LEUNG YEE V. F.L STRONG MACHINERY CO. AND WILLIAMSON FRANK L. STRONG MACHINERY COMPANY and J. G.
WILLIAMSON, defendants-
37 SCRA 644
FACTS:
1. First mortgage: Compania Agricola Filipina bought rice-cleaning machinery
from the machinery company and this was secured by a chattel mortgage on the
machinery and the building to which it
was installed. Upon failure to pay, the chattel mortgage was foreclosed, the
building and machinery sold in public auction and bought by the machinery
company.
2. Days after, the Compania Agricola Filipina executed a deed of sale over the land
to which the building stood in favor of the machinery company. This was done to
cure any defects that may arise in the
machinery company’s ownership of the building.
3. Second mortgage: on or about the date to which the chattel mortgage
was excecuted, Compania executed a real estate mortgage over the building
in favor of Leung Yee, distinct and
separate from the land. This is to secure payment for its indebtedness for the
construction of the building. Upon failure to pay, the mortgage was foreclosed.
4. The machinery company then filed a case, demanding that it be declared
the rightful owner of the building. The trial court held that it was the
machinery company which was the rightful owner
as it had its title before the building was registered prior to the date of
registry of Leung Yee’s certificate.
HELD:
The building in which the machinery was installed was real property, and the
mere fact that the parties seem to have dealt with it separate and apart from
the land on which it stood in no wise changed the character as real property.
It follows that neither the original registry in the chattel mortgage registry of the
instrument purporting to be a chattel mortgage of the building and the machinery
installed therein, nor the annotation in the registry of the sale of the
mortgaged property, had any effect whatever so far as the building is
concerned. *LANDMARK CASE
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning
machinery company from the defendant machinery company, and executed a
chattel mortgage thereon to secure payment of the purchase price. It included in
the mortgage deed the building of strong materials in which the machinery was
installed, without any reference to the land on which it stood. The indebtedness
secured by this instrument not having been paid when it fell due, the mortgaged
property was sold by the sheriff, in pursuance of the terms of the mortgage
instrument, and was bought in by the machinery company. The mortgage was
registered in the chattel mortgage registry, and the sale of the property to the
machinery company in satisfaction of the mortgage was annotated in the same
registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia
Agricola Filipina" executed a deed of sale of the land upon which the building stood
to the machinery company, but this deed of sale, although executed in a public
document, was not registered. This deed makes no reference to the building
erected on the land and would appear to have been executed for the purpose of
curing any defects which might be found to exist in the machinery company's title to
the building under the sheriff's certificate of sale. The machinery company went into
possession of the building at or about the time when this sale took place, that is to
say, the month of December, 1913, and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the
machinery company, the mortgagor, the "Compañia Agricola Filipina" executed
another mortgage to the plaintiff upon the building, separate and apart from the
land on which it stood, to secure payment of the balance of its indebtedness to the
plaintiff under a contract for the construction of the building. Upon the failure of the
mortgagor to pay the amount of the indebtedness secured by the mortgage, the
plaintiff secured judgment for that amount, levied execution upon the building,
bought it in at the sheriff's sale on or about the 18th of December, 1914, and had
the sheriff's certificate of the sale duly registered in the land registry of the Province
of Cavite.
At the time when the execution was levied upon the building, the defendant
machinery company, which was in possession, filed with the sheriff a sworn
statement setting up its claim of title and demanding the release of the property
from the levy. Thereafter, upon demand of the sheriff, the plaintiff executed an
indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon which
the sheriff sold the property at public auction to the plaintiff, who was the highest
bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from
the machinery company.
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 registry her referred to is of course the registry of real property, and it must be
apparent that the annotation or inscription of a deed of sale of real property in a
chattel mortgage registry cannot be given the legal effect of an inscription in the
registry of real property. By its express terms, the Chattel Mortgage Law
contemplates and makes provision for mortgages of personal property; and the sole
purpose and object of the chattel mortgage registry is to provide for the registry of
"Chattel mortgages," that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. The building of strong materials in which
the rice-cleaning machinery was installed by the "Compañia Agricola Filipina" was
real property, and the mere fact that the parties seem to have dealt with it separate
and apart from the land on which it stood in no wise changed its character as real
property. It follows that neither the original registry in the chattel mortgage of the
building and the machinery installed therein, not the annotation in that registry of
the sale of the mortgaged property, had any effect whatever so far as the building
was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained
on the ground assigned by the trial judge. We are of opinion, however, that the
judgment must be sustained on the ground that the agreed statement of facts in the
court below discloses that neither the purchase of the building by the plaintiff nor
his inscription of the sheriff's certificate of sale in his favor was made in good faith,
and that the machinery company must be held to be the owner of the property
under the third paragraph of the above cited article of the code, it appearing that
the company first took possession of the property; and further, that the building and
the land were sold to the machinery company long prior to the date of the sheriff's
sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code
require "good faith," in express terms, in relation to "possession" and "title," but
contain no express requirement as to "good faith" in relation to the "inscription" of
the property on the registry, it must be presumed that good faith is not an essential
requisite of registration in order that it may have the effect contemplated in this
article. We cannot agree with this contention. It could not have been the intention
of the legislator to base the preferential right secured under this article of the code
upon an inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and collusion. The public
records cannot be converted into instruments of fraud and oppression by one who
secures an inscription therein in bad faith. The force and effect given by law to an
inscription in a public record presupposes the good faith of him who enters such
inscription; and rights created by statute, which are predicated upon an inscription
in a public registry, do not and cannot accrue under an inscription "in bad faith," to
the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of
Spain held in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith
mentioned in the first paragraph; therefore, it having been found that the
second purchasers who record their purchase had knowledge of the
previous sale, the question is to be decided in accordance with the
following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon
[1911] edition.)
Although article 1473, in its second paragraph, provides that the title of
conveyance of ownership of the real property that is first recorded in the
registry shall have preference, this provision must always be understood
on the basis of the good faith mentioned in the first paragraph; the
legislator could not have wished to strike it out and to sanction bad faith,
just to comply with a mere formality which, in given cases, does not obtain
even in real disputes between third persons. (Note 2, art. 1473, Civ. Code,
issued by the publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought
the building at the sheriff's sale and inscribed his title in the land registry, was duly
notified that the machinery company had bought the building from plaintiff's
judgment debtor; that it had gone into possession long prior to the sheriff's sale;
and that it was in possession at the time when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff in favor of the sheriff, after the
machinery company had filed its sworn claim of ownership, leaves no room for
doubt in this regard. Having bought in the building at the sheriff's sale with full
knowledge that at the time of the levy and sale the building had already been sold
to the machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent inscription of
the sheriff's certificate of title must be held to have been tainted with the same
defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's
certificate of sale to the plaintiff was not made in good faith, we should not be
understood as questioning, in any way, the good faith and genuineness of the
plaintiff's claim against the "Compañia Agricola Filipina." The truth is that both the
plaintiff and the defendant company appear to have had just and righteous claims
against their common debtor. No criticism can properly be made of the exercise of
the utmost diligence by the plaintiff in asserting and exercising his right to recover
the amount of his claim from the estate of the common debtor. We are strongly
inclined to believe that in procuring the levy of execution upon the factory building
and in buying it at the sheriff's sale, he considered that he was doing no more than
he had a right to do under all the circumstances, and it is highly possible and even
probable that he thought at that time that he would be able to maintain his position
in a contest with the machinery company. There was no collusion on his part with
the common debtor, and no thought of the perpetration of a fraud upon the rights
of another, in the ordinary sense of the word. He may have hoped, and doubtless he
did hope, that the title of the machinery company would not stand the test of an
action in a court of law; and if later developments had confirmed his unfounded
hopes, no one could question the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of
ownership when he executed the indemnity bond and bought in the property at the
sheriff's sale, and it appearing further that the machinery company's claim of
ownership was well founded, he cannot be said to have been an innocent purchaser
for value. He took the risk and must stand by the consequences; and it is in this
sense that we find that he 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; and 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. A purchaser cannot close his eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor. His mere refusal to
believe that such defect exists, or his willful closing of his eyes to the possibility of
the existence of a defect in his vendor's title, will not make him an innocent
purchaser for value, if afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defects as would have led to its discovery
had he acted with that measure of precaution which may reasonably be acquired of
a prudent man in a like situation. Good faith, or lack of it, is in its analysis a question
of intention; but in ascertaining the intention by which one is actuated on a given
occasion, we are necessarily controlled by the evidence as to the conduct and
outward acts by which alone the inward motive may, with safety, be determined. So
it is that "the honesty of intention," "the honest lawful intent," which constitutes
good faith implies a "freedom from knowledge and circumstances which ought to
put a person on inquiry," and so it is that proof of such knowledge overcomes the
presumption of good faith in which the courts always indulge in the absence of
proof to the contrary. "Good faith, or the want of it, is not a visible, tangible fact that
can be seen or touched, but rather a state or condition of mind which can only be
judged of by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505;
Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros.
Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of the
decision and judgment entered in the court below should be affirmed with costs of
this instance against the appellant. So ordered.
Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.
Torres, Avanceña and Fisher, JJ., took no part.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-
appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for
appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the
trial court and as set forth by counsel for the parties on appeal, involves the
determination of the nature of the properties described in the complaint. The trial
judge found that those properties were personal in nature, and as a consequence
absolved the defendants from the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the
Government of the Philippine Islands. It has operated a sawmill in the sitio of Maa,
barrio of Tigatu, municipality of Davao, Province of Davao. 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 party of the first part without any
obligation on its part to pay any amount for said improvements and
buildings; also, in the event the party of the second part should leave or
abandon the land leased before the time herein stipulated, the
improvements and buildings shall likewise pass to the ownership of the
party of the first part 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 party of the first part on the
expiration or abandonment of the land leased.
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 in that action; a writ of execution
issued thereon, and the properties now in question were levied upon as personalty
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. Indeed the
bidder, which was the plaintiff in that action, and the defendant herein having
consummated the sale, proceeded to take possession of the machinery and other
properties described in the corresponding certificates of sale executed in its favor by
the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw
Mill Co., Inc., 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.
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. We entertain no doubt that the trial judge and appellees are right in
their appreciation of the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have
registered its protest before or at the time of the sale of this property. It must
further be pointed out that 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. In this connection the
decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo (
[1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a
situation.
It is, however not necessary to spend overly must time in the resolution of this
appeal on side issues. 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.
A similar question arose in Puerto Rico, and on appeal being taken to the United
States Supreme Court, it was held that 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. In the opinion
written by Chief Justice White, whose knowledge of the Civil Law is well known, it
was in part said:
To determine this question involves fixing the nature and character of the
property from the point of view of the rights of Valdes and its nature and
character from the point of view of Nevers & Callaghan as a judgment
creditor of the Altagracia Company and the rights derived by them from
the execution levied on the machinery placed by the corporation in the
plant. Following the Code Napoleon, the Porto Rican Code treats as
immovable (real) property, not only land and buildings, but also attributes
immovability in some cases to property of a movable nature, that is,
personal property, because of the destination to which it is applied.
"Things," says section 334 of the Porto Rican Code, "may be immovable
either by their own nature or by their destination or the object to which
they are applicable." Numerous illustrations are given in the fifth
subdivision of section 335, which is as follows: "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." (See also Code Nap., articles 516, 518 et seq. to and inclusive of
article 534, recapitulating the things which, though in themselves
movable, may be immobilized.) So far as the subject-matter with which we
are dealing — machinery placed in the plant — it is plain, both under the
provisions of the Porto Rican Law and of the Code Napoleon, that
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.
(Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164;
Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed. Code
Napoleon under articles 522 et seq.) The distinction rests, as pointed out
by Demolombe, upon the fact that one only having a temporary right to
the possession or enjoyment of property is not presumed by the law to
 have applied movable property belonging to him so as to deprive him of it
by causing it by an act of immobilization to become the property of
another. It follows that abstractly speaking the machinery put by the
Altagracia Company in the plant belonging to Sanchez did not lose its
character of movable property and become immovable by destination. But
in the concrete immobilization took place because of the express
provisions of the lease under which the Altagracia held, since the lease in
substance required the putting in of improved machinery, deprived the
tenant of any right to charge against the lessor the cost such machinery,
and it was expressly stipulated that the machinery so put in should
become a part of the plant belonging to the owner without compensation
to the lessee. Under such conditions the tenant in putting in the
machinery was acting but as the agent of the owner in compliance with
the obligations resting upon him, and the immobilization of the machinery
which resulted arose in legal effect from the act of the owner in giving by
contract a permanent destination to the machinery.
xxx xxx xxx
The machinery levied upon by Nevers & Callaghan, that is, that which was
placed in the plant by the Altagracia Company, being, as regards Nevers &
Callaghan, movable property, it follows that they had the right to levy on it
under the execution upon the judgment in their favor, and the exercise of
that right did not in a legal sense conflict with the claim of Valdes, since as
to him the property was a part of the realty which, as the result of his
obligations under the lease, he could not, for the purpose of collecting his
debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225
U.S., 58.)
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.
Villa-Real, Imperial, Butte, and Goddard, JJ., concur
Davao Sawmill v. Castillo
DAVAO SAW MILL vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC. G.R. No. L-40411 August 7, 1935
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 personalty 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.
BERKENKOTTER v CU-UNJIENG
G.R. No. L-41643 July 31, 1935
FACTS: This is an appeal taken by the plaintiff, B. H. Berkenkotter, from the
judgment of the Court of First Instance of Manila, dismissing said plaintiff’s
complaint against Cu Unjieng e Hijos et al
Mabalacat Sugar Co., Inc., owner of the sugar central situated in Mabalacat,
Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a
first mortgage constituted on two parcels and land “with all its buildings,
improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and
whatever forms part or is necessary complement of said sugar-cane mill, steel
railway, telephone line, now existing or that may in the future exist is said lots.”
Shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc.,
decided to increase the capacity of its sugar central by buying additional machinery
and equipment, so that instead of milling 150 tons daily, it could produce 250. The
estimated cost of said additional machinery and equipment was approximately
P100,000. B.A. Green, president of said corporation, proposed to the plaintiff, B.H.
Berkenkotter, to advance the necessary amount for the purchase of said machinery
and equipment, promising to reimburse him as soon as he could obtain an
additional loan from the mortgagees, the herein defendants Cu Unjieng e Hijos.
Berkenkotter agreed to the said proposition and delivered to him a total sum of
P25,750. Berkenkotter had a credit of P22,000 against said corporation for unpaid
salary. With the loan of P25,750 and said credit of P22,000, the Mabalacat Sugar
Co., Inc., purchased the additional machinery and equipment now in litigation.
B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos
for an additional loan of P75,000 offering as security the additional machinery and
equipment acquired by said B.A. Green and installed in the sugar central after the
execution of the original mortgage deed, together with whatever additional
equipment acquired with said loan. B.A. Green failed to obtain said loan.
Appellants contention: the installation of the machinery and equipment claimed by
him in the sugar central of the Mabalacat Sugar Company, Inc., was not permanent
in character inasmuch as B. A. Green, in proposing to him to advance the money for
the purchase thereof, that in case B. A. Green should fail to obtain an additional loan
from the defendants Cu Unjieng e Hijos, said machinery and equipment would
become security therefor.
ISSUE: Whether or not the lower court erred in declaring that the additional
machinery and equipment, as improvement incorporated with the central are
subject to the mortgage deed executed in favor of the defendants Cu Unjieng e
Hijos.
HELD: No error was committed by trial court. The additional machinery and
equipment are included in the first mortgage.
Article 334, paragraph 5, of the Civil Code gives the character of real property
to “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
or industry.”
If the installation of the machinery and equipment in question in the central of the
Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its
sugar industry, converted them into real property by reason of their purpose, it
cannot be said that their incorporation therewith was not permanent in character
because, as essential and principal elements of a sugar central, without them the
sugar central would be unable to function or carry on the industrial purpose for which
it was established. Inasmuch as the central is permanent in character, the necessary
machinery and equipment installed for carrying on the sugar industry for which it has
been established must necessary be permanent.
Furthermore, the fact that B. A. Green bound himself to the plaintiff B. H.
Berkenkotter to hold said machinery and equipment as security, as nothing could
prevent B. A. Green from giving them as security at least under a second mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff and appellant
after they had been permanently incorporated with the sugar central of the
Mabalacat Sugar Co., Inc., and while the mortgage constituted on said sugar central
to Cu Unjieng e Hijos remained in force, only the right of redemption of the vendor
Mabalacat Sugar Co., Inc., in he sugar central with which said machinery and
equipment had been incorporated, was transferred thereby, subject to the right of
the defendants Cu Unjieng e Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1) That the
installation of a machinery and equipment in a mortgaged sugar central, in lieu of
another of less capacity, for the purpose of carrying out the industrial functions of
the latter and increasing production, constitutes a permanent improvement on said
sugar central and subjects said machinery and equipment to the mortgage
constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of
the new machinery and equipment has bound himself to the person supplying him
the purchase money to hold them as security for the payment of the latter’s credit,
and to refrain from mortgaging or otherwise encumbering them does not alter the
permanent character of the incorporation of said machinery and equipment with
the central; and (3) that the sale of the machinery and equipment in question by the
purchaser who was supplied the money, after the incorporation thereof with the
mortgaged sugar central, does not vest the creditor with ownership of said
machinery and equipment but simply with the right of redemption.
61 Phil. 663
BERKENKOTTER v CU-UNJIENG
G.R. No. L-41643 July 31, 1935
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B. H. Berkenkotter, from the judgment of the
Court of First Instance of Manila, dismissing said plaintiff's complaint against Cu
Unjieng e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as committed hy the
trial court in its decision in question, which will be discussed in the course of this
decision.
The first question to be decided in this appeal, which is raised in the first assignment
of alleged error, is whether or not the lower court erred in declaring that the
additional machinery and equipment, as improvement incorporated with the central
are subject to the mortgage deed executed in favor of the defendants Cu Unjieng e
Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc.,
owner of the sugar central situated in Mabalacat, Pampanga, obtained from the
defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on
two parcels of land "with all its buildings, improvements, sugar-cane mill, steel
railway, telephone line, apparatus, utensils and whatever forms part or is a
necessary complement of said sugar-cane mill, steel railway, telephone line, now
existing or that may in the future exist in. said lots."
On October 5, 1926, shortly after said mortgage had been constituted, the
Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar central by
buying additional machinery and equipment, so that instead of milling 150 tons
daily, it could produce 250. The estimated cost of said additional machinery and
equipment was approximately ^100,000. In order to carry out this plan, B. A. Green,
president of said corporation, proposed to the plaintiff, B. H. Berkenkotter, to
advance the necessary amount for the purchase of said machinery and equipment,
promising to reimburse him as soon as he could obtain an additional loan from the
mortgagees, the herein defendants Cu Unjieng e Hijos. Having agreed to said
proposition made in a letter dated October 5, 1926 (Exhibit E), B. H. Berkenkotter,
on October 9th of the same year, delivered the sum of P710 to B. A. Green,
president of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said
B. A. Green having been P25,750. Furthermore, B. H. Berkenkotter had a credit of
P22,000 against said corporation for unpaid salary. With the loan of P25,750 and
said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional
machinery and equipment now in litigation.
On June 10, 1927, B. A. Green, president of the Mabalacat Sugar Co., Inc., applied
T;o Cu Unjieng e Hijos for an additional loan of P75,000 offering as security the
additional machinery and equipment acquired by said B. A.
Green and installed in the sugar central after the execution of the original mortgage
deed, on April 27, 1927, together with whatever additional equipment acquired with
said loan. B. A. Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
"Art. 1877. A mortgage includes all natural accessions, improvements, growing
fruits, and rents not collected when the obligation falls due, and the amount of any
indemnities paid or due the owner by the insurers of the mortgaged property or by
virtue of the exercise of the power of eminent domain, with the declarations,
amplifications, and limitations established by law, whether the estate continues in
the possession of the person who mortgaged it or whether it passes into the hands
of a third person."
In the case of Bischoff vs. Pomar and Compania General de Tabacos (12 Phil., 690),
cited with approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid
down the following doctrine:
"1. Realty; Mortgage of Real Estate Includes Improvements and Fixtures. It is a rule,
established by the Civil Code and also by the Mortgage Law, with which the
decisions of the courts of the United States are in accord, that in a mortgage of real
estate, the improvements on the same are included; therefore, alj objects
permanently attached to a mortgaged building or land, although they may have
been placed there after the mortgage was constituted, are also included. (Arts, 110
and 111 of the Mortgage Law, and 1877 of the Civil Code; decision of U. S. Supreme
Court in the matter of Royal Insurance Co. vs. R. Miller, liquidator, and Amadeo [26
Sup. Ct. Rep., 46; 199 U. S., 353].)
"2. Id.; Id,; Inclusion or Exclusion op Machinery, etc. In order that it may be
understood that the machinery and other objects placed upon and used in
connection with a mortgaged estate are excluded from the mortgage, when it was
stated in the mortgage that the improvements, buildings, and machinery that
existed thereon were also comprehended, it is indispensable that the exclusion
thereof be stipulated between the contracting parties."
The appellant contends that the installation of the machinery and equipment
claimed by him in the sugar central of the Mabalacat Sugar Company, Inc., was not
permanent in character inasmuch as B. A. Green, in proposing to him to advance the
money for the purchase thereof, made it appear in the letter, Exhibit E, that in case
B. A. Green should fail to obtain an additional loan from the defendants Cu Unjieng
e Hijos, said machinery and equipment would become security therefor, said B. A.
Green binding himself not to mortgage nor encumber them to anybody until said
plaintiff be fully reimbursed for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money obtained as
loan from the plaintiff-appellant by B. A. Green, as president of the Mabalacat Sugar
Co., Inc., the latter became owner of said machinery and equipment, otherwise B. A.
Green; as such president, could not have offered them to the plaintiff as security for
the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real property to
"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
or industry."
If the installation of the machinery and equipment in question in the central of the
Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for' its
sugar industry, converted them into real property by reason of their purpose, it
cannot be said that their incorporation therewith was not permanent in character
because, as essential and principal elements of a sugar central, without them the
sugar central would be unable to function or carry on the industrial purpose for
which it was established. Inasmuch as the central is permanent in character, the
necessary machinery and equipment installed for carrying on the sugar industry for
which it has been established must necessarily be permanent.
Furthermore, the fact that B., A. Green bound himself to the plaintiff B. H.
Berkenkotter to hold said machinery and equipment as security for the payment of
the latter's credit and to refrain from mortgaging or otherwise encumbering them
until Berkenkotter has been fully reimbursed therefor, is not incompatible, with the
permanent character of the incorporation of said machinery and equipment with
the sugar central of the Mabalacat Sugar Co., Inc., as nothing could prevent B. A.
Green from giving them as security at least under a second mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff and appellant
after they had been permanently incorporated with the sugar central of the
Mabalacat Sugar Co., Inc., and while the mortgage constituted on said sugar central
to Cu Unjieng e Hijos remained in force, only the right of redemption of the vendor
Mabalacat Sugar Co., Inc., in the sugar central with which said machinery and
equipment had been incorporated, was transferred thereby, subject to the right of
the defendants Cu Unjieng e Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1) That the
installation of a machinery and equipment in a mortgaged sugar central, in lieu of
another of less capacity, for the purpose of carrying out the industrial functions of
the latter and increasing production, constitutes a permanent improvement on said
sugar central and subjects said machinery and equipment to the mortgage
constituted thereon (article 1877, Civil Code) ; (2) that the fact that the purchaser of
the new machinery and equipment has bound himself to the person supplying him
the purchase money to hold them as security for the payment of the latter's credit,
and to refrain from mortgaging or otherwise encumbering them does not alter the
permanent character of the incorporation of said machinery and equipment with
the central; and (3) that the sale of the machinery and equipment in question by the
purchaser who was supplied the purchase money, as a loan, to the person who
supplied the money, after the incorporation thereof with the mortgaged sugar
central, does not vest the creditor with ownership of said machinery and equipment
but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts,
with costs to the appellant. So ordered.
Malcolm, Imperial, Butte, and Goddard, JJ., concur.
Judgment affirmed.
NAVARRO V. PINEDA
9 SCRA 631
FACTS:
Pineda and his mother executed real estate and chattel mortgages in favor of
Navarro, to secure a loan they got from the latter. The REM covered a parcel of land
owned by the mother while the chattel mortgage covered a residential house.
Due to the failure to pay the loan, they asked for
extensions to pay for the loan. On the second extension, Pineda executed a
PROMISE wherein in case of default in payment, he wouldn’t ask for any additional
extension and there would be no need for any formal demand. In spite of this, they
still failed to pay.
Navarro then filed for the foreclosure of the mortgages. The court decided in his
favor.
HELD:
Where a house stands on a rented land belonging to another person, it may
be the subject matter of a chattel mortgage as personal property if so stipulated in
the document of mortgage, and in an action by the mortgagee for the foreclosure,
the validity of the chattel mortgage cannot be assailed
by one of the parties to the contract of mortgage.
Furthermore, although in some instances, a house of mixed materials has been
considered as a chattel between the parties and that the validity of the contract
between them, has been recognized, it has been a constant criterion that
with respect to third persons, who are not parties to the
contract, and specially in execution proceedings, the house is considered as
immovable property.
 118 Phil. 1481
NAVARRO V. PINEDA
9 SCRA 631
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales
(married to Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum
of P2,550.00, payable 6 months after said date or on June 14, 1959. To secure the
indebtedness, Rufino executed a document captioned "DEED OF REAL ESTATE and
CHATTEL MORTGAGES", whereby Juana Gonzales, by way of Real Estate
Mortgage hypothecated a parcel of land, belonging to her, registered with the
Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and Rufino
G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house,
having a floor area of 912 square meters, erected on a lot belonging to Atty. Vicente
Castro, located at Bo. San Roque, Tarlac, Tarlac; and one motor truck, registered in
his name, under Motor Vehicle Registration Certificate No A-171806. Both
mortgages were contained in one instrument, which was registered in both the
Office of the Register of Deeds and the Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after demands
made on them, failed to pay. They, however, asked and were granted an extension
up to June 30, 1960, within which to pay. Came June 30, defendants again failed to
pay and, for the second time, asked for another extension, which was given, up to
July 30, 1960. In the second extension, defendant Pineda in a document entitled
"Promise", categorically stated that in the remote event he should fail to make good
the obligation on such date (July 30, 1960), the defendant would no longer ask for
further extension and there would be no need for any formal demand, and plaintiff
could proceed to take whatever action he might desire to enforce his rights, under
the said mortgage contract. In spite of said premise, defendants failed and refused
to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and
for damages, which consisted of liquidated damages in the sum of P500.00 and 12%
per annum interest on the principal, effective on the date of maturity, until fully
paid.
Defendants, answering the complaint, among others, stated
"Defendants admit that the loan is overdue but deny that portion of paragraph 4 of
the First Cause of Action which states that the defendants unreasonably failed and
refuse to pay their obligation to the plaintiff the truth being the defendants are hard
up these days and pleaded to the plaintiff to grant them more time within which to
pay their obligation and the plaintiff refused; * * *
"WHEREFORE, in view of the foregoing it is most respectfully prayed that this
Honorable Court render judgment granting the defendants until January 31, 1961,
within which to pay their obligation to the plaintiff."
On September 30, 1960, plaintiff presented a Motion for Summary Judgment,
claiming that the Answer failed to tender any genuine and material issue. The
motion was set for hearing, but the record is net clear what ruling the lower court
made on the said motion. On November 11, 1960, however, the parties submitted a
Stipulation of Facts, wherein the defendants admitted the indebtedness, the
authenticity and due execution of the Real Estate and Chattel Mortgages; that the
indebtedness has been due and unpaid since June 14, 1960; that a liability of 12%
per annum as interest was agreed, upon failure to pay the principal when due and
P500.00 as liquidated damages; that the instrument had been registered in the
Registry of Property and Motor Vehicles Office, both of the province of Tarlac; that
the only issue in the case is whether or not the deed of Real Estate and Chattel
Mortgages is valid, particularly on the questions of whether or not the residential
house, subject of the mortgage therein, can be considered a chattel and the
propriety of the attorney's fees.
On February 24, 1961, the lower court held-
"* * WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regards to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramona
Reyes, to pay jointly and severally and within ninety (90) days from the receipt of
the copy of this decision to the plaintiff Conrado P. Navarro the principal sum of
P2,550.00 with 12% compounded interest per annum from June 14, 1960, until said
principal sum and interests are fully paid, plus P500.00 as liquidated damages and
the costs of this suit, with the warning that in default of said payment the properties
mentioned in the deed of real estate mortgage and chattel mortgage (Annex 'A' to
the complaint) be sold to realize said mortgage debt, interests, liquidated damages
and costs, in accordance with the pertinent provisions of Act 3135, as amended by
Act 4118, and Art. 14 of the Chattel Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver
immediately to the Provincial Sheriff of Tarlac the personal properties mentioned in
said Annex 'A', immediately after the lapse of the ninety (90) days above-mentioned,
in default of such payment."
The above judgment was directly appealed to this Court, the defendants therein
assigning only a single error, allegedly committed by the lower court, to wit
"In holding that the deed of real estate and chattel mortgages appended to the
complaint is valid, notwithstanding the fact that the house of the defendant Rufino
G. Pineda was made the subject of the chattel mortgage, for the reason that it is
erected on a land that belongs to a third person."
Appellants contend that Article 415 of the New Civil Code, in classifying a house as
immovable property, makes no distinctions whether the owner of the land is or is
not the owner of the building; the fact that the land belongs to another is
immaterial, it is enough that the house adheres to the land; that in case of
immovables by incorporation, such as houses, trees, plants, etc; the Code does not
require that the attachment or incorporation be made by the owner of the land, the
only criterion being the union or incorporation with the soil. In other words, it is
claimed that "a building is an immovable property, irrespective of whether or not
said structure and the land on which it is adhered to, belong to the same owner"
(Lopez vs. Orosa, 103 Phil., 98). (See also the case of Leung Yee vs. Strong Machinery
Co., 37 Phil. 644 ). Appellants argue that since only movables can be the subject of a
chattel mortgage (Sec. 1, Act No. 3952), then the mortgage in question which is the
basis of the present action, cannot give rise to an action for foreclosure because it is
a nullity. (Citing Associated Ins. Co., et al. vs. Isabel Iya, Isabel lya vs. Adriano Valino,
et al 103 Phil., 972;).
The trial court did not predicate its decision declaring the deed of chattel mortgage
valid solely on the ground that the house mortgaged was erected on the land which
belonged to a third person, but also and principally on the doctrine of estoppel, in
that "the parties have so expressly agreed" in the mortgage to consider the house as
a chattel "for its smallness and mixed materials of sawali and wood". In construing
Arts. 334 and 335 of the Spanish Civil Code (corresponding to Arts. 415 and 416,
N.C.C.), for purposes of the application of the Chattel Mortgage Law, it was held that
under certain conditions, "a property may have a character different from that
imputed to it in said articles. It is undeniable that the parties to a contract may by
agreement, treat as personal property that which by nature would be real property"
(Standard Oil Co. of N.Y. vs. Jaranillo, 44 Phil., 632-633). "There can not be any
question that a building of mixed materials may be the subject of a chattel
mortgage, in which case, it is considered as between the parties as personal
property. * *. The matter depends on the circumstances and the intention of the
parties". "Personal property may retain its character as such where it is so agreed by
the parties interested even though annexed to the realty * *". (42 Am. Jur. 209-210,
cited in Manarang, et al. vs. Ofilada, et al., 99 Phil., 108; 52 Off. Gaz., No. 8, p. 3954).
The view that parties to a deed of chattel mortgage may agree to consider a house
as personal property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based, partly, upon the principles of estoppel
* *" (Evangelista vs. Alto Surety 103 Phil., 401). In a case, a mortgaged house built
on a rented land, was held to be a personal property not only because the deed of
mortgage considered it as such, but also because it did not form an integral part of
the land (Evangelista vs. Abad, [CA]; 36 Off. Gaz., 2913), for it is now well settled
that an object placed on land by one who has only a temporary right to the same,
such as a lessee or usufructuary, does not become immobilized by attachment
(Valdez vs. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co. Inc. vs. Castillo,
et al., 61 Phil. 709). Hence, if a house belonging to a person stands on a rented
land belonging to another person, it may be mortgaged as a personal property if so
stipulated in the document of mortgage. (Evangelista vs. Abad, supra). It should be
noted, however, that the principle is predicated on statements by the owner
declaring his house to be a chattel, a conduct that may conceivably estop him from
subsequent claiming otherwise (Ladera, et al. vs. C.W. Hodges, et al., [CA]; 48 Off.
Gaz., 5374). The doctrine, therefore, gathered from these cases is that although in
some instances, a house of mixed materials has been considered as a chattel
between the parties and that the validity of the contract between them, has been
recognized, it has been a constant criterion nevertheless that, with respect to third
persons, who are not parties to the contract, and specially in execution proceedings,
the house is considered as an immovable property (Art. 1431, New Civil Code).
In the case at bar, the house in question was treated as personal or movable
property, by the parties to the contract themselves. In the deed of chattel mortgage,
appellant Rufino G. Pineda conveyed by way of "Chattel Mortgage" "my personal
properties", a residential house and a truck. The mortgagor himself grouped the
house with the truck, which is, inherently a movable property. The house which was
not even declared for taxation purposes was small and made of light construction
materials: G.I. sheets roofing, sawali and wooden walls and wooden posts; built on
land belonging to another.
The cases cited by appellants are not applicable to the present case. The Iya cases,
103 Phil., 972 supra), refer to a building or a house of strong materials, permanently
adhered to the land, belonging to the owner of the house himself. In the case of
Lopez vs. Orosa, (103 Phil., 98), the subject building was a theatre, built of materials
worth more than P62 000.00 attached permanently to the soil. In these two cases
and in the Leung Yee Case, supra, third persons assailed the validity of the deed of
chattel mortgages; in the present case, it was one of the parties to the contract of
mortgages who assailed its validity.
Conformably with all the foregoing, the decision appealed from, should be, as it is
hereby affirmed, with costs against appellants.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Barrera, Dizon,
Regala, and Makalintal, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-32030 July 2, 1930
SOFIA LAVARRO, ET AL., plaintiffs-appellants,
vs.
REGINA LABITORIA, ET AL., defendants-appellants.
M. H. de Joya and Enrique Tiangco for plaintiffs-appellants.
Mariano Escueta for defendants-appellants.
OSTRAND, J.:
Anastacio Labitoria, who died over thirty years ago, was the original owner of a tract
of land divided into three parcels and situated in the barrio of Mangilag, municipality
of Candelaria, Province of Tayabas. He left four children, Francisco, Liberata, Tirso,
and Eustacio Labitoria. Francisco acquired the shares of Tirso and Eustacio together
with the greater part of that of Liberata, and thus became the owner of nearly all of
the land. After his death, his children, Macario and Regina Labitoria, became the
owners of his interest in the land.
Sofia Lavarro is the daughter of Liberata Labitoria, and in or about the year 1897,
her first husband, Crispulo Alcantara, borrowed P330 from Francisco Labitoria on
the condition that Alcantara should plant 3,300 coconut palms on the land to be
divided in equal shares between the parties, the loan to be paid back by turning
over to the creditor 330 coconut palms out of the share of Alcantara and Sofia.
Under this agreement, about 1,700 palms were planted by Alcantara, but later on,
further plantings were made by his wife, Sofia Lavarro.
In July, 1916, the land was registered in the names of Macario Labitoria, Regina
Labitoria, Bernardo Labitoria, Vidal Labitoria, Ariston Lavarro, Sofia Lavarro, and
Isidro Lavaris. Nothing seems to have been said about the improvements on the
land and no special mention of them appears in the certificate of title. Neither were
the respective shares of the persons to whom the land was adjudicated definitely
determined.
On October 31, 1916, Macario, Regina, and Bernardo Labitoria and Ariston Lavarro
brought an action against Sofia Lavarro and her then husband, Emeterio Pureza, for
the partition of the land with its improvements. The action is civil case No. 351 of
the Court of First Instance of Tayabas. In her answer in that case, Sofia Lavarro set
up a cross-complaint alleging, among other things, that she was a coowner of the
land and was entitled to a large proportion of the coconut palms thereon. The
prayer of the cross-complaint reads as follows:
Wherefore, by this cross-complaint Sofia Lavarro and Emeterio Pureza,
through their undersigned attorney, pray the court to decree the partition
of the three parcels of land described above, with all the improvements
thereon, allotting to Sofia Lavarro and Emeterio Pureza their rightful
portion, and ordering Macario Labitoria to render the proper accounts,
and to deliver to his coheirs their proportionate part of the fruits and
products of said lands, with costs against the cross-complaint defendants.
(Emphasis supplied.)
Upon trial partition was ordered, and Sofia Lavarro was awarded 520 coconut trees
and 43,391 square meters of land. She thereupon appealed to the Supreme Court,
and a decision was rendered by that court on March 24, 1927,1 in which it was held
that Sofia Lavarro was entitled to 1/28 of the land. In all the respects, the decision of
the Court of First Instances was affirmed. The partition seems to have been carried
out in conformity with the decision of the Supreme Court, and Sofia was awarded 6
hectares, 88 ares, and 77 centiares of land, together with 850 coconut palms instead
of 520.
The present action was initiated by Sofia Lavarro and her daughters, Apolonia and
Isabel Alcantara, on August 15, 1927, against Regina Labitoria and Marciano
Labitoria, the latter as administrator of the estate of the deceased Macario
Labitoria. In their amended complaint, the plaintiffs allege that on or about the year
1897, Sofia Lavarro and her husband, Crispulo Alcantara, planted 2,850 coconut
palms on the land above-mentioned, of which 1,970 trees were actually alive and
bearing fruit; that after the death of Crispulo Alcantara in the year 1910, Sofia
Lavarro, being then a widow, planted 2,200 coconut palms on the same tract of
land, 2,000 palms being still in existence and the greater part of them bearing fruit;
that from the year 1897, the plaintiffs had been in possession of the above-
mentioned plantings and had collected the fruits, but that the defendants were now
endeavoring to take possession of said coconut palms; and that each coconut palm
was worth P12. The plaintiffs therefore prayed that unless the defendants paid to
the plaintiffs the sum of P47,640, the value of the 3,970 palms planted, it be
ordered that said plaintiffs be allowed to continue in possession of said coconut
palms in accordance with the law.
In their answer to the complaint, the defendants set up as special defenses res
judicata and prescription.
Upon trial, the court below, basing its decision on the case of Bautista vs. Jimenez
(24 Phil., 111), and article 361 of the Civil Code, ordered the defendants to pay the
plaintiffs the sum of P4,820 for 1,205 coconut palms or to require the plaintiffs to
purchase the land, the plaintiffs to retain the coconut palms until the aforesaid sum
was paid. From this judgment both the plaintiffs and defendants appealed.
It is very obvious that the court below erred in rendering judgment in favor of the
plaintiffs. This is an action for compensation for improvements alleged to have been
made by the plaintiffs on the land awarded to the defendants and is brought
notwithstanding the fact that the question of improvements was put in issue in case
No. 351 and that the portion of land due Sofia Lavarro, and the improvements as
well, were determined and adjudicated by the court in that case. Her rights in regard
to the improvements are consequently res judicata.
But it is intimated that, while in the earlier case the issues related to the ownership
of the improvements, the issue here is only a question of money payment and that
therefore the causes of action are different. Assuming, without conceding, that such
is the case, the result would be the same. The issues in both cases arose from the
same source or transactions and should have been determined in the same case
(sec. 97, Code of Civil Procedure). A judgment upon the merits bars a subsequent
suit upon the same cause, though brought in a different form of action. (White vs.
Martin, 1 Port. [Ala.], 215.) "The principle is firmly established that a party will not
be permitted to split up a single cause of action and make it the basis for several
suits. If several suits be brought for different parts of such a claim, the pendency of
the first may be pleaded in abatement of the others, and a recovery of any part of
the cause of action will be a bar to an action brought upon the other part. Not only
is it a bar to suit, but the plaintiff in the former action cannot subsequently avail
himself of the residue by way of offset in an action against him by the opposite
party." (15 R. C. L., 965) In passing, it may be noted that a close examination of the
facts in the case of Bautista vs. Jimenez (24 Phil., 111), will show that it differs
materially from the present case; the case of Berses vs. Villanueva (25 Phil., 473), is
more in point.
As to the other plaintiffs, Apolonia and Isabel Alcantara, it is sufficient to say that if
they had any claim to the property or improvements, such claims should have been
presented in the registration proceedings in 1916; trees and plants annexed to the
land are parts thereof and unless rights or interests in such trees or plants are
claimed in the registration proceedings by others, they become the property of the
persons to whom the land is adjudicated. By timely proceedings in equity, matters of
that character, if fraudulent, may sometimes be corrected, but in the present case,
the plaintiffs Apolonia and Isabel Alcantara did not prosecute their alleged rights
until eleven years after the registration of the property, and it is obvious that
whatever rights they may have had are now lost by prescription.
The judgment of the court below is therefore reversed, and the case is dismissed
with the costs in both instances against the plaintiffs, jointly and severally. So
ordered.
Malcolm, Villamor, Johns, Romualdez, and Villa-Real, JJ., concur.
Footnotes
1G.R. No. 25385 Labitoria vs. Lavarro, not reported.
LOPEZ V. OROSA AND PLAZA THEATRE
103 SCRA 98
FACTS:
1. Lopez was engaged in business under the name Lopez-Castelo Sawmill.
2. Orosa, who lived in the same province as Lopez, one dayapproached Lopez and
invited the latter to make an investment inthe theatre business.
3. Orosa, his family and close friends apparently were forming acorporation named
Plaza Theatre.
4. Lopez expressed his unwillingness to invest. Nonetheless, therewas an oral
agreement between Lopez and Orosa that Lopezwould be supplying the lumber for
the construction of the theatre.The terms were the following: one, Orosa would be
personallyliable for any account that the said construction would incur;
two,payment would be by demand and not by cash on delivery.
5. Pursuant to the agreement, Lopez delivered the lumber for theconstruction.
Lopez was only paid one-third of the total cost.
6. The land on which the building has been erected was previously owned by Orosa,
which was later on purchased by the corporation.
7. Due to the incessant demands of Lopez, the corporation mortgaged its properties.
8. On an earlier relevant date, the corporation obtained a loan with Luzon Surety
Company as surety and in turn, the corporation executed a mortgage over the land
and building. In the registration of the land under Act 496, such mortgage wasn’t
revealed.
9. Also due to the demands of Lopez, Orosa issued a deed of assignment over his
shares of stock in the corporation.
10. As there was still an unpaid balance, Lopez filed a case against Orosa and Plaza
theatre. He asked that Orosa and Plaza theatre be held liable solidarily for the
unpaid balance; and in case defendants failed to pay, the land and building should
be sold in public auction with the proceeds to be applied to the balance; or
that the shares of stock be sold in public auction. Lopez also had lis pendens be
annotated in the OCT.
11. The trial court decided that there was joint liability between defendants and that
the materialman’s lien was only confined tothe building.
ISSUES:
W/N the materialmen’s lien for the value of the materials used in the construction
of the building attaches to said structure alone and doesn’t extend to the land on
which the building is adhered to?
HELD:
The contention that the lien executed in favor of the furnisher of materials used for
the construction and repair of a building is also extended to land on which the
building was constructed is without merit. For 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 in the enumeration of what may constitute real properties
could only mean one thing—that a building is by itself an immovable property.
Moreover, in the absence of
any specific provision to the contrary, a building is an immovable property
irrespective of whether or not said structure and the land on which it is adhered to
belong to the same owner.
Appelant invoked Article 1923 of the Spanish Civil Code, which provides—“With
respect to determinate real property and real rights of the debtor, the following are
preferred: xxx Credits for reflection, not entered or recorded, and only with respect
to other credits different from those mentioned in four next preceding paragraphs.”
Close examination of the abovementioned provision reveals that the law gives
preference to unregistered refectionary credits only with respect to the real estate
upon which the refectionary or work was made. This being so, the inevitable
conclusion must be that the lien so created attaches merely to the immovable
property for the construction or repair of which the obligation was incurred.
Therefore, the lien in favor of appellant for the unpaid value of the lumber used in
the construction of the building attaches only to said structure and to no other
property of the obligors.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-10817-18 February 28, 1958
ENRIQUE LOPEZ, petitioner,
vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.
Nicolas Belmonte and Benjamin T. de Peralta for petitioner.
Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B.
Macatangay for respondent Plaza Theatre, Inc.
FELIX, J.:
Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade
name of Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a
resident of the same province, dropped at Lopez' house and invited him to make an
investment in the theatre business. It was intimated that Orosa, his family and close
friends were organizing a corporation to be known as Plaza Theatre, Inc., that would
engage in such venture. Although Lopez expressed his unwillingness to invest of the
same, he agreed to supply the lumber necessary for the construction of the
proposed theatre, and at Orosa's behest and assurance that the latter would be
personally liable for any account that the said construction might incur, Lopez
further agreed that payment therefor would be on demand and not cash on delivery
basis. Pursuant to said verbal agreement, Lopez delivered the lumber which was
used for the construction of the Plaza Theatre on May 17, 1946, up to December 4
of the same year. But of the total cost of the materials amounting to P62,255.85,
Lopez was paid only P20,848.50, thus leaving a balance of P41,771.35.
We may state at this juncture that the Plaza Theatre was erected on a piece of land
with an area of 679.17 square meters formerly owned by Vicente Orosa, Jr., and was
acquired by the corporation on September 25, 1946, for P6,000. As Lopez was
pressing Orosa for payment of the remaining unpaid obligation, the latter and
Belarmino Rustia, the president of the corporation, promised to obtain a bank loan
by mortgaging the properties of the Plaza Theatre., out of which said amount of
P41,771.35 would be satisfied, to which assurance Lopez had to accede. Unknown
to him, however, as early as November, 1946, the corporation already got a loan for
P30,000 from the Philippine National Bank with the Luzon Surety Company as
surety, and the corporation in turn executed a mortgage on the land and building in
favor of said company as counter-security. As the land at that time was not yet
brought under the operation of the Torrens System, the mortgage on the same was
registered on November 16, 1946, under Act No. 3344. Subsequently, when the
corporation applied for the registration of the land under Act 496, such mortgage
was not revealed and thus Original Certificate of Title No. O-391 was
correspondingly issued on October 25, 1947, without any encumbrance appearing
thereon.
Persistent demand from Lopez for the payment of the amount due him caused
Vicente Orosa, Jr. to execute on March 17, 1947, an alleged "deed of assignment" of
his 420 shares of stock of the Plaza Theater, Inc., at P100 per share or with a total
value of P42,000 in favor of the creditor, and as the obligation still remained
unsettled, Lopez filed on November 12, 1947, a complaint with the Court of First
Instance of Batangas (Civil Case No. 4501 which later became R-57) against Vicente
Orosa, Jr. and Plaza Theater, Inc., praying that defendants be sentenced to pay him
jointly and severally the sum of P41,771.35, with legal interest from the firing of the
action; that in case defendants fail to pay the same, that the building and the land
covered by OCT No. O-391 owned by the corporation be sold at public auction and
the proceeds thereof be applied to said indebtedness; or that the 420 shares of the
capital stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff
be sold at public auction for the same purpose; and for such other remedies as may
be warranted by the circumstances. Plaintiff also caused the annotation of a notice
of lis pendens on said properties with the Register of Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the
first denying that the materials were delivered to him as a promoter and later
treasurer of the corporation, because he had purchased and received the same on
his personal account; that the land on which the movie house was constructed was
not charged with a lien to secure the payment of the aforementioned unpaid
obligation; and that the 420 shares of stock of the Plaza Theatre, Inc., was not
assigned to plaintiff as collaterals but as direct security for the payment of his
indebtedness. As special defense, this defendant contended that as the 420 shares
of stock assigned and conveyed by the assignor and accepted by Lopez as direct
security for the payment of the amount of P41,771.35 were personal properties,
plaintiff was barred from recovering any deficiency if the proceeds of the sale
thereof at public auction would not be sufficient to cover and satisfy the obligation.
It was thus prayed that he be declared exempted from the payment of any
deficiency in case the proceeds from the sale of said personal properties would not
be enough to cover the amount sought to be collected.
Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of
defense by alleging that the building materials delivered to Orosa were on the
latter's personal account; and that there was no understanding that said materials
would be paid jointly and severally by Orosa and the corporation, nor was a lien
charged on the properties of the latter to secure payment of the same obligation. As
special defense, defendant corporation averred that while it was true that the
materials purchased by Orosa were sold by the latter to the corporation, such
transactions were in good faith and for valuable consideration thus when plaintiff
failed to claim said materials within 30 days from the time of removal thereof from
Orosa, lumber became a different and distinct specie and plaintiff lost whatever
rights he might have in the same and consequently had no recourse against the
Plaza Theatre, Inc., that the claim could not have been refectionary credit, for such
kind of obligation referred to an indebtedness incurred in the repair or
reconstruction of something already existing and this concept did not include an
entirely new work; and that the Plaza Theatre, Inc., having been incorporated on
October 14, 1946, it could not have contracted any obligation prior to said date. It
was, therefore, prayed that the complaint be dismissed; that said defendant be
awarded the sum P 5,000 for damages, and such other relief as may be just and
proper in the premises.
The surety company, in the meantime, upon discovery that the land was already
registered under the Torrens System and that there was a notice of lis
pendens thereon, filed on August 17, 1948, or within the 1-year period after the
issuance of the certificate of title, a petition for review of the decree of the land
registration court dated October 18, 1947, which was made the basis of OCT No. O-
319, in order to annotate the rights and interests of the surety company over said
properties (Land Registration Case No. 17 GLRO Rec. No. 296). Opposition thereto
was offered by Enrique Lopez, asserting that the amount demanded by him
constituted a preferred lien over the properties of the obligors; that the surety
company was guilty of negligence when it failed to present an opposition to the
application for registration of the property; and that if any violation of the rights and
interest of said surety would ever be made, same must be subject to the lien in his
favor.
The two cases were heard jointly and in a decision dated October 30, 1952, the
lower Court, after making an exhaustive and detailed analysis of the respective
stands of the parties and the evidence adduced at the trial, held that defendants
Vicente Orosa, Jr., and the Plaza Theatre, Inc., were jointly liable for the unpaid
balance of the cost of lumber used in the construction of the building and the
plaintiff thus acquired the materialman's lien over the same. In making the
pronouncement that the lien was merely confined to the building and did not
extend to the land on which the construction was made, the trial judge took into
consideration the fact that when plaintiff started the delivery of lumber in May,
1946, the land was not yet owned by the corporation; that the mortgage in favor of
Luzon Surety Company was previously registered under Act No. 3344; that the codal
provision (Art. 1923 of the old Spanish Civil Code) specifying that refection credits
are preferred could refer only to buildings which are also classified as real
properties, upon which said refection was made. It was, however, declared that
plaintiff's lien on the building was superior to the right of the surety company. And
finding that the Plaza Theatre, Inc., had no objection to the review of the decree
issued in its favor by the land registration court and the inclusion in the title of the
encumbrance in favor of the surety company, the court a quo granted the petition
filed by the latter company. Defendants Orosa and the Plaza Theatre, Inc., were thus
required to pay jointly the amount of P41,771.35 with legal interest and costs within
90 days from notice of said decision; that in case of default, the 420 shares of stock
assigned by Orosa to plaintiff be sold at public auction and the proceeds thereof be
applied to the payment of the amount due the plaintiff, plus interest and costs; and
that the encumbrance in favor of the surety company be endorsed at the back of
OCT No. O-391, with notation I that with respect to the building, said mortgage was
subject to the materialman's lien in favor of Enrique Lopez.
Plaintiff tried to secure a modification of the decision in so far as it declared that the
obligation of therein defendants was joint instead of solidary, and that the lien did
not extend to the land, but same was denied by order the court of December 23,
1952. The matter was thus appealed to the Court of appeals, which affirmed the
lower court's ruling, and then to this Tribunal. In this instance, plaintiff-appellant
raises 2 issues: (1) whether a materialman's lien for the value of the materials used
in the construction of a building attaches to said structure alone and does not
extend to the land on which the building is adhered to; and (2) whether the lower
court and the Court of Appeals erred in not providing that the material mans liens is
superior to the mortgage executed in favor surety company not only on the building
but also on the land.
It is to be noted in this appeal that Enrique Lopez has not raised any question
against the part of the decision sentencing defendants Orosa and Plaza Theatre, Inc.,
to pay jointly the sum of P41,771.35, so We will not take up or consider anything on
that point. Appellant, however, contends that the lien created in favor of the
furnisher of the materials used for the construction, repair or refection of a building,
is also extended to the land which the construction was made, and in support
thereof he relies on Article 1923 of the Spanish Civil Code, pertinent law on the
matter, which reads as follows:
ART. 1923. With respect to determinate real property and real rights of
the debtor, the following are preferred:
xxx xxx xxx
5. Credits for refection, not entered or recorded, with respect to the estate
upon which the refection was made, and only with respect to other credits
different from those mentioned in four preceding paragraphs.
It is argued that in view of the employment of the phrase real estate, or immovable
property, and inasmuch as said provision does not contain any specification
delimiting the lien to the building, said article must be construed as to embrace both
the land and the building or structure adhering thereto. We cannot subscribe to this
view, for 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 of what may constitute real
properties1 could mean only one thing — that a building is by itself an immovable
property, a doctrine already pronounced by this Court in the case of Leung Yee vs.
Strong Machinery Co., 37 Phil., 644. Moreover, and in view of the absence of any
specific provision of law to the contrary, a building is an immovable property,
irrespective of whether or not said structure and the land on which it is adhered to
belong to the same owner.
A close examination of the provision of the Civil Code invoked by appellant reveals
that the law gives preference to unregistered refectionary credits only with respect
to the real estate upon which the refection or work was made. This being so, the
inevitable conclusion must be that the lien so created attaches merely to the
immovable property for the construction or repair of which the obligation was
incurred. Evidently, therefore, the lien in favor of appellant for the unpaid value of
the lumber used in the construction of the building attaches only to said structure
and to no other property of the obligors.
Considering the conclusion thus arrived at, i.e., that the materialman's lien could be
charged only to the building for which the credit was made or which received the
benefit of refection, the lower court was right in, holding at the interest of the
mortgagee over the land is superior and cannot be made subject to the said
materialman's lien.
Wherefore, and on the strength of the foregoing considerations, the decision
appealed from is hereby affirmed, with costs against appellant. It is so ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador,
Concepcion, Reyes, J.B.L. and Endencia, JJ., concur.
Footnotes
1Article 415 of the new Civil Code (Art. 334 of the old) enumerates what
are considered immovable property, among which are land, buildings,
roads and constructions of all kinds adhered to the soil.
MAKATI LEASING AND FINANCE CORP. V. WEAREVER TEXTILE MILLS, INC.
Parties to a contract may by agreement treat as personal property that which by
nature is a real property, as long as no interest of 3rd party would be prejudiced.
FACTS:
To obtain financial accommodations from Makati Leasing, Wearever Textile
discounted and assigned several receivables under a Receivable Purchase
Agreement with Makati Leasing. To secure the collection of receivables, it executed
a chattel mortgage over several raw materials and a machinery – Artos Aero Dryer
Stentering Range (Dryer).
Wearever defaulted thus the properties mortgaged were extrajudicially foreclosed.
The sheriff, after the restraining order was lifted, was able to enter the premises of
Wearever and removed the drive motor of the Dryer. The CA reversed the order of
the CFI, ordering the return of the drive motor since it cannot be the subject of a
replevin suit being an immovable bolted to the ground. Thus the case at bar.
ISSUE:
Whether the dryer is an immovable property
HELD: NO
The SC relied on its ruling in Tumalad v. Vicencio, that if a house of strong materials
can be the subject of a Chattel Mortgage as long as the parties to the contract agree
and no innocent 3rd party will be prejudiced then moreso that a machinery may
treated as a movable since it is movable by nature and becomes immobilized only by
destination. And treating it as a chattel by way of a Chattel Mortgage, Wearever is
estopped from claiming otherwise.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-
12731, setting aside certain Orders later specified herein, of Judge Ricardo J.
Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI, issued
in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the
said appellate court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner
Makati Leasing and Finance Corporation, the private respondent Wearever Textile
Mills, Inc., discounted and assigned several receivables with the former under a
Receivable Purchase Agreement. To secure the collection of the receivables
assigned, private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero Dryer
Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial
foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned
to implement the foreclosure failed to gain entry into private respondent's premises
and was not able to effect the seizure of the aforedescribed machinery. Petitioner
thereafter filed a complaint for judicial foreclosure with the Court of First Instance of
Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of
seizure, the enforcement of which was however subsequently restrained upon
private respondent's filing of a motion for reconsideration. After several incidents,
the lower court finally issued on February 11, 1981, an order lifting the restraining
order for the enforcement of the writ of seizure and an order to break open the
premises of private respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of
private respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by
herein private respondent, set aside the Orders of the lower court and ordered the
return of the drive motor seized by the sheriff pursuant to said Orders, after ruling
that the machinery in suit cannot be the subject of replevin, much less of a chattel
mortgage, 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 respondent's plant would be to drill out or destroy the concrete
floor, the reason why all that the sheriff could do to enfore the writ was to take the
main drive motor of said machinery. The appellate court rejected petitioner's
argument that private respondent is estopped from claiming that the machine is
real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been
denied, petitioner has brought the case to this Court for review by writ of certiorari.
It is contended by private respondent, however, that the instant petition was
rendered moot and academic by petitioner's act of returning the subject motor
drive of respondent's machinery after the Court of Appeals' decision was
promulgated.
The contention of private respondent is without merit. When petitioner returned
the subject motor drive, it made itself unequivocably clear that said action was
without prejudice to a motion for reconsideration of the Court of Appeals decision,
as shown by the receipt duly signed by respondent's representative. 1 Considering
that petitioner has reserved its right to question the propriety of the Court of
Appeals' decision, the contention of private respondent that this petition has been
mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is whether the
machinery in suit is real or personal property from the point of view of the parties,
with petitioner arguing that it is a personality, while the respondent claiming the
contrary, and was sustained by the appellate court, which accordingly held that the
chattel mortgage constituted thereon is null and void, as contended by said
respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where
this Court, speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring
a property by way of chattel mortgage defendants-appellants
could only have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they should
not now be allowed to make an inconsistent stand by claiming
otherwise. Moreover, the subject house stood on a rented lot to
which defendants-appellants merely had a temporary right as
lessee, and although this can not in itself alone determine the
status of the property, it does so when combined with other
factors to sustain the interpretation that the parties, particularly
the mortgagors, intended to treat the house as personality.
Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza
Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the
chattel mortgage, it is the defendants-appellants themselves, as
debtors-mortgagors, who are attacking the validity of the chattel
mortgage in this case. The doctrine of estoppel therefore applies
to the herein defendants-appellants, having treated the subject
house as personality.
Examining the records of the instant case, We find no logical justification to exclude
the rule out, as the appellate court did, the present case from the application of the
abovequoted 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.
Private respondent contends that estoppel cannot apply against it because it had
never represented nor agreed that the machinery in suit be considered as personal
property but was merely required and dictated on by herein petitioner to sign a
printed form of chattel mortgage which was in a blank form at the time of signing.
This contention lacks persuasiveness. As aptly pointed out by petitioner and not
denied by the respondent, 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.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.
Abad Santos, J., concurs in the result.
Footnotes
1 p. 52, Rollo.
BOARD v MERALCO
Article 415 of the Civil Code: Real Property
Facts:
Meralco constructed 40 steel towers within Quezon City, which carry electric
transmission wires attached to insulators from its hydro-electric plant located in the
province of Laguna to the City of Manila.
The City Assessor of Quezon City declared Meralco's steel towers for real property
tax.
Issue:
Whether or not Meralco's steel towers are considered real properties so that they
can be subject to real property tax.
Held:
No, Meralco's steel towers are not considered real properties that can be subject to
real property tax.
Article 415 of the Civil Code states the following are immovable properties:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
(3) Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of
the object;
(5) Machinery, receptacles, instruments or implements intended by the owner of
the tenement for an industry or works, which may be carried in a building or on a
piece of land, and which tends directly to meet the needs of the said industry or
works;
The steel towers do not come within the objects mentioned in above paragraphs.
They are not construction analogous to buildings nor adhering to the soil. 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 are also 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.

They are not machinery, receptacles, instruments or implements intended for
industry or works on the land. Meralco is not engaged in an industry or works on
the land in which the steel towers are constructed.
The decision of the Court of Tax Appeals, which ordered the cancellation of the tax
declarations, were affirmed by the Supreme Court.
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

Board of Assessment Appeals v. MERALCO [G.R. No. L-15334. January 31, 1964.] 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
Facts: On 20 October 1902, the Philippine Commission enacted Act 484 which of these steel towers or supports consists of steel bars or metal strips, joined
authorized the Municipal Board of Manila to grant a franchise to construct, maintain together by means of bolts, which can be disassembled by unscrewing the bolts and
and operate an electric street railway and electric light, heat and power system in reassembled by screwing the same.
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 These steel towers or supports do not also fall under paragraph 5, for they are not
terms and conditions of which were embodied in Ordinance 44 approved on 24 machineries or receptacles, instruments or implements, and even if they were, they
March 1903. Meralco became the transferee and owner of the franchise. Meralco’s are not intended for industry or works on the land.
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 Petitioner is not engaged in an industry or works on the land in which the steel
wires, running from the province of Laguna to the said City. These electric supports or towers are constructed.
transmission wires which carry high voltage current, are fastened to insulators
attached on steel towers constructed by respondent at intervals, from its The Supreme Court affirmed the decision appealed from, with costs against the
hydroelectric plant in the province of Laguna to the City of Manila. Meralco has petitioners.
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 (taken from Berne Guerrero, Haystacks)
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.