LADERA vs HODGESFacts: Ladera entered into a contract with Hodges whereby the latter promised to sell a lot subject to certain terms and conditions. In case of failure of the purchaser to make a monthly payment within 60 days after it fell due, “this contract may be taken and considered as rescinded and annulled,” in which case all sums of money paid would be considered rentals and the vendor shall be at liberty to dispose of the parcel of land with all the improvements theron to any other person in a manner as if this contract had never been made. After the execution of the contract, Ladera built on a lot a house of mixed materials assessed at P4500.Unfortunately, Ladera failed to pay the agreed installments, whereupon the appellant rescinded the contract and filed an action for ejectment. The MTC rendered a decision upon agreement of the parties- Ladera to vacate and surrender possession of the lot and pay P10 a month until delivery of the premises. The court issued an alias writ of execution and pursuant thereto the sheriff levied upon all rights, interests, and participation over your house standing on the lot. The sheriff posted the notices of the sale but did not publish the same in a newspaper of general circulation.

At the auction sale Ladera did not attend because she had gone to Manila and the sheriff sold the property to Avelina Magno as the highest bidder. On July 6, 1948, Hodges sold the lot to Manuel Villa and on the same day the latter purchased the house from Magno for P200 but this last transaction was not recorded.

Ladera returned to Iloilo after the sale and learned of its results. She went to see the sheriff and upon the latter’s representation that she could redeem the property, she paid him P230 and the sheriff issued a receipt. It does not appear, however, that this money was turned over to Hodges. Thereupon, Ladera spouses filed an action against Hodges, the sheriff, and the judgment sale purchasers, Magno and Villa to set aside the sale and recover the house. The lower court ruled in favor of Ladera. Hodges et al contend that the house being built on land owned by another person should be regarded in law as movable or personal property.

Issue: Whether the house being built on land owned by another should be regarded as movable property.

Held: According to Article 334 of the Civil Code (now 415), Immovable property are the following: “Lands, building, roads, and constructions of all kinds adhering to the soil;” Applying the principle Ubi lex non distinguit nec nos distinguere debemu, the law makes no distinction as to whether the owner of the land is or is not the owner of the building. In view of the plain terms of the statute, the only possible doubt could arise in the case of a house sold for demolition.

In the case of immovables by destination, the code requires that they be placed by the owner of the tenement, in order to acquire the same nature or consideration of real property. In cases of immovable by incorporation, the code nowhere requires that the attachment or incorporation be made by the owner of the land. The only criterion is union or incorporation with the soil.

Ladera did not declare his house to be a chattel mortgage. The object of the levy or sale was real property. The publication in a newspaper of general circulation was indispensible. It being admitted that no publication was ever made, the execution sale was void and conferred no title on the purchaser.

The alleged purchaser at the auction sale, Magno, is a mere employee of the creditor Hodges and the low bid made by her as well as the fact that she sold the house to Villa on the same day that Hodges sold him the land, proves that she was merely acting for and in behalf of Hodges.It should be noted that in sales of immovables, the lack of title of the vendor taints the rights of subsequent purchasers. Unlike in sales of chattels and personalty, in transactions covering real property, possession in good faith is not equivalent to title.

MINDANAO BUS CO. vs CITY ASSESOR AND TREASURERFacts: Petitioner is a public utility company engaged in the transport of passengers and cargo by motor vehicles in Mindanao with main offices in Cagayan de Oro (CDO). Petitioner likewise owned a land where it maintains a garage, a repair shop and blacksmith or carpentry shops. The machineries are placed thereon in wooden and cement platforms. The City Assessor of CDO then assessed a P4,400 realty tax on said machineries and repair equipment. Petitioner appealed to the Board of Tax Appeals but it sustained the City Assessor's decision, while the Court of Tax Appeals (CTA) sustained the same.

Issue: Whether or not the machineries and equipments are considered immobilized and thus subject to a realty tax

Held: The Supreme Court decided otherwise and held that said machineries and equipments are not subject to the assessment of real estate tax.Said equipments are not considered immobilized as they are merely incidental, not esential and principal to the business of the petitioner. The transportation business could be carried on without repair or service shops of its rolling equipment as they can be repaired or services in another shop belonging to another

MAKATI LEASING & FINANCE CORP VS. WEAREVER TEXTILESFacts: Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor of Makati Leasing and Finance Corporation covering

certain raw materials and machinery. Upon default, Makati Leasing fi led a petition for judicial foreclosure of the properties mortgaged. Acting on Makati Leasing’s application for replevin, the lower court issued a writ of seizure. Pursuant thereto, the sheriff enforcing the seizure order seized the machinery subject matter of the mortgage. In a petition for certiorari and prohibition, the Court of Appeals ordered the return of the machinery on the ground that the same can-not be the subject of replevin because it is a real property pursuant to Article415 of the new Civil Code, the same being attached to the ground by means of bolts and the only way to remove it from Wearever textile’s plant would be to drill out or destroy the concrete fl oor. When the motion for reconsideration of Makati Leasing was denied by the Court of Appeals, Makati Leasing elevated the matter to the Supreme Court.

Issue: Whether the machinery in suit is real or personal property from the point of view of the parties.

Held: There is no logical justification to exclude the rule out the present case from the application of the pronouncement in Tumalad v Vicencio, 41 SCRA 143. If a house of strong materials, like what was involved in the Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudicedthereby, 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 the denying the existence of the chattel mortgage.

In rejecting petitioner’s assertion on the applicability of the Tumalad doctrine, the CA lays stress on the fact that the house involved therein was built on a land that did not belong to the owner of such house. But the law makes no distinction with respect to the ownership of the land on which the house is built and We should not lay down distinctions not contemplated by law.

It must be pointed out that the characterization by the private respondent is indicative of the intention and impresses upon the property the character determined by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may, by agreement, treat as personal property that which by nature would be a real property as long as no interest of third parties would be prejudiced thereby.

The status of the subject matter as movable or immovable property was not raised as an issue before the lower court and the CA, except in a supplemental memorandum in support of the petition filed in the appellate court. There is no

record showing that the mortgage has been annulled, or that steps were taken to nullify the same. On the other hand, respondent has benefited from the said contract.

Equity dictates that one should not benefit at the expense of another.As such, private respondent could no longer be allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom.Therefore, the questioned machinery should be considered as personal property.

SANTOS EVANGELISTA VS. ALTO SURETY & INSURANCE CO.Facts:  In 1949, Santos Evangelista instituted Civil Case No. 8235 of the CFI Manila (Santos Evangelista vs. Ricardo Rivera) for a sum of money. On the same date, he obtained a writ of attachment, which was 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. In due course, judgment was rendered in favor of Evangelista, who bought the house at public auction held in compliance with the writ of execution issued in said case on 8 October 1951. The corresponding definite deed of sale was issued to him on 22 October 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. and that the latter is now the true owner of said property. It appears that on 10 May 1952, a definite deed of sale of the same house had been issued to Alto Surety, as the highest bidder at an auction sale held, on 29 September 1950, in compliance with a writ of execution issued in Civil Case 6268 of the same court (Alto Surety & Insurance vs. Maximo Quiambao, Rosario Guevara and Ricardo Rivera)" in which judgment for the sum of money, had been rendered in favor of Alto Surety. Hence, on 13 June 1953, Evangelista instituted an action against Alto Surety and Ricardo Rivera, for the purpose of establishing his title over said house, and securing possession thereof, apart from recovering damages. After due trial, the CFI Manila rendered judgment for Evangelista, sentencing Rivera and Alto Surety to deliver the house in question to Evangelista and to pay him, jointly and severally, P40.00 a month from October 1952, until said delivery. The decision was however reversed by the Court of Appeals, which absolved Alto Surety from the complaint on account 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 Alto Surety, Evangelista did not acquire thereby a preferential lien, the attachment having been levied as if the house in question were immovable property. 

Issue: Whether or not 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? 

Held: The court ruled that the house is not personal property, much less a debt, credit or other personal property not capable of manual delivery, but immovable property. As held in Laddera vs. Hodges (48 OG 5374), "a true building is immovable or real property, whether it is erected by the owner of the land or by a usufructuary or lessee.” The opinion that the house of Rivera should have been attached, as "personal property capable of manual delivery, by taking and safely keeping in his custody", for it declared that "Evangelista 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” is untenable. Parties to a deed of chattel mortgage may agree to consider a house as personal property for purposes of said contract. 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. The rules on execution do not allow, and should not be interpreted as to allow, the special consideration that parties to a contract may have desired to impart to real estate 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. The regulations were never intended to suit the consideration that parties, may have privately given to the property levied upon. The court therefore affirms the decision of the CA with cost against Alto Surety.

TSAI VS CAFacts: Ever Textile Mills, Inc. (EVERTEX) obtained loan from Philippine Bank of Communications (PBCom), secured by a deed of Real and Chattel Mortgage over the lot where its factory stands, and the chattels located therein as enumerated in a schedule attached to the mortgage contract. PBCom again granted a second loan to EVERTEX which was secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto.  These listed properties were similar to those listed in the first mortgage deed.  After the date of the execution of the second mortgage mentioned above, EVERTEX purchased various machines and equipments.  Upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135 and Act 1506 or "The Chattel Mortgage Law".  PBCom then consolidated its ownership over the lot and all the properties in it.  It leased the entire factory premises to Ruby Tsai and sold to the same the factory, lock, stock and barrel including the contested machineries.

            EVERTEX filed a complaint for annulment

of sale, reconveyance, and damages against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was not valid, and that PBCom, without any legal or factual basis, appropriated the contested properties which were not included in the Real and Chattel Mortgage of the first mortgage contract nor in the second contract which is a Chattel Mortgage, and neither were those properties included in the Notice of Sheriff's Sale.

Issues: W/N the contested properties are personal or movable properties 

HELD:Nature of the Properties and Intent of the Parties.

The nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged does not make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code.  While it is true that the properties appear to be immobile, a perusal of the contract of Real and Chattel Mortgage executed by the parties herein  reveal their intent, that is - to treat machinery and equipment as chattels. 

In the first mortgage contract,  reflective of the true intention of PBCOM and 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 second 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 63 individually described machineries while the schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.

UNDER  PRINCIPLE OF STOPPELAssuming 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, 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.

SERG’S PRODUCTS, INC VS PCI LEASINGFacts: Respondent PCI Leasing and Finance, Inc, filed with the RTC-QC a complaint for a sum of money with an application for a writ of replevin.

Respondent Judge issued a writ of replevin directing its sheriff to seize and deliver the machineries and equipment to PCI after 5 days and upon the payment of the necessary expenses.In the implementation of the said writ, the sheriff proceeded to petitioner’s factory, seized one machinery with word that he would return for the other.

Petitioners filed a motion for special protective order, 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.The motion was opposed by PCI Leasing, on the ground that the properties were still personal and therefore still subject to seizure and a writ of replevin.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.

Issue:1.        Whether or not the machineries purchased and imported by Serg’s became real property by virtue of immobilization.2.        Whether or not the contract between the parties is valid.

Ruling:The petition is not meritorious.1.        No.The machines that were 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 in arguing that the said machines are real property pursuant to Article 415 (5) of the Civil Code.But the Court disagrees with the submission of the petitioners that the said machines are not proper subject 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 stopped from claiming otherwise. Under the principle of estoppels, a party to a contract is ordinarily precluded from denying the truth of any material fact found therein.Clearly then, petitioners are stopped from denying the characterization of the subject machines as personal property. Under circumstances, they are proper subjects of the Writ of Seizure.It should be stressed, however, that the Court’s 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 faith are not affected by its stipulation characterizing the subject machinery as personal. In any event, there is no showing that any specific third party would be adversely affected.

2.       Yes.It should be pointed out that the Court may rely on the Lease Agreement, for nothing on the 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.

LOPEZ VS. OROSA, JR. & PLAZA THEATRE, INC.FACTS: Orosa invited Lopez to invest with him in building a theatre. Lopez supplied wood for the construction of the said theatre. The materials totaled 62k but Orosa was only able to pay 20k thus leaving a balance of almost 42k. Later on respondents acquired a bank loan of 30k, wherein Luzon Surety Company as their surety and the land and buildings as mortgages. Petitioner sued to collect the unpaid materials and was able to get a judgment against the respondents making them jointly liable to pay the remaining amount. Also, he was able to obtain a materialman’s lien on the building of the theatre. The stocks amounting to 42k shall be sold in public auction in case the respondents default. Petitioner wasn’t happy because he also wanted a lien on the land, urging that the judgment lien should include it since the building and the land are inseparable.

ISSUE: Whether or not the building and the land are inseperable and W/N petitioner can obtain a lien on the land as well?

RULING:NO to both! The contention that the lien executed in favor of the furnisher of the materials used for the construction, repair or refection of a building is also extended to land on which the construction was made is without merit, because while it is true that generally, real estate connotes the land and the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct from the land in the enumeration (in the CC) of what may constitute real properties could mean only one thing- that a building is by itself an immovable property.

The preference to unregistered lien is only with respect to the real estate upon which the refection or work was made. The materialman’s lien could be charged only to the building for which the credit was made or which received the benefit of refection.

YAP VS TANADADoctrine: Article 415, par. 3 of the Civil Code considers and immovable property as

“everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deteriorating the object.” The pump does not fit this description. It could be, and was, in fact,separated from Yap’s premises without being broken of suffering deterioration. Obviously, the separation or removal of the pump involved nothing more complicated that the loosening of bolts or dismantling of other fasteners.

Facts: The case began in the City Court of Cebu with the filing of Goulds Pumps International (Phil), Inc. of a complaint against Yap and his wife seeking recovery of P1,459.30, representing the balance of the price and installation cost of a water pump in the latter’s premises. The Court rendered judgment in favor of herein respondent after they presented evidence ex-parte due to failure of petitioner Yap to appear before the Court. Petitioner then appealed to the CFI, particularly to the sale of Judge Tanada. For again failure to appear for pre-trial, Yap was declared in default. He filed for a motion for reconsideration which was denied by Judge Tanada. On October 15, 1969, Tanada granted Gould’s Motion for Issuance of Writ of Execution. Yap forthwith filed an Urgent Motion for Reconsideration of the said Order. In the meantime, the Sheriff levied on the water pump in question and by notice scheduled the execution sale thereof. But in view of the pendency of Yap’s motion, suspension of sale was directed by Judge Tanada. It appears, however, that this was not made known to the Sheriff whocontinued with the auction sale and sold the property to the highest bidder, Goulds. Because of such, petitioner filed a Motion to Set Aside Execution Sale and to Quash Alias Writ of Execution. One of his arguments was that the sale was made without the notice required by Sec. 18, Rule 29 of the New Rules of Court, “i.e. notice by publication in case of execution of sale of real property, the pump and its accessories being immovable because attached to the ground with the character of permanency.” Such motion was denied by the CFI.

Issue: Whether or not the pump and its accessories are immovable property

Held: No. The water pump and its accessories are NOT immovable properties. The argument of Yap that the water pump had become immovable property by its being installed in his residence is untenable. Article 415, par. 3 of the Civil Code considers and immovable property as “everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deteriorating the object.” The pump does not fit this description. It could be, and was, in fact,separated from Yap’s premises without being broken of suffering deterioration. Obviously, the separation or removal of the pump involved nothing more complicated that the loosening of bolts or dismantling of other

fasteners.

MACHINERY & ENGINEERING SUPPLIES INC. VS. CADoctrine: The special civil action of replevin is applicable only to personal property. When the machinery and equipment in question appeared to be attached to the land, particularly to the concrete foundation of said premises, in a fixed manner, in such a way that the former could not be separated from the latter without breaking the material or deterioration of the object, it had become an immovable property under Art. 415(3).Facts: Herein petitioner filed a complaint for replevin in the CFI of Manila against Ipo Limestone Co., and Dr. Antonio Villarama, for the recovery of the machineries and equipments sold and delivered to said defendants at their factory in Barrio Bigti, Norzagaray, Bulacan. The respondent judge issued an order, commanding Provincial Sheriff of Bulacan to seize and take immediate possession of the properties specified in the order. Two deputy sheriffs of Bulacan, Ramon S. Roco(president of Machinery), and a crew of technical men and laborers proceeded to Bigti, for the purpose of carrying the court’s order into effect. Leonardo Contreras, Manager of the respondent Company, and Pedro Torres, in charge thereof, met the deputy sheriffs, and Contreras handed to them a letter addressed to Atty. Palad (ex-officio Provincial Sheriff of Bulacan), protesting against the seizure of the properties in question, on the ground that they are not personal properties.

Later on, they went to the factory. Roco’s attention was called to the fact that the equipments could not possibly be dismantled without causing damages or injuries to the wooden frames attached to them. But Roco insisted in dismantling the equipments on his own responsibility, alleging that the bond was posted for such eventuality, the deputy sheriffs directed that some of the supports thereof be cut.The defendant Company filed an urgent motion for the return of the properties seized by the deputy sheriffs. On the same day, the trial court issued an order, directing the Provincial Sheriff of Bulacan to return the machineries to the place where they were installed. The deputy sheriffs returned the properties seized, by depositing them along the road, near the quarry, of the defendant Company, at Bigti, without the benefit of inventory and without re-installing them in their former position and replacing the destroyed posts, which rendered their use impracticable.The trial court ordered Roco to furnish the Provincial Sheriff with the necessary funds, technical men, laborers, equipments and materials. Roco raised the issue to the CA; a writ of preliminary injunction was issued but the CA subsequently dismissed for lack of merit. A motion for reconsideration was denied.

Issue: Whether or not the machineries and equipments were personal properties and, therefore, could be seized by replevin.

Held: No. The special civil action known as replevin, governed by the Rules of Court, is applicable only to “personal property.” When the sheriff repaired to the premises of respondent company, the machinery and equipment in question appeared to be attached to the land, particularly to the concrete foundation of said premises, in a fixed manner, in such a way that the former could not be separated from the latter “without breaking the material or deterioration of the object.” Hence, in order to remove said outfit, it became necessary, not only to unbolt the same, but, also, to cut some of its wooden supports. Moreover, said machinery and equipment were “intended by the owner of the tenement for an industry” carried on said immovable and tended “directly to meet the needs of the said industry.” For these reasons, they were already immovable property pursuant to paragraphs 3 and 5 of Article 415 of the Civil Code.

Mr. Ramon Roco, insisted “on the dismantling of at his own responsibility,” stating that, precisely, “that is the reason why plaintiff posted a bond.” In this manner, petitioner clearly assumed the corresponding risks. It is well settled that, when restitution of what has been ordered, the goods in question shall be returned in substantially the same condition as when taken. It follows that petitioner must also do everything necessary to the reinstallation of said property in conformity with its original condition.

FELS ENERGY, INC VS. PROVINCE OF BATANGASDoctrine: In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., a power company brought an action to review property tax assessment. On the city’s 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 “docks 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.

Facts: On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3×30 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an Energy Conversion Agreement, was for a period of five years. Article 10 states that NPC shall be responsible for the payment of taxes. (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. Polar Energy then assigned its rights under the Agreement to Fels despite NPC’s initial opposition.FELS received an assessment of real property taxes on the power barges from Provincial Assessor Lauro C. Andaya of Batangas City. FELS referred the matter to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full power and authority to represent it in any conference regarding the real property assessment of the Provincial Assessor. NPC filed a petition with the LBAA. The LBAA ordered Fels to pay the real estate taxes. 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 corporation–is 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.

Fels appealed to the CBAA. The CBAA reversed and ruled 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. 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. Upon MR, the CBAA reversed itself.

Issue: Whether or not the petitioner may be assessed of real property taxes.

Held: YES. 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. 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. 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., a power company brought an action to review property

tax assessment. On the city’s 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 “docks 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.

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.”

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. 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.

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.Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception. 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. 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 government’s 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. 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 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.

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.