LEUNG YEE, plaintiff-appellant,

vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.

FACTS:

The "Compania Agricola Filipina" purchased rice-cleaning machinery from "Strong Machinery Co." As security for the
purchase price, the buyer executed a chattel mortgage on the machinery and the building to which it was installed.

Upon buyer's failure to pay, the chattel mortgage was foreclosed, and the building was purchased by the seller, the "Strong
Machinery Co." This sale was annotated in the Chattel Mortgage Registry. Later, the "Agricola" also sold to "Strong
Machinery" the lot on which the building had been constructed. This sale was not registered in the Registry of Property but
the Machinery Co. took possession of the building and the lot.

Previously however, the same building has been purchases at a sheriff's sale by Leung Yee, a creditor of Agricola, although
Leung Yee knew all the time of the prior sale in favor of "Strong Machinery." The sale in favor of Leung Yee was recorded in
the Registry. Leung Yee now sues to recover the property from "Strong Machinery."

ISSUE:

Who has a better right to the property?

HELD:

The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of the machinery company, on
the ground that the company had its title to the building registered prior to the date of registry of the plaintiff's certificate.

Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the ownership shall be transfer to the person who may
have the first taken possession thereof in good faith, if it should be personal property.

Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry.

Should there be no entry, the property shall belong to the person who first took possession of it in good faith, and, in
the absence thereof, to the person who presents the oldest title, provided there is good faith.

The building is real property, therefore, its sale as annotated in the Chattel Mortgage Registry cannot be given the legal effect
of registration in the Registry of Real Property. The mere fact that the parties decided to deal with the building as personal
property does not change its character as real property. Thus, neither the original registry in the chattel mortgage registry, nor
the annotation in said registry of the sale of the mortgaged property had any effect on the building. However, since the land
and the building had first been purchased by "Strong Machinery" (ahead of Leung Yee), and this fact was known to Leung
Yee, it follows that Leung Yee was not a purchaser in good faith, and should therefore not be entitled to the property. "Strong
Machinery" thus has a better right to the property.
Leung Yee v Strong Machinery Company, GR No. L-11658, Feb. 15, 1918

In 1913, Compania Agricola Filipina (CAF) was indebted to two personalities: Leung Yee and Frank L. Strong
Machinery Co. CAF purchased some rice cleaning machines from Strong Machinery. CAF installed the machines
in a building. As security for the purchase price, CAF executed a chattel mortgage on the rice cleaning machines
including the building where the machines were installed. CAF failed to pay Strong Machinery, hence the latter
foreclosed the mortgage – the same was registered in the chattel mortgage registry.

CAF also sold the land (where the building was standing) to Strong Machinery. Strong Machinery took possession
of the building and the land.

On the other hand, Yee, another creditor of CAF who engaged in the construction of the building, being the highest
bidder in an auction conducted by the sheriff, purchased the same building where the machines were installed.
Apparently CAF also executed a chattel mortgage in favor Yee. Yee registered the sale in the registry of land. Yee
was however aware that prior to his buying, the property has been sold in favor of Strong Machinery – evidence is
the chattel mortgage already registered by Strong Machinery (constructive notice).

FACTS
The Compania Agricola Filipina (CAF) purchased from Strong Machinery Co. rice–cleaning machines which CAF
installed in one of its buildings.

As security for the purchase price, CAF executed a chattel mortgage on the machines and the building on which
they had been installed.

When CEF failed to pay, the registered mortgage was foreclosed and Strong Machinery Co. purchased the
building. This sale was annotated in the Chattel Mortgage Registry.

Later, Strong Machinery Co. also purchased from Agricola the lot on which the building was constructed. The
sale wasn't registered in the Registry of Property BUT Strong Machinery Co. took possession of the building and
the lot.

However, the same building had been previously purchased by Leung Yee, a creditor of Agricola, at a sheriff's
sale despite his knowledge of the prior sale in favor of Strong Machinery Co.. The sale to Leung Yee was
registered in the Registry of Property.

ISSUES
1. Was the property's nature changed by its registration in the Chattel Mortgage Registry?
2. Who has a better right to the property?

HELD
1. Where the interest conveyed is of the nature of real property, the placing of the document on record in the
Chattel Mortgage Registry is a futile act.

Chattel Mortgage refers to the mortgage of Personal Property executed in the manner and form prescribed in the
statute.

Since the building is REAL PROPERTY, its sale as annotated in the Chattel Mortgage Registry cannot be given
the legal effect of registration in the Registry of Real Property.

The mere fact that the parties decided to deal with the building as personal property does not change its
character as real property.

Neither the original registry in the chattel mortgage registry, nor the annotation in said registry of the sale of the
mortgaged property had any effect on the building.
Art. 1473 of the New Civil Code provides the following rules on determining ownership of property which has
been sold to different vendees:

If Personal Property – grant ownership to person who 1st possessed it in good faith
If Real Property – grant ownership to person who 1st recorded it in the Registry

If no entry – grant to person who 1st possessed in good faith

If no proof of possession – grant to person who presents oldest title

2. Since Leung Yee purchased the property despite knowledge of the previous purchase of the same by Strong
Machinery Co., it follows that Leung Yee was not a purchaser in good faith.

“One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has
acquired title thereto in good faith as against the true owner of the land or of an interest therein. The same rule
must be applied to one who has knowledge of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of his vendor.”

Good Faith, or the want of it, is a “state or condition of mind which can only be judged of by actual or fancied
tokens or signs.” (Wilder vs. Gilman, 55Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-
2098; Pinkerton Bros. Co. vs. Bromley, 119Mich., 8, 10, 17.)

Honesty Of Intention is the honest lawful intent constituting good faith. It implies a freedom from knowledge and
circumstances which ought to put a person on inquiry.

As such, proof of such knowledge overcomes the presumption of good faith.

Following the rule on possessory rights provided in Art. 1473, Strong Machinery Co. has a better right to the
property since it first purchased the same ahead of Leung Yee, the latter not being a purchaser in good faith.

The SC ruled that Strong Machinery has a better right to the contested property. Yee cannot be regarded as a
buyer in good faith as he was already aware of the fact that there was a prior sale of the same property to Strong
Machinery.

The SC also noted that the Chattel Mortgage Law expressly contemplates provisions for chattel mortgages which
only deal with personal properties. The fact that the parties dealt the building as if it’s a personal property does
not change the nature of the thing. It is still a real property. Its inscription in the Chattel Mortgage registry does
not modify its inscription the registry of real property.
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.

Facts:
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 filed 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 and removed the main motor of the subject machinery. In a petition for certiorari and
prohibition, the Court of Appeals ordered the return of the machinery on the ground that the same cannot be the subject of
replevin because it is a real property pursuant to Article 415 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 floor.
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 or not 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, as the appellate court did, the present case from the application of the
above quoted pronouncement. 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 rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals 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 of the subject machinery as chattel by the private respondent is indicative of
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 real property, as long as no interest of third parties would be prejudiced thereby.

the status of the subject machinery as movable or immovable was never placed in issue before the lower court and the Court
of Appeals except in a supplemental memorandum in support of the petition filed in the appellate court. 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. On the other hand, as pointed out by petitioner and again not refuted by respondent, the latter has
indubitably benefited from said contract.

Equity dictates that one should not benefit at the expense of another. Private respondent could not now therefore, be allowed
to impugn the efficacy of the chattel mortgage after it has benefited therefrom.

From what has been said above, the error of the appellate court in ruling that the questioned machinery is real, not personal
property, becomes very apparent. Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily
relied upon by said court is not applicable to the case at bar, the nature of the machinery and equipment involved therein as
real properties never having been disputed nor in issue, and they were not the subject of a Chattel Mortgage. Undoubtedly,
the Tumalad case bears more nearly perfect parity with the instant case to be the more controlling jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set aside, and the
Orders of the lower court are hereby reinstated, with costs against the private respondent.
Therefore, the questioned machinery should be considered as personal property.

The said machinery is a personal property. Like what was involved in the Tumalad case, if a house of strong materials, 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 the denying the existence of the chattel mortgage. The
decision of the Court of Appeals was set aside and the order of the lower court was reinstated.

DAVAO SAW MILL CO., INC., plaintiff-appellant,

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.

Facts:
Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the Philippine Islands. However, the
land upon which the business was conducted belonged to another person. On the land the sawmill company erected a
building which housed the machinery used by it. Some of the implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted on foundations of cement. In the contract of lease between the
sawmill company and the owner of the land there appeared the following provision: That on the expiration of the period
agreed upon, all the improvements and buildings introduced and erected by the party of the second part shall pass to the
exclusive ownership of the lessor without any obligation on its part to pay any amount for said improvements and buildings;
which do not include the machineries and accessories in the improvements.

In another action wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw, Mill Co., Inc., was the
defendant, a judgment was rendered in favor of the plaintiff in that action against the defendant; a writ of execution issued
thereon, and the properties now in question were levied upon as personally by the sheriff. No third party claim was filed for
such properties at the time of the sales thereof as is borne out by the record made by the plaintiff herein.

It must be noted also that on number of occasion, Davao Sawmill treated the machinery as personal property by executing
chattel mortgages in favor of third persons. One of such is the appellee by assignment from the original mortgages.

The lower court rendered decision in favor of the defendants herein. Hence, this instant appeal.

Issue:
whether or not the machineries and equipments were personal in nature.

Ruling/ Rationale:
Yes. The Supreme Court affirmed the decision of the lower court.

Machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the property or
plant, but not when so placed by a tenant, a usufructuary, or any person having only a temporary right, unless such person
acted as the agent of the owner.

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of this instance to be
paid by the appellant.
FACTS:
The Davao Saw Mill Co., Inc., operates a sawmill. However, the land upon which the business was conducted belonged to
another person. On the land the sawmill company erected a building which housed the machinery used by it. Some of the
machines were placed and mounted on foundations of cement. In the contract of lease between the sawmill company and the
owner of the land there appeared the following provision:

That on the expiration of the period agreed upon, all the improvements and buildings introduced and erected by the lessee
shall pass to the exclusive ownership of the lessor without any obligation on its part to pay any amount for said improvements
and buildings; also, in the event the lessee should leave or abandon the land leased before the time herein stipulated, the
improvements and buildings shall likewise pass to the ownership of the lessor as though the time agreed upon had expired:
Provided, however, That the machineries and accessories are not included in the improvements which will pass to the lessor
on the expiration or abandonment of the land leased.

In another action, wherein Davao Saw Mill was the defendant, a judgment was rendered in favor of the plaintiff in that action
against the defendant in that action; a writ of execution issued thereon, and the properties now in question were levied upon
as personally by the sheriff.

Davao Saw Mill has on a number of occasions treated the machinery as personal property by executing chattel mortgages in
favor of third persons. One of such persons is the appellee by assignment from the original mortgages.

ISSUE:
Whether or not the machinery in dispute is a personal property.

RULING:
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property consists of —
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection
with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade of
industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph.

While not conclusive, the characterization of the property as chattels by the appellant is indicative of intention and impresses
upon the property the character determined by the parties.

It is machinery which is involved; moreover, machinery not intended by the owner of any building or land for use in connection
therewith, but intended by a lessee for use in a building erected on the land by the latter to be returned to the lessee on the
expiration or abandonment of the lease.

Machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the property or
plant, but not when so placed by a tenant, a usufructuary, or any person having only a temporary right, unless such person
acted as the agent of the owner.

“Machinery, vessels, instruments or implements intended by the owner of the tenements for the industrial or works that they
may carry on in any building or upon any land and which tend directly to meet the needs of the said industry or works.”

Machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the
property or plant. Such result would not be accomplished, therefore, by the placing of machinery in a plant by a
tenant or a usufructuary or any person having only a temporary right.

The machinery must be classified as personal property.

The lessee placed the machinery in the building erected on land belonging to another, with the understanding that the
machinery was not included in the improvements which would pass to the lessor on the expiration of the
lease agreement. The lessee also treated the machinery as personal
property in executing chattel mortgages in favor of third persons. The machinery was levied upon by the sheriff as
personalty pursuant to a writ of execution obtained without any protest being registered.
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro City, respondents.

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.
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro City, respondents.

FACTS:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710 holding that the petitioner
Mindanao Bus Company is liable to the payment of the realty tax on its maintenance and repair equipment.

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). It owns 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. They 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.

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.

The CTA held the petitioner liable to the payment of the realty tax on its maintenance and repair equipment mentioned above.
Hence, this petition.

ISSUE:

Whether or not the machineries and equipment are considered immobilized and thus subject to a realty tax

HELD:
The Supreme Court decided otherwise and held that said machineries and equipment are not subject to the
assessment of real estate tax.

Said equipment are not considered immobilized as they are merely incidental, not essential 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

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 are not essential and principle municipal 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. The transportation business could be carried on without the repair or
service shop if its rolling equipment is repaired or serviced in another shop belonging to another.

WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment in question declared not
subject to assessment as real estate for the purposes of the real estate tax. Without costs.
MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY ASSESSOR AND CITY TREASURER OF LUCENA
CITY, Respondents.

FACTS:

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

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

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena City, which was docketed as LBAA-89-2.
MERALCO claimed that its capital investment consisted only of its substation facilities, the true and correct value of which
was only P9,454,400.00; and that MERALCO was exempted from payment of real property tax on said substation facilities.
The LBAA rendered a Decision in LBAA-89-2 on July 5, 1989, finding that under its franchise, MERALCO was required to pay
the City Government of Lucena a tax equal to 5% of its gross earnings, and “[s]aid tax shall be due and payable quarterly and
shall be in lieu of any and all taxes of any kind, nature, or description levied, established, or collected . . ., on its poles, wires,
insulators, transformers and structures, installations, conductors, and accessories, . . ., from which taxes the grantee
(MERALCO) is hereby expressly exempted.” As regards the issue of whether or not the poles, wires, insulators, transformers,
and electric meters of MERALCO were real properties, the LBAA cited the 1964 case of Board of Assessment Appeals v.
Manila Electric Company (1964 MERALCO case) in which the Court held that: (1) the steel towers fell within the term “poles”
expressly exempted from taxes under the franchise of MERALCO; and (2) the steel towers were personal properties under
the provisions of the Civil Code and, hence, not subject to real property tax. The LBAA lastly ordered that Tax Declaration No.
019-6500 would remain and the poles, wires, insulators, transformers, and electric meters of MERALCO would be
continuously assessed, but the City Assessor would stamp on the said Tax Declaration the word “exempt.

ISSUES:
A. WON MERALCO PROPERLY POSTED A BOND.
B. WON MERALCO IS SUBJECT TO REAL PROPERTY TAX.
C. WON THE ASSESSMENT MADE BY THE CITY ASSESSOR IS NULL AND VOID.

HELD:
A. YES. Section 252 of the Local Government Code mandates that “[n]o protest shall be entertained unless the taxpayer first
pays the tax.” It is settled that the requirement of “payment under protest” is a condition sine qua non before an appeal may
be entertained. Section 231 of the same Code also dictates that “[a]ppeal on assessments of real property . . . shall, in no
case, suspend the collection of the corresponding realty taxes on the property involved as assessed by the provincial or city
assessor, without prejudice to subsequent adjustment depending upon the final outcome of the appeal.” Clearly, under the
Local Government Code, even when the assessment of the real property is appealed, the real property tax due on the basis
thereof should be paid to and/or collected by the local government unit concerned.
In the case at bar, the City Treasurer of Lucena, in his letter dated October 16, 1997, sought to collect from MERALCO the
amount of P17,925,117.34 as real property taxes on its machineries, plus penalties, for the period of 1990 to 1997, based on
Tax Declaration Nos. 019-6500 and 019-7394 issued by the City Assessor of Lucena. MERALCO appealed Tax Declaration
Nos. 019-6500 and 019-7394 with the LBAA, but instead of paying the real property taxes and penalties due, it posted a
surety bond in the amount of P17,925,117.34.
By posting the surety bond, MERALCO may be considered to have substantially complied with Section 252 of the Local
Government Code for the said bond already guarantees the payment to the Office of the City Treasurer of Lucena of the total
amount of real property taxes and penalties due on Tax Declaration Nos. 019-6500 and 019-7394. This is not the first time
that the Court allowed a surety bond as an alternative to cash payment of the real property tax before protest/appeal as
required by Section 252 of the Local Government Code. In Camp John Hay Development Corporation v. Central Board of
Assessment Appeals, the Court affirmed the ruling of the CBAA and the Court of Tax Appeals en banc applying the “payment
under protest” requirement in Section 252 of the Local Government Code and remanding the case to the LBAA for “further
proceedings subject to a full and up-to-date payment, either in cash or surety, of realty tax on the subject properties . . . .”
Accordingly, the LBAA herein correctly took cognizance of and gave due course to the appeal of Tax Declaration Nos. 019-
6500 and 019-7394 filed by MERALCO.

B. YES. The last paragraph of Section 234 had unequivocally withdrawn, upon the effectivity of the Local Government Code,
exemptions from payment of real property taxes granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the same section.
MERALCO, a private corporation engaged in electric distribution, and its transformers, electric posts, transmission lines,
insulators, and electric meters used commercially do not qualify under any of the ownership, character, and usage
exemptions enumerated in Section 234 of the Local Government Code. It is a basic precept of statutory construction that the
express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maximexpressio
unius est exclusio alterius. Not being among the recognized exemptions from real property tax in Section 234 of the Local
Government Code, then the exemption of the transformers, electric posts, transmission lines, insulators, and electric meters
of MERALCO from real property tax granted under its franchise was among the exemptions withdrawn upon the effectivity of
the Local Government Code on January 1, 1998.
It is worthy to note that the subsequent franchises for operation granted to MERALCO, i.e., under the Certificate of Franchise
dated October 28, 1993 issued by the National Electrification Commission and Republic Act No. 9209 enacted on June 9,
2003 by Congress, are completely silent on the matter of exemption from real property tax of MERALCO or any of its
properties.
It is settled that tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a specific
provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common burden. Any doubt whether a
tax exemption exists is resolved against the taxpayer. MERALCO has failed to present herein any express grant of exemption
from real property tax of its transformers, electric posts, transmission lines, insulators, and electric meters that is valid and
binding even under the Local Government Code.

C. YES. The Court cannot help but attribute the lack of a valid notice of assessment to the apparent lack of a valid appraisal
and assessment conducted by the City Assessor of Lucena in the first place. It appears that the City Assessor of Lucena
simply lumped together all the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO
located in Lucena City under Tax Declaration Nos. 019-6500 and 019-7394, contrary to the specificity demanded under
Sections 224 and 225 of the Local Government Code for appraisal and assessment of machinery. The City Assessor and the
City Treasurer of Lucena did not even provide the most basic information such as the number of transformers, electric posts,
insulators, and electric meters or the length of the transmission lines appraised and assessed under Tax Declaration Nos.
019-6500 and 019-7394. There is utter lack of factual basis for the assessment of the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO.The Court of Appeals laid the blame on MERALCO for the
lack of information regarding its transformers, electric posts, transmission lines, insulators, and electric meters for appraisal
and assessment purposes because MERALCO failed to file a sworn declaration of said properties as required by Section 202
of the Local Government Code. As MERALCO explained, it cannot be expected to file such a declaration when all the while it
believed that said properties were personal or movable properties not subject to real property tax.
Facts:
MERALCO is a private corporation organized and existing under Philippine laws to operate as a public utility engaged
in electric distribution.
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 Lucena and to pay the City
Government of Lucena the amount corresponding to the Five (5%) per centum of the gross earnings in compliance
with paragraph 13 both Resolutions 108 and
2679, respectively, retroactive from November 9, 1957 to date, if said tax has not yet been paid.
The appraisal and assessment of the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO
under Tax Declaration Nos. 019-6500 and 019-7394, not being in compliance with the Local Government Code, are attempts at
deprivation of property without due process of law and, therefore, null and void.

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