7. Board of Assessment Appeals v. MERALCO [G.R. No. L-15334. January 31, 1964.

Jun28

En Banc, Paredes (J): 8 concur, 1 concur in result, 1 took no part.

Facts: On 20 October 1902, the Philippine Commission enacted Act 484 which authorized the Municipal Board of
Manila to grant a franchise to construct, maintain and operate an electric street railway and electric light, heat and
power system in the City of Manila and its suburbs to the person or persons making the most favorable bid. Charles
M. Swift was awarded the said franchise on March 1903, the terms and conditions of which were embodied in
Ordinance 44 approved on 24 March 1903. Meralco became the transferee and owner of the franchise. Meralco’s
electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna and is transmitted to the City
of Manila by means of electric transmission wires, running from the province of Laguna to the said City. These
electric transmission wires which carry high voltage current, are fastened to insulators attached on steel towers
constructed by respondent at intervals, from its hydroelectric plant in the province of Laguna to the City of Manila.
Meralco has constructed 40 of these steel towers within Quezon City, on land belonging to it.

On 15 November 1955, City Assessor of Quezon City declared the aforesaid steel towers for real property tax under
Tax Declaration 31992 and 15549. After denying Meralco’s petition to cancel these declarations an appeal was
taken by Meralco to the Board of Assessment Appeals of Quezon City, which required Meralco to pay the amount
of P11,651.86 as real property tax on the said steel towers for the years 1952 to 1956. Meralco paid the amount
under protest, and filed a petition for review in the Court of Tax Appeals which rendered a decision on 29
December 1958, ordering the cancellation of the said tax declarations and the City Treasurer of Quezon City to
refund to Meralco the sum of P11,651.86. The motion for reconsideration having been denied, on 22 April 1959,
the petition for review was filed.

Issue: Whether or not the steel towers of an electric company constitute real property for the purposes of real
property tax.

Held: The steel towers of an electric company don’t constitute real property for the purposes of real property tax.

Steel towers are not immovable property under paragraph 1, 3 and 5 of Article 415.The steel towers or supports
do not come within the objects mentioned in paragraph 1, because they do not constitute buildings or
constructions adhered to the soil. They are not constructions analogous to buildings nor adhering to the soil. As per
description, given by the lower court, they are removable and merely attached to a square metal frame by means
of bolts, which when unscrewed could easily be dismantled and moved from place to place.

They cannot be included under paragraph 3, as they are not attached to an immovable in a fixed manner, and they
can be separated without breaking the material or causing deterioration upon the object to which they are
attached. Each of these steel towers or supports consists of steel bars or metal strips, joined together by means of
bolts, which can be disassembled by unscrewing the bolts and reassembled by screwing the same.

These steel towers or supports do not also fall under paragraph 5, for they are not machineries or receptacles,
instruments or implements, and even if they were, they are not intended for industry or works on the land.

Petitioner is not engaged in an industry or works on the land in which the steel supports or towers are constructed.

The Supreme Court affirmed the decision appealed from, with costs against the petitioners.
10. MANILA ELECTRIC COMPANY v. CITY ASSESSOR lucena, GR No. 166102, 2015-08-05

Facts:

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

MERALCO received from the City Assessor of Lucena a copy of Tax Declaration No. 019-
6500[13] covering the following electric facilities, classified as capital investment,
of the company: (a) transformer and electric post; (b)... transmission line; (c)
insulator; and (d) electric meter, located in Quezon Ave. Ext., Brgy. Gulang-Gulang,
Lucena City. Under Tax Declaration No. 019-6500, these electric facilities had a
market value of P81,811,000.00 and an assessed value of P65,448,800.00, and were
subjected... to real property tax as of 1985.

MERALCO claimed that its capital investment consisted only of its substation
facilities, the true and correct value of which was only P9,454,400.00; and that

MERALCO was exempted from payment of real property tax on said substation facilities.

Issues:

whether or not the poles, wires, insulators, transformers, and electric meters of
MERALCO were real properties

Ruling:

LBAA cited the 1964 case of Board of Assessment Appeals v. Manila Electric

Company[16] (1964 MERALCO case) in which the Court held that: (1) the steel towers
fell within the term "poles" expressly exempted from taxes under the franchise of
MERALCO; and (2) the steel towers were personal properties under the provisions... of
the Civil Code and, hence, not subject to real property tax. The LBAA lastly ordered
that Tax Declaration No. 019-6500 would remain and the poles, wires, insulators,
transformers, and electric meters of MERALCO would be continuously assessed, but the
City Assessor would stamp... on the said Tax Declaration the word "exempt.

Board overrules the claim of the [City Assessor of Lucena] and sustain the claim of
[MERALCO].

Appellant (Meralco) is hereby ordered to render an accounting to the City Treasurer of

2679, respectively, retroactive from November 9, 1957 to date, if said tax has not yet
been paid.
11. STAR TWO (SPV-AMC), INC., V PAPER CITY CORPORATION OF THE PHILIPPINES
FACTS
For review is a Petition for Review on Certiorari filed by Rizal Commercial Banking Corporation now
substituted by Star Two (SPV-AMC), Inc.
 Respondent Paper City is a domestic corporation engaged in the manufacture of paper
products. Paper City applied for and was granted loans and credit accommodations in peso and
dollar denominations by RCBC secured by 4 Deeds of Continuing Chattel Mortgages on its
machineries and equipments found inside its paper plants.
 However, a unilateral Cancellation of Deed of Continuing Chattel Mortgage on Inventory of
Merchandise/Stocks-in-Trade was executed by RCBC over the merchandise and stocks-in-trade
covered by the continuing chattel mortgages.
 RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as the trustee bank)
entered into a Mortgage Trust Indenture (MTI) with Paper City. In the said MTI, Paper City acquired
an additional P170, 000,000.00 from the creditor banks in addition to the previous loan from RCBC
amounting to P110, 000,000.00.
 The old loan of P110,000,000.00 was partly secured by various parcels of land situated in
Valenzuela City. The new loan obligation of P170,000,000.00 would be secured by the same five (5) Deeds of Real Estate Mortgage and additional real
and personal properties described in an annex to MTI, Annex "B" which covered the machineries and equipments of Paper City.

Annex "A"
A. Office Building
Building 1, 2, 3, 4, and 5
Boiler House
Workers’ Quarter/Restroom
Canteen
Guardhouse, Parking Shed, Elevated Guard
Post and other amenities
B. Pollution Tank Nos. 1 and 2.
Reserve Water Tank and Swimming Pool
Waste Water Treatment Tank
Elevated Concrete Water Tank
And other Improvements listed in Annex "A"
C. Power Plants Nos. 1 and 2
Fabrication Building
Various Fuel, Water Tanks and Pumps
Transformers
Annex "B"
D. D. Material Handling Equipment
Paper Plant No. 3
 The MTI was later amended to increase the contributions of the RCBC and Union Bank. As a
consequence, they executed a Deed of Amendment to MTI but still included as part of the
mortgaged properties by way of a first mortgage the various machineries and equipments located in
and bolted to and/or forming part of buildings.
 A Second Supplemental Indenture to the MTI was executed to increase the amount of the
loan secured against the existing properties composed of land, building, machineries and
equipments and inventories described in Annexes "A" and "B."
 Finally, a Third Supplemental Indenture to the MTI was executed to increase the existing
loan obligation with an additional security composed of a newly constructed two-storey building and
other improvements, machineries and equipments located in the existing plant site.
 Paper City was able to comply with its loan obligations but economic crisis ensued which
made it difficult for Paper City to meet the terms of its obligations leading to payment
defaults. Consequently, RCBC filed a Petition for Extrajudicial Foreclosure.
 The petition was for the extra-judicial foreclosure of eight parcels of land including all
improvements thereon which were sold in favor of the creditor banks RCBC, Union Bank and
Metrobank as the highest bidders.
This foreclosure sale prompted Paper City to file a Complaint against the creditor banks alleging that
the extra-judicial sale of the properties and plants was null and void due to lack of prior notice and
attendance of gross and evident bad faith on the part of the creditor banks.
Acting on the said motion, the trial court issued an Order denying the prayer and ruled that the
machineries and equipments were included in the annexes and form part of the MTI.
Paper City filed its Motion for Reconsideration which was favorably granted by the trial court with
justification that the disputed machineries and equipments are chattels by agreement of the parties
through their inclusion in the four Deeds of Chattel Mortgage and the deed of cancellation executed
by RCBC was not valid because it was done unilaterally and without the consent of Paper City.
The CA affirmed the Order.
ISSUE
Whether the subject machineries and equipments were included in the mortgage, extrajudicial
foreclosure and in the consequent sale.
RULING
Yes. By contracts, all uncontested in this case, machineries and equipments are included in the
mortgage in favor of RCBC, in the foreclosure of the mortgage and in the consequent sale on
foreclosure also in favor of petitioner.
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are various
parcels of land including the buildings and existing improvements thereon as well as the machineries
and equipments, which as stated in the granting clause of the original mortgage, are "more
particularly described and listed that is to say, the real and personal properties listed in Annexes ‘A’
and ‘B’.”
The plain language and literal interpretation of the MTIs must be applied. The petitioner, other
creditor banks and Paper City intended from the very first execution of the indentures that the
machineries and equipments enumerated in Annexes "A" and "B" are included. Obviously, with the
continued increase in the amount of the loan, totaling hundreds of millions of pesos, Paper City had
to offer all valuable properties acceptable to the creditor banks.
The MTIs did not describe the equipments and machineries as personal property. Notably, while
"personal" appeared in the granting clause of the original MTI, the subsequent Deed of Amendment
specifically stated that:
x x x The machineries and equipment listed in Annexes "A" and "B" form part of the improvements
listed above and located on the parcels of land subject of the Mortgage Trust Indenture and the Real
Estate Mortgage.
Considering that the Indenture which is the instrument of the mortgage that was foreclosed exactly
states through the Deed of Amendment that the machineries and equipments listed in Annexes "A"
and "B" form part of the improvements listed and located on the parcels of land subject of the
mortgage, such machineries and equipments are surely part of the foreclosure of the "real estate
properties, including all improvements thereon" as prayed for in the petition.
The real estate mortgage over the machineries and equipments is even in full accord with the
classification of such properties by the Civil Code of the Philippines as immovable property. Thus:
Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
(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;
12. FELS ENERGY, INC., Petitioner, -versus- THE PROVINCE OF BATANGAS and THE OFFICE OF THE
PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

FACTS: NPC entered into a lease contract with Polar Energy over power barges. NPC agreed to be responsible for the
payment of all taxes, fees, charges or levies to which Polar may become subject to in relation to the performance of its
obligations under the agreement. Later, Polar assigned its rights under the contract to FELS.

Province of Batangas sent FELS an assessment of real property taxes on the power barges, covering also those due for 1994,
amounting to 56 million per annum. FELS told NPC about the assessment and FELS gave NPC full power and authority to
represent it in any conference regarding the real property assessment of the Provincial Assessor.

NPC sought reconsideration of the assessment. It was denied and NPC was advised to pay. NPC filed 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.

The Department of Finance (DOF) rendered an opinion that the power barges were not real property. Despite this, the LBAA
ruled that the power plant facilities are considered real property for taxation purposes because they are installed at a specific
location with a character of permanency.

Also, the LBAA said that NPC cannot extend its exemption to FELS by mere agreement and FELS, a private corporation that
owns the barges, is being taxed, not the NPC. FELS went up to the Central Board of Assessment Appeals (CBAA).

A Notice of Levy and Warrant by Distraint (NLWD) was issued and served against FELS seeking to collect real property taxes
amounting to 232 million pesos.

The CBAA lifted the order of levy and distraint before it issued a decision finding the power barges exempt from real
property tax. Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC.

No, Province of Batangas wants to nullify the decision of CBAA for having no jurisdiction over the appeal due to failure of
FELS to file it within the period provided by law.

ISSUE: Did FELS follow the proper procedure in assailing the decision of the LBAA?

HELD: No, it did not. Instead of appealing to the CBAA, it filed a motion for reconsideration.

Section 226 of R.A. No. 7160 gives the taxpayer 60 days to appeal from a decision of the LBAA to the CBAA. 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 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.

ISSUE: While FELS pursued its claim, NPC filed a petition for review with the Supreme Court. Does this constitute forum
shopping?

Yes, this constitutes forum shopping.

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.

ISSUE: Are the barges real property, thus, subject to real property taxation?

Yes, they are real property.

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.

ISSUE: Should the realty tax be paid by FELS despite agreement between NPC and FELS regarding responsibility in
payment thereof?

Yes, because the owner of the taxable properties is FELS.

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, to be exempt, the machinery must be actually, directly and exclusively used by the
GOCC.

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.