G.R. No.

120098 October 2, 2001

RUBY L. TSAI, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R VILLALUZ, respondents.

x---------------------------------------------------------x

[G.R. No. 120109. October 2, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ, respondents.

QUISUMBING, J.:

These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No. 32986,
affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265. Also
assailed is respondent court's resolution denying petitioners' motion for reconsideration.

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

MORTGAGE

(REAL AND CHATTEL)

xxx xxx xxx

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

"Annex A"

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

LIST OF MACHINERIES & EQUIPMENT

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

Serial Numbers Size of Machines

xxx xxx xxx

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

 xxx xxx xxx

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

xxx xxx xxx

D. Four (4) Winding Machines.

xxx xxx xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx xxx xxx

II. Any and all buildings and improvements now existing or hereafter to exist on the above-
mentioned lot.

III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned lot
located at . . .

(a) Forty eight sets (48) Vayrow Knitting Machines . . .

(b) Sixteen sets (16) Vayrow Knitting Machines . . .

(c) Two (2) Circular Knitting Machines . . .

(d) Two (2) Winding Machines . . .

(e) Two (2) Winding Machines . . .

IV. Any and all replacements, substitutions, additions, increases and accretions to above
properties.

xxx xxx xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured
by a Chattel Mortgage over personal properties enumerated in a list attached thereto. These listed
properties were similar to those listed in Annex A of the first mortgage deed.

After April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX
purchased various machines and equipments.

On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as
SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI
issued an order on November 24, 1982 declaring the corporation insolvent. All its assets were taken into
the custody of the Insolvency Court, including the collateral, real and personal, securing the two
mortgages as abovementioned.

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced
extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwise known as "An Act to
Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages"
and Act 1506 or "The Chattel Mortgage Law". A Notice of Sheriff's Sale was issued on December 1,
1982.

On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the highest
bidder and a Certificate of Sale was issued in its favor on the same date. On December 23, 1982, another
public auction was held and again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale
on the same day.

On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In
November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month.
On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including the
contested machineries.

On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with
the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject
mortgage was in violation of the Insolvency Law. EVERTEX claimed that no rights having been
transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights over such
assets sold to her, and should reconvey the assets.

Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested
properties, which were not included in the Real and Chattel Mortgage of November 26, 1975 nor in the
Chattel Mortgage of April 23, 1979, and neither were those properties included in the Notice of Sheriff's
Sale dated December 1, 1982 and Certificate of Sale . . . dated December 15, 1982.

The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting
Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment.

The RTC found that the lease and sale of said personal properties were irregular and illegal because they
were not duly foreclosed nor sold at the December 15, 1982 auction sale since these were not included in
the schedules attached to the mortgage contracts. The trial court decreed:

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the
defendants:

1. Ordering the annulment of the sale executed by defendant Philippine Bank of Communications
in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the personal properties
listed in par. 9 of the complaint, and their return to the plaintiff corporation through its assignee,
plaintiff Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done within ten (10)
days from finality of this decision;

2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P5,200,000.00 as compensation for the use and possession of the properties in question from
November 1986 to February 1991 and P100,000.00 every month thereafter, with interest thereon
at the legal rate per annum until full payment;

3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P50,000.00 as and for attorney's fees and expenses of litigation;

4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P200,000.00 by way of exemplary damages;

5. Ordering the dismissal of the counterclaim of the defendants; and

 6. Ordering the defendants to proportionately pay the costs of suit.

SO ORDERED.4

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

WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and reduction of
the actual damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject
personal properties are restored to appellees, the judgment appealed from is hereby AFFIRMED, in all
other respects. No pronouncement as to costs.5

Motion for reconsideration of the above decision having been denied in the resolution of April 28, 1995,
PBCom and Tsai filed their separate petitions for review with this Court.

In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A

CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS
CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL
AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.

II

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT

THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE
MORTGAGE DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE
RULINGS OF THE SUPREME COURT.

III

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING

PETITIONER A PURCHASER IN BAD FAITH.

IV

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING

PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION
FOR WANT OF VALID FACTUAL AND LEGAL BASIS.

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING

AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6

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

I.
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER
PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE 1975
DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTY
EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE 1975 DEED THAT
ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL FORM
PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND
HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE
MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES?

II

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD FAITH,
EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED
P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED
MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY
COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU THEREOF BE
ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST
ENRICHMENT?7

The principal issue, in our view, is whether or not the inclusion of the questioned properties in the
foreclosed properties is proper. The secondary issue is whether or not the sale of these properties to
petitioner Ruby Tsai is valid.

For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by treating the
1981 acquired units of machinery as chattels instead of real properties within their earlier 1975 deed of
Real and Chattel Mortgage or 1979 deed of Chattel Mortgage. 8 Additionally, Tsai argues that respondent
court erred in holding that the disputed 1981 machineries are not real properties. 9 Finally, she contends
that the Court of Appeals erred in holding against petitioner's arguments on prescription and laches10 and
in assessing petitioner actual damages, attorney's fees and expenses of litigation, for want of valid factual
and legal basis.11

Essentially, PBCom contends that respondent court erred in affirming the lower court's judgment
decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be legally
leased nor sold to Ruby Tsai. It further argued that the Court of Appeals' pronouncement that the pieces
of machinery in question were personal properties have no factual and legal basis. Finally, it asserts that
the Court of Appeals erred in assessing damages and attorney's fees against PBCom.

In opposition, private respondents argue that the controverted units of machinery are not "real properties"
but chattels, and, therefore, they were not part of the foreclosed real properties, rendering the lease and
the subsequent sale thereof to Tsai a nullity.12

Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit
and ought to be denied.

Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari under
Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the
factual findings complained of are devoid of support by the evidence on record or the assailed judgment
is based on misapprehension of facts.13 This rule is applied more stringently when the findings of fact of
the RTC is affirmed by the Court of Appeals.14

The following are the facts as found by the RTC and affirmed by the Court of Appeals that are decisive of
the issues: (1) the "controverted machineries" are not covered by, or included in, either of the two
mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said
machineries were not included in the list of properties appended to the Notice of Sale, and neither were
they included in the Sheriff's Notice of Sale of the foreclosed properties.15

Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or
cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable
under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue.
Mere nuts and bolts do not foreclose the controversy. We have to look at the parties' intent.

While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real
and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case at bar,
both the trial and the appellate courts reached the same finding that the true intention of PBCOM and the
owner, EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion of respondent
appellate court's ruling is quoted below:

As stressed upon by appellees, appellant bank treated the machineries as chattels; never as real
properties. Indeed, the 1975 mortgage contract, which was actually real and chattel mortgage,
militates against appellants' posture. It should be noted that the printed form used by appellant
bank was mainly for real estate mortgages. But reflective of the true intention of appellant
PBCOM and appellee EVERTEX was the typing in capital letters, immediately following the
printed caption of mortgage, of the phrase "real and chattel." So also, the "machineries and
equipment" in the printed form of the bank had to be inserted in the blank space of the printed
contract and connected with the word "building" by typewritten slash marks. Now, then, if the
machineries in question were contemplated to be included in the real estate mortgage, there
would have been no necessity to ink a chattel mortgage specifically mentioning as part III of
Schedule A a listing of the machineries covered thereby. It would have sufficed to list them as
immovables in the Deed of Real Estate Mortgage of the land and building involved.

As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers
solely to chattels. The inventory list of the mortgaged properties is an itemization of sixty-three
(63) individually described machineries while the schedule listed only machines and 2,996,880.50
worth of finished cotton fabrics and natural cotton fabrics. 16

In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the
evidence on record, we find no compelling reason to depart therefrom.

Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the
parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back
as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if there
is a stipulation as when it is used as security in the payment of an obligation where a chattel mortgage is
executed over it, as in the case at bar.

In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage and
Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treat all properties
included therein as immovable, and (2) attached to the said contract a separate "LIST OF MACHINERIES
& EQUIPMENT". These facts, taken together, evince the conclusion that the parties' intention is to treat
these units of machinery as chattels. A fortiori, the contested after-acquired properties, which are of the
same description as the units enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," must
also be treated as chattels.

Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuch as the
subject mortgages were intended by the parties to involve chattels, insofar as equipment and machinery
were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: "a chattel
mortgage shall be deemed to cover only the property described therein and not like or substituted
property thereafter acquired by the mortgagor and placed in the same depository as the property
originally mortgaged, anything in the mortgage to the contrary notwithstanding."

And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975
or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject
machineries with the properties enumerated in said chattel mortgages.

As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor.
Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod
non habet, one cannot give what one does not have.17

Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a nullity, she
is nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX.

To the contrary, however, are the factual findings and conclusions of the trial court that she is not a
purchaser in good faith. Well-settled is the rule that the person who asserts the status of a purchaser in
good faith and for value has the burden of proving such assertion.18 Petitioner Tsai failed to discharge this
burden persuasively.

Moreover, a purchaser in good faith and for value is one who buys the property of another without notice
that some other person has a right to or interest in such property and pays a full and fair price for the
same, at the time of purchase, or before he has notice of the claims or interest of some other person in
the property.19 Records reveal, however, that when Tsai purchased the controverted properties, she knew
of respondent's claim thereon. As borne out by the records, she received the letter of respondent's
counsel, apprising her of respondent's claim, dated February 27, 1987.20 She replied thereto on March 9,
1987.21 Despite her knowledge of respondent's claim, she proceeded to buy the contested units of
machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good
faith.

Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed properties are
located is equally unavailing. This defense refers to sale of lands and not to sale of properties situated
therein. Likewise, the mere fact that the lot where the factory and the disputed properties stand is in
PBCom's name does not automatically make PBCom the owner of everything found therein, especially in
view of EVERTEX's letter to Tsai enunciating its claim.

Finally, petitioners' defense of prescription and laches is less than convincing. We find no cogent reason
to disturb the consistent findings of both courts below that the case for the reconveyance of the disputed
properties was filed within the reglementary period. Here, in our view, the doctrine of laches does not
apply. Note that upon petitioners' adamant refusal to heed EVERTEX's claim, respondent company
immediately filed an action to recover possession and ownership of the disputed properties. There is no
evidence showing any failure or neglect on its part, for an unreasonable and unexplained length of time,
to do that which, by exercising due diligence, could or should have been done earlier. The doctrine of
stale demands would apply only where by reason of the lapse of time, it would be inequitable to allow a
party to enforce his legal rights. Moreover, except for very strong reasons, this Court is not disposed to
apply the doctrine of laches to prejudice or defeat the rights of an owner. 22

As to the award of damages, the contested damages are the actual compensation, representing rentals
for the contested units of machinery, the exemplary damages, and attorney's fees.

As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid rentals
of the contested properties based on the testimony of John Chua, who testified that the P100,000.00 was
based on the accepted practice in banking and finance, business and investments that the rental price
must take into account the cost of money used to buy them. The Court of Appeals did not give full
credence to Chua's projection and reduced the award to P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but
must actually be proven with reasonable degree of certainty, premised upon competent proof or best
evidence obtainable of the actual amount thereof.23 However, the allegations of respondent company as
to the amount of unrealized rentals due them as actual damages remain mere assertions unsupported by
documents and other competent evidence. In determining actual damages, the court cannot rely on mere
assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best
evidence obtainable regarding the actual amount of loss.24 However, we are not prepared to disregard the
following dispositions of the respondent appellate court:

. . . In the award of actual damages under scrutiny, there is nothing on record warranting the said
award of P5,200,000.00, representing monthly rental income of P100,000.00 from November
1986 to February 1991, and the additional award of P100,000.00 per month thereafter.

As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh (sic)
Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actual damages
allegedly sustained by appellees, by way of unrealized rental income of subject machineries and
equipments.

The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed
to be a practice in business and industry. But such a testimony cannot serve as the sole basis for
assessing the actual damages complained of. What is more, there is no showing that had
appellant Tsai not taken possession of the machineries and equipments in question, somebody
was willing and ready to rent the same for P100,000.00 a month.

xxx xxx xxx

Then, too, even assuming arguendo that the said machineries and equipments could have
generated a rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz, the
same would have been a gross income. Therefrom should be deducted or removed, expenses for
maintenance and repairs . . . Therefore, in the determination of the actual damages or unrealized
rental income sued upon, there is a good basis to calculate that at least four months in a year, the
machineries in dispute would have been idle due to absence of a lessee or while being repaired.
In the light of the foregoing rationalization and computation, We believe that a net unrealized
rental income of P20,000.00 a month, since November 1986, is more realistic and fair. 25

As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals
deleted. But according to the CA, there was no clear showing that petitioners acted malevolently,
wantonly and oppressively. The evidence, however, shows otherwise.It is a requisite to award exemplary
damages that the wrongful act must be accompanied by bad faith,26 and the guilty acted in a wanton,
fraudulent, oppressive, reckless or malevolent manner.27 As previously stressed, petitioner Tsai's act of
purchasing the controverted properties despite her knowledge of EVERTEX's claim was oppressive and
subjected the already insolvent respondent to gross disadvantage. Petitioner PBCom also received the
same letters of Atty. Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom's act of taking all the
properties found in the factory of the financially handicapped respondent, including those properties not
covered by or included in the mortgages, is equally oppressive and tainted with bad faith. Thus, we are in
agreement with the RTC that an award of exemplary damages is proper.

The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil
Code provides that no proof of pecuniary loss is necessary for the adjudication of exemplary damages,
their assessment being left to the discretion of the court in accordance with the circumstances of each
case.29 While the imposition of exemplary damages is justified in this case, equity calls for its reduction.
In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we
laid down the rule that judicial discretion granted to the courts in the assessment of damages must always
be exercised with balanced restraint and measured objectivity. Thus, here the award of exemplary
damages by way of example for the public good should be reduced to P100,000.00.

By the same token, attorney's fees and other expenses of litigation may be recovered when exemplary
damages are awarded.30 In our view, RTC's award of P50,000.00 as attorney's fees and expenses of
litigation is reasonable, given the circumstances in these cases.

WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in
CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of
Communications and Ruby L. Tsai are hereby ordered to pay jointly and severally Ever Textile Mills, Inc.
the following: (1) P20,000.00 per month, as compensation for the use and possession of the properties in
question from November 198631 until subject personal properties are restored to respondent corporation;
(2) P100,000.00 by way of exemplary damages, and (3) P50,000.00 as attorney's fees and litigation
expenses. Costs against petitioners.

SO ORDERED.

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

Zzzzzzzzzzzz

FELS ENERGY, INC., G.R. No. 168557

Petitioner,

-versus-

THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL
ASSESSOR OF BATANGAS,
Respondents.
x----------------------------------------------------x
NATIONAL POWER CORPORATION, G.R. No. 170628
Petitioner,
Present:

YNARES-SANTIAGO, J.,
- versus - Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR. and
LOCAL BOARD OF ASSESSMENT CHICO-NAZARIO, JJ.
APPEALS OF BATANGAS, LAURO C.
ANDAYA, in his capacity as the Assessor
of the Province of Batangas, and the Promulgated:
PROVINCE OF BATANGAS represented
by its Provincial Assessor, February 16, 2007
Respondents.
x--------------------------------------------------------------------------------------------x

DECISION

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which were

filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. The

first is a petition for review on certiorari assailing the August 25, 2004 Decision[1] of the Court of Appeals

(CA) in CA-G.R. SP No. 67490 and its Resolution[2] dated June 20, 2005; the second, also a petition for

review on certiorari, challenges the February 9, 2005 Decision [3] and November 23, 2005 Resolution[4]of

the CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel

engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an

Energy Conversion Agreement[5] (Agreement), was for a period of five years. Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all
taxes, import duties, fees, charges and other levies imposed by the National Government
of the Republic of the Philippines or any agency or instrumentality thereof to
which POLAR may be or become subject to or in relation to the performance of their
obligations under this agreement (other than (i) taxes imposed or calculated on the basis
of the net income of POLAR and Personal Income Taxes of its employees and (ii)
construction permit fees, environmental permit fees and other similar fees and charges)
and (b) all real estate taxes and assessments, rates and other charges in respect of the
Power Barges.[6]

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC

initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power barges

from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered

those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC,

reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full

power and authority to represent it in any conference regarding the real property assessment of the

Provincial Assessor.
In a letter[7] dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors decision

to assess real property taxes on the power barges. However, the motion was denied on September 22,

1995, and the Provincial Assessor advised NPC to pay the assessment. [8] This prompted NPC to file a

petition with the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and

the declaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to be

taxable, the Provincial Assessor be directed to make the necessary corrections.[9]

In its Answer to the petition, the Provincial Assessor averred that the barges were real property for

purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that

the Department of Finance (DOF) had rendered an opinion[10] dated May 20, 1996, where it is clearly

stated that power barges are not real property subject to real property assessment.

On August 26, 1996, the LBAA rendered a Resolution [11] denying the petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real
estate tax in the amount of P56,184,088.40, for the year 1994.

SO ORDERED.[12]

The LBAA ruled that the power plant facilities, while they may be classified as movable or personal

property, are nevertheless considered real property for taxation purposes because they are installed at a

specific location with a character of permanency. The LBAA also pointed out that the owner of the barges

FELS, a private corporationis the one being taxed, not NPC. A mere agreement making NPC responsible

for the payment of all real estate taxes and assessments will not justify the exemption of FELS; such a

privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that

the petition was filed out of time.

Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant by

Distraint[13] over the power barges, seeking to collect real property taxes amounting to P232,602,125.91

as of July 31, 1996. The notice and warrant was officially served to FELS on November 8, 1996. It then
filed a Motion to Lift Levy dated November 14, 1996, praying that the Provincial Assessor be further

restrained by the CBAA from enforcing the disputed assessment during the pendency of the appeal.

On November 15, 1996, the CBAA issued an Order[14] lifting the levy and distraint on the properties of

FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or judgment

which the Board would issue.

Meantime, the NPC filed a Motion for Intervention [15] dated August 7, 1998 in the proceedings before the

CBAA. This was approved by the CBAA in an Order[16] dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee

the payment of real property taxes assessed by the Provincial Assessor (in the event that the judgment

be unfavorable to them). The bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision[17] finding the power barges exempt from real property

tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of

the Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor
of the Province of Batangasis hereby ordered to drop subject property under ARP/Tax
Declaration No. 018-00958 from the List of Taxable Properties in the Assessment Roll.
The Provincial Treasurer of Batangas is hereby directed to act accordingly.

SO ORDERED.[18]

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since they

are actually, directly and exclusively used by it, the power barges are covered by the exemptions under

Section 234(c) of R.A. No. 7160.[19] As to the other jurisdictional issue, the CBAA ruled that prescription

did not preclude the NPC from pursuing its claim for tax exemption in accordance with Section 206 of

R.A. No. 7160. The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS

and NPC.

In a complete volte face, the CBAA issued a Resolution[20] on July 31, 2001 reversing its earlier

decision. The fallo of the resolution reads:

 WHEREFORE, premises considered, it is the resolution of this Board that:

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

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

(c) The resolution of the Local Board of Assessment Appeals of Batangas is

hereby affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of
Batangas is likewise hereby affirmed.

SO ORDERED.[21]

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the

Provincial Assessor. The CBAA denied the said motions in a Resolution [22]dated October 19, 2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.

Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.

On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No.

67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a

Resolution[23] dated February 12, 2002, the appellate court directed NPC to re-file its motion for

consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition who should resolve

the request for reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of

the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of

prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the
assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of
Assessment Appeals are AFFIRMED.

SO ORDERED.[24]

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the

appellate courts decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as G.R.

No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The petition was, however,

denied in this Courts Resolution[25] of November 8, 2004, for NPCs failure to sufficiently show that the CA

committed any reversible error in the challenged decision. NPC filed a motion for reconsideration, which

the Court denied with finality in a Resolution[26] dated January 19, 2005.

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right to

question the assessment of the Provincial Assessor had already prescribed upon the failure of FELS to

appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had lost

the right to question the assessment, the right of the Provincial Government to collect the tax was already

absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February 5,

2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a

Resolution[27] dated November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lack

of merit in a Resolution[28] dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court,

raising the following issues:

A.
Whether power barges, which are floating and movable, are personal properties and
therefore, not subject to real property tax.

B.
Assuming that the subject power barges are real properties, whether they are exempt
from real estate tax under Section 234 of the Local Government Code (LGC).

C.
Assuming arguendo that the subject power barges are subject to real estate tax, whether
or not it should be NPC which should be made to pay the same under the law.

D.
Assuming arguendo that the subject power barges are real properties, whether or not the
same is subject to depreciation just like any other personal properties.
 E.
Whether the right of the petitioner to question the patently null and void real property tax
assessment on the petitioners personal properties is imprescriptible.[29]

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),

indicating the following errors committed by the CA:

I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO
THE LBAA WAS FILED OUT OF TIME.

II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER
BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.

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

Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation of

the two cases in a Resolution[31] dated March 8, 2006.

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their

respective Memoranda within 30 days from notice. Almost a year passed but the parties had not

submitted their respective memoranda. Considering that taxes the lifeblood of our economyare involved

in the present controversy, the Court was prompted to dispense with the said pleadings, with the end view

of advancing the interests of justice and avoiding further delay.

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred. FELS

argues that when NPC moved to have the assessment reconsidered on September 7, 1995, the running

of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60-day period for

appealing to the LBAA should be reckoned from its receipt of the denial of its motion for reconsideration.

Petitioners contentions are bereft of merit.

 Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991,

provides:

SECTION 226. Local Board of Assessment Appeals. Any owner or person

having legal interest in the property who is not satisfied with the action of the provincial,
city or municipal assessor in the assessment of his property may, within sixty (60) days
from the date of receipt of the written notice of assessment, appeal to the Board of
Assessment Appeals of the province or city by filing a petition under oath in the form
prescribed for the purpose, together with copies of the tax declarations and such
affidavits or documents submitted in support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7, 1995,

contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the
date of receipt hereof, appeal to the Board of Assessment Appeals of the province by
filing a petition under oath on the form prescribed for the purpose, together with copies of
ARP/Tax Declaration and such affidavits or documents submitted in support of the
appeal.[32]

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to

file a motion for reconsideration of the Provincial Assessors decision, a remedy not sanctioned by law.

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

city or municipal assessor in the assessment of the property. It follows then that the determination made

by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls

within its power to assess properties for taxation purposes subject to appeal before the LBAA. [33]

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP

No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of the

Ombudsman,[34] where we ruled that under Section 226 of R.A. No 7160,[35] the last action of the local

assessor on a particular assessment shall be the notice of assessment; it is this last action which gives

the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the

property owner the remedy of filing a motion for reconsideration before the local assessor. The pertinent

holding of the Court in Callanta is as follows:

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

For its part, the appellate court declared in CA-G.R. SP No. 67491:

x x x. The Court announces: Henceforth, whenever the local assessor sends a

notice to the owner or lawful possessor of real property of its revised assessed value, the
former shall no longer have any jurisdiction to entertain any request for a review or
readjustment. The appropriate forum where the aggrieved party may bring his appeal is
the LBAA as provided by law. It follows ineluctably that the 60-day period for making the
appeal to the LBAA runs without interruption. This is what We held in SP 67490 and
reaffirm today in SP 67491.[37]

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

the local government to collect the taxes due with respect to the taxpayers property becomes absolute

upon the expiration of the period to appeal.[38] It also bears stressing that the taxpayers failure to question

the assessment in the LBAA renders the assessment of the local assessor final, executory and

demandable, thus, precluding the taxpayer from questioning the correctness of the assessment, or from

invoking any defense that would reopen the question of its liability on the merits.[39]

In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed

out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary

is the rule that the perfection of an appeal within the period therefor is both mandatory and jurisdictional,

and failure in this regard renders the decision final and executory. [40]

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred

by res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final

determination on the issue of prescription), effectively precludes the claims herein; and that the filing of

the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping.
 FELS maintains that the argument of the Provincial Assessor is completely misplaced since it

was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not

participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As to

the issue of forum shopping, petitioner claims that no forum shopping could have been committed since

the elements of litis pendentia or res judicata are not present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two grounds

embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it to

the interest of the

State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on the individual

of being vexed twice for the same cause nemo debet bis vexari et eadem causa. A conflicting doctrine

would subject the public peace and quiet to the will and dereliction of individuals and prefer the

regalement of the litigious disposition on the part of suitors to the preservation of the public tranquility and

happiness.[41] As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:[42]

x x x An existing final judgment or decree rendered upon the

merits, without fraud or collusion, by a court of competent jurisdiction
acting upon a matter within its authority is conclusive on the rights of the
parties and their privies. This ruling holds in all other actions or suits, in
the same or any other judicial tribunal of concurrent jurisdiction, touching
on the points or matters in issue in the first suit.

xxx

Courts will simply refuse to reopen what has been decided. They will not allow
the same parties or their privies to litigate anew a question once it has been considered
and decided with finality. Litigations must end and terminate sometime and somewhere.
The effective and efficient administration of justice requires that once a judgment has
become final, the prevailing party should not be deprived of the fruits of the verdict by
subsequent suits on the same issues filed by the same parties.

This is in accordance with the doctrine of res judicata which has the following
elements: (1) the former judgment must be final; (2) the court which rendered it had
jurisdiction over the subject matter and the parties; (3) the judgment must be on the
merits; and (4) there must be between the first and the second actions, identity of parties,
subject matter and causes of action. The application of the doctrine of res
judicata does not require absolute identity of parties but merely substantial
identity of parties. There is substantial identity of parties when there is community
of interest or privity of interest between a party in the first and a party in the
second case even if the first case did not implead the latter.[43]
 To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding

real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as G.R.

No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in

the earlier petition for review filed in this Court was the decision of the appellate court in CA-G.R. SP No.

67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner

FELS under the principle of privity of interest. In fine, FELS and NPC are substantially identical parties as

to warrant the application of res judicata. FELSs argument that it is not bound by the erroneous petition

filed by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists

when, as a result of an adverse judgment in one forum, a party seeks another and possibly favorable

judgment in another forum other than by appeal or special civil action or certiorari. There is also forum

shopping when a party institutes two or more actions or proceedings grounded on the same cause, on the

gamble that one or the other court would make a favorable disposition.[44]

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not

present in the cases at bar; however, as already discussed, res judicatamay be properly applied herein.

Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition

for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying to get a favorable

decision from one of the tribunals which allowed them to pursue their cases.

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

vexation caused to the courts and the parties-litigants by the filing of similar cases to claim substantially

the same reliefs.[45] The rationale against forum shopping is that a party should not be allowed to pursue

simultaneous remedies in two different fora. Filing multiple petitions or complaints constitutes abuse of

court processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial

procedure, and adds to the congestion of the heavily burdened dockets of the courts.[46]

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as

represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief
being founded on the same facts, and (c) the identity of the two preceding particulars is such that any

judgment rendered in the pending case, regardless of which party is successful, would amount to res

judicata in the other.[47]

Having found that the elements of res judicata and forum shopping are present in the

consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace

and contentment of petitioners, we shall shed light on the merits of the case.

As found by the appellate court, the CBAA and LBAA power barges are real property and are

thus subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113

was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners are

presumed correct and made in good faith, with the taxpayer having the burden of proving

otherwise.[48] Besides, factual findings of administrative bodies, which have acquired expertise in their

field, are generally binding and conclusive upon the Court; we will not assume to interfere with the

sensible exercise of the judgment of men especially trained in appraising property. Where the judicial

mind is left in doubt, it is a sound policy to leave the assessment undisturbed.[49] We find no reason to

depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al.,[50] a

power company brought an action to review property tax assessment. On the citys motion to dismiss, the

Supreme Court of New

York held that the barges on which were mounted gas turbine power plants designated to generate

electrical power, the fuel oil barges which supplied fuel oil to the power plant barges, and the accessory

equipment mounted on the barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that [d]ocks and structures which,

though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast

are considered immovable property. Thus, power barges are categorized as immovable property by

destination, being in the nature of machinery and other implements intended by the owner for an industry
or work which may be carried on in a building or on a piece of land and which tend directly to meet the

needs of said industry or work.[51]

Petitioners maintain nevertheless that the power barges are exempt from real estate tax under

Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by petitioner

NPC, a government- owned and controlled corporation engaged in the supply, generation, and

transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is

petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated under

Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and
all the fixtures, fittings, machinery and equipment on the Site used in connection with the
Power Barges which have been supplied by it at its own cost. POLAR shall operate,
manage and maintain the Power Barges for the purpose of converting Fuel of NAPOCOR
into electricity.[52]

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its

exemption in Section 234 (c) of R.A. No. 7160, which reads:

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

xxx

(c) All machineries and equipment that are actually, directly and exclusively used
by local water districts and government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power; x x x

Indeed, the law states that the machinery must be actually, directly and exclusively used by the

government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in this

provision because Section 5.5, Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject
to the supply of the necessary Fuel pursuant to Article 6 and to the other provisions
 hereof, it will operate the Power Barges to convert such Fuel into electricity in
accordance with Part A of Article 7.[53]

It is a basic rule that obligations arising from a contract have the force of law between the parties.

Not being contrary to law, morals, good customs, public order or public policy, the parties to the contract

are bound by its terms and conditions.[54]

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the

exception.[55] The law does not look with favor on tax exemptions and the entity that would seek to be thus

privileged must justify it by words too plain to be mistaken and too categorical to be

misinterpreted.[56] Thus, applying the rule of strict construction of laws granting tax exemptions, and the

rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a

taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be

responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The

privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and

NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in the

local governments deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited

in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to be

found only in the responsibility of the legislature which imposes the tax on the constituency who are to

pay for it.[57] The right of local government units to collect taxes due must always be upheld to avoid

severe tax erosion. This consideration is consistent with the State policy to guarantee the autonomy of

local governments[58] and the objective of the Local Government Code that they enjoy genuine and

meaningful local autonomy to empower them to achieve their fullest development as self-reliant

communities and make them effective partners in the attainment of national goals.[59]

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed

revenues to finance and support myriad activities of the local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace, progress, and

prosperity of the people.[60]

WHEREFORE, the Petitions are DENIED and the assailed Decisions and

Resolutions AFFIRMED.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice
Zzzzzzzzzzzzzzzzzzz

[G.R. No. 137705. August 22, 2000]

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

DECISION
PANGANIBAN, J.:

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

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

The Case

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

WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution dated
March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of preliminary injunction
issued on June 15, 1998 is hereby LIFTED.[4]

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

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

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

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

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

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

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

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

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

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

Ruling of the Court of Appeals

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

Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the case
below, since the merits of the whole matter are laid down before us via a petition whose sole purpose is
to inquire upon the existence of a grave abuse of discretion on the part of the [RTC] in issuing the
assailed Order and Resolution. The issues raised herein are proper subjects of a full-blown trial,
necessitating presentation of evidence by both parties. The contract is being enforced by one, and [its]
validity is attacked by the other a matter x x x which respondent court is in the best position to determine.
 Hence, this Petition.[11]

The Issues

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

A. Whether or not the machineries purchased and imported by SERGS became real property by virtue of
immobilization.

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

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

The Courts Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Questions

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

Main Issue: Nature of the Subject Machinery

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

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

ART. 415. The following are immovable property:

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

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
industry or works which may be carried on in a building or on a piece of land, and which tend directly to
meet the needs of the said industry or works;

x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of Seizure were placed
by petitioners in the factory built on their own land. Indisputably, they were essential and
principal elements of their chocolate-making industry. Hence, although each of them was
movable or personal property on its own, all of them have become immobilized by destination
because they are essential and principal elements in the industry.[16] In that sense, petitioners
are correct in arguing that the said machines are real, not personal, property pursuant to Article
415 (5) of the Civil Code.[17]
Be that as it may, we disagree with the submission of the petitioners that the said
machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real property be
considered as personal.[18] After agreeing to such stipulation, they are consequently estopped
from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the parties to treat
a house as a personal property because it had been made the subject of a chattel
mortgage. The Court ruled:

x x x. Although there is no specific statement referring to the subject house as personal property, yet by
ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only
have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent stand by claiming otherwise.

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile
Mills[20] also held that the machinery used in a factory and essential to the industry, as in the
present case, was a proper subject of a writ of replevin because it was treated as personal
property in a contract. Pertinent portions of the Courts ruling are reproduced hereunder:

x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely
no reason why a machinery, which is movable in its nature and becomes immobilized only by destination
or purpose, may not be likewise treated as such. This is really because one who has so agreed is
estopped from denying the existence of the chattel mortgage.

In the present case, the Lease Agreement clearly provides that the machines in question
are to be considered as personal property. Specifically, Section 12.1 of the Agreement reads as
follows:[21]
12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding that the
PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed or attached to
or embedded in, or permanently resting upon, real property or any building thereon, or attached in any
manner to what is permanent.

Clearly then, petitioners are estopped from denying the characterization of the subject
machines as personal property. Under the circumstances, they are proper subjects of the Writ
of Seizure.
It should be stressed, however, that our holding -- that the machines should be deemed
personal property pursuant to the Lease Agreement is good only insofar as the contracting
parties are concerned.[22] Hence, while the parties are bound by the Agreement, third persons
acting in good faith are not affected by its stipulation characterizing the subject machinery as
personal.[23] In any event, there is no showing that any specific third party would be adversely
affected.

Validity of the Lease Agreement

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

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

Besides, these questions require a determination of facts and a presentation of evidence,

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

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease Agreement,
for nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed it
 first only in the RTC proceedings, which had ironically been instituted by
respondent. Accordingly, it must be presumed valid and binding as the law between the parties.
Makati Leasing and Finance Corporation[30] is also instructive on this point. In that case,
the Deed of Chattel Mortgage, which characterized the subject machinery as personal property,
was also assailed because respondent had allegedly been required to sign a printed form of
chattel mortgage which was in a blank form at the time of signing. The Court rejected the
argument and relied on the Deed, ruling as follows:

x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract void ab
initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to Article 1390
of the new Civil Code, by a proper action in court. There is nothing on record to show that the mortgage
has been annulled. Neither is it disclosed that steps were taken to nullify the same. x x x

Alleged Injustice Committed on the Part of Petitioners

Petitioners contend that if the Court allows these machineries to be seized, then its
workers would be out of work and thrown into the streets.[31] They also allege that the seizure
would nullify all efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of the Writ. As earlier discussed,
law and jurisprudence support its propriety. Verily, the above-mentioned consequences, if they
come true, should not be blamed on this Court, but on the petitioners for failing to avail
themselves of the remedy under Section 5 of Rule 60, which allows the filing of a counter-
bond. The provision states:

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

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
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