Digest of Cases in PROPERTY (Ryan Lupos)

Berkenkotter v. Cu Unjieng Hijos, et al. 61 Phil. 663

Facts:

This is an appeal taken by the plaintiff, B. H. Berkenkotter, from the judgement of the CFI of Manila
dismissing his complaint against defendants.

On April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar central in Mabalacat, Pampanga,
obtained a loan from defendant Cu Unjieng e Hijos, secured by a first mortgage of two parcels of land
“with all its buildings, improvements, sugar-cane mill, steel railway, telephone line, apparatus, etc., now
existing or that may in the future exist in said lots.”

Shortly after such mortgage had been constituted, the Sugar Co. decided to increase its production by
buying additional machinery and equipment. B.A. Green, the president of said corporation applied for a
loan from petitioner Berkenkotter, promising to reimburse him as soon as he obtains additional loan from
the mortgagees, herein defendants Cu Unjieng Hijos. Petitioner granted such application and extended
the amount with which the corporation bought the additional machinery and equipment.

On June 10, 1927, Green applied to Cu Unjeing e Hijos for the additional loan but failed to obtain such
loan.

The appellant contend that the installation of the machinery and equipment in the sugar central is not
permanent in character in as much as the President of said corporation made it appear that such property,
should the latter fail to obtain the additional loan, would become security for the sum he loaned him, said
president binding himself not to mortgage or encumber them to anybody until plaintiff is fully
reimbursed for the corporation’s indebtedness to him.

Issue:

1) Whether or not the additional machinery and equipment is considered an improvement subject to the
mortgage executed by Mabalacat Sugar Co., Inc. in favor of Cu Unjieng e Hijos.

Held:

Yes, the additional machinery and equipment is considered an improvement subject to the first mortgage
executed by Mabalacat Sugar Co., Inc. in favor of Cu Unjieng e Hijos. It is a well-established rule that in a
mortgage real estate, the improvements on the property are included, thus all objects permanently
attached to a mortgaged building or land, although placed after the mortgage was constituted are also
included.
The installation of such equipment and machinery in the sugar central in lieu of the other less capacity
existing therein, converted them into real property, 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.
With regards to the alleged sale of said property to the plaintiff after such permanent incorporation with
the sugar central and while the mortgage constituted on said central 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 mortgagee.
Philippine Refining Co. vs Jarque 61 Phil 229

Facts:
The Philippine Refining Co., Inc., and Francisco Jarque executed three mortgages on the motor vessels
Pandan and Zaragoza. A fourth mortgage was executed by Francisco Jarque and Ramon Aboitiz on the
motorship Zaragoza.

Thereafter, a petition was filed with the CFI of Cebu praying that Francisco Jarque be declared an
insolvent debtor, said petition was granted and an assignment of all the properties of the insolvent was
executed in favor of Jose Corominas.

Neither of the first two mortgages had appended an affidavit of good faith. The third mortgage contained
such an affidavit, but this mortgage was not registered until within thirty days prior to the
commencement of insolvency proceedings against Jarque while the fourth mortgage was entered in the
chattel mortgage registry within the thirty-day period before the institution of insolvency proceedings.

Judge Jose M. Hontiveros declined to order the foreclosure of the mortgages and sustained the special
defenses of fatal defectiveness of the mortgages.

Issue:
Whether or not the mortgages of the vessels are governed by the Chattel Mortgage Law.
(Chattel: Moveable items of property which are neither land nor permanently attached to land or a
building, either directly or vicariously through attachment to real property.)

Held:
Yes. Vessels are considered personal property under the civil law. Since the term "personal property"
includes vessels, they are subject to mortgage agreeably to the provisions of the Chattel Mortgage Law.

A mortgage on a vessel is in the nature a chattel mortgage. The only difference between a chattel
mortgage of a vessel and a chattel mortgage of other personalty is that it is not now necessary for a chattel
mortgage of a vessel to be noted n the registry of the register of deeds, but it is essential that a record of
documents affecting the title to a vessel be entered in the record of the Collector of Customs at the port of
entry.

An affidavit of good faith appended to the mortgage and recorded therewith is required (Sec. 5 of the CM
Law). The absence of the affidavit vitiates a mortgage as against creditors and subsequent
encumbrancers. A chattel mortgage of a vessel lacking an affidavit of good faith, is unenforceable against
third persons.

Note:
If the mortgage is constituted over a vehicle, it must also be made with the LTO (if a private vehicle) or
LTFRB (if it’s a public vehicle.) If it’s a ship, it’s made with the MARINA.

Mindanao Bus Co. vs. City Assessor

6 SCRA 197

MINDANAO BUS COMPANY - petitioner

CITY ASSESSOR, et al - respondents

Facts:
Petitioner is engaged in a public utility business, solely engaged in transporting passengers and
cargoes by motor trucks, over its authorized lines in Mindanao. It owns a main office and branch offices.
To be found in their offices are machinery and equipment, which were assessed by the City Assessor as
real properties.

The Court of Tax Appeals held that the petitioner Mindanao Bus Company is liable to the payment of the
realty tax on its maintenance and repair equipment.
Petitioner appealed the assessment, contending that said equipment are not realty.

On the other hand, respondents contend that said equipment, though movable, are immobilized by
destination, citing Art. 415 (5):

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.

Issue:
Whether or not the equipment may be deemed immovable within the meaning of Art. 415 of the NCC.

Held:
No.
Movable equipment to be immobilized in contemplation of law must first be essential and principal
elements of an industry or works without which such industry or works would be unable to function or
carry on the industrial purpose for which it was established.

The tools and equipment in question in this instant case are, by their nature, not essential and principle
municipal elements of petitioner's business of transporting passengers and cargoes by motor trucks. They
are merely incidentals — acquired as movables and used only for expediency to facilitate and/or
improve its service. Even without such tools and equipment, its business may be carried on as when if its
rolling equipment is repaired or serviced in another shop belonging to another.

Aside from the element of essentiality Art. 415 (5) also requires that the industry or works be carried on in
a building or on a piece of land. In the case at bar the equipment in question are destined only to repair or
service the transportation business, which is not carried on in a building or permanently on a piece of
land, as demanded by the law.

Hence, the equipment 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, so said
equipment may not be considered real estate.

Davao Sawmill vs. Castillo 61 SCRA 709

Davao Sawmill - plaintiff-appellant

Castillo et al - defendants-appellees

Facts:
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the government. 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 machines placed in the building are mounted
on foundations of cement.

Part of the lease agreement between Davao Sawmill (lessee), and the lessor was a stipulation in which
after the lease all buildings and improvements would pass to the ownership of the lessor, which would
not include machineries and accessories.
Issue:
whether or not the sawmill machineries are classified as real property (immovable).

Held:
No. The machinery must be classified as personal property.

The lessee placed the machinery in the building erected on land belonging to another, with the
understanding that the machinery was not included in the improvements which would pass to the lessor
on the expiration of the lease agreement.

The lessee also treated the machinery as personal property in executing chattel mortgages in favor
of third persons. As consequence of the judgment rendered in favor of the Davao Light and Power Co.
against Davao Sawmill, the machineries in question were levied upon by the sheriff as personalty (as
opposed to a realty) pursuant to a writ of execution obtained without any protest being registered.

Furthermore, machineries only becomes immobilized when placed in a plant by the owner of the
property or plant, but not when so placed by a tenant, usufructuary, or any person having temporary
right, unless such person acted as the agent of the owner. (Citing US SC decision in Valdes vs. Central
Altagracia)

Prudential Bank vs Panis 153 SCRA 390

Facts:
Spouses Magcale secured a loan with Prudential Bank. To further secure said loan, the spouses executed
a Real Estate Mortgage over the residential building, with a right to occupy the lot. The Real Estate
Mortgage also included information about the Sales Patent applied for by the spouses for the lot to which
the building stood. The spouses obtained a second loan, which was secured by another Real Estate
Mortgage over the same properties. The Sec. of Agriculture issued a Miscellaneous Sales Patent over the
lot which was then mortgaged to the bank in favor of the Macales.

The spouses defaulted on both loans. Thus, the property was extrajudicially foreclosed, and sold in a
public auction.

(Miscellaneous Sales Patent: RA 730 is an act permitting sale without public auction of alienable and
disposable lands of the public domain for residential purpose. The application to purchase the land is
called the Miscellaneous Sales Application and the corresponding patent is called the Miscellaneous Sales
Patent.)

The RTC held that the Real Estate Mortgage was null and void.

Issue:
Whether or not a valid real estate mortgage can be constituted on the building erected on the land
belonging to another.

Held:
Yes.
The inclusion of “building” distinct and separate from the land in the enumeration of properties under
Article 415 of the NCC can only mean that the building itself is an immovable property.

A building by itself may be mortgaged apart from the land on which it has been built. Such a mortgage
would be still a real estate mortgage for the building would still be considered immovable property even
if dealt with separately and apart from the land. Furthermore, the fact that the spouses executed the Real
Estate Mortgage over the building before executing the second Real Estate Mortgage over the land
proved that the spouses intended for the building to be an immovable separate and distinct from the land
on which it is built.

Caltex vs Central Board of Assessment Appeals

114 SCRA 273

Facts:
This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its
gas stations located on leased land.The lessor of the land, where the gas station is located, does not
become the owner of the machines and equipment installed therein. Caltex retains the ownership thereof
during the term of the lease.

The city assessor of Pasay City characterized the said items of gas station equipment and machinery as
taxable realty. But The city board of tax appeals ruled that they are personalty.

Issue:
Whether or not the subject machinery and equipment installed by Caltex in its gas stations should be
considered realty.

Held:
Yes.
Improvements on land are commonly taxed as realty. The equipment and machinery as appurtenances to
the gas station building or shed owned by Caltex and which fixtures are necessary to the operation of the
gas station, for without them the gas station would be useless, and which have been attached and fixed
permanently to the gas station site or embedded therein, are taxable improvements and machinery
within the meaning of the Assessment Law and the Real Property Tax Code.

(appurtenance: an object that is used with or for something)

Benguet Corp. vs CBAA 218 SCRA 271

Facts:
In 1985, the Provincial Assessor of Zambales assessed the petitioner's tailings dam as taxable
improvements.

Petitioner contended that the the dam cannot be subjected to realty tax as a separate and independent
property because it does not constitute an "assessable improvement" on the mine because it is an integral
part of the mine.

To supporty its contention, petitioner cited the following cases:

(1) Municipality of Cotabato v. Santos
dikes and gates constructed in connection with a fishpond operation as integral parts of the fishpond.
(2) Bislig Bay Lumber Co. v. Provincial
Government of Surigao the realty tax was not imposed on a road constructed by the timber
concessionaire because the government had the right to use the road to promote its varied activities.
(3) Kendrick v. Twin Lakes Reservoir Co. (American Case)
A reservoir dam went with and formed part of the reservoir
(4) Ontario Silver Mining Co. v. Hixon (Canada)
Involved drain tunnels constructed when mining operations were expanded... it was held that "whatever
value they have is connected with and in fact is an integral part of the mine itself."

On the other hand, Solicitor General's argues that the dam is an assessable improvement because it
enhances the value and utility of the mine.

Issue: Whether or not the tailings dam in question is an "improvement" upon the land within the meaning
of the Real Property Tax Code.

Held:
Yes.
The court ruled that the subject dam falls within the definition of an "improvement" because it is
permanent in character and it enhances both the value and utility of petitioner's mine. The immovable
nature of the dam defines its character as real property under Article 415 of the Civil Code and thus
makes it taxable under Section 38 of the Real Property Tax Code.