1

TUMALAD vs. VICENCIO,

G.R. No. L-30173, September 30, 1971
TUMALAD V. VICENCIO
41 SCRA 143
FACTS:
Vicencio and Simeon executed a chattel mortgage in favor of plaintiffs Tumalad over
their house, which was being rented by Madrigal and company. This was executed
to guarantee a loan, payable in one year with a 12% per annum interest.
The mortgage was extrajudicially foreclosed upon failure to pay the loan. The house
was sold at a public auction and the plaintiffs were the highest bidder. A
corresponding certificate of sale was issued. Thereafter, the plaintiffs filed an action
for ejectment against the defendants, praying that the latter vacate the house as
they were the proper owners.
ISSUE:
W/N the chattel mortgage was null and void ab initio because only personal
properties can be subject of a chattel mortgage.
HELD:
Certain deviations have been allowed from the general doctrine that buildings are
immovable property such as when through stipulation, parties may agree to treat as
personal property those by their nature would be real property. This is partly based
on the principle of estoppel wherein the principle is predicated on statements by the
owner declaring his house as chattel, a conduct that may conceivably stop him from
subsequently claiming otherwise.
In the case at bar, though there be no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a property through
chattel mortgage could only have meant that defendant conveys 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.

Leung Yee vs Strong Machinery Co

FACTS
The Compania Agricola Filipina (CAF) purchased from Strong Machinery Co. rice
cleaning machines which CAF installed in one of its buildings.
As security for the purchase price, CAF executed a chattel mortgage on the
machines and the building on which they had been installed.

2
When CEF failed to pay, the registered mortgage was foreclosed and Strong
Machinery Co. purchased the building. This sale was annotated in the Chattel
Mortgage Registry.
Later, Strong Machinery Co. also purchased from Agricola the lot on which the
building was constructed. The sale wasn't registered in the Registry of Property BUT
Strong Machinery Co. took possession of the building and the lot.
However, the same building had been previously purchased by Leung Yee, a creditor
of Agricola, at a sheriff's sale despite his knowledge of the prior sale in favor of
Strong Machinery Co.. The sale to Leung Yee was registered in the Registry of
Property.
ISSUES
1. Was the property's nature changed by its registration in the Chattel Mortgage
Registry?
2. Who has a better right to the property?
HELD
1. Where the interest conveyed is of the nature of real property, the placing of the
document on record in the Chattel Mortgage Registry is a futile act.
Chattel Mortgage refers to the mortgage of Personal Property executed in the
manner and form prescribed in the statute.
Since the building is REAL PROPERTY, its sale as annotated in the Chattel Mortgage
Registry cannot be given the legal effect of registration in the Registry of Real
Property.
The mere fact that the parties decided to deal with the building as personal
property does not change its character as real property.
Neither the original registry in the chattel mortgage registry, nor the annotation in
said registry of the sale of the mortgaged property had any effect on the building.
Art. 1473 of the New Civil Code provides the following rules on determining
ownership of property which has been sold to different vendees:
If Personal Property grant ownership to person who 1st possessed it in good faith
If Real Property grant ownership to person who 1st recorded it in the Registry
If no entry grant to person who 1st possessed in good faith
If no proof of possession grant to person who presents oldest title
Since Leung Yee purchased the property despite knowledge of the previous
purchase of the same by Strong Machinery Co., it follows that Leung Yee was not a
purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of title in his
vendor cannot claim that he has acquired title thereto in good faith as against the

3
true owner of the land or of an interest therein. The same rule must be applied to
one who has knowledge of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of
his vendor.
Good Faith, or the want of it, is a state or condition of mind which can only be
judged of by actual or fancied tokens or signs. (Wilder vs. Gilman, 55Vt., 504, 505;
Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs.
Bromley, 119Mich., 8, 10, 17.)
Honesty Of Intention is the honest lawful intent constituting good faith. It implies a
freedom from knowledge and circumstances which ought to put a person on inquiry.
As such, proof of such knowledge overcomes the presumption of good faith.
Following the rule on possessory rights provided in Art. 1473, Strong Machinery Co.
has a better right to the property since it first purchased the same ahead of Leung
Yee, the latter not being a purchaser in good faith.

Yap vs. Taada

Julian S. Yap vs. Hon. Santiago O. Taada and
Goulds Pumps International (Phil), Inc.,
G.R. No. L-32917, July 18, 1988
Narvasa, J.
Doctrine: Article 415, par. 3 of the Civil Code considers and immovable property as
everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deteriorating the
object. The pump does not fit this description. It could be, and was, in
fact,separated from Yaps premises without being broken of suffering deterioration.
Obviously, the separation or removal of the pump involved nothing more
complicated that the loosening of bolts or dismantling of other fasteners.
Facts: The case began in the City Court of Cebu with the filing of Goulds Pumps
International (Phil), Inc. of a complaint against Yap and his wife seeking recovery of
P1,459.30, representing the balance of the price and installation cost of a water
pump in the latters premises. The Court rendered judgment in favor of herein
respondent after they presented evidence ex-parte due to failure of petitioner Yap to
appear before the Court.
Petitioner then appealed to the CFI, particularly to the sale of Judge Tanada. For
again failure to appear for pre-trial, Yap was declared in default. He filed for a
motion for reconsideration which was denied by Judge Tanada. On October 15,
1969, Tanada granted Goulds Motion for Issuance of Writ of Execution. Yap forthwith
filed an Urgent Motion for Reconsideration of the said Order.
In the meantime, the Sheriff levied on the water pump in question and by notice
scheduled the execution sale thereof. But in view of the pendency of Yaps motion,
suspension of sale was directed by Judge Tanada. It appears, however, that this was

4
not made known to the Sheriff whocontinued with the auction sale and sold the
property to the highest bidder, Goulds.
Because of such, petitioner filed a Motion to Set Aside Execution Sale and to Quash
Alias Writ of Execution. One of his arguments was that the sale was made without
the notice required by Sec. 18, Rule 29 of the New Rules of Court, i.e. notice by
publication in case of execution of sale of real property, the pump and its
accessories being immovable because attached to the ground with the character of
permanency. Such motion was denied by the CFI.
Issue: Whether or not the pump and its accessories are immovable property
Held: No. The water pump and its accessories are NOT immovable properties. The
argument of Yap that the water pump had become immovable property by its being
installed in his residence is untenable. Article 415, par. 3 of the Civil Code considers
and immovable property as everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated therefrom without breaking the
material or deteriorating the object. The pump does not fit this description. It could
be, and was, in fact,separated from Yaps premises without being broken of suffering
deterioration. Obviously, the separation or removal of the pump involved nothing
more complicated that the loosening of bolts or dismantling of other fasteners.

STANDARD OIL COMPANY V JARAMILLO

The Power of the Registry of Deeds is Ministerial, and The absolute criterion to
determine between real and personal property is NOT supplied by the civil code.
Parties may agree what to treat as personal property and what to treat as real
property.
FACTS
On November 27, 1922, Gervasia de la Rosa was the lessee of a parcel of land
situated in the City of Manila and owner of the house of really tough materials built
thereon. She executed that fine day a document in the form of a chattel mortgage,
purporting to convey to Standard Oil Company of New York (by way of mortgage)
both the leasehold interest in said lot and the building.
After said document had been duly acknowledged and delivered, Standard Oil
presented it to Joaquin Jaramillo, as register of deeds of the City of Manila, for the
purpose of having the same recorded in the book of record of chattel mortgages.
Upon examination of the instrument, Jaramillo opined that it was not chattel
mortgage, for the reason that the interest therein mortgaged did not appear to be
personal property, within the meaning of the Chattel Mortgage Law, and registration
was refused on this ground only.
Later this confusion was brought to the Supreme Court upon demurrer by Joaquin
Jaramillo, register of deeds of the City of Manila, to an original petition of the
Standard Oil Company of New York, demanding a mandamus to compel the

5
respondent to record in the proper register a document purporting to be a chattel
mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. de Vera, in
favor of the Standard Oil Company of New York.
The Supreme Court overruled the demurrer, and ordered that unless Jaramillo
interposes a sufficient answer to the petition for mandamus by Standard Oil within 5
days of notification, the writ would be issued as prayed, but without costs.
ISSUE:
w/n the Registry of Deeds can determine the nature of property to be registered.
w/n the Registry of Deeds has powers beyond Ministerial discretion.
RESOLUTION:
1.Jaramillo, register of deeds, does not have judicial or quasi-judicial power to
determine nature of document registered as chattel mortgage Section 198 of the
Administrative Code, originally of Section 15 of the Chattel Mortgage Law (Act 1508
as amended by Act 2496), does not confer upon the register of deeds any authority
whatever in respect to the "qualification," as the term is used in Spanish law, of
chattel mortgages. His duties in respect to such instruments are ministerial only.
The efficacy of the act of recording a chattel mortgage consists in the fact that it
operates as constructive notice of the existence of the contract, and the legal
effects of the contract must be discovered in the instrument itself in relation with
the fact of notice.
2.Article 334 and 335 of the Civil Code does not supply absolute criterion on
distinction between real and personal property for purpose of the application of the
Chattel Mortgage Law Article 334 and 335 of the Civil Code supply no absolute
criterion for discriminating between real property and personal property for
purposes of the application of the Chattel Mortgage Law. Those articles state rules
which, considered as a general doctrine, are law in this jurisdiction; but it must not
be forgotten that under given conditions property may have character different from
that imputed to it in said articles. It is undeniable that the parties to a contract may
be agreement treat as personal property that which by nature would be real
property; and it is a familiar phenomenon to see things classed as real property for
purposes of taxation which on general principle might be considered personal
property. Other situations are constantly arising, and from time to time are
presented to the Supreme Court, in which the proper classification of one thing or
another as real or personal property may be said to be doubtful.]

Burgos vs. Chief of Staf

G.R. L-64261. December 26, 1984
Doctrine: A machinery which is movable by nature becomes immobilized when
placed by the owner of the tenement, property or plant, but not so when placed by
a tenant, usufructuary, or any other person having only temporary right, unless
such person acted as the agent of the owner.

6
Facts: Armed with a search warrant issued by the Court of First Instance of Rizal, law
enforcement officers searched the offices of the We forum and Metropolitan Mail
newspapers. During the course of the search, the law enforcement officers seized
office and printing machines, equipment, paraphernalia and several other materials
used in the distribution of newspapers. Petitioner avers, among others, that the
seizure of the properties mentioned above amounts to seizure of real properties,
which cannot be validly conducted under the strength of a search warrant. It must
be noted that real properties are not susceptible of confiscation under a search
warrant. Hence this appeal which assails the validity of the search and the seizure
of the properties of the petitioner.
Issue: Whether there is merit in the petitioners assertion that real property were
invalidly seized under the disputed warrants.
Held: No. The petitioners assertion does not hold water. Under Article 415(5) of the
civil code, machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried on in a
building or on a piece of land and which tend directly to meet the needs of the said
industry or works are considered immovable property. In another case decided by
the Court, in which the abovementioned legal provision was invoked, it was ruled
that machinery which is movable by nature becomes immobilized when placed by
the owner of the tenement, property or plant, but not so when placed by a tenant,
usufructuary, or any other person having only temporary right, unless such person
acted as the agent of the owner. In the case at bar, petitioners do not claim to be
the owners of the land and/or building on which the machineries were placed. This
being the case, the machineries in question, while in fact bolted to the ground
remains movable property susceptible to seizure under a search warrant.

MINDANAO BUS CO. v. CITY ASSESSOR

FACTS: City assessor of Cagayan de Oro assessed at $4,400 petitioners equipment.
Petitioner appealed the assessment saying that it is not a realty. Petitioner is
engaged in transportation business. The machines are sitting on cement and
wooden platforms.
ISSUE: WON it is a real property.
HELD: Movable equipments to be immobilized must first be essential and principal
elements of industry and work without which such industry or works would b unable
to function or carry out its business. In this case, the tools and equipments are not
essential and principal elements of petitioners business of transporting passengers
and cargoes. They are merely incidental. Aside from essentiality, the industry or
work must be carried on in a building or on a piece of land. In this case, the
equipment are destined only to repair and service the transportation business, not
carried on in a building or permanently on a piece of land.

Mindanao Bus Company vs City Assessor

FACTS

7
The City Assessor of Cagayan de Oro City assessed a realty tax on several
equipment and machineries of Mindanao Bus Co. These equipment were placed on
wooden or cement platforms and can be moved around in the bus companys repair
shop. The bus company appealed the assessment to the Board of Tax Appeals on
the ground that the same are not realty. The Board of Tax Appeals of the City,
however, sustained the city assessor. Thus, the bus company appealed to the Court
of Tax Appeals, which likewise sustained the city assessor.
HELD
Art. 415 of the NCC classifies the following as immovable property:
xxx
(5) Machinery, receptacles, instruments or implements intended by the owner pf the
tenement for an industry or works which may be carried on in a building or on a
piece of land, and which tend directly to meet the needs of the said industry or
works;
Note that the stipulation expressly states that the equipment are placed on wooden
or cement platforms. They can be moved around and about in petitioner's repair
shop.
Before movables may be deemed immobilized in contemplation of Article 415 (5), it
is necessary that they must first be essential and principal elements of an
industry or works without which such industry or works would be unable to function
or carry on the industrial purpose for which it was established.
In this case, the tools and equipment in question are by their nature, not essential
and principal elements of Mindanao Bus Co.s business of transporting passengers
and cargoes by motor trucks. They are merely incidentals acquired as movables
and used only for expediency to facilitate and/or improve its service. Even without
such tools and equipments, its business may be carried on.
Aside from the element of essentiality the Art.415 (5) also requires that the industry
or works be carried on in a building or on a piece of land. A sawmill would also be
installed in a building on land more or less permanently, and the sawing is
conducted in the land/building.
However, in the instant case, the equipments in question are destined only to repair
or service the transportation business, which is not carried on in a building or
permanently on a piece of land, as demanded by law. The equipments in question
are not absolutely essential to the petitioner's transportation business, and
petitioner's business is not carried on in a building, tenement or on a specified land.
As such, the equipments in question are not deemed real property because the
transportation business is not carried on in a building or permanently on a piece of
land, as demanded by law.
The transportation business could be carried on without the repair or service shop, if
its rolling equipment is repaired or serviced in another shop belonging to another.

8
Therefore, the imposition of realty tax on the maintenance and repair equipment
was not proper because the properties involved were not real property under Article
415 (5).

Davao Sawmill Co. vs Castillo

A tenant placed machines for use in a sawmill on the landlord's land.
FACTS
Davao Sawmill Co., operated a sawmill. The land upon which the business was
conducted was leased from another person. On the land, Davao Sawmill erected a
building which housed the machinery it used. Some of the machines were mounted
and placed on foundations of cement. In the contract of lease, Davo Sawmill agreed
to turn over free of charge all improvements and buildings erected by it on the
premises with the exception of machineries, which shall remain with the Davao
Sawmill.
In an action brought by the Davao Light and Power Co., judgment was rendered
against Davao Sawmill. A writ of execution was issued and the machineries placed
on the sawmill were levied upon as personalty by the sheriff. Davao Light and Power
Co., proceeded to purchase the machinery and other properties auctioned by the
sheriff.
ISSUE Are the machineries real or personal property?
HELD: Art.415 of the New Civil Code provides that Real Property consists of:
(1) Lands, buildings, roads and constructions of all kinds adhered to the soil;
xx
(5) Machinery, receptacles, instruments or implements intended by the owner pf
the tenement for an industry ot works which may be carried on in a building or on a
piece of land, and which tend directly to meet the needs of the said industry or
works;
Appellant should have registered its protest before or at the time of the sale of the
property. While not conclusive, the appellant's characterization of the property as
chattels is indicative of intention and impresses upon the property the character
determined by the parties.
Machinery is naturally movable. However, machinery may be immobilized by
destination or purpose under the following conditions:
General Rule: The machinery only becomes immobilized if placed in a plant by the
owner of the property or plant.
Immobilization cannot be made by a tenant, a usufructuary, or any person having
only a temporary right.

9
Exception: The tenant, usufructuary, or temporary possessor acted as agent of the
owner of the premises; or he intended to permanently give away the property in
favor of the owner.
As a rule, therefore, the machinery should be considered as Personal Property, since
it was not placed on the land by the owner of the said land.

PEOPLE'S BANK AND TRUST CO. vs. DAHICAN

LUMBER COMPANY
Facts: On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West
Virginia corporation licensed to do business in the Philippines sold and assigned all
its rights in the Dahican Lumber concession to Dahican Lumber Company hereinafter referred to as DALCO - for the total sum of $500,000.00, of which only
the amount of $50,000.00 was paid.
Thereafter, to develop the concession, DALCO obtained various loans from the
People's Bank & Trust Company amounting, as of July 13, 1950, to P200,000.00. In
addition, DALCO obtained, through the BANK, a loan of $250,000.00 from the
Export-Import Bank of Washington D.C., evidenced by five promissory notes of
$50,000.00 each, maturing on different dates, executed by both DALCO and the
Dahican America Lumber Corporation, a foreign corporation and a stockholder of
DALCO,
As security for the payment of the abovementioned loans, on July 13, 1950 DALCO
executed in favor of the BANK a deed of mortgage covering five parcels of land
situated in the province of Camarines Norte together with all the buildings and other
improvements existing thereon and all the personal properties of the mortgagor
located in its place of business in the municipalities of Mambulao and Capalonga,
Camarines Norte.
On the same date, DALCO executed a second mortgage on the same properties in
favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the
lumber concession amounting to the sum of $450,000.00. Both deeds contained a
provision extending the mortgage lien to properties to be subsequently acquired by
the mortgagor.
Both mortgages were registered in the Office of the Register of Deeds of Camarines
Norte. In addition thereto DALCO and DAMCO pledged to the BANK 7,296 shares of
stock of DALCO and 9,286 shares of DAMCO to secure the same obligation.
Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its
maturity, the BANK paid the same to the Export-Import Bank of Washington D.C.,
and the latter assigned to the former its credit and the first mortgage securing it.
Subsequently, the BANK gave DALCO and DAMCO up to April 1, 1953 to pay the
overdue promissory note.c

10
After July 13, 1950 - the date of execution of the mortgages mentioned above DALCO purchased various machineries, equipment, spare parts and supplies in
addition to, or in replacement of some of those already owned and used by it on the
date aforesaid. Pursuant to the provision of the mortgage deeds quoted theretofore
regarding "after acquired properties," the BANK requested DALCO to submit
complete lists of said properties but the latter failed to do so.
In connection with these purchases, there appeared in the books of DALCO as due
to Connell Bros. Company (Philippines) - a domestic corporation who was acting as
the general purchasing agent of DALCO -the sum of P452,860.55 and to DAMCO, the
sum of P2,151,678.34.chan
On December 16, 1952, the Board of Directors of DALCO, in a special meeting called
for the purpose, passed a resolution agreeing to rescind the alleged sales of
equipment, spare parts and supplies by CONNELL and DAMCO to it.
On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded
that said agreements be cancelled but CONNELL and DAMCO refused to do so. As a
result, on February 12, 1953; ATLANTIC and the BANK, commenced foreclosure
proceedings in the Court of First Instance of Camarines Norte against DALCO and
DAMCO.
Upon motion of the parties the Court, on September 30, 1953, issued an order
transferring the venue of the action to the Court of First Instance of Manila.
On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all
the machineries, equipment and supplies of DALCO, and the same were
subsequently sold for a total consideration of P175,000.00 which was deposited in
court pending final determination of the action. By a similar agreement one-half
(P87,500.00) of this amount was considered as representing the proceeds obtained
from the sale of the "undebated properties" (those not claimed by DAMCO and
CONNELL), and the other half as representing those obtained from the sale of the
"after acquired properties".
ISSUE: WON the "after acquired properties" were subject to the deeds of mortgage
mentioned heretofore. Assuming that they are subject thereto,
WON the mortgages are valid and binding on the properties aforesaid inspite of the
fact that they were not registered in accordance with the provisions of the Chattel
Mortgage Law.
HELD: Under the fourth paragraph of both deeds of mortgage, it is crystal clear that
all property of every nature and description taken in exchange or replacement, as
well as all buildings, machineries, fixtures, tools, equipments, and other property
that the mortgagor may acquire, construct, install, attach; or use in, to upon, or in
connection with the premises - that is, its lumber concession - "shall immediately be
and become subject to the lien" of both mortgages in the same manner and to the
same extent as if already included therein at the time of their execution. Such
stipulation is neither unlawful nor immoral, its obvious purpose being to maintain, to

11
the extent allowed by circumstances, the original value of the properties given as
security.
Article 415 does not define real property but enumerates what are considered as
such, among them being machinery, receptacles, instruments or replacements
intended by owner of the tenement for an industry or works which may be carried
on in a building or on a piece of land, and shall tend directly to meet the needs of
the said industry or works. On the strength of the above-quoted legal provisions, the
lower court held that inasmuch as "the chattels were placed in the real properties
mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5 and
Art. 2127 of the New Civil Code". In the present case, the characterization of the
"after acquired properties" as real property was made not only by one but by both
interested parties. There is, therefore, more reason to hold that such consensus
impresses upon the properties the character determined by the parties who must
now be held in estoppel to question it.

Makati Leasing and Finance Corp., vs Wearever

Textile Mills, Inc.,
FACTS: Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor of
Makati Leasing and Finance Corporation covering certain raw materials and
machinery. Upon default, Makati Leasing fi led a petition for judicial foreclosure of
the properties mortgaged.
Acting on Makati Leasings application for replevin, the lower court issued a writ of
seizure. Pursuant thereto, the sheriff enforcing the seizure order seized the
machinery subject matter of the mortgage. In a petition for certiorari and
prohibition, the Court of Appeals ordered the return of the machinery on the ground
that the same can-not be the subject of replevin because it is a real property
pursuant to Article415 of the new Civil Code, the same being attached to the ground
by means of bolts and the only way to remove it from Wearever textiles plant would
be to drill out or destroy the concrete fl oor. When the motion for reconsideration of
Makati Leasing was denied by the Court of Appeals, Makati Leasing elevated the
matter to the Supreme Court.
ISSUE: Whether the machinery in suit is real or personal property from the point of
view of the parties.
HELD. There is no logical justification to exclude the rule out the present case from
the application of the pronouncement in Tumalad v Vicencio, 41 SCRA 143. If a
house of strong materials, like what was involved in the 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 the denying the existence of the chattel mortgage.

12
In rejecting petitioners assertion on the applicability of the Tumalad doctrine, the
CA 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 by the private respondent is
indicative of the 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 a real property as long as no
interest of third parties would be prejudiced thereby.
The status of the subject matter as movable or immovable property was not raised
as an issue before the lower court and the CA, except in a supplemental
memorandum in support of the petition filed in the appellate court. There is no
record showing that the mortgage has been annulled, or that steps were taken to
nullify the same. On the other hand, respondent has benefited from the said
contract.
Equity dictates that one should not benefit at the expense of another.
As such, private respondent could no longer be allowed to impugn the efficacy of
the chattel mortgage after it has benefited therefrom.
Therefore, the questioned machinery should be considered as personal property.

B.H. BERKENKOTTER vs. CU UNJIENG E HIJOS

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 plaintiffs
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.

13
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

14
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 latters 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.

Sergs Products, Inc. vs. PCI Leasing

FACTS: PCI Leasing and Finance filed a complaint for sum of money, with an
application for a writ of replevin.
Judge issued a writ of replevin directing its sheriff to seize and deliver the
machineries and equipment to PCI Leasing after 5 days and upon the payment of
the necessary expenses.
The sheriff proceeded to petitioner's factory, seized one machinery, with word that
he would return for other machineries.
Petitioner (Sergs Products) filed a motion for special protective order to defer
enforcement of the writ of replevin.
PCI Leasing opposed the motion on the ground that the properties were still
personal and therefore can still be subjected to seizure and writ of replevin.
Petitioner asserted that properties sought to be seized were immovable as defined
in Article 415 of the Civil Code.
Sheriff was still able to take possession of two more machineries
In its decision on the original action for certiorari filed by the Petitioner, the
appellate court, Citing the Agreement of the parties, held that the subject machines
were personal property, and that they had only been leased, not owned, by
petitioners; and ruled that the "words of the contract are clear and leave no doubt
upon the true intention of the contracting parties."

15
ISSUE: Whether or not the machineries became real property by virtue of
immobilization.
Ruling: Petitioners contend that the subject machines used in their factory were not
proper subjects of the Writ issued by the RTC, because they were in fact real
property.
Writ of Replevin: Rule 60 of the Rules of Court provides that writs of replevin are
issued for the recovery of personal property only.
Article 415 (5) of the Civil Code provides that machinery, receptacles, instruments
or implements intended by the owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works
In the present case, the machines that were the subjects of the Writ of Seizure were
placed by petitioners in the factory built on their own land.They were essential and
principal elements of their chocolate-making industry.Hence, although each of them
was movable or personal property on its own, all of them have become
immobilized by destination because they are essential and principal elements in
the industry.
However, contracting parties may validly stipulate that a real property be
considered as personal. After agreeing to such stipulation, they are consequently
estopped from claiming otherwise.Under the principle of estoppel, a party to a
contract is ordinarily precluded from denying the truth of any material fact found
therein.
Section 12.1 of the Agreement between the parties provides The PROPERTY is, and
shall at all times be and remain, personal property notwithstanding that the
PROPERTY or any part thereof may now be, or hereafter become, in any manner
affixed or attached to or embedded in, or permanently resting upon, real property or
any building thereon, or attached in any manner to what is permanent.
The machines are personal property and they are proper subjects of the Writ of
Replevin.