LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J.
G. WILLIAMSON, defendants-appellees.
Facts:
The "Compañia Agricola Filipina" bought a
considerable quantity of rice-cleaning machinery
company from the defendant machinery company, and
executed a chattel mortgage thereon to secure
payment of the purchase price. It included in the
mortgage deed the building of strong materials in which
the machinery was installed, without any reference to
the land on which it stood. The indebtedness secured
by this instrument not having been paid when it fell
due, the mortgaged property was sold by the sheriff, in
pursuance of the terms of the mortgage instrument,
and was bought in by the machinery company. The
mortgage was registered in the chattel mortgage
registry, and the sale of the property to the machinery
company in satisfaction of the mortgage was annotated
in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of
January, 1914, the "Compañia Agricola Filipina"
executed a deed of sale of the land upon which the
building stood to the machinery company, but this deed
of sale, although executed in a public document, was
not registered. This deed makes no reference to the
building erected on the land and would appear to have
been executed for the purpose of curing any defects
which might be found to exist in the machinery
company's title to the building under the sheriff's
certificate of sale. The machinery company went into
possession of the building at or about the time when
this sale took place, that is to say, the month of
December, 1913, and it has continued in possession
ever since.
At or about the time when the chattel mortgage was
executed in favor of the machinery company, the
mortgagor, the "Compañia Agricola Filipina" executed
another mortgage to the plaintiff upon the building,
separate and apart from the land on which it stood, to
secure payment of the balance of its indebtedness to
the plaintiff under a contract for the construction of the
building. Upon the failure of the mortgagor to pay the
amount of the indebtedness secured by the mortgage,
the plaintiff secured judgment for that amount, levied
execution upon the building, bought it in at the sheriff's
sale on or about the 18th of December, 1914, and had
the sheriff's certificate of the sale duly registered in the
land registry of the Province of Cavite.
At the time when the execution was levied upon the
building, the defendant machinery company, which was
in possession, filed with the sheriff a sworn statement
setting up its claim of title and demanding the release
of the property from the levy. Thereafter, upon demand
of the sheriff, the plaintiff executed an indemnity bond
in favor of the sheriff in the sum of P12,000, in reliance
upon which the sheriff sold the property at public
auction to the plaintiff, who was the highest bidder at
the sheriff's sale.
This action was instituted by the plaintiff to recover
possession of the building from the machinery
company.
Issue: Whether or not the plaintiff can recover
possession of the building.
Ruling:
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different
vendees, the ownership shall be transfer to the
person who may have the first taken possession
thereof in good faith, if it should be personal
property.
Should it be real property, it shall belong to the
person acquiring it who first recorded it in the
registry.
Should there be no entry, the property shall belong
to the person who first took possession of it in good
faith, and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
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The registry her referred to is of course the registry
of real property, and it must be apparent that the
annotation or inscription of a deed of sale of real
property in a chattel mortgage registry cannot be
given the legal effect of an inscription in the registry
of real property. By its express terms, the Chattel
Mortgage Law contemplates and makes provision
for mortgages of personal property; and the sole
purpose and object of the chattel mortgage registry
is to provide for the registry of "Chattel mortgages,"
that is to say, mortgages of personal property
executed in the manner and form prescribed in the
statute. The building of strong materials in which the
rice-cleaning machinery was installed by the
"Compañia Agricola Filipina" was real property, and
the mere fact that the parties seem to have dealt
with it separate and apart from the land on which it
stood in no wise changed its character as real
property. It follows that neither the original registry in
the chattel mortgage of the building and the
machinery installed therein, not the annotation in
that registry of the sale of the mortgaged property,
had any effect whatever so far as the building was
concerned.
BOARD OF ASSESSMENT APPEALS, CITY
ASSESSOR and CITY TREASURER OF QUEZON
CITY, petitioners, vs.
MANILA ELECTRIC COMPANY, respondent.
Facts:
The Philippine Commission enacted Act No. 484
which authorized the Municipal Board of Manila to
grant a franchise to construct, maintain and operate
an electric street railway and electric light, heat and
power system in the City of Manila.
Meralco's 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 wires, running from the province of
Laguna to the said City. These electric transmission
wires which carry high voltage current, are fastened
to insulators attached on steel towers constructed by
respondent at intervals, from its hydro-electric plant
in the province of Laguna to the City of Manila. The
respondent Meralco has constructed 40 of these
steel towers within Quezon City, on land belonging
to it.
The City Assessor of Quezon City declared the
aforesaid steel towers for real property tax under
Tax.
Respondent paid the amount under protest, and filed
a petition for review in the Court of Tax Appeals
Issue:
Whether or not the Meralco poles constitute real
properties so as they can be subjected to a real
property tax.
Held:
The tax law does not provide for a definition of real
property; but Article 415 of the Civil Code does, by
stating the following are immovable property:
(1) Land, buildings, roads, and constructions of all
kinds adhered to the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated
therefrom without breaking the material or
deterioration of the object;
xxx xxx xxx
(5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement
for an industry or works which may be carried in a
building or on a piece of land, and which tends
directly to meet the needs of the said industry or
works;
xxx xxx xxx
The steel towers or supports in question, do not
come within the objects mentioned in paragraph 1,
because they do not constitute buildings or
constructions adhered to the soil. They are not
construction analogous to buildings nor adhering to
the soil. As per description, given by the lower court,
they are removable and merely attached to a square
metal frame by means of bolts, which when
unscrewed could easily be dismantled and moved
from place to place. They can not be included under
paragraph 3, as they are not attached to an
immovable in a fixed manner, and they can be
separated without breaking the material or causing
deterioration upon the object to which they are
attached. Each of these steel towers or supports
consists of steel bars or metal strips, joined together
by means of bolts, which can be disassembled by
unscrewing the bolts and reassembled by screwing
the same. These steel towers or supports do not
also fall under paragraph 5, for they are not
machineries, receptacles, instruments or
implements, and even if they were, they are not
intended for industry or works on the land. Petitioner
is not engaged in an industry or works in the land in
which the steel supports or towers are constructed.
Note:
Poles - was used to denote the steel towers of an
electric company engaged in the generation of
hydro-electric power generated from its plant.
Davao Sawmill Co. vs. Castillo
61 SCRA 709
Facts:
The Davao Saw Mill Co., Inc., is the holder of a
lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the
sitio of Maa, barrio of Tigatu, municipality of Davao,
Province of Davao. However, the land upon which
the business was conducted belonged to another
person. On the land the sawmill company erected a
building which housed the machinery used by it.
In another action, wherein the Davao Light & Power
Co., Inc., was the plaintiff and the Davao, Saw, Mill
Co., Inc., was the defendant, a judgment was
rendered in favor of the plaintiff in that action against
the defendant in that action; a writ of execution
issued thereon, and the properties now in question
were levied upon as personal property by the sheriff.
No third party claim was filed for such properties at
the time of the sales thereof as is borne out by the
record made by the plaintiff herein.
Issue:
Whether or not the machinery mounted on
foundations of cement and installed by the lessee on
a lease land be regarded as real property.
Held:
The machinery which is movable in its nature only
becomes immobilized when placed in a plant by the
owner of the property or plant but not when so
placed by a tenant, a usufructuary, or any person
having only a temporary right, unless such person
acted as agent of the owner.
Immobilization by destination or purpose cannot
generally be made by a person whose possession of
property is only TEMPORARY, otherwise we will be
forced to presume that he intended to give the
property permanently away in favor of the owner of
the premises.
Serg’s Products and Goquiolay vs. PCI Leasing
and Finance
388 SCRA 499
Ratio:
After agreeing to a contract stipulating that a real or
immovable property be considered as personal or
movable, a party is estopped from subsequently
claiming otherwise. Hence, such property is a proper
subject of a writ of replevin obtained by the other
contracting party.
Facts:
"On February 13, 1998, respondent PCI Leasing and
Finance, Inc. ("PCI Leasing" for short) filed with the
RTC-QC a complaint for [a] sum of money (Annex
‘E’), with an application for a writ of replevin
docketed as Civil Case No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of
PCI Leasing, respondent judge issued a writ of
replevin (Annex ‘B’) directing its sheriff to seize and
deliver the machineries and equipment to PCI
Leasing after 5 days and upon the payment of the
necessary expenses.
"On March 24, 1998, in implementation of said writ,
the sheriff proceeded to petitioner’s factory, seized
one machinery with [the] word that he [would] return
for the other machineries.
"On March 25, 1998, petitioners filed a motion for
special protective order (Annex ‘C’), invoking the
power of the court to control the conduct of its
officers and amend and control its processes,
praying for a directive for the sheriff to defer
enforcement of the writ of replevin.
"This motion was opposed by PCI Leasing (Annex
‘F’), on the ground that the properties [were] still
personal and therefore still subject to seizure and a
writ of replevin.
"In their Reply, petitioners asserted that the
properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties’
agreement to the contrary notwithstanding. They
argued that to give effect to the agreement would be
prejudicial to innocent third parties. They further
stated that PCI Leasing [was] estopped from treating
these machineries as personal because the
contracts in which the alleged agreement [were]
embodied [were] totally sham and farcical.
"On April 6, 1998, the sheriff again sought to enforce
the writ of seizure and take possession of the
remaining properties. He was able to take two more,
but was prevented by the workers from taking the
rest.
"On April 7, 1998, they went to [the CA] via an
original action for certiorari."
Issue: WON the said machines are personal, not
immovable property which may be a proper subject
of a writ of replevin
Ruling:
Petitioners contend that the subject machines used
in their factory were not proper subjects of the Writ
issued by the RTC, because they were in fact real
property. Serious policy considerations, they argue,
militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of
replevin are issued for the recovery of personal
property only.15 Section 3 thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit
and approval of the bond, the court shall issue an
order and the corresponding writ of replevin
describing the personal property alleged to be
wrongfully detained and requiring the sheriff
forthwith to take such property into his custody."
On the other hand, Article 415 of the Civil Code
enumerates immovable or real property as follows:
"ART. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement
for an industry or works which may be carried on in a
building or on a piece of land, and which tend
directly to meet the needs of the said industry or
works;
xxx xxx x x x"
In the present case, the machines that were the
subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own land.
Indisputably, they were essential and principal
elements of their chocolate-making industry. Hence,
although each of them was movable or personal
property on its own, all of them have become
"immobilized by destination because they are
essential and principal elements in the industry."16
In that sense, petitioners are correct in arguing that
the said machines are real, not personal, property
pursuant to Article 415 (5) of the Civil Code.17
Be that as it may, we disagree with the submission
of the petitioners that the said machines are not
proper subjects of the Writ of Seizure.
The Court has held that contracting parties may
validly stipulate that a real property be considered as
personal.18 After agreeing to such stipulation, they
are consequently estopped from claiming otherwise.
Under the principle of estoppel, a party to a contract
is ordinarily precluded from denying the truth of any
material fact found therein.
Hence, in Tumalad v. Vicencio,19 the Court upheld
the intention of the parties to treat a house as a
personal property because it had been made the
subject of a chattel mortgage. The Court ruled:

"x x x. Although there is no specific statement

referring to the subject house as personal property,
yet by ceding, selling or transferring a property by
way of chattel mortgage defendants-appellants could
only have meant to convey the house as chattel, or
at least, intended to treat the same as such, so that
they should not now be allowed to make an
inconsistent stand by claiming otherwise."

Applying Tumalad, the Court in Makati Leasing and

Finance Corp. v. Wearever Textile Mills20 also held
that the machinery used in a factory and essential to
the industry, as in the present case, was a proper
subject of a writ of replevin because it was treated
as personal property in a contract. Pertinent portions
of the Court’s ruling are reproduced hereunder:

"x x x. If a house of strong materials, like what was

involved in the above Tumalad case, may be
considered as personal property for purposes of
executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third
party will be prejudiced thereby, there is absolutely
no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination
or purpose, may not be likewise treated as such.
This is really because one who has so agreed is
estopped from denying the existence of the chattel
mortgage."

In the present case, the Lease Agreement clearly

provides that the machines in question are to be
considered as personal property. Specifically,
Section 12.1 of the Agreement reads as follows:21

"12.1 The PROPERTY is, and shall at all times be

and remain, personal property notwithstanding that
the PROPERTY or any part thereof may now be, or
hereafter become, in any manner affixed or attached
to or embedded in, or permanently resting upon, real
property or any building thereon, or attached in any
manner to what is permanent."

Clearly then, petitioners are estopped from denying

the characterization of the subject machines as
personal property. Under the circumstances, they
are proper subjects of the Writ of Seizure.

It should be stressed, however, that our holding --

that the machines should be deemed personal
property pursuant to the Lease Agreement – is good
only insofar as the contracting parties are
concerned.22 Hence, while the parties are bound by
the Agreement, third persons acting in good faith are
not affected by its stipulation characterizing the
subject machinery as personal.23 In any event,
there is no showing that any specific third party
would be adversely affected.