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LEUNG YEE V. F.L STRONG MACHINERY CO. AND WILLIAMSON FRANK L. STRONG MACHINERY COMPANY and J. G.

WILLIAMSON, defendants-
37 SCRA 644 appellees.
Booram and Mahoney for appellant.
FACTS: Williams, Ferrier and SyCip for appellees.
1. First mortgage: Compania Agricola Filipina bought rice-cleaning machinery CARSON, J.:
from the machinery company and this was secured by a chattel mortgage on the The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning
machinery and the building to which it machinery company from the defendant machinery company, and executed a
was installed. Upon failure to pay, the chattel mortgage was foreclosed, the chattel mortgage thereon to secure payment of the purchase price. It included in
building and machinery sold in public auction and bought by the machinery the mortgage deed the building of strong materials in which the machinery was
company. installed, without any reference to the land on which it stood. The indebtedness
2. Days after, the Compania Agricola Filipina executed a deed of sale over the land secured by this instrument not having been paid when it fell due, the mortgaged
to which the building stood in favor of the machinery company. This was done to property was sold by the sheriff, in pursuance of the terms of the mortgage
cure any defects that may arise in the instrument, and was bought in by the machinery company. The mortgage was
machinery company’s ownership of the building. registered in the chattel mortgage registry, and the sale of the property to the
3. Second mortgage: on or about the date to which the chattel mortgage machinery company in satisfaction of the mortgage was annotated in the same
was excecuted, Compania executed a real estate mortgage over the building registry on December 29, 1913.
in favor of Leung Yee, distinct and A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia
separate from the land. This is to secure payment for its indebtedness for the Agricola Filipina" executed a deed of sale of the land upon which the building stood
construction of the building. Upon failure to pay, the mortgage was foreclosed. to the machinery company, but this deed of sale, although executed in a public
4. The machinery company then filed a case, demanding that it be declared document, was not registered. This deed makes no reference to the building
the rightful owner of the building. The trial court held that it was the erected on the land and would appear to have been executed for the purpose of
machinery company which was the rightful owner curing any defects which might be found to exist in the machinery company's title to
as it had its title before the building was registered prior to the date of the building under the sheriff's certificate of sale. The machinery company went into
registry of Leung Yee’s certificate. 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.
HELD: At or about the time when the chattel mortgage was executed in favor of the
The building in which the machinery was installed was real property, and the machinery company, the mortgagor, the "Compañia Agricola Filipina" executed
mere fact that the parties seem to have dealt with it separate and apart from another mortgage to the plaintiff upon the building, separate and apart from the
the land on which it stood in no wise changed the character as real property. 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
It follows that neither the original registry in the chattel mortgage registry of the mortgagor to pay the amount of the indebtedness secured by the mortgage, the
instrument purporting to be a chattel mortgage of the building and the machinery plaintiff secured judgment for that amount, levied execution upon the building,
installed therein, nor the annotation in the registry of the sale of the bought it in at the sheriff's sale on or about the 18th of December, 1914, and had
mortgaged property, had any effect whatever so far as the building is the sheriff's certificate of the sale duly registered in the land registry of the Province
concerned. *LANDMARK CASE of Cavite.
Republic of the Philippines At the time when the execution was levied upon the building, the defendant
SUPREME COURT machinery company, which was in possession, filed with the sheriff a sworn
Manila statement setting up its claim of title and demanding the release of the property
EN BANC from the levy. Thereafter, upon demand of the sheriff, the plaintiff executed an
G.R. No. L-11658 February 15, 1918 indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon which
LEUNG YEE, plaintiff-appellant, the sheriff sold the property at public auction to the plaintiff, who was the highest
vs. bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from contain no express requirement as to "good faith" in relation to the "inscription" of
the machinery company. the property on the registry, it must be presumed that good faith is not an essential
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave requisite of registration in order that it may have the effect contemplated in this
judgment in favor of the machinery company, on the ground that the company had article. We cannot agree with this contention. It could not have been the intention
its title to the building registered prior to the date of registry of the plaintiff's of the legislator to base the preferential right secured under this article of the code
certificate. upon an inscription of title in bad faith. Such an interpretation placed upon the
Article 1473 of the Civil Code is as follows: language of this section would open wide the door to fraud and collusion. The public
If the same thing should have been sold to different vendees, the records cannot be converted into instruments of fraud and oppression by one who
ownership shall be transfer to the person who may have the first taken secures an inscription therein in bad faith. The force and effect given by law to an
possession thereof in good faith, if it should be personal property. inscription in a public record presupposes the good faith of him who enters such
Should it be real property, it shall belong to the person acquiring it who inscription; and rights created by statute, which are predicated upon an inscription
first recorded it in the registry. in a public registry, do not and cannot accrue under an inscription "in bad faith," to
Should there be no entry, the property shall belong to the person who the benefit of the person who thus makes the inscription.
first took possession of it in good faith, and, in the absence thereof, to the Construing the second paragraph of this article of the code, the supreme court of
person who presents the oldest title, provided there is good faith. Spain held in its sentencia of the 13th of May, 1908, that:
The registry her referred to is of course the registry of real property, and it must be This rule is always to be understood on the basis of the good faith
apparent that the annotation or inscription of a deed of sale of real property in a mentioned in the first paragraph; therefore, it having been found that the
chattel mortgage registry cannot be given the legal effect of an inscription in the second purchasers who record their purchase had knowledge of the
registry of real property. By its express terms, the Chattel Mortgage Law previous sale, the question is to be decided in accordance with the
contemplates and makes provision for mortgages of personal property; and the sole following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon
purpose and object of the chattel mortgage registry is to provide for the registry of [1911] edition.)
"Chattel mortgages," that is to say, mortgages of personal property executed in the Although article 1473, in its second paragraph, provides that the title of
manner and form prescribed in the statute. The building of strong materials in which conveyance of ownership of the real property that is first recorded in the
the rice-cleaning machinery was installed by the "Compañia Agricola Filipina" was registry shall have preference, this provision must always be understood
real property, and the mere fact that the parties seem to have dealt with it separate on the basis of the good faith mentioned in the first paragraph; the
and apart from the land on which it stood in no wise changed its character as real legislator could not have wished to strike it out and to sanction bad faith,
property. It follows that neither the original registry in the chattel mortgage of the just to comply with a mere formality which, in given cases, does not obtain
building and the machinery installed therein, not the annotation in that registry of even in real disputes between third persons. (Note 2, art. 1473, Civ. Code,
the sale of the mortgaged property, had any effect whatever so far as the building issued by the publishers of the La Revista de los Tribunales, 13th edition.)
was concerned. The agreed statement of facts clearly discloses that the plaintiff, when he bought
We conclude that the ruling in favor of the machinery company cannot be sustained the building at the sheriff's sale and inscribed his title in the land registry, was duly
on the ground assigned by the trial judge. We are of opinion, however, that the notified that the machinery company had bought the building from plaintiff's
judgment must be sustained on the ground that the agreed statement of facts in the judgment debtor; that it had gone into possession long prior to the sheriff's sale;
court below discloses that neither the purchase of the building by the plaintiff nor and that it was in possession at the time when the sheriff executed his levy. The
his inscription of the sheriff's certificate of sale in his favor was made in good faith, execution of an indemnity bond by the plaintiff in favor of the sheriff, after the
and that the machinery company must be held to be the owner of the property machinery company had filed its sworn claim of ownership, leaves no room for
under the third paragraph of the above cited article of the code, it appearing that doubt in this regard. Having bought in the building at the sheriff's sale with full
the company first took possession of the property; and further, that the building and knowledge that at the time of the levy and sale the building had already been sold
the land were sold to the machinery company long prior to the date of the sheriff's to the machinery company by the judgment debtor, the plaintiff cannot be said to
sale to the plaintiff. have been a purchaser in good faith; and of course, the subsequent inscription of
It has been suggested that since the provisions of article 1473 of the Civil Code the sheriff's certificate of title must be held to have been tainted with the same
require "good faith," in express terms, in relation to "possession" and "title," but defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's good faith implies a "freedom from knowledge and circumstances which ought to
certificate of sale to the plaintiff was not made in good faith, we should not be put a person on inquiry," and so it is that proof of such knowledge overcomes the
understood as questioning, in any way, the good faith and genuineness of the presumption of good faith in which the courts always indulge in the absence of
plaintiff's claim against the "Compañia Agricola Filipina." The truth is that both the proof to the contrary. "Good faith, or the want of it, is not a visible, tangible fact that
plaintiff and the defendant company appear to have had just and righteous claims can be seen or touched, but rather a state or condition of mind which can only be
against their common debtor. No criticism can properly be made of the exercise of judged of by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505;
the utmost diligence by the plaintiff in asserting and exercising his right to recover Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros.
the amount of his claim from the estate of the common debtor. We are strongly Co. vs. Bromley, 119 Mich., 8, 10, 17.)
inclined to believe that in procuring the levy of execution upon the factory building We conclude that upon the grounds herein set forth the disposing part of the
and in buying it at the sheriff's sale, he considered that he was doing no more than decision and judgment entered in the court below should be affirmed with costs of
he had a right to do under all the circumstances, and it is highly possible and even this instance against the appellant. So ordered.
probable that he thought at that time that he would be able to maintain his position Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.
in a contest with the machinery company. There was no collusion on his part with Torres, Avanceña and Fisher, JJ., took no part.
the common debtor, and no thought of the perpetration of a fraud upon the rights Republic of the Philippines
of another, in the ordinary sense of the word. He may have hoped, and doubtless he SUPREME COURT
did hope, that the title of the machinery company would not stand the test of an Manila
action in a court of law; and if later developments had confirmed his unfounded EN BANC
hopes, no one could question the legality of the propriety of the course he adopted. G.R. No. L-40411 August 7, 1935
But it appearing that he had full knowledge of the machinery company's claim of DAVAO SAW MILL CO., INC., plaintiff-appellant,
ownership when he executed the indemnity bond and bought in the property at the vs.
sheriff's sale, and it appearing further that the machinery company's claim of APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-
ownership was well founded, he cannot be said to have been an innocent purchaser appellees.
for value. He took the risk and must stand by the consequences; and it is in this Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for
sense that we find that he was not a purchaser in good faith. appellant.
One who purchases real estate with knowledge of a defect or lack of title in his J.W. Ferrier for appellees.
vendor cannot claim that he has acquired title thereto in good faith as against the MALCOLM, J.:
true owner of the land or of an interest therein; and the same rule must be applied The issue in this case, as announced in the opening sentence of the decision in the
to one who has knowledge of facts which should have put him upon such inquiry trial court and as set forth by counsel for the parties on appeal, involves the
and investigation as might be necessary to acquaint him with the defects in the title determination of the nature of the properties described in the complaint. The trial
of his vendor. A purchaser cannot close his eyes to facts which should put a judge found that those properties were personal in nature, and as a consequence
reasonable man upon his guard, and then claim that he acted in good faith under absolved the defendants from the complaint, with costs against the plaintiff.
the belief that there was no defect in the title of the vendor. His mere refusal to The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the
believe that such defect exists, or his willful closing of his eyes to the possibility of Government of the Philippine Islands. It has operated a sawmill in the sitio of Maa,
the existence of a defect in his vendor's title, will not make him an innocent barrio of Tigatu, municipality of Davao, Province of Davao. However, the land upon
purchaser for value, if afterwards develops that the title was in fact defective, and it which the business was conducted belonged to another person. On the land the
appears that he had such notice of the defects as would have led to its discovery sawmill company erected a building which housed the machinery used by it. Some
had he acted with that measure of precaution which may reasonably be acquired of of the implements thus used were clearly personal property, the conflict concerning
a prudent man in a like situation. Good faith, or lack of it, is in its analysis a question machines which were placed and mounted on foundations of cement. In the
of intention; but in ascertaining the intention by which one is actuated on a given contract of lease between the sawmill company and the owner of the land there
occasion, we are necessarily controlled by the evidence as to the conduct and appeared the following provision:
outward acts by which alone the inward motive may, with safety, be determined. So That on the expiration of the period agreed upon, all the improvements
it is that "the honesty of intention," "the honest lawful intent," which constitutes 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 It is, however not necessary to spend overly must time in the resolution of this
obligation on its part to pay any amount for said improvements and appeal on side issues. It is machinery which is involved; moreover, machinery not
buildings; also, in the event the party of the second part should leave or intended by the owner of any building or land for use in connection therewith, but
abandon the land leased before the time herein stipulated, the intended by a lessee for use in a building erected on the land by the latter to be
improvements and buildings shall likewise pass to the ownership of the returned to the lessee on the expiration or abandonment of the lease.
party of the first part as though the time agreed upon had expired: A similar question arose in Puerto Rico, and on appeal being taken to the United
Provided, however, That the machineries and accessories are not included States Supreme Court, it was held that machinery which is movable in its nature only
in the improvements which will pass to the party of the first part on the becomes immobilized when placed in a plant by the owner of the property or plant,
expiration or abandonment of the land leased. but not when so placed by a tenant, a usufructuary, or any person having only a
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and temporary right, unless such person acted as the agent of the owner. In the opinion
the Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor written by Chief Justice White, whose knowledge of the Civil Law is well known, it
of the plaintiff in that action against the defendant in that action; a writ of execution was in part said:
issued thereon, and the properties now in question were levied upon as personalty To determine this question involves fixing the nature and character of the
by the sheriff. No third party claim was filed for such properties at the time of the property from the point of view of the rights of Valdes and its nature and
sales thereof as is borne out by the record made by the plaintiff herein. Indeed the character from the point of view of Nevers & Callaghan as a judgment
bidder, which was the plaintiff in that action, and the defendant herein having creditor of the Altagracia Company and the rights derived by them from
consummated the sale, proceeded to take possession of the machinery and other the execution levied on the machinery placed by the corporation in the
properties described in the corresponding certificates of sale executed in its favor by plant. Following the Code Napoleon, the Porto Rican Code treats as
the sheriff of Davao. immovable (real) property, not only land and buildings, but also attributes
As connecting up with the facts, it should further be explained that the Davao Saw immovability in some cases to property of a movable nature, that is,
Mill Co., Inc., has on a number of occasions treated the machinery as personal personal property, because of the destination to which it is applied.
property by executing chattel mortgages in favor of third persons. One of such "Things," says section 334 of the Porto Rican Code, "may be immovable
persons is the appellee by assignment from the original mortgages. either by their own nature or by their destination or the object to which
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, they are applicable." Numerous illustrations are given in the fifth
real property consists of — subdivision of section 335, which is as follows: "Machinery, vessels,
1. Land, buildings, roads and constructions of all kinds adhering to the soil; instruments or implements intended by the owner of the tenements for
xxx xxx xxx the industrial or works that they may carry on in any building or upon any
5. Machinery, liquid containers, instruments or implements intended by land and which tend directly to meet the needs of the said industry or
the owner of any building or land for use in connection with any industry works." (See also Code Nap., articles 516, 518 et seq. to and inclusive of
or trade being carried on therein and which are expressly adapted to meet article 534, recapitulating the things which, though in themselves
the requirements of such trade of industry. movable, may be immobilized.) So far as the subject-matter with which we
Appellant emphasizes the first paragraph, and appellees the last mentioned are dealing — machinery placed in the plant — it is plain, both under the
paragraph. We entertain no doubt that the trial judge and appellees are right in provisions of the Porto Rican Law and of the Code Napoleon, that
their appreciation of the legal doctrines flowing from the facts. machinery which is movable in its nature only becomes immobilized when
In the first place, it must again be pointed out that the appellant should have placed in a plant by the owner of the property or plant. Such result would
registered its protest before or at the time of the sale of this property. It must not be accomplished, therefore, by the placing of machinery in a plant by
further be pointed out that while not conclusive, the characterization of the a tenant or a usufructuary or any person having only a temporary right.
property as chattels by the appellant is indicative of intention and impresses upon (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164;
the property the character determined by the parties. In this connection the Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed. Code
decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo ( Napoleon under articles 522 et seq.) The distinction rests, as pointed out
[1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a by Demolombe, upon the fact that one only having a temporary right to
situation. 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 introduced and erected by the party of the second part shall pass to the exclusive
by causing it by an act of immobilization to become the property of ownership of the lessor without any obligation on its part to pay any amount for said
another. It follows that abstractly speaking the machinery put by the improvements and buildings; which do not include the machineries and accessories
Altagracia Company in the plant belonging to Sanchez did not lose its in the improvements.
character of movable property and become immovable by destination. But
in the concrete immobilization took place because of the express In another action wherein the Davao Light & Power Co., Inc., was the plaintiff and
provisions of the lease under which the Altagracia held, since the lease in the Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor
substance required the putting in of improved machinery, deprived the of the plaintiff in that action against the defendant; a writ of execution issued
tenant of any right to charge against the lessor the cost such machinery, thereon, and the properties now in question were levied upon as personalty by the
and it was expressly stipulated that the machinery so put in should sheriff. No third party claim was filed for such properties at the time of the sales
become a part of the plant belonging to the owner without compensation thereof as is borne out by the record made by the plaintiff herein
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 It must be noted also that on number of occasion, Davao Sawmill treated the
the obligations resting upon him, and the immobilization of the machinery machinery as personal property by executing chattel mortgages in favor of third
which resulted arose in legal effect from the act of the owner in giving by persons. One of such is the appellee by assignment from the original mortgages.
contract a permanent destination to the machinery.
xxx xxx xxx The lower court rendered decision in favor of the defendants herein. Hence, this
The machinery levied upon by Nevers & Callaghan, that is, that which was instant appeal.
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 Issue:
under the execution upon the judgment in their favor, and the exercise of whether or not the machineries and equipments were personal in nature.
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 Ruling/ Rationale:
obligations under the lease, he could not, for the purpose of collecting his Yes. The Supreme Court affirmed the decision of the lower court.
debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225
U.S., 58.) Machinery which is movable in its nature only becomes immobilized when placed in
Finding no reversible error in the record, the judgment appealed from will be a plant by the owner of the property or plant, but not when so placed by a tenant, a
affirmed, the costs of this instance to be paid by the appellant. usufructuary, or any person having only a temporary right, unless such person acted
Villa-Real, Imperial, Butte, and Goddard, JJ., concur as the agent of the owner.
Davao Sawmill v. Castillo
DAVAO SAW MILL vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., BERKENKOTTER v CU-UNJIENG
INC. G.R. No. L-40411 August 7, 1935 G.R. No. L-41643 July 31, 1935
FACTS: This is an appeal taken by the plaintiff, B. H. Berkenkotter, from the
Facts: judgment of the Court of First Instance of Manila, dismissing said plaintiff’s
Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government complaint against Cu Unjieng e Hijos et al
of the Philippine Islands. However, the land upon which the business was conducted Mabalacat Sugar Co., Inc., owner of the sugar central situated in Mabalacat,
belonged to another person. On the land the sawmill company erected a building Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a
which housed the machinery used by it. Some of the implements thus used were first mortgage constituted on two parcels and land “with all its buildings,
clearly personal property, the conflict concerning machines which were placed and improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and
mounted on foundations of cement. In the contract of lease between the sawmill whatever forms part or is necessary complement of said sugar-cane mill, steel
company and the owner of the land there appeared the following provision: That on railway, telephone line, now existing or that may in the future exist is said lots.”
the expiration of the period agreed upon, all the improvements and buildings 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 Furthermore, the fact that B. A. Green bound himself to the plaintiff B. H.
and equipment, so that instead of milling 150 tons daily, it could produce 250. The Berkenkotter to hold said machinery and equipment as security, as nothing could
estimated cost of said additional machinery and equipment was approximately prevent B. A. Green from giving them as security at least under a second mortgage.
P100,000. B.A. Green, president of said corporation, proposed to the plaintiff, B.H. As to the alleged sale of said machinery and equipment to the plaintiff and appellant
Berkenkotter, to advance the necessary amount for the purchase of said machinery after they had been permanently incorporated with the sugar central of the
and equipment, promising to reimburse him as soon as he could obtain an Mabalacat Sugar Co., Inc., and while the mortgage constituted on said sugar central
additional loan from the mortgagees, the herein defendants Cu Unjieng e Hijos. to Cu Unjieng e Hijos remained in force, only the right of redemption of the vendor
Berkenkotter agreed to the said proposition and delivered to him a total sum of Mabalacat Sugar Co., Inc., in he sugar central with which said machinery and
P25,750. Berkenkotter had a credit of P22,000 against said corporation for unpaid equipment had been incorporated, was transferred thereby, subject to the right of
salary. With the loan of P25,750 and said credit of P22,000, the Mabalacat Sugar the defendants Cu Unjieng e Hijos under the first mortgage.
Co., Inc., purchased the additional machinery and equipment now in litigation. For the foregoing considerations, we are of the opinion and so hold: (1) That the
B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos installation of a machinery and equipment in a mortgaged sugar central, in lieu of
for an additional loan of P75,000 offering as security the additional machinery and another of less capacity, for the purpose of carrying out the industrial functions of
equipment acquired by said B.A. Green and installed in the sugar central after the the latter and increasing production, constitutes a permanent improvement on said
execution of the original mortgage deed, together with whatever additional sugar central and subjects said machinery and equipment to the mortgage
equipment acquired with said loan. B.A. Green failed to obtain said loan. constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of
Appellants contention: the installation of the machinery and equipment claimed by the new machinery and equipment has bound himself to the person supplying him
him in the sugar central of the Mabalacat Sugar Company, Inc., was not permanent the purchase money to hold them as security for the payment of the latter’s credit,
in character inasmuch as B. A. Green, in proposing to him to advance the money for and to refrain from mortgaging or otherwise encumbering them does not alter the
the purchase thereof, that in case B. A. Green should fail to obtain an additional loan permanent character of the incorporation of said machinery and equipment with
from the defendants Cu Unjieng e Hijos, said machinery and equipment would the central; and (3) that the sale of the machinery and equipment in question by the
become security therefor. purchaser who was supplied the money, after the incorporation thereof with the
ISSUE: Whether or not the lower court erred in declaring that the additional mortgaged sugar central, does not vest the creditor with ownership of said
machinery and equipment, as improvement incorporated with the central are machinery and equipment but simply with the right of redemption.
subject to the mortgage deed executed in favor of the defendants Cu Unjieng e 61 Phil. 663
Hijos.
HELD: No error was committed by trial court. The additional machinery and BERKENKOTTER v CU-UNJIENG
equipment are included in the first mortgage. G.R. No. L-41643 July 31, 1935
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 VILLA-REAL, J.:
of any building or land for use in connection with any industry or trade being carried This is an appeal taken by the plaintiff, B. H. Berkenkotter, from the judgment of the
on therein and which are expressly adapted to meet the requirements of such trade Court of First Instance of Manila, dismissing said plaintiff's complaint against Cu
or industry.” Unjieng e Hijos et al., with costs.
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 In support of his appeal, the appellant assigns six alleged errors as committed hy the
sugar industry, converted them into real property by reason of their purpose, it trial court in its decision in question, which will be discussed in the course of this
cannot be said that their incorporation therewith was not permanent in character decision.
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 The first question to be decided in this appeal, which is raised in the first assignment
it was established. Inasmuch as the central is permanent in character, the necessary of alleged error, is whether or not the lower court erred in declaring that the
machinery and equipment installed for carrying on the sugar industry for which it has additional machinery and equipment, as improvement incorporated with the central
been established must necessary be permanent. are subject to the mortgage deed executed in favor of the defendants Cu Unjieng e
Hijos. the possession of the person who mortgaged it or whether it passes into the hands
of a third person."
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., In the case of Bischoff vs. Pomar and Compania General de Tabacos (12 Phil., 690),
owner of the sugar central situated in Mabalacat, Pampanga, obtained from the cited with approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid
defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on down the following doctrine:
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 "1. Realty; Mortgage of Real Estate Includes Improvements and Fixtures. It is a rule,
necessary complement of said sugar-cane mill, steel railway, telephone line, now established by the Civil Code and also by the Mortgage Law, with which the
existing or that may in the future exist in. said lots." 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
On October 5, 1926, shortly after said mortgage had been constituted, the permanently attached to a mortgaged building or land, although they may have
Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar central by been placed there after the mortgage was constituted, are also included. (Arts, 110
buying additional machinery and equipment, so that instead of milling 150 tons and 111 of the Mortgage Law, and 1877 of the Civil Code; decision of U. S. Supreme
daily, it could produce 250. The estimated cost of said additional machinery and Court in the matter of Royal Insurance Co. vs. R. Miller, liquidator, and Amadeo [26
equipment was approximately ^100,000. In order to carry out this plan, B. A. Green, Sup. Ct. Rep., 46; 199 U. S., 353].)
president of said corporation, proposed to the plaintiff, B. H. Berkenkotter, to
advance the necessary amount for the purchase of said machinery and equipment, "2. Id.; Id,; Inclusion or Exclusion op Machinery, etc. In order that it may be
promising to reimburse him as soon as he could obtain an additional loan from the understood that the machinery and other objects placed upon and used in
mortgagees, the herein defendants Cu Unjieng e Hijos. Having agreed to said connection with a mortgaged estate are excluded from the mortgage, when it was
proposition made in a letter dated October 5, 1926 (Exhibit E), B. H. Berkenkotter, stated in the mortgage that the improvements, buildings, and machinery that
on October 9th of the same year, delivered the sum of P710 to B. A. Green, existed thereon were also comprehended, it is indispensable that the exclusion
president of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said thereof be stipulated between the contracting parties."
B. A. Green having been P25,750. Furthermore, B. H. Berkenkotter had a credit of The appellant contends that the installation of the machinery and equipment
P22,000 against said corporation for unpaid salary. With the loan of P25,750 and claimed by him in the sugar central of the Mabalacat Sugar Company, Inc., was not
said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional permanent in character inasmuch as B. A. Green, in proposing to him to advance the
machinery and equipment now in litigation. 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
On June 10, 1927, B. A. Green, president of the Mabalacat Sugar Co., Inc., applied e Hijos, said machinery and equipment would become security therefor, said B. A.
T;o Cu Unjieng e Hijos for an additional loan of P75,000 offering as security the Green binding himself not to mortgage nor encumber them to anybody until said
additional machinery and equipment acquired by said B. A. plaintiff be fully reimbursed for the corporation's indebtedness to him.

Green and installed in the sugar central after the execution of the original mortgage Upon acquiring the machinery and equipment in question with money obtained as
deed, on April 27, 1927, together with whatever additional equipment acquired with loan from the plaintiff-appellant by B. A. Green, as president of the Mabalacat Sugar
said loan. B. A. Green failed to obtain said loan. 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
Article 1877 of the Civil Code provides as follows. the payment of his credit.

"Art. 1877. A mortgage includes all natural accessions, improvements, growing Article 334, paragraph 5, of the Civil Code gives the character of real property to
fruits, and rents not collected when the obligation falls due, and the amount of any "machinery, liquid containers, instruments or implements intended by the owner of
indemnities paid or due the owner by the insurers of the mortgaged property or by any building or land for use in connection with any industry or trade being carried
virtue of the exercise of the power of eminent domain, with the declarations, on therein and which are expressly adapted to meet the requirements of such trade
amplifications, and limitations established by law, whether the estate continues in or industry."
If the installation of the machinery and equipment in question in the central of the Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts,
Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for' its with costs to the appellant. So ordered.
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 Malcolm, Imperial, Butte, and Goddard, JJ., concur.
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 Judgment affirmed.
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 NAVARRO V. PINEDA
the latter's credit and to refrain from mortgaging or otherwise encumbering them 9 SCRA 631
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. FACTS:
Green from giving them as security at least under a second mortgage. 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
As to the alleged sale of said machinery and equipment to the plaintiff and appellant owned by the mother while the chattel mortgage covered a residential house.
after they had been permanently incorporated with the sugar central of the Due to the failure to pay the loan, they asked for
Mabalacat Sugar Co., Inc., and while the mortgage constituted on said sugar central extensions to pay for the loan. On the second extension, Pineda executed a
to Cu Unjieng e Hijos remained in force, only the right of redemption of the vendor PROMISE wherein in case of default in payment, he wouldn’t ask for any additional
Mabalacat Sugar Co., Inc., in the sugar central with which said machinery and extension and there would be no need for any formal demand. In spite of this, they
equipment had been incorporated, was transferred thereby, subject to the right of still failed to pay.
the defendants Cu Unjieng e Hijos under the first mortgage. Navarro then filed for the foreclosure of the mortgages. The court decided in his
favor.
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 HELD:
another of less capacity, for the purpose of carrying out the industrial functions of Where a house stands on a rented land belonging to another person, it may
the latter and increasing production, constitutes a permanent improvement on said be the subject matter of a chattel mortgage as personal property if so stipulated in
sugar central and subjects said machinery and equipment to the mortgage the document of mortgage, and in an action by the mortgagee for the foreclosure,
constituted thereon (article 1877, Civil Code) ; (2) that the fact that the purchaser of the validity of the chattel mortgage cannot be assailed
the new machinery and equipment has bound himself to the person supplying him by one of the parties to the contract of mortgage.
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 Furthermore, although in some instances, a house of mixed materials has been
permanent character of the incorporation of said machinery and equipment with considered as a chattel between the parties and that the validity of the contract
the central; and (3) that the sale of the machinery and equipment in question by the between them, has been recognized, it has been a constant criterion that
purchaser who was supplied the purchase money, as a loan, to the person who with respect to third persons, who are not parties to the
supplied the money, after the incorporation thereof with the mortgaged sugar contract, and specially in execution proceedings, the house is considered as
central, does not vest the creditor with ownership of said machinery and equipment immovable property.
but simply with the right of redemption.
118 Phil. 1481 "WHEREFORE, in view of the foregoing it is most respectfully prayed that this
Honorable Court render judgment granting the defendants until January 31, 1961,
NAVARRO V. PINEDA within which to pay their obligation to the plaintiff."
9 SCRA 631 On September 30, 1960, plaintiff presented a Motion for Summary Judgment,
claiming that the Answer failed to tender any genuine and material issue. The
PAREDES, J.: motion was set for hearing, but the record is net clear what ruling the lower court
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales made on the said motion. On November 11, 1960, however, the parties submitted a
(married to Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum Stipulation of Facts, wherein the defendants admitted the indebtedness, the
of P2,550.00, payable 6 months after said date or on June 14, 1959. To secure the authenticity and due execution of the Real Estate and Chattel Mortgages; that the
indebtedness, Rufino executed a document captioned "DEED OF REAL ESTATE and indebtedness has been due and unpaid since June 14, 1960; that a liability of 12%
CHATTEL MORTGAGES", whereby Juana Gonzales, by way of Real Estate per annum as interest was agreed, upon failure to pay the principal when due and
Mortgage hypothecated a parcel of land, belonging to her, registered with the P500.00 as liquidated damages; that the instrument had been registered in the
Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and Rufino Registry of Property and Motor Vehicles Office, both of the province of Tarlac; that
G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house, the only issue in the case is whether or not the deed of Real Estate and Chattel
having a floor area of 912 square meters, erected on a lot belonging to Atty. Vicente Mortgages is valid, particularly on the questions of whether or not the residential
Castro, located at Bo. San Roque, Tarlac, Tarlac; and one motor truck, registered in house, subject of the mortgage therein, can be considered a chattel and the
his name, under Motor Vehicle Registration Certificate No A-171806. Both propriety of the attorney's fees.
mortgages were contained in one instrument, which was registered in both the On February 24, 1961, the lower court held-
Office of the Register of Deeds and the Motor Vehicles Office of Tarlac. "* * WHEREFORE, this Court renders decision in this Case:
When the mortgage debt became due and payable, the defendants, after demands (a) Dismissing the complaint with regards to defendant Gregorio Pineda;
made on them, failed to pay. They, however, asked and were granted an extension (b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramona
up to June 30, 1960, within which to pay. Came June 30, defendants again failed to Reyes, to pay jointly and severally and within ninety (90) days from the receipt of
pay and, for the second time, asked for another extension, which was given, up to the copy of this decision to the plaintiff Conrado P. Navarro the principal sum of
July 30, 1960. In the second extension, defendant Pineda in a document entitled P2,550.00 with 12% compounded interest per annum from June 14, 1960, until said
"Promise", categorically stated that in the remote event he should fail to make good principal sum and interests are fully paid, plus P500.00 as liquidated damages and
the obligation on such date (July 30, 1960), the defendant would no longer ask for the costs of this suit, with the warning that in default of said payment the properties
further extension and there would be no need for any formal demand, and plaintiff mentioned in the deed of real estate mortgage and chattel mortgage (Annex 'A' to
could proceed to take whatever action he might desire to enforce his rights, under the complaint) be sold to realize said mortgage debt, interests, liquidated damages
the said mortgage contract. In spite of said premise, defendants failed and refused and costs, in accordance with the pertinent provisions of Act 3135, as amended by
to pay the obligation. Act 4118, and Art. 14 of the Chattel Mortgage Law, Act 1508; and
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and (c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver
for damages, which consisted of liquidated damages in the sum of P500.00 and 12% immediately to the Provincial Sheriff of Tarlac the personal properties mentioned in
per annum interest on the principal, effective on the date of maturity, until fully said Annex 'A', immediately after the lapse of the ninety (90) days above-mentioned,
paid. in default of such payment."
Defendants, answering the complaint, among others, stated The above judgment was directly appealed to this Court, the defendants therein
"Defendants admit that the loan is overdue but deny that portion of paragraph 4 of assigning only a single error, allegedly committed by the lower court, to wit
the First Cause of Action which states that the defendants unreasonably failed and "In holding that the deed of real estate and chattel mortgages appended to the
refuse to pay their obligation to the plaintiff the truth being the defendants are hard complaint is valid, notwithstanding the fact that the house of the defendant Rufino
up these days and pleaded to the plaintiff to grant them more time within which to G. Pineda was made the subject of the chattel mortgage, for the reason that it is
pay their obligation and the plaintiff refused; * * * 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 stipulated in the document of mortgage. (Evangelista vs. Abad, supra). It should be
immaterial, it is enough that the house adheres to the land; that in case of noted, however, that the principle is predicated on statements by the owner
immovables by incorporation, such as houses, trees, plants, etc; the Code does not declaring his house to be a chattel, a conduct that may conceivably estop him from
require that the attachment or incorporation be made by the owner of the land, the subsequent claiming otherwise (Ladera, et al. vs. C.W. Hodges, et al., [CA]; 48 Off.
only criterion being the union or incorporation with the soil. In other words, it is Gaz., 5374). The doctrine, therefore, gathered from these cases is that although in
claimed that "a building is an immovable property, irrespective of whether or not some instances, a house of mixed materials has been considered as a chattel
said structure and the land on which it is adhered to, belong to the same owner" between the parties and that the validity of the contract between them, has been
(Lopez vs. Orosa, 103 Phil., 98). (See also the case of Leung Yee vs. Strong Machinery recognized, it has been a constant criterion nevertheless that, with respect to third
Co., 37 Phil. 644 ). Appellants argue that since only movables can be the subject of a persons, who are not parties to the contract, and specially in execution proceedings,
chattel mortgage (Sec. 1, Act No. 3952), then the mortgage in question which is the the house is considered as an immovable property (Art. 1431, New Civil Code).
basis of the present action, cannot give rise to an action for foreclosure because it is In the case at bar, the house in question was treated as personal or movable
a nullity. (Citing Associated Ins. Co., et al. vs. Isabel Iya, Isabel lya vs. Adriano Valino, property, by the parties to the contract themselves. In the deed of chattel mortgage,
et al 103 Phil., 972;). appellant Rufino G. Pineda conveyed by way of "Chattel Mortgage" "my personal
The trial court did not predicate its decision declaring the deed of chattel mortgage properties", a residential house and a truck. The mortgagor himself grouped the
valid solely on the ground that the house mortgaged was erected on the land which house with the truck, which is, inherently a movable property. The house which was
belonged to a third person, but also and principally on the doctrine of estoppel, in not even declared for taxation purposes was small and made of light construction
that "the parties have so expressly agreed" in the mortgage to consider the house as materials: G.I. sheets roofing, sawali and wooden walls and wooden posts; built on
a chattel "for its smallness and mixed materials of sawali and wood". In construing land belonging to another.
Arts. 334 and 335 of the Spanish Civil Code (corresponding to Arts. 415 and 416, The cases cited by appellants are not applicable to the present case. The Iya cases,
N.C.C.), for purposes of the application of the Chattel Mortgage Law, it was held that 103 Phil., 972 supra), refer to a building or a house of strong materials, permanently
under certain conditions, "a property may have a character different from that adhered to the land, belonging to the owner of the house himself. In the case of
imputed to it in said articles. It is undeniable that the parties to a contract may by Lopez vs. Orosa, (103 Phil., 98), the subject building was a theatre, built of materials
agreement, treat as personal property that which by nature would be real property" worth more than P62 000.00 attached permanently to the soil. In these two cases
(Standard Oil Co. of N.Y. vs. Jaranillo, 44 Phil., 632-633). "There can not be any and in the Leung Yee Case, supra, third persons assailed the validity of the deed of
question that a building of mixed materials may be the subject of a chattel chattel mortgages; in the present case, it was one of the parties to the contract of
mortgage, in which case, it is considered as between the parties as personal mortgages who assailed its validity.
property. * *. The matter depends on the circumstances and the intention of the Conformably with all the foregoing, the decision appealed from, should be, as it is
parties". "Personal property may retain its character as such where it is so agreed by hereby affirmed, with costs against appellants.
the parties interested even though annexed to the realty * *". (42 Am. Jur. 209-210, Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Barrera, Dizon,
cited in Manarang, et al. vs. Ofilada, et al., 99 Phil., 108; 52 Off. Gaz., No. 8, p. 3954). Regala, and Makalintal, JJ., concur.
The view that parties to a deed of chattel mortgage may agree to consider a house Republic of the Philippines
as personal property for the purposes of said contract, "is good only insofar as the SUPREME COURT
contracting parties are concerned. It is based, partly, upon the principles of estoppel Manila
* *" (Evangelista vs. Alto Surety 103 Phil., 401). In a case, a mortgaged house built EN BANC
on a rented land, was held to be a personal property not only because the deed of G.R. No. L-32030 July 2, 1930
mortgage considered it as such, but also because it did not form an integral part of SOFIA LAVARRO, ET AL., plaintiffs-appellants,
the land (Evangelista vs. Abad, [CA]; 36 Off. Gaz., 2913), for it is now well settled vs.
that an object placed on land by one who has only a temporary right to the same, REGINA LABITORIA, ET AL., defendants-appellants.
such as a lessee or usufructuary, does not become immobilized by attachment M. H. de Joya and Enrique Tiangco for plaintiffs-appellants.
(Valdez vs. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co. Inc. vs. Castillo, Mariano Escueta for defendants-appellants.
et al., 61 Phil. 709). Hence, if a house belonging to a person stands on a rented OSTRAND, J.:
land belonging to another person, it may be mortgaged as a personal property if so
Anastacio Labitoria, who died over thirty years ago, was the original owner of a tract hectares, 88 ares, and 77 centiares of land, together with 850 coconut palms instead
of land divided into three parcels and situated in the barrio of Mangilag, municipality of 520.
of Candelaria, Province of Tayabas. He left four children, Francisco, Liberata, Tirso, The present action was initiated by Sofia Lavarro and her daughters, Apolonia and
and Eustacio Labitoria. Francisco acquired the shares of Tirso and Eustacio together Isabel Alcantara, on August 15, 1927, against Regina Labitoria and Marciano
with the greater part of that of Liberata, and thus became the owner of nearly all of Labitoria, the latter as administrator of the estate of the deceased Macario
the land. After his death, his children, Macario and Regina Labitoria, became the Labitoria. In their amended complaint, the plaintiffs allege that on or about the year
owners of his interest in the land. 1897, Sofia Lavarro and her husband, Crispulo Alcantara, planted 2,850 coconut
Sofia Lavarro is the daughter of Liberata Labitoria, and in or about the year 1897, palms on the land above-mentioned, of which 1,970 trees were actually alive and
her first husband, Crispulo Alcantara, borrowed P330 from Francisco Labitoria on bearing fruit; that after the death of Crispulo Alcantara in the year 1910, Sofia
the condition that Alcantara should plant 3,300 coconut palms on the land to be Lavarro, being then a widow, planted 2,200 coconut palms on the same tract of
divided in equal shares between the parties, the loan to be paid back by turning land, 2,000 palms being still in existence and the greater part of them bearing fruit;
over to the creditor 330 coconut palms out of the share of Alcantara and Sofia. that from the year 1897, the plaintiffs had been in possession of the above-
Under this agreement, about 1,700 palms were planted by Alcantara, but later on, mentioned plantings and had collected the fruits, but that the defendants were now
further plantings were made by his wife, Sofia Lavarro. endeavoring to take possession of said coconut palms; and that each coconut palm
In July, 1916, the land was registered in the names of Macario Labitoria, Regina was worth P12. The plaintiffs therefore prayed that unless the defendants paid to
Labitoria, Bernardo Labitoria, Vidal Labitoria, Ariston Lavarro, Sofia Lavarro, and the plaintiffs the sum of P47,640, the value of the 3,970 palms planted, it be
Isidro Lavaris. Nothing seems to have been said about the improvements on the ordered that said plaintiffs be allowed to continue in possession of said coconut
land and no special mention of them appears in the certificate of title. Neither were palms in accordance with the law.
the respective shares of the persons to whom the land was adjudicated definitely In their answer to the complaint, the defendants set up as special defenses res
determined. judicata and prescription.
On October 31, 1916, Macario, Regina, and Bernardo Labitoria and Ariston Lavarro Upon trial, the court below, basing its decision on the case of Bautista vs. Jimenez
brought an action against Sofia Lavarro and her then husband, Emeterio Pureza, for (24 Phil., 111), and article 361 of the Civil Code, ordered the defendants to pay the
the partition of the land with its improvements. The action is civil case No. 351 of plaintiffs the sum of P4,820 for 1,205 coconut palms or to require the plaintiffs to
the Court of First Instance of Tayabas. In her answer in that case, Sofia Lavarro set purchase the land, the plaintiffs to retain the coconut palms until the aforesaid sum
up a cross-complaint alleging, among other things, that she was a coowner of the was paid. From this judgment both the plaintiffs and defendants appealed.
land and was entitled to a large proportion of the coconut palms thereon. The It is very obvious that the court below erred in rendering judgment in favor of the
prayer of the cross-complaint reads as follows: plaintiffs. This is an action for compensation for improvements alleged to have been
Wherefore, by this cross-complaint Sofia Lavarro and Emeterio Pureza, made by the plaintiffs on the land awarded to the defendants and is brought
through their undersigned attorney, pray the court to decree the partition notwithstanding the fact that the question of improvements was put in issue in case
of the three parcels of land described above, with all the improvements No. 351 and that the portion of land due Sofia Lavarro, and the improvements as
thereon, allotting to Sofia Lavarro and Emeterio Pureza their rightful well, were determined and adjudicated by the court in that case. Her rights in regard
portion, and ordering Macario Labitoria to render the proper accounts, to the improvements are consequently res judicata.
and to deliver to his coheirs their proportionate part of the fruits and But it is intimated that, while in the earlier case the issues related to the ownership
products of said lands, with costs against the cross-complaint defendants. of the improvements, the issue here is only a question of money payment and that
(Emphasis supplied.) therefore the causes of action are different. Assuming, without conceding, that such
Upon trial partition was ordered, and Sofia Lavarro was awarded 520 coconut trees is the case, the result would be the same. The issues in both cases arose from the
and 43,391 square meters of land. She thereupon appealed to the Supreme Court, same source or transactions and should have been determined in the same case
and a decision was rendered by that court on March 24, 1927,1 in which it was held (sec. 97, Code of Civil Procedure). A judgment upon the merits bars a subsequent
that Sofia Lavarro was entitled to 1/28 of the land. In all the respects, the decision of suit upon the same cause, though brought in a different form of action. (White vs.
the Court of First Instances was affirmed. The partition seems to have been carried Martin, 1 Port. [Ala.], 215.) "The principle is firmly established that a party will not
out in conformity with the decision of the Supreme Court, and Sofia was awarded 6 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 6. The land on which the building has been erected was previously owned by Orosa,
the cause of action will be a bar to an action brought upon the other part. Not only which was later on purchased by the corporation.
is it a bar to suit, but the plaintiff in the former action cannot subsequently avail 7. Due to the incessant demands of Lopez, the corporation mortgaged its properties.
himself of the residue by way of offset in an action against him by the opposite 8. On an earlier relevant date, the corporation obtained a loan with Luzon Surety
party." (15 R. C. L., 965) In passing, it may be noted that a close examination of the Company as surety and in turn, the corporation executed a mortgage over the land
facts in the case of Bautista vs. Jimenez (24 Phil., 111), will show that it differs and building. In the registration of the land under Act 496, such mortgage wasn’t
materially from the present case; the case of Berses vs. Villanueva (25 Phil., 473), is revealed.
more in point. 9. Also due to the demands of Lopez, Orosa issued a deed of assignment over his
As to the other plaintiffs, Apolonia and Isabel Alcantara, it is sufficient to say that if shares of stock in the corporation.
they had any claim to the property or improvements, such claims should have been 10. As there was still an unpaid balance, Lopez filed a case against Orosa and Plaza
presented in the registration proceedings in 1916; trees and plants annexed to the theatre. He asked that Orosa and Plaza theatre be held liable solidarily for the
land are parts thereof and unless rights or interests in such trees or plants are unpaid balance; and in case defendants failed to pay, the land and building should
claimed in the registration proceedings by others, they become the property of the be sold in public auction with the proceeds to be applied to the balance; or
persons to whom the land is adjudicated. By timely proceedings in equity, matters of that the shares of stock be sold in public auction. Lopez also had lis pendens be
that character, if fraudulent, may sometimes be corrected, but in the present case, annotated in the OCT.
the plaintiffs Apolonia and Isabel Alcantara did not prosecute their alleged rights 11. The trial court decided that there was joint liability between defendants and that
until eleven years after the registration of the property, and it is obvious that the materialman’s lien was only confined tothe building.
whatever rights they may have had are now lost by prescription. ISSUES:
The judgment of the court below is therefore reversed, and the case is dismissed W/N the materialmen’s lien for the value of the materials used in the construction
with the costs in both instances against the plaintiffs, jointly and severally. So of the building attaches to said structure alone and doesn’t extend to the land on
ordered. which the building is adhered to?
Malcolm, Villamor, Johns, Romualdez, and Villa-Real, JJ., concur. 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
Footnotes building was constructed is without merit. For while it is true that generally, real
1G.R. No. 25385 Labitoria vs. Lavarro, not reported. estate connotes the land and the building constructed thereon, it is obvious that the
LOPEZ V. OROSA AND PLAZA THEATRE inclusion of the building in the enumeration of what may constitute real properties
103 SCRA 98 could only mean one thing—that a building is by itself an immovable property.
FACTS: Moreover, in the absence of
1. Lopez was engaged in business under the name Lopez-Castelo Sawmill. any specific provision to the contrary, a building is an immovable property
2. Orosa, who lived in the same province as Lopez, one dayapproached Lopez and irrespective of whether or not said structure and the land on which it is adhered to
invited the latter to make an investment inthe theatre business. belong to the same owner.
3. Orosa, his family and close friends apparently were forming acorporation named Appelant invoked Article 1923 of the Spanish Civil Code, which provides—“With
Plaza Theatre. respect to determinate real property and real rights of the debtor, the following are
4. Lopez expressed his unwillingness to invest. Nonetheless, therewas an oral preferred: xxx Credits for reflection, not entered or recorded, and only with respect
agreement between Lopez and Orosa that Lopezwould be supplying the lumber for to other credits different from those mentioned in four next preceding paragraphs.”
the construction of the theatre.The terms were the following: one, Orosa would be Close examination of the abovementioned provision reveals that the law gives
personallyliable for any account that the said construction would incur; preference to unregistered refectionary credits only with respect to the real estate
two,payment would be by demand and not by cash on delivery. upon which the refectionary or work was made. This being so, the inevitable
5. Pursuant to the agreement, Lopez delivered the lumber for theconstruction. conclusion must be that the lien so created attaches merely to the immovable
Lopez was only paid one-third of the total cost. 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 was not revealed and thus Original Certificate of Title No. O-391 was
property of the obligors. correspondingly issued on October 25, 1947, without any encumbrance appearing
Republic of the Philippines thereon.
SUPREME COURT Persistent demand from Lopez for the payment of the amount due him caused
Manila Vicente Orosa, Jr. to execute on March 17, 1947, an alleged "deed of assignment" of
EN BANC his 420 shares of stock of the Plaza Theater, Inc., at P100 per share or with a total
G.R. Nos. L-10817-18 February 28, 1958 value of P42,000 in favor of the creditor, and as the obligation still remained
ENRIQUE LOPEZ, petitioner, unsettled, Lopez filed on November 12, 1947, a complaint with the Court of First
vs. Instance of Batangas (Civil Case No. 4501 which later became R-57) against Vicente
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents. Orosa, Jr. and Plaza Theater, Inc., praying that defendants be sentenced to pay him
Nicolas Belmonte and Benjamin T. de Peralta for petitioner. jointly and severally the sum of P41,771.35, with legal interest from the firing of the
Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. action; that in case defendants fail to pay the same, that the building and the land
Macatangay for respondent Plaza Theatre, Inc. covered by OCT No. O-391 owned by the corporation be sold at public auction and
FELIX, J.: the proceeds thereof be applied to said indebtedness; or that the 420 shares of the
Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade capital stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff
name of Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a be sold at public auction for the same purpose; and for such other remedies as may
resident of the same province, dropped at Lopez' house and invited him to make an be warranted by the circumstances. Plaintiff also caused the annotation of a notice
investment in the theatre business. It was intimated that Orosa, his family and close of lis pendens on said properties with the Register of Deeds.
friends were organizing a corporation to be known as Plaza Theatre, Inc., that would Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the
engage in such venture. Although Lopez expressed his unwillingness to invest of the first denying that the materials were delivered to him as a promoter and later
same, he agreed to supply the lumber necessary for the construction of the treasurer of the corporation, because he had purchased and received the same on
proposed theatre, and at Orosa's behest and assurance that the latter would be his personal account; that the land on which the movie house was constructed was
personally liable for any account that the said construction might incur, Lopez not charged with a lien to secure the payment of the aforementioned unpaid
further agreed that payment therefor would be on demand and not cash on delivery obligation; and that the 420 shares of stock of the Plaza Theatre, Inc., was not
basis. Pursuant to said verbal agreement, Lopez delivered the lumber which was assigned to plaintiff as collaterals but as direct security for the payment of his
used for the construction of the Plaza Theatre on May 17, 1946, up to December 4 indebtedness. As special defense, this defendant contended that as the 420 shares
of the same year. But of the total cost of the materials amounting to P62,255.85, of stock assigned and conveyed by the assignor and accepted by Lopez as direct
Lopez was paid only P20,848.50, thus leaving a balance of P41,771.35. security for the payment of the amount of P41,771.35 were personal properties,
We may state at this juncture that the Plaza Theatre was erected on a piece of land plaintiff was barred from recovering any deficiency if the proceeds of the sale
with an area of 679.17 square meters formerly owned by Vicente Orosa, Jr., and was thereof at public auction would not be sufficient to cover and satisfy the obligation.
acquired by the corporation on September 25, 1946, for P6,000. As Lopez was It was thus prayed that he be declared exempted from the payment of any
pressing Orosa for payment of the remaining unpaid obligation, the latter and deficiency in case the proceeds from the sale of said personal properties would not
Belarmino Rustia, the president of the corporation, promised to obtain a bank loan be enough to cover the amount sought to be collected.
by mortgaging the properties of the Plaza Theatre., out of which said amount of Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of
P41,771.35 would be satisfied, to which assurance Lopez had to accede. Unknown defense by alleging that the building materials delivered to Orosa were on the
to him, however, as early as November, 1946, the corporation already got a loan for latter's personal account; and that there was no understanding that said materials
P30,000 from the Philippine National Bank with the Luzon Surety Company as would be paid jointly and severally by Orosa and the corporation, nor was a lien
surety, and the corporation in turn executed a mortgage on the land and building in charged on the properties of the latter to secure payment of the same obligation. As
favor of said company as counter-security. As the land at that time was not yet special defense, defendant corporation averred that while it was true that the
brought under the operation of the Torrens System, the mortgage on the same was materials purchased by Orosa were sold by the latter to the corporation, such
registered on November 16, 1946, under Act No. 3344. Subsequently, when the transactions were in good faith and for valuable consideration thus when plaintiff
corporation applied for the registration of the land under Act 496, such mortgage 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 required to pay jointly the amount of P41,771.35 with legal interest and costs within
rights he might have in the same and consequently had no recourse against the 90 days from notice of said decision; that in case of default, the 420 shares of stock
Plaza Theatre, Inc., that the claim could not have been refectionary credit, for such assigned by Orosa to plaintiff be sold at public auction and the proceeds thereof be
kind of obligation referred to an indebtedness incurred in the repair or applied to the payment of the amount due the plaintiff, plus interest and costs; and
reconstruction of something already existing and this concept did not include an that the encumbrance in favor of the surety company be endorsed at the back of
entirely new work; and that the Plaza Theatre, Inc., having been incorporated on OCT No. O-391, with notation I that with respect to the building, said mortgage was
October 14, 1946, it could not have contracted any obligation prior to said date. It subject to the materialman's lien in favor of Enrique Lopez.
was, therefore, prayed that the complaint be dismissed; that said defendant be Plaintiff tried to secure a modification of the decision in so far as it declared that the
awarded the sum P 5,000 for damages, and such other relief as may be just and obligation of therein defendants was joint instead of solidary, and that the lien did
proper in the premises. not extend to the land, but same was denied by order the court of December 23,
The surety company, in the meantime, upon discovery that the land was already 1952. The matter was thus appealed to the Court of appeals, which affirmed the
registered under the Torrens System and that there was a notice of lis lower court's ruling, and then to this Tribunal. In this instance, plaintiff-appellant
pendens thereon, filed on August 17, 1948, or within the 1-year period after the raises 2 issues: (1) whether a materialman's lien for the value of the materials used
issuance of the certificate of title, a petition for review of the decree of the land in the construction of a building attaches to said structure alone and does not
registration court dated October 18, 1947, which was made the basis of OCT No. O- extend to the land on which the building is adhered to; and (2) whether the lower
319, in order to annotate the rights and interests of the surety company over said court and the Court of Appeals erred in not providing that the material mans liens is
properties (Land Registration Case No. 17 GLRO Rec. No. 296). Opposition thereto superior to the mortgage executed in favor surety company not only on the building
was offered by Enrique Lopez, asserting that the amount demanded by him but also on the land.
constituted a preferred lien over the properties of the obligors; that the surety It is to be noted in this appeal that Enrique Lopez has not raised any question
company was guilty of negligence when it failed to present an opposition to the against the part of the decision sentencing defendants Orosa and Plaza Theatre, Inc.,
application for registration of the property; and that if any violation of the rights and to pay jointly the sum of P41,771.35, so We will not take up or consider anything on
interest of said surety would ever be made, same must be subject to the lien in his that point. Appellant, however, contends that the lien created in favor of the
favor. furnisher of the materials used for the construction, repair or refection of a building,
The two cases were heard jointly and in a decision dated October 30, 1952, the is also extended to the land which the construction was made, and in support
lower Court, after making an exhaustive and detailed analysis of the respective thereof he relies on Article 1923 of the Spanish Civil Code, pertinent law on the
stands of the parties and the evidence adduced at the trial, held that defendants matter, which reads as follows:
Vicente Orosa, Jr., and the Plaza Theatre, Inc., were jointly liable for the unpaid ART. 1923. With respect to determinate real property and real rights of
balance of the cost of lumber used in the construction of the building and the the debtor, the following are preferred:
plaintiff thus acquired the materialman's lien over the same. In making the xxx xxx xxx
pronouncement that the lien was merely confined to the building and did not 5. Credits for refection, not entered or recorded, with respect to the estate
extend to the land on which the construction was made, the trial judge took into upon which the refection was made, and only with respect to other credits
consideration the fact that when plaintiff started the delivery of lumber in May, different from those mentioned in four preceding paragraphs.
1946, the land was not yet owned by the corporation; that the mortgage in favor of It is argued that in view of the employment of the phrase real estate, or immovable
Luzon Surety Company was previously registered under Act No. 3344; that the codal property, and inasmuch as said provision does not contain any specification
provision (Art. 1923 of the old Spanish Civil Code) specifying that refection credits delimiting the lien to the building, said article must be construed as to embrace both
are preferred could refer only to buildings which are also classified as real the land and the building or structure adhering thereto. We cannot subscribe to this
properties, upon which said refection was made. It was, however, declared that view, for while it is true that generally, real estate connotes the land and the
plaintiff's lien on the building was superior to the right of the surety company. And building constructed thereon, it is obvious that the inclusion of the building,
finding that the Plaza Theatre, Inc., had no objection to the review of the decree separate and distinct from the land, in the enumeration of what may constitute real
issued in its favor by the land registration court and the inclusion in the title of the properties1 could mean only one thing — that a building is by itself an immovable
encumbrance in favor of the surety company, the court a quo granted the petition property, a doctrine already pronounced by this Court in the case of Leung Yee vs.
filed by the latter company. Defendants Orosa and the Plaza Theatre, Inc., were thus 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, the CFI, ordering the return of the drive motor since it cannot be the subject of a
irrespective of whether or not said structure and the land on which it is adhered to replevin suit being an immovable bolted to the ground. Thus the case at bar.
belong to the same owner.
A close examination of the provision of the Civil Code invoked by appellant reveals ISSUE:
that the law gives preference to unregistered refectionary credits only with respect Whether the dryer is an immovable property
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 HELD: NO
immovable property for the construction or repair of which the obligation was The SC relied on its ruling in Tumalad v. Vicencio, that if a house of strong materials
incurred. Evidently, therefore, the lien in favor of appellant for the unpaid value of can be the subject of a Chattel Mortgage as long as the parties to the contract agree
the lumber used in the construction of the building attaches only to said structure and no innocent 3rd party will be prejudiced then moreso that a machinery may
and to no other property of the obligors. treated as a movable since it is movable by nature and becomes immobilized only by
Considering the conclusion thus arrived at, i.e., that the materialman's lien could be destination. And treating it as a chattel by way of a Chattel Mortgage, Wearever is
charged only to the building for which the credit was made or which received the estopped from claiming otherwise.
benefit of refection, the lower court was right in, holding at the interest of the Republic of the Philippines
mortgagee over the land is superior and cannot be made subject to the said SUPREME COURT
materialman's lien. Manila
Wherefore, and on the strength of the foregoing considerations, the decision SECOND DIVISION
appealed from is hereby affirmed, with costs against appellant. It is so ordered. G.R. No. L-58469 May 16, 1983
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, MAKATI LEASING and FINANCE CORPORATION, petitioner,
Concepcion, Reyes, J.B.L. and Endencia, JJ., concur. vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Footnotes Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
1Article 415 of the new Civil Code (Art. 334 of the old) enumerates what Jose V. Mancella for respondent.
are considered immovable property, among which are land, buildings,
roads and constructions of all kinds adhered to the soil. DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now
MAKATI LEASING AND FINANCE CORP. V. WEAREVER TEXTILE MILLS, INC. 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.
Parties to a contract may by agreement treat as personal property that which by Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI, issued
nature is a real property, as long as no interest of 3rd party would be prejudiced. 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.
FACTS: It appears that in order to obtain financial accommodations from herein petitioner
To obtain financial accommodations from Makati Leasing, Wearever Textile Makati Leasing and Finance Corporation, the private respondent Wearever Textile
discounted and assigned several receivables under a Receivable Purchase Mills, Inc., discounted and assigned several receivables with the former under a
Agreement with Makati Leasing. To secure the collection of receivables, it executed Receivable Purchase Agreement. To secure the collection of the receivables
a chattel mortgage over several raw materials and a machinery – Artos Aero Dryer assigned, private respondent executed a Chattel Mortgage over certain raw
Stentering Range (Dryer). materials inventory as well as a machinery described as an Artos Aero Dryer
Stentering Range.
Wearever defaulted thus the properties mortgaged were extrajudicially foreclosed. Upon private respondent's default, petitioner filed a petition for extrajudicial
The sheriff, after the restraining order was lifted, was able to enter the premises of foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned
Wearever and removed the drive motor of the Dryer. The CA reversed the order of 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 A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where
thereafter filed a complaint for judicial foreclosure with the Court of First Instance of this Court, speaking through Justice J.B.L. Reyes, ruled:
Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court. Although there is no specific statement referring to the subject
Acting on petitioner's application for replevin, the lower court issued a writ of house as personal property, yet by ceding, selling or transferring
seizure, the enforcement of which was however subsequently restrained upon a property by way of chattel mortgage defendants-appellants
private respondent's filing of a motion for reconsideration. After several incidents, could only have meant to convey the house as chattel, or at
the lower court finally issued on February 11, 1981, an order lifting the restraining least, intended to treat the same as such, so that they should
order for the enforcement of the writ of seizure and an order to break open the not now be allowed to make an inconsistent stand by claiming
premises of private respondent to enforce said writ. The lower court reaffirmed its otherwise. Moreover, the subject house stood on a rented lot to
stand upon private respondent's filing of a further motion for reconsideration. which defendants-appellants merely had a temporary right as
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of lessee, and although this can not in itself alone determine the
private respondent and removed the main drive motor of the subject machinery. status of the property, it does so when combined with other
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by factors to sustain the interpretation that the parties, particularly
herein private respondent, set aside the Orders of the lower court and ordered the the mortgagors, intended to treat the house as personality.
return of the drive motor seized by the sheriff pursuant to said Orders, after ruling Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza
that the machinery in suit cannot be the subject of replevin, much less of a chattel Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
mortgage, because it is a real property pursuant to Article 415 of the new Civil Code, Williamson, wherein third persons assailed the validity of the
the same being attached to the ground by means of bolts and the only way to chattel mortgage, it is the defendants-appellants themselves, as
remove it from respondent's plant would be to drill out or destroy the concrete debtors-mortgagors, who are attacking the validity of the chattel
floor, the reason why all that the sheriff could do to enfore the writ was to take the mortgage in this case. The doctrine of estoppel therefore applies
main drive motor of said machinery. The appellate court rejected petitioner's to the herein defendants-appellants, having treated the subject
argument that private respondent is estopped from claiming that the machine is house as personality.
real property by constituting a chattel mortgage thereon. Examining the records of the instant case, We find no logical justification to exclude
A motion for reconsideration of this decision of the Court of Appeals having been the rule out, as the appellate court did, the present case from the application of the
denied, petitioner has brought the case to this Court for review by writ of certiorari. abovequoted pronouncement. If a house of strong materials, like what was involved
It is contended by private respondent, however, that the instant petition was in the above Tumalad case, may be considered as personal property for purposes of
rendered moot and academic by petitioner's act of returning the subject motor executing a chattel mortgage thereon as long as the parties to the contract so agree
drive of respondent's machinery after the Court of Appeals' decision was and no innocent third party will be prejudiced thereby, there is absolutely no reason
promulgated. why a machinery, which is movable in its nature and becomes immobilized only by
The contention of private respondent is without merit. When petitioner returned destination or purpose, may not be likewise treated as such. This is really because
the subject motor drive, it made itself unequivocably clear that said action was one who has so agreed is estopped from denying the existence of the chattel
without prejudice to a motion for reconsideration of the Court of Appeals decision, mortgage.
as shown by the receipt duly signed by respondent's representative. 1 Considering In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the
that petitioner has reserved its right to question the propriety of the Court of Court of Appeals lays stress on the fact that the house involved therein was built on
Appeals' decision, the contention of private respondent that this petition has been a land that did not belong to the owner of such house. But the law makes no
mooted by such return may not be sustained. distinction with respect to the ownership of the land on which the house is built and
The next and the more crucial question to be resolved in this Petition is whether the We should not lay down distinctions not contemplated by law.
machinery in suit is real or personal property from the point of view of the parties, It must be pointed out that the characterization of the subject machinery as chattel
with petitioner arguing that it is a personality, while the respondent claiming the by the private respondent is indicative of intention and impresses upon the property
contrary, and was sustained by the appellate court, which accordingly held that the the character determined by the parties. As stated in Standard Oil Co. of New York v.
chattel mortgage constituted thereon is null and void, as contended by said Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by
respondent.
agreement treat as personal property that which by nature would be real property, Facts:
as long as no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had Meralco constructed 40 steel towers within Quezon City, which carry electric
never represented nor agreed that the machinery in suit be considered as personal transmission wires attached to insulators from its hydro-electric plant located in the
property but was merely required and dictated on by herein petitioner to sign a province of Laguna to the City of Manila.
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 The City Assessor of Quezon City declared Meralco's steel towers for real property
denied by the respondent, the status of the subject machinery as movable or tax.
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 Issue:
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 Whether or not Meralco's steel towers are considered real properties so that they
contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a can be subject to real property tax.
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, Held:
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 No, Meralco's steel towers are not considered real properties that can be subject to
therefore, be allowed to impugn the efficacy of the chattel mortgage after it has real property tax.
benefited therefrom,
From what has been said above, the error of the appellate court in ruling that the Article 415 of the Civil Code states the following are immovable properties:
questioned machinery is real, not personal property, becomes very apparent.
Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, (1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
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 (3) Everything attached to an immovable in a fixed manner, in such a way that it
disputed nor in issue, and they were not the subject of a Chattel Mortgage. cannot be separated therefrom without breaking the material or deterioration of
Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant the object;
case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are (5) Machinery, receptacles, instruments or implements intended by the owner of
hereby reversed and set aside, and the Orders of the lower court are hereby the tenement for an industry or works, which may be carried in a building or on a
reinstated, with costs against the private respondent. piece of land, and which tends directly to meet the needs of the said industry or
SO ORDERED. works;
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.
Abad Santos, J., concurs in the result. The steel towers do not come within the objects mentioned in above paragraphs.

Footnotes They are not construction analogous to buildings nor adhering to the soil. They are
1 p. 52, Rollo. 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.

BOARD v MERALCO They are also not attached to an immovable in a fixed manner, and they can be
Article 415 of the Civil Code: Real Property separated without breaking the material or causing deterioration upon the object to
which they are attached.
Steel towers are not immovable property under paragraph 1, 3 and 5 of Article 415.
They are not machinery, receptacles, instruments or implements intended for The steel towers or supports do not come within the objects mentioned in
industry or works on the land. Meralco is not engaged in an industry or works on paragraph 1, because they do not constitute buildings or constructions adhered to
the land in which the steel towers are constructed. 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
The decision of the Court of Tax Appeals, which ordered the cancellation of the tax attached to a square metal frame by means of bolts, which when unscrewed could
declarations, were affirmed by the Supreme Court. 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.