeroy, p. 424) has held,
without variation, that growing crops were personal property and subject to execution.

Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are personal
property. Section 2 of said Act provides: "All personal property shall be subject to mortgage,
agreeably to the provisions of this Act, and a mortgage executed in pursuance thereof shall be
termed a chattel mortgage." Section 7 in part provides: "If growing crops be mortgaged the mortgage
may contain an agreement stipulating that the mortgagor binds himself properly to tend, care for and
protect the crop while growing.

It is clear from the foregoing provisions that Act No. 1508 was enacted on the assumption that
"growing crops" are personal property. This consideration tends to support the conclusion
hereinbefore stated, that paragraph 2 of article 334 of the Civil Code has been modified by section
450 of Act No. 190 and by Act No. 1508 in the sense that "ungathered products" as mentioned in
said article of the Civil Code have the nature of personal property. In other words, the phrase
"personal property" should be understood to include "ungathered products."

At common law, and generally in the United States, all annual crops which are raised by
yearly manurance and labor, and essentially owe their annual existence to cultivation by
man, . may be levied on as personal property." (23 C. J., p. 329.) On this question Freeman,
in his treatise on the Law of Executions, says: "Crops, whether growing or standing in the
field ready to be harvested, are, when produced by annual cultivation, no part of the realty.
They are, therefore, liable to voluntary transfer as chattels. It is equally well settled that they
may be seized and sold under execution. (Freeman on Executions, vol. p. 438.)

We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been
modified by section 450 of the Code of Civil Procedure and by Act No. 1508, in the sense that,
for the purpose of attachment and execution, and for the purposes of the Chattel Mortgage
Law, "ungathered products" have the nature of personal property. The lower court, therefore,
committed no error in holding that the sugar cane in question was personal property and, as
such, was not subject to redemption.

All the other assignments of error made by the appellant, as above stated, relate to questions of fact
only. Before entering upon a discussion of said assignments of error, we deem it opportune to take
special notice of the failure of the plaintiff to appear at the trial during the presentation of evidence by
the defendant. His absence from the trial and his failure to cross-examine the defendant have lent
considerable weight to the evidence then presented for the defense.

Coming not to the ownership of parcels 1 and 2 described in the first cause of action of the
complaint, the plaintiff made a futile attempt to show that said two parcels belonged to Agustin
Cuyugan and were the identical parcel 2 which was excluded from the attachment and sale of real
property of Sibal to Valdez on June 25, 1924, as stated above. A comparison of the description of
parcel 2 in the certificate of sale by the sheriff (Exhibit A) and the description of parcels 1 and 2 of
the complaint will readily show that they are not the same.

The description of the parcels in the complaint is as follows:

1. La caña dulce sembrada por los inquilinos del ejecutado Leon Sibal 1.º en una parcela de
terreno de la pertenencia del citado ejecutado, situada en Libutad, Culubasa, Bamban,
Tarlac, de unas dos hectareas poco mas o menos de superficie.

2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal 1.º, Ilamado Alejandro
Policarpio, en una parcela de terreno de la pertenencia del ejecutado, situada en Dalayap,
Culubasa, Bamban, Tarlac de unas dos hectareas de superficie poco mas o menos." The
description of parcel 2 given in the certificate of sale (Exhibit A) is as follows:

2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090 metros cuadrados
de superficie, linda al N. con Canuto Sibal, Esteban Lazatin and Alejandro Dayrit; al E. con
Francisco Dizon, Felipe Mañu and others; al S. con Alejandro Dayrit, Isidro Santos and
Melecio Mañu; y al O. con Alejandro Dayrit and Paulino Vergara. Tax No. 2854, vador
amillarado P4,200 pesos.

On the other hand the evidence for the defendant purported to show that parcels 1 and 2 of the
complaint were included among the parcels bought by Valdez from Macondray on June 25, 1924,
and corresponded to parcel 4 in the deed of sale (Exhibit B and 2), and were also included among
the parcels bought by Valdez at the auction of the real property of Leon Sibal on June 25, 1924, and
corresponded to parcel 3 in the certificate of sale made by the sheriff (Exhibit A). The description of
parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows:

Parcels No. 4. — Terreno palayero, ubicado en el barrio de Culubasa,Bamban, Tarlac, I. F.

de 145,000 metros cuadrados de superficie, lindante al Norte con Road of the barrio of
Culubasa that goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño y Canuto
Sibal y al Oeste con Esteban Lazatin, su valor amillarado asciende a la suma de P2,990.
Tax No. 2856.

As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint and parcel 4
(Exhibit 2 and B) and parcel 3 (Exhibit A). But, inasmuch as the plaintiff did not care to appear at the
trial when the defendant offered his evidence, we are inclined to give more weight to the evidence
adduced by him that to the evidence adduced by the plaintiff, with respect to the ownership of
parcels 1 and 2 of the compliant. We, therefore, conclude that parcels 1 and 2 of the complaint
belong to the defendant, having acquired the same from Macondray & Co. on June 25, 1924, and
from the plaintiff Leon Sibal on the same date.

It appears, however, that the plaintiff planted the palay in said parcels and harvested therefrom 190
cavans. There being no evidence of bad faith on his part, he is therefore entitled to one-half of the
crop, or 95 cavans. He should therefore be condemned to pay to the defendant for 95 cavans only,
at P3.40 a cavan, or the sum of P323, and not for the total of 190 cavans as held by the lower court.

As to the ownership of parcel 7 of the complaint, the evidence shows that said parcel corresponds to
parcel 1 of the deed of sale of Macondray & Co, to Valdez (Exhibit B and 2), and to parcel 4 in the
certificate of sale to Valdez of real property belonging to Sibal, executed by the sheriff as above
stated (Exhibit A). Valdez is therefore the absolute owner of said parcel, having acquired the interest
of both Macondray and Sibal in said parcel.
With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of the second
cause of action, it appears from the testimony of the plaintiff himself that said parcel corresponds to
parcel 8 of the deed of sale of Macondray to Valdez (Exhibit B and 2) and to parcel 10 in the deed of
sale executed by the sheriff in favor of Valdez (Exhibit A). Valdez is therefore the absolute owner of
said parcel, having acquired the interest of both Macondray and Sibal therein.

In this connection the following facts are worthy of mention:

Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were attached under
said execution. Said parcels of land were sold to Macondray & Co. on the 30th day of July, 1923.
Rice paid P4,273.93. On September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 on the
redemption of said parcels of land. (See Exhibits B and C ).

Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was attached, including the
sugar cane in question. (Exhibit A) The said personal property so attached, sold at public auction
May 9 and 10, 1924. April 29, 1924, the real property was attached under the execution in favor of
Valdez (Exhibit A). June 25, 1924, said real property was sold and purchased by Valdez (Exhibit A).

June 25, 1924, Macondray & Co. sold all of the land which they had purchased at public auction on
the 30th day of July, 1923, to Valdez.

As to the loss of the defendant in sugar cane by reason of the injunction, the evidence shows that
the sugar cane in question covered an area of 22 hectares and 60 ares (Exhibits 8, 8-b and 8-c); that
said area would have yielded an average crop of 1039 picos and 60 cates; that one-half of the
quantity, or 519 picos and 80 cates would have corresponded to the defendant, as owner; that
during the season the sugar was selling at P13 a pico (Exhibit 5 and 5-A). Therefore, the defendant,
as owner, would have netted P 6,757.40 from the sugar cane in question. The evidence also shows
that the defendant could have taken from the sugar cane 1,017,000 sugar-cane shoots (puntas de
cana) and not 1,170,000 as computed by the lower court. During the season the shoots were selling
at P1.20 a thousand (Exhibits 6 and 7). The defendant therefore would have netted P1,220.40 from
sugar-cane shoots and not P1,435.68 as allowed by the lower court.

As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint, amounting to 190
cavans, one-half of said quantity should belong to the plaintiff, as stated above, and the other half to
the defendant. The court erred in awarding the whole crop to the defendant. The plaintiff should
therefore pay the defendant for 95 cavans only, at P3.40 a cavan, or P323 instead of P646 as
allowed by the lower court.

The evidence also shows that the defendant was prevented by the acts of the plaintiff from
cultivating about 10 hectares of the land involved in the litigation. He expected to have raised about
600 cavans of palay, 300 cavans of which would have corresponded to him as owner. The lower
court has wisely reduced his share to 150 cavans only. At P4 a cavan, the palay would have netted
him P600.

In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff and his
sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal are hereby ordered to pay to the
defendant jointly and severally the sum of P8,900.80, instead of P9,439.08 allowed by the lower
court, as follows:

P6,757.40 for the sugar cane;

 1,220.40 for the sugar cane shoots;
323.00 for the palay harvested by plaintiff in parcels 1 and 2;
600.00 for the palay which defendant could have raised.

8,900.80
============

In all other respects, the judgment appealed from is hereby affirmed, with costs. So ordered.