LEUNG YEE VS STRONG MACHINERIES

37 Phil. 644 Civil Law Law on Property Multiple Sale to Different Vendees Real vs Personal
Property

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

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

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

ISSUE: Who is the owner of the building?

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

The SC also noted that the Chattel Mortgage Law expressly contemplates provisions for chattel
mortgages which only deal with personal properties. The fact that the parties dealt the building as if its
a personal property does not change the nature of the thing. It is still a real property. Its inscription in
the Chattel Mortgage registry does not modify its inscription the registry of real property.
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 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.]
Davao Sawmill Co. vs Castillo

Posted on June 21, 2013

Davao Sawmill Co. vs Castillo

61 PHIL 709
GR No. L-40411
August 7, 1935

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;

xxx

(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.

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.
Berkenkotter v. Cu Unjieng

Facts:

On 26 April 1926, the Mabalacat Sugar Company obtained from Cu Unjieng e Hijos, a loan secured by a
first mortgage constituted on 2 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 5 October 1926, the Mabalacat Sugar Company 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. Green proposed to the 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, Cu Unjieng e Hijos, and that in case Green should fail to obtain an additional
loan from Cu Unjieng e Hijos, said machinery and equipment would become security therefore, said
Green binding himself not to mortgage nor encumber them to anybody until Berkenkotter be fully
reimbursed for the corporation's indebtedness to him.

Having agreed to said proposition made in a letter dated 5 October 1926, Berkenkotter, on 9 October
1926, delivered the sum of P1,710 to Green, the total amount supplied by him to Green having been
P25,750. Furthermore, 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.

On 10 June 1927, Green applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as
security the additional machinery and equipment acquired by said Green and installed in the sugar
central after the execution of the original mortgage deed, on 27 April 1927, together with whatever
additional equipment acquired with said loan. Green failed to obtain said loan. Hence, above mentioned
mortgage was in effect.

Issue:

Are the additional machines also considered mortgaged?

Held:

Article 1877 of the Civil Code provides that 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 mortgagedproperty or by virtue of the exercise of the
power of eminent domain, with the declarations, amplifications, and limitations established by law,
whether the state continues in the possession of the person who mortgaged it or whether it passes into
the hands of a third person.
It is a rule, that in a mortgage of real estate, the improvements on the same are included; therefore, all
objects permanently attached to a mortgaged building or land, although they may have been placed
there after the mortgage was constituted, are also included.

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. 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.
Lopez v. Orosa

LOPEZ V. OROSA AND PLAZA THEATREG.R. Nos. L-10817-18 February 28, 1958

FACTS:

-Petitioner Lopez was engaged in doing business under the trade name Lopez-Castelo Sawmill.

Orosa, a resident of the same province as Lopez, invited the latter to make an investment in the theatre
business. Lopez declined to invest but agreed to supply the lumber necessary for the construction of the
proposed theatre. They had an oral agreement that Orosa would be personally liable for any account
that the said construction might incur and that payment would be on demand and not cash on delivery
basis.

Lopez delivered the which was used for construction amounting to P62,255.85. He was paid only
P20,848.50, leaving a balance of P41,771.35.

The land on which the building was erected previously owned by Orosa, was later on acquired by the
corporation.

. As Lopez was pressing Orosa for payment, the latter and president of the corporation promised to
obtain a bank loan by mortgaging the properties of the Plaza Theatre., out of which the unpaid balance
would be satisfied. But unknown to Lopez, the corporation already obtained a loan with Luzon Surety
Company as surety, and the corporation in turn executed a mortgage on the land and building in favor
of the said company as counter-security.

Due to the persistent demands of Lopez, Orosa executed a deed of assignment over his shares of stock
in the corporation.

As it remained unsettled, Lopez filed a case against Orosa and Plaza theatre praying that they be
sentenced to pay him jointly and severally of the unpaid balance; and in case defendants fail to pay, the
land and building owned by the corporation be sold in public auction with the proceeds be applied to
the balance; or the shares of stock be sold in public auction.

The lower court held that defendants were jointly liable for the unpaid balance and Lopez thus acquired
the material mans lien over the construction. The lien was merely confined to the building and did not
extend to the on which the construction was made.

Lopez tried to secure a modification of the decision, but was denied.

ISSUES:
Whether the material mans lien for the value of the materials used in the construction of the building
attaches to said structure alone and doesnt extend to the land on which the building is adhered to.

Whether the lower court and CA erred in not providing that the material mans liens is superior to the
mortgage executed in favor of surety company not only on the building but also on the land.

HELD:

-The material mans 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 material man's lien.

-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
thingthat a building is by itself an immovable property.

-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.

-The law gives preference to unregistered refectionary credits only with respect to the real estate upon
which the refectionary or work was made.

- 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.
TUMALAD V. VICENCIO

Although a building is an immovable; the parties to a contract may by agreement treat as personal
property that which by nature is a real property however they are estopped from subsequently
claiming otherwise.

FACTS:

Alberta Vicencio and Emiliano Simeon received a loan of P4, 800 from Gavino and Generosa Tumalad. To
guaranty said loan, Vicencio executed a chattel mortgage in favor of Tumalad over their house of strong
materials which stood on a land which was rented from the Madrigal & Company, Inc. When Vicencio
defaulted in paying, the house was extrajudicially foreclosed, pursuant to their contract. It was sold to
Tumalad and they instituted a Civil case in the Municipal Court of Manila to have Vicencio vacate the
house and pay rent.

The MTC decided in favor of Tumalad ordering Vicencio to vacate the house and pay rent until they have
completely vacated the house. Vicencio is questioning the legality of the chattel mortgage on the
ground that 1) the signature on it was obtained thru fraud and 2) the mortgage is a house of strong
materials which is an immovable therefore can only be the subject of a REM. On appeal, the CFI found in
favor of Tumalad, and since the Vicencio failed to deposit the rent ordered, it issued a writ of execution,
however the house was already demolished pursuant to an order of the court in an ejectment suit
against Vicencio for non-payment of rentals. Thus the case at bar.

ISSUE:

Whether or not the chattel mortgage is void since its subject is an immovable

HELD:

NO.
Although a building is by itself an immovable property, parties to a contract may treat as personal
property that which by nature would be real property and it would be valid and good only insofar as the
contracting parties are concerned. By principle of estoppel, the owner declaring his house to be a
chattel may no longer subsequently claim otherwise.

When Vicencio executed the Chattel Mortgage, it specifically provides that the mortgagor cedes, sells
and transfers by way of Chattel mortgage. They intended to treat it as chattel therefore are now
estopped from claiming otherwise. Also the house stood on rented land which was held in previous
jurisprudence to be personalty since it was placed on the land by one who had only temporary right over
the property thus it does not become immobilized by attachment.
[Vicencio though was not made to pay rent since the action was instituted during the period of
redemption therefore Vicencio still had a right to remain in possession of the property]
Makati Leasing and Finance Corp., vs Wearever Textile Mills, Inc.,

Posted on June 29, 2013

Makati Leasing and Finance Corp., vs Wearever Textile Mills, Inc.,

122 SCRA 296
GR No. L-58469
May 16, 1983

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.

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.

Board of Assessment Appeals QC v MERALCO

Posted on June 22, 2013

Board of Assessment Appeals, Q.C. vs Meralco

10 SCRA 68
GR No. L-15334
January 31, 1964

FACTS
On November 15, 1955, the QC City Assessor declared the MERALCO's steel towers subject to real
property tax. After the denial of MERALCO's petition to cancel these declarations, an appeal was taken
to the QC Board of Assessment Appeals, which required respondent to pay 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
(CTA) which rendered a decision ordering the cancellation of the said tax declarations and the refunding
to MERALCO by the QC City Treasurer of P11,651.86.

ISSUE
Are the steel towers or poles of the MERALCO considered real or personal properties?

HELD
Pole long, comparatively slender, usually cylindrical piece of wood, timber, object of metal or the like;
an upright standard to the top of which something is affixed or by which something is supported.

MERALCO's steel supports consists of a framework of 4 steel bars/strips which are bound by steel cross-
arms atop of which are cross-arms supporting 5 high-voltage transmission wires, and their sole function
is to support/carry such wires. The exemption granted to poles as quoted from Part II, Par.9 of
respondent's franchise is determined by the use to which such poles are dedicated.

It is evident that the word poles, as used in Act No. 484 and incorporated in the petitioner's franchise,
should not be given a restrictive and narrow interpretation, as to defeat the very object for which the
franchise was granted. The poles should be taken and understood as part of MERALCO's electric power
system for the conveyance of electric current to its consumers.

Art. 415 of the NCC classifies the following as immovable property:

(1) Lands, buildings, roads and constructions of all kinds adhered to the soil;

xxx

(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;

xxx

(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;
Following these classifications, MERALCO's steel towers should be considered personal property. It
should be noted that the steel towers:

(a) are neither buildings or constructions adhered to the soil;

(b) are not attached to an immovable in a fixed manner they can be separated without breaking the
material or deterioration of the object;

are not machineries, receptacles or instruments, and even if they are, they are not intended for an
industry to be carried on in the premises.