Chuaquico Jett I.
Ruling in favor of FELS and NPC, the CBAA
FELS ENERGY INC. VS. BATANGAS:
PROPERTY NATURE OF POWER BARGES
FACTS: On January 18, 1993, NPC entered into a
lease contract with Polar Energy, Inc. over 3x30
MW diesel engine power barges moored at Balayan
Bay in Calaca, Batangas for a period of 5 years.
Subsequently, Polar Energy, Inc. assigned its rights
under the Agreement to FELS. The NPC initially
opposed the assignment of rights, citing paragraph
17.2 of Article 17 of the Agreement.
On August 7, 1995, FELS received an assessment of
real property taxes on the power barges from
Provincial Assessor Lauro C. Andaya of Batangas
City. The assessed tax, which likewise covered those
due for 1994, amounted to P56,184,088.40 per
annum. FELS referred the matter to NPC, reminding
it of its obligation under the Agreement to pay all
real estate taxes. It then gave NPC the full power and
authority to represent it in any conference regarding
the real property assessment of the Provincial
Assessor.
In a letter dated September 7, 1995, NPC sought
reconsideration of the Provincial Assessors decision
to assess real property taxes on the power barges.
However, the motion was denied on September 22,
1995, and the Provincial Assessor advised NPC to
pay the assessment.[8] This prompted NPC to file a
petition with the Local Board of Assessment
Appeals (LBAA) for the setting aside of the
assessment and the declaration of the barges as non-
taxable items; it also prayed that should LBAA find
the barges to be taxable, the Provincial Assessor be
directed to make the necessary corrections.
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.
On April 6, 2000, the CBAA rendered a Decision
finding the power barges exempt from real property
tax.
reasoned that the power barges belong to NPC; since
they are actually, directly and exclusively used by it,
the power barges are covered by the exemptions
under Section 234(c) of R.A. No. 7160.
However a motion for reconsideration was filed by
the provincial assessor which reversed the ruling of
CBAA
The decision of CBAA is affirmed by CA
ISSUE: W/N the power barges are considered
personal property hence exempt from real property
tax
RULING: NO, they are considered real property
hence taxable
As found by the appellate court, the CBAA and
LBAA power barges are real property and are thus
subject to real property tax. This is also the
inevitable conclusion, considering that G.R. No.
165113 was dismissed for failure to sufficiently
show any reversible error. Tax assessments by tax
examiners are presumed correct and made in good
faith, with the taxpayer having the burden of proving
otherwise. 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 citys motion to dismiss, the
Supreme Court of New
York held that the barges on which were mounted
gas turbine power plants designated to generate
electrical power, the fuel oil barges which supplied
fuel oil to the power plant barges, and the accessory
equipment mounted on the barges were subject to
real property taxation.
Moreover, Article 415 (9) of the New Civil Code
provides that [d]ocks and structures which, though
floating, are intended by their nature and object to
remain at a fixed place on a river, lake, or coast are
considered immovable property. Thus, power barges
are categorized as immovable property by
destination, being in the nature of machinery and
other implements intended by the owner for an
industry or work which may be carried on in a
building or on a piece of land and which tend
directly to meet the needs of said industry or work.
MINDANAO BUS CO. VS. CITY ASSESSOR
AND TREASURER: MACHINERIES TO BE
CONSIDERED AS IMMOVABLE MUST BE
ESSENTIAL TO THE NATURE OF BUSINESS
FACTS: Respondent City Assessor of Cagayan de
Oro City assessed at P4,400 petitioner's above-
mentioned equipment. Petitioner appealed the
assessment to the respondent Board of Tax Appeals
on the ground that the same are not realty. The Board
of Tax Appeals of the City sustained the city
assessor, so petitioner herein filed with the Court of
Tax Appeals a petition for the review of the
assessment.
In the Court of Tax Appeals the parties submitted
the following stipulation of facts:
4. That these machineries are sitting on cement or
wooden platforms as may be seen in the attached
photographs which form part of this agreed
stipulation of facts;
5. That petitioner is the owner of the land where it
maintains and operates a garage for its TPU motor
trucks; a repair shop; blacksmith and carpentry
shops, and with these machineries which are placed
therein, its TPU trucks are made; body constructed;
and same are repaired in a condition to be
serviceable in the TPU land transportation business
it operates;
6. That these machineries have never been or were
never used as industrial equipments 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.
CTA affirms the decision of the city assessor:
1. The Honorable Court of Tax Appeals erred in
upholding respondents' contention that the
questioned assessments are valid; and that said tools,
equipments or machineries are immovable taxable
real properties.
2. The Tax Court erred in its interpretation of
paragraph 5 of Article 415 of the New Civil Code,
and holding that pursuant thereto the movable
equipments are taxable realties, by reason of their
being intended or destined for use in an industry.
ISSUE: W/N the properties of petitioners are
considered personal property
RULING: YES, it can be considered personal
property because the nature of this equipments
are not essential to the nature of industry
petitioner have, hence transformation to
immovable contemplated by law is not applicable
So that movable equipments 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." We may here distinguish,
therefore, those movable which become
immobilized by destination because they are
essential and principal elements in the industry for
those which may not be so considered immobilized
because they are merely incidental, not essential and
principal. Thus, cash registers, typewriters, etc.,
usually found and used in hotels, restaurants,
theaters, etc. are merely incidentals and are not and
should not be considered immobilized by
destination, for these businesses can continue or
carry on their functions without these equity
comments. Airline companies use forklifts, jeep-
wagons, pressure pumps, IBM machines, etc. which
are incidentals, not essentials, and thus retain their
movable nature. On the other hand, machineries of
breweries used in the manufacture of liquor and soft
drinks, though movable in nature, are immobilized
because they are essential to said industries; but the
delivery trucks and adding machines which they
usually own and use and are found within their
industrial compounds are merely incidental and
retain their movable nature.
Similarly, the tools and equipments in question in
this instant case are, by their nature, 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. Even without such tools
and equipments, its business may be carried on, as
petitioner has carried on, without such equipments,
before the war. 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.
Aside from the element of essentiality the above-
quoted provision also requires that the industry or
works be carried on in a building or on a piece of
land. Thus in the case of Berkenkotter vs. Cu
Unjieng, supra, the "machinery, liquid containers,
and instruments or implements" are found in a
building constructed on the land. A sawmill would
also be installed in a building on land more or less
permanently, and the sawing is conducted in the land
or building.
But in the case at bar the equipments 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 equipments may not, therefore, be deemed
real property.
CHAVEZ VS. PEA: OWNERSHIP OF
PRIVATE CORPORATION ON LANDS
FACTS: President Marcos through a presidential
decree created PEA, which was tasked with the
development, improvement, and acquisition,
lease, and sale of all kinds of lands. The then
president also transferred to PEA the foreshore and
offshore lands of Manila Bay under the Manila-
Cavite Coastal Road and Reclamation Project.
Thereafter, PEA was granted patent to the
reclaimed areas of land and then, years later, PEA
entered into a JVA with AMARI for the
development of the Freedom Islands. These two
entered into a joint venture in the absence of any
public bidding.
Later, a privilege speech was given by
Senator President Maceda denouncing the JVA as
the grandmother of all scams. An investigation was
conducted and it was concluded that the lands that
PEA was conveying to AMARI were lands of the
public domain; the certificates of title over the
Freedom Islands were void; and the JVA itself was
illegal. This prompted Ramos to form an
investigatory committee on the legality of the JVA.
Petitioner now comes and contends that the
government stands to lose billions by the
conveyance or sale of the reclaimed areas to
AMARI. He also asked for the full disclosure of
the renegotiations happening between the parties.
ISSUE: W/N the transfer of lands to AMARI violate
the constitution
RULING:
The ownership of lands reclaimed from foreshore
and submerged areas is rooted in the Regalian
doctrine which holds that the State owns all lands
and waters of the public domain. Upon the Spanish
conquest of the Philippines, ownership of all lands,
territories and possessions in the Philippines passed
to the Spanish Crown. The King, as the sovereign
ruler and representative of the people, acquired and
owned all lands and territories in the Philippines
except those he disposed of by grant or sale to
private individuals.
The 1935, 1973 and 1987 Constitutions adopted the
Regalian doctrine substituting, however, the State,
in lieu of the King, as the owner of all lands and
waters of the public domain. The Regalian doctrine
is the foundation of the time-honored principle of
land ownership that all lands that were not acquired
from the Government, either by purchase or by
grant, belong to the public domain. Article 339 of
the Civil Code of 1889, which is now Article 420 of
the Civil Code of 1950, incorporated the Regalian
doctrine.
Foreshore lands are lands of public dominion
intended for public use. So too are lands reclaimed
by the government by dredging, filling, or other
means. Act 1654 mandated that the control and
disposition of the foreshore and lands under water
remained in the national government. Said law
allowed only the leasing of reclaimed land. The
Public Land Acts of 1919 and 1936 also declared
that the foreshore and lands reclaimed by the
government were to be disposed of to private parties
by lease only and not otherwise. Before leasing,
however, the Governor-General, upon
recommendation of the Secretary of Agriculture and
Natural Resources, had first to determine that the
land reclaimed was not necessary for the public
service. This requisite must have been met before
the land could be disposed of. But even then, the
foreshore and lands under water were not to be
alienated and sold to private parties. The disposition
of the reclaimed land was only by lease. The land
remained property of the State.
Since then and until now, the only way the
government can sell to private parties government
reclaimed and marshy disposable lands of the public
domain is for the legislature to pass a law
authorizing such sale. CA No. 141 does not
authorize the President to reclassify government
reclaimed and marshy lands into other non-
agricultural lands under Section 59 (d). Lands
classified under Section 59 (d) are the only alienable
or disposable lands for non-agricultural purposes
that the government could sell to private parties.
Moreover, Section 60 of CA No. 141 expressly
requires congressional authority before lands under
Section 59 that the government previously
transferred to government units or entities could be
sold to private parties.
In case of sale or lease of disposable lands of the
public domain falling under Section 59 of CA No.
141, Sections 63 and 67 require a public bidding.
The 1987 Constitution, like the 1935 and 1973
Constitutions before it, has adopted the Regalian
doctrine. The 1987 Constitution declares that all
natural resources are owned by the State, and except
for alienable agricultural lands of the public domain,
natural resources cannot be alienated.
Indeed, one purpose of the constitutional prohibition
against purchases of public agricultural lands by
private corporations is to equitably diffuse land
ownership or to encourage owner-cultivatorship and
the economic family-size farm and to prevent a
recurrence of cases like the instant case. Huge
landholdings by corporations or private persons had
spawned social unrest.
The constitutional intent, under the 1973 and 1987
Constitutions, is to transfer ownership of only a
limited area of alienable land of the public domain
to a qualified individual. This constitutional intent is
safeguarded by the provision prohibiting
corporations from acquiring alienable lands of the
public domain, since the vehicle to circumvent the
constitutional intent is removed. The available
alienable public lands are gradually decreasing in
the face of an ever-growing population. The most
effective way to insure faithful adherence to this
constitutional intent is to grant or sell alienable lands
of the public domain only to individuals. This, it
would seem, is the practical benefit arising from the
constitutional ban.
PEAs charter, however, expressly tasks PEA to
develop, improve, acquire, administer, deal in,
subdivide, dispose, lease and sell any and all kinds
of lands x x x owned, managed, controlled and/or
operated by the government.[87] (Emphasis
supplied) There is, therefore, legislative authority
granted to PEA to sell its lands, whether patrimonial
or alienable lands of the public domain. PEA may
sell to private parties its patrimonial properties in
accordance with the PEA charter free from
constitutional limitations. The constitutional ban on
private corporations from acquiring alienable lands
of the public domain does not apply to the sale of
PEAs patrimonial lands.
PEA may also sell its alienable or disposable lands
of the public domain to private individuals since,
with the legislative authority, there is no longer any
statutory prohibition against such sales and the
constitutional ban does not apply to individuals.
PEA, however, cannot sell any of its alienable or
disposable lands of the public domain to private
corporations since Section 3, Article XII of the 1987
Constitution expressly prohibits such sales. The
legislative authority benefits only individuals.
Private corporations remain barred from acquiring
any kind of alienable land of the public domain,
including government reclaimed lands.
AMARI as a private corporation cannot acquire the
reclaimed Freedom Islands, though alienable lands
of the public domain, except by lease, as provided
under Section 3, Article XII of the Constitution. The
still submerged areas (i.e., the more or less
additional 250 and 350 hectares of submerged areas)
in Manila Bay are inalienable lands of the public
domain; as such, they are beyond the commerce of
man, as provided under Section 2, Article XII of the
Constitution.
The reclaimed Freedom Islands: The assignment to
PEA of the ownership and administration of the
reclaimed areas in Manila Bay, coupled with
President Aquinos actual issuance of a special
patent covering the Freedom Islands, is equivalent
to an official proclamation classifying the Freedom
Islands as alienable or disposable lands of the public
domain. They also constitute a declaration that the
Freedom Islands are no longer needed for public
service. The Freedom Islands are thus alienable or
disposable lands of the public domain, open to
disposition or concession to qualified parties.
The submerged areas: The mere reclamation of
foreshore and submerged areas by PEA does not
convert these inalienable natural resources of the
State into alienable or disposable lands of the public
domain. There must be a law or presidential
proclamation officially classifying these reclaimed
lands as alienable or disposable and open to
disposition or concession. Moreover, these
reclaimed lands cannot be classified as alienable or
disposable if the law has reserved them for some
public or quasi-public use.
PEAs authority to sell: In order for PEA to sell its
reclaimed foreshore and submerged alienable lands
of the public domain, there must be legislative
authority empowering PEA to sell these lands, in
view of the requirement under CA No. 141. Without
such legislative authority, PEA could not sell but
only lease its reclaimed foreshore and submerged
alienable lands of the public domain. PEAs Charter
grants it such express legislative authority to sell its
lands, whether patrimonial or alienable lands of the
public domain. Nevertheless, any legislative
authority granted to PEA to sell its reclaimed
alienable lands of the public domain would be
subject to the constitutional ban on private
corporations from acquiring alienable lands of the
public domain. Hence, such legislative authority
could only benefit private individuals.

Registration of alienable lands of the public domain:

Registration of land under Act No. 496 or PD No.
1529 does not vest in the registrant private or public
ownership of the land. Registration is not a mode of
acquiring ownership but is merely evidence of
ownership previously conferred by any of the
recognized modes of acquiring ownership.
Registration does not give the registrant a better
right than what the registrant had prior to the
registration. The registration of lands of the public
domain under the Torrens system, by itself, cannot
convert public lands into private lands.
Jurisprudence holding that upon the grant of the
patent or issuance of the certificate of title the
alienable land of the public domain automatically
becomes private land cannot apply to government
units and entities like PEA.