11) MINDANAO BUS CO. V.

CITY ASSESSOR & TREASURER

GR No. L-17870
Property Law: Immovable Property
Facts:

The City Assessor of Cagayan De Oro City assessed a realty tax on several equipment and
machineries of Mindanao Bus Co., a public utility solely engaged in transporting passengers and
cargoes by motor trucks. The machineries sought to be assessed by the respondent as real
properties are sitting on cement or wooden platforms.
The petitioner appealed the assessment to the Board of Tax Appeals on the ground that the same
are not realty. The Board of Tax Appeals sustained the assessment of the city assessor.
Additional note (for recit purposes):

– The machineries sought to be assessed by the respondent as real properties are the following:

o Hobart Electric Welder Machine;

o Storm Boring machine;
o Lathe machine with motor;
o Black and Decker Grinder;
o PEMCO Hydraulic Press;
o Battery charger (Tungar charge machine); and
o D-Engine Waukesha-M-Fuel.

– These machineries have never been or were never used as industrial equipment to produce
finished products for sale, nor to repair machineries, parts and the like offered to the general
public indiscriminately for business or commercial purposes for which petitioner has never
engaged in, to date.”
Issue:
Whether the equipment and machineries in question, are considered immovable properties, and
therefore, subject to realty tax.
Held:

No. The equipment and machineries in question, are movable properties, and therefore, not
subject to realty tax.
Movable equipment to be immobilized in contemplation of the law must first be “essential and
principal elements” of an industry or works without which such industry or works would be
“unable to function or carry on the industrial purpose for which it was established.”
The tools and equipment in question in this instant case are, by their nature, not essential and
principal elements of petitioner’s business of transporting passengers and cargoes by motor
trucks. They are merely incidentals — acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools and equipment, its business may be
carried on, as petitioner has carried on, without such equipment, before the war. The
transportation business could be carried on without the repair or service shops if its rolling
equipment is repaired or serviced in another shop belonging to another.
Aside from the element of essentiality, Article 415 (5) of the New Civil Code also requires that
the industry or works be carried on in a building or on a piece of land.
But in the case at bar the equipment in question are destined only to repair or service the
transportation business, which is not carried on in a building or permanently on a piece of land,
as demanded by the law. Said equipment may not, therefore, be deemed real property.

12) SERG’S PRODUCTS, INC. VS. PCI LEASING

G.R. NO. 137705.

FACTS:
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: Whether or not the machineries became real property by virtue of immobilization.

Ruling:
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.

13) FELS ENERGY, INC. V THE PROVINCE OF BATANGAS and THE OFFICE OF
THE PROVINCIAL ASSESSOR OF BATANGAS
G.R. No.

FACTS
NPC entered into a lease contract with Polar Energy, Inc. over diesel engine power
barges moored at Batangas. The contract, denominated as an Energy Conversion Agreement,
was for a period of five years wherein, NPC shall be responsible for the payment of:
(a) all taxes, import duties, fees, charges and other levies imposed by the National
Government
(b) all real estate taxes and assessments, rates and other charges in respect of the Power
Barges
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS.
Thereafter, FELS received an assessment of real property taxes on the power barges. The
assessed tax, which likewise covered those due for 1994, amounted to P56,184,088.40 per
annum. FELS referred the matter to NPC, reminding it of its obligation under the Agreement to
pay all real estate taxes. It then gave NPC the full power and authority to represent it in any
conference regarding the real property assessment of the Provincial Assessor.
NPC sought reconsideration of the Provincial Assessor’s decision to assess real prope
rty taxes on the power barges. However, the motion was denied. The Local Board of
Assessment Appeals (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.
FELS appealed the LBAA’s ruling to the Central Board of Assessment Appeals (CBAA).
The CBAA rendered a Decision finding the power barges exempt from real property tax.
It was later reversed by the CBAA upon reconsideration and affirmed by the CA

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

RULING
No. Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which,
though floating, are intended by their nature and object to remain at a fixed place on a river, lake,
or coast" are considered immovable property. Thus, power barges are categorized as immovable
property by destination, being in the nature of machinery and other implements intended by the
owner for an industry or work which may be carried on in a building or on a piece of land and
which tend directly to meet the needs of said industry or work.
The findings of the LBAA and CBAA that the owner of the taxable properties is petitioner FELS
is the entity being taxed by the local government. As stipulated under 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,
…the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; 
The agreement POLAR undertakes that until the end of the Lease Period, it will operate
the Power Barges to convert such Fuel into electricity. Therefore, FELS shall be liable for the
realty taxes and not the NPC who is not actually, directly and exclusively using the same. It is a
basic rule that obligations arising from a contract have the force of law between the parties