Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11658 February 15, 1918 DOCTRINE: Ownership of property depends on dominion

LEUNG YEE, Compaia Agricola Filipina, plaintiff-appellant, (LOST)

vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.

Booram and Mahoney for appellant.

Williams, Ferrier and SyCip for appellees.

CARSON, J.:

The Compaia 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. ***MORTGAGE: DEF BOUGHT BLDG!

A few weeks thereafter, on or about the 14 th of January, 1914, the Compaia 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 companys title to the
building under the sheriffs 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. ***ONLY SALE OF LAND, NO BUILDING!

At or about the time when the chattel mortgage was executed in avour of the machinery company,
the mortgagor, the Compaia 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 sheriffs sale on or
about the 18th of December, 1914, and had the sheriffs certificate of the sale duly registered in the
land registry of the Province of Cavite. ***PLAINT EXECUTED MORTGAGE ON BUILDING!!! AND
IT WAS BOUGHT BY PLAINTIFF HIMSELF DESPITE IT BEING IN ACTUAL POSSESSION BY
DEFENDANT!

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 avour 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
sheriffs sale. ***DEF: BAYAD, PLAINTIFF! KAY AKO BAYA NAG GUNIT SA BUILDING!!!

This action was instituted by the plaintiff to recover possession of the building from the machinery
company. ***ISSUE: PLAINTIFF WANTS TO RECOVER POSSESSION OF BLDG FROM
DEFENDANT!

The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in avour of
the machinery company, on the ground that the company had its title to the building registered prior
to the date of registry of the plaintiffs certificate. ***JUDGE: IN FAVOR OF DEFENDANT!

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.

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 Compaia 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.

We conclude that the ruling in avour of the machinery company cannot be sustained on the ground
assigned by the trial judge. We are of opinion, however, that the judgment must be sustained on the
ground that the agreed statement of facts in the court below discloses that neither the purchase of
the building by the plaintiff nor his inscription of the sheriffs certificate of sale in his avour was made
in good faith, and that the machinery company must be held to be the owner of the property under
the third paragraph of the above cited article of the code, it appearing that the company first took
possession of the property; and further, that the building and the land were sold to the machinery
company long prior to the date of the sheriffs sale to the plaintiff.

It has been suggested that since the provisions of article 1473 of the Civil Code require good faith,
in express terms, in relation to possession and title, but contain no express requirement as to
good faith in relation to the inscription of the property on the registry, it must be presumed that
good faith is not an essential requisite of registration in order that it may have the effect
contemplated in this article. We cannot agree with this contention. It could not have been the
intention of the legislator to base the preferential right secured under this article of the code upon an
inscription of title in bad faith. Such an interpretation placed upon the language of this section would
open wide the door to fraud and collusion. The public records cannot be converted into instruments
of fraud and oppression by one who secures an inscription therein in bad faith. The force and effect
given by law to an inscription in a public record presupposes the good faith of him who enters such
inscription; and rights created by statute, which are predicated upon an inscription in a public
registry, do not and cannot accrue under an inscription in bad faith, to the benefit of the person who
thus makes the inscription.

Construing the second paragraph of this article of the code, the supreme court of Spain held in its
sentencia of the 13th of May, 1908, that:

This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in accordance
with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911]
edition.)

Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have preference, this
provision must always be understood on the basis of the good faith mentioned in the first
paragraph; the legislator could not have wished to strike it out and to sanction bad faith, just
to comply with a mere formality which, in given cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of the La
Revista de los Tribunales, 13th edition.)

The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the
sheriffs sale and inscribed his title in the land registry, was duly notified that the machinery company
had bought the building from plaintiffs judgment debtor; that it had gone into possession long prior to
the sheriffs sale; and that it was in possession at the time when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff in avour of the sheriff, after the machinery company
had filed its sworn claim of ownership, leaves no room for doubt in this regard. Having bought in the
building at the sheriffs sale with full knowledge that at the time of the levy and sale the building had
already been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent inscription of the sheriffs
certificate of title must be held to have been tainted with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriffs certificate of sale
to the plaintiff was not made in good faith, we should not be understood as questioning, in any way,
the good faith and genuineness of the plaintiffs claim against the Compaia Agricola Filipina. The
truth is that both the plaintiff and the defendant company appear to have had just and righteous
claims against their common debtor. No criticism can properly be made of the exercise of the utmost
diligence by the plaintiff in asserting and exercising his right to recover the amount of his claim from
the estate of the common debtor. We are strongly inclined to believe that in procuring the levy of
execution upon the factory building and in buying it at the sheriffs sale, he considered that he was
doing no more than he had a right to do under all the circumstances, and it is highly possible and
even probable that he thought at that time that he would be able to maintain his position in a contest
with the machinery company. There was no collusion on his part with the common debtor, and no
thought of the perpetration of a fraud upon the rights of another, in the ordinary sense of the word.
He may have hoped, and doubtless he did hope, that the title of the machinery company would not
stand the test of an action in a court of law; and if later developments had confirmed his unfounded
hopes, no one could question the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery companys claim of ownership when he
executed the indemnity bond and bought in the property at the sheriffs sale, and it appearing further
that the machinery companys claim of ownership was well founded, he cannot be said to have been
an innocent purchaser for value. He took the risk and must stand by the consequences; and it is in
this sense that we find that he was not a purchaser in good faith.

One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim
that he has acquired title thereto in good faith as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith under the belief that there was no
defect in the title of the vendor. His mere refusal to believe that such defect exists, or his avour
closing of his eyes to the possibility of the existence of a defect in his vendors title, will not make him
an innocent purchaser for value, if afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defects as would have led to its discovery had he acted with
that measure of precaution which may reasonably be acquired of a prudent man in a like situation.
Good faith, or lack of it, is in its analysis a question of intention; but in ascertaining the intention by
which one is actuated on a given occasion, we are necessarily controlled by the evidence as to the
conduct and outward acts by which alone the inward motive may, with safety, be determined. So it is
that the honesty of intention, the honest lawful intent, which constitutes good faith implies a
freedom from knowledge and circumstances which ought to put a person on inquiry, and so it is
that proof of such knowledge overcomes the presumption of good faith in which the courts always
indulge in the absence of proof to the contrary. Good faith, or the want of it, is not a visible, tangible
fact that can be seen or touched, but rather a state or condition of mind which can only be judged of
by actual or fancied tokens or signs. (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part of the decision and judgment
entered in the court below should be affirmed with costs of this instance against the appellant. So
ordered.

Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.

Torres, Avancea and Fisher, JJ., took no part.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-55729 March 28, 1983 DOCTRINE: Place of filing case depends on type of property

ANTONIO PUNSALAN, JR., petitioner, (LOST)

vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO A. ORTIZ,
PNB, respondents.

Benjamin S. Benito & Associates for petitioner.

Expedito Yummul for private respondent.

MELENCIO-HERRERA, J.:

***The sole issue presented by petitioner for resolution is whether or not respondent Court erred in
denying the Motion to Set Case for Pre-trial with respect to respondent Remedios Vda. De
Lacsamana as the case had been dismissed on the ground of improper venue upon motion of co-
respondent Philippine National Bank (PNB).

***It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a parcel of
land consisting of 340 square meters situated in Bamban, Tarlac. In 1963, petitioner mortgaged said
land to respondent PNB (Tarlac Branch) in the amount of P10,000.00, but for failure to pay said
amount, the property was foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was
the highest bidder in said foreclosure proceedings. However, the bank secured title thereto only on
December 14, 1977.

***In the meantime, in 1974, while the properly was still in the alleged possession of petitioner and
with the alleged acquiescence of respondent PNB (Tarlac Branch), and upon securing a permit from
the Municipal Mayor, petitioner constructed a warehouse on said property. Petitioner declared said
warehouse for tax purposes for which he was issued Tax Declaration No. 5619. Petitioner then
leased the warehouse to one Hermogenes Sibal for a period of 10 years starting January 1975!!!

***On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac Branch) and
respondent Lacsamana over the property. This contract was amended on July 31, 1978, particularly
to include in the sale, the building and improvement thereon. By virtue of said instruments,
respondent Lacsamana secured title over the property in her name (TCT No. 173744) as well as
separate tax declarations for the land and building!!!

***On November 22, 1979, petitioner commenced suit for Annulment of Deed of Sale with
Damages against herein respondents PNB and Lacsamana before respondent Court of First
Instance of Rizal, Branch XXXI, Quezon City, essentially impugning the validity of the sale of the
building as embodied in the Amended Deed of Sale. In this connection, petitioner alleged:
 xxx xxx xxx

22. That defendant, Philippine National Bank, through its Branch Manager by
virtue of the request of defendant executed a document dated July 31, 1978,
entitled Amendment to Deed of Absolute Sale wherein said defendant bank as
Vendor sold to defendant Lacsamana the building owned by the plaintiff under Tax
Declaration No. 5619, notwithstanding the fact that said building is not owned by the
bank either by virtue of the public auction sale conducted by the Sheriff and sold to
the Philippine National Bank or by virtue of the Deed of Sale executed by the bank
itself in its favour on September 21, 1977 ;

23. That said defendant bank fraudulently mentioned that the sale in its avour
should likewise have included the building, notwithstanding no legal basis for the
same and despite full knowledge that the Certificate of Sale executed by the sheriff in
its avour only limited the sale to the land, hence, by selling the building which
never became the property of defendant, they have violated the principle against
pactum commisorium.

Petitioner prayed that the Deed of Sale of the building in avour of respondent Lacsamana be
declared null and void and that damages in the total sum of P230,000.00, more or less, be awarded
to him. 2

In her Answer filed on March 4, 1980,-respondent Lacsamana averred the affirmative defense of lack
of cause of action in that she was a purchaser for value and invoked the principle in Civil Law that
the accessory follows the principal. 3

On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue was
improperly laid considering that the building was real property under article 415 (1) of the New Civil
Code and therefore section 2(a) of Rule 4 should apply. ***REAL PROPERTY vs. PERSONAL
PROPERTY

Opposing said Motion to Dismiss, petitioner contended that the action for annulment of deed of sale
with damages is in the nature of a personal action, which seeks to recover not the title nor
possession of the property but to compel payment of damages, which is not an action affecting title
to real property. ***REAL RIGHT vs. PERSONAL RIGHT

On April 25, 1980, respondent Court granted respondent PNBs Motion to Dismiss as follows:

Acting upon the Motion to Dismiss of the defendant Philippine National Bank dated
March 13, 1980, considered against the plaintiffs opposition thereto dated April 1,
1980, including the reply therewith of said defendant, this Court resolves to DISMISS
the plaintiffs complaint for improper venue considering that the plaintiffs complaint
which seeks for the declaration as null and void, the amendment to Deed of Absolute
Sale executed by the defendant Philippine National Bank in avour of the defendant
Remedios T. Vda. De Lacsamana, on July 31, 1978, involves a warehouse allegedly
owned and constructed by the plaintiff on the land of the defendant Philippine
National Bank situated in the Municipality of Bamban, Province of Tarlac, which
warehouse is an immovable property pursuant to Article 415, No. 1 of the New Civil
Code; and, as such the action of the plaintiff is a real action affecting title to real
property which, under Section 2, Rule 4 of the New Rules of Court, must be tried in
the province where the property or any part thereof lies. 5
In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that the
action to annul does not involve ownership or title to property but is limited to the validity of the deed
of sale and emphasized that the case should proceed with or without respondent PNB as
respondent Lacsamana had already filed her Answer to the Complaint and no issue on venue had
been raised by the latter.

On September 1, 1980,.respondent Court denied reconsideration for lack of merit.

Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was
concerned, as the issues had already been joined with the filing of respondent Lacsamanas Answer.

In the Order of November 10, 1980 respondent Court denied said Motion to Set Case for Pre-trial as
the case was already dismissed in the previous Orders of April 25, 1980 and September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due course.

We affirm respondent Courts Order denying the setting for pre-trial.

The warehouse claimed to be owned by petitioner is an immovable or real property as provided in

article 415(l) of the Civil Code. 6 Buildings are always immovable under the Code. 7 A building treated
separately from the land on which it stood is immovable property and the mere fact that the parties to a
contract seem to have dealt with it separate and apart from the land on which it stood in no wise changed
its character as immovable property. 8

While it is true that petitioner does not directly seek the recovery of title or possession of the property
in question, his action for annulment of sale and his claim for damages are closely intertwined with
the issue of ownership of the building which, under the law, is considered immovable property, the
recovery of which is petitioners primary objective. The prevalent doctrine is that an action for the
annulment or rescission of a sale of real property does not operate to efface the fundamental and
prime objective and nature of the case, which is to recover said real property. It is a real action. 9

Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue
(Section 2, Rule 4) 10, which was timely raised (Section 1, Rule 16) 11.

Petitioners other contention that the case should proceed in so far as respondent Lacsamana is
concerned as she had already filed an Answer, which did not allege improper venue and, therefore,
issues had already been joined, is likewise untenable. Respondent PNB is an indispensable party as
the validity of the Amended Contract of Sale between the former and respondent Lacsamana is in
issue. It would, indeed, be futile to proceed with the case against respondent Lacsamana alone.

WHEREFORE, the petition is hereby denied without prejudice to the avour ng of the case by
petitioner Antonio Punsalan, Jr. in the proper forum.

Costs against petitioner.

SO ORDERED.

Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-20329 March 16, 1923 DOCTRINE: Civil Code supplies no absolute criterion for
discriminating between real property and personal property for purpose of the application of
the Chattel Mortgage Law.

THE STANDARD OIL COMPANY OF NEW YORK, petitioner,

vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent. (LOST)

Ross, Lawrence and Selph for petitioner.

City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.

STREET, J.:

This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo, register of
deeds of the City of Manila, to an original petition of the Standard Oil Company of New York, seeking
a peremptory mandamus to compel the respondent to record in the proper register a document
purporting to be a chattel mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. De
Vera, in favour of the Standard Oil Company of New York.

***It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de Vera, was
the lessee of a parcel of land situated in the City of Manila and owner of the house of strong
materials built thereon, upon which date she executed a document in the form of a chattel mortgage,
purporting to convey to the petitioner by way of mortgage both the leasehold interest in said lot and
the building which stands thereon.

The clauses in said document describing the property intended to be thus mortgage are expressed
in the following words:

Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by way of
mortgage, the following described personal property, situated in the City of Manila, and now
in possession of the mortgagor, to wit:

(1) All of the right, title, and interest of the mortgagor in and to the contract of lease
hereinabove referred to, and in and to the premises the subject of the said lease;

(2) The building, property of the mortgagor, situated on the aforesaid leased premises.

***After said document had been duly acknowledge and delivered, the petitioner caused the same to
be presented to the respondent, Joaquin Jaramillo, as register of deeds of the City of Manila, for the
purpose of having the same recorded in the book of record of chattel mortgages. Upon examination
of the instrument, the respondent was of the opinion that it was not a chattel mortgage, for the
reason that the interest therein mortgaged did not appear to be personal property, within the
meaning of the Chattel Mortgage Law, and registration was refused on this ground only.
We are of the opinion that the position taken by the respondent is untenable; and it is his duty to
accept the proper fee and place the instrument on record. The duties of a register of deeds in
respect to the registration of chattel mortgage are of a purely ministerial character; and no provision
of law can be cited which confers upon him any judicial or quasi-judicial power to determine the
nature of any document of which registration is sought as a chattel mortgage. !!!

The original provisions touching this matter are contained in section 15 of the Chattel Mortgage Law
(Act No. 1508), as amended by Act No. 2496; but these have been transferred to section 198 of the
Administrative Code, where they are now found. There is nothing in any of these provisions
conferring upon the register of deeds any authority whatever in respect to the "qualification," as the
term is used in Spanish law, of chattel mortgage. His duties in respect to such instruments are
ministerial only. The efficacy of the act of recording a chattel mortgage consists in the fact that it
operates as constructive notice of the existence of the contract, and the legal effects of the contract
must be discovered in the instrument itself in relation with the fact of notice. Registration adds
nothing to the instrument, considered as a source of title, and affects nobody's rights except as a
specifies of notice.

Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating between real
property and personal property for purpose of the application of the Chattel Mortgage Law. Those
articles state rules which, considered as a general doctrine, are law in this jurisdiction; but it must not
be forgotten that under given conditions property may have character different from that imputed to it
in said articles. It is undeniable that the parties to a contract may by agreement treat as personal
property that which by nature would be real property; and it is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might be considered
personal property. Other situations are constantly arising, and from time to time are presented to this
court, in which the proper classification of one thing or another as real or personal property may be
said to be doubtful.

The point submitted to us in this case was determined on September 8, 1914, in an administrative
ruling promulgated by the Honorable James A. Ostrand, now a Justice of this Court, but acting at
that time in the capacity of Judge of the fourth branch of the Court of First Instance of the Ninth
Judicial District, in the City of Manila; and little of value can be here added to the observations
contained in said ruling. We accordingly quote therefrom as follows:

It is unnecessary here to determine whether or not the property described in the document in
question is real or personal; the discussion may be confined to the point as to whether a
register of deeds has authority to deny the registration of a document purporting to be a
chattel mortgage and executed in the manner and form prescribed by the Chattel Mortgage
Law.

Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor continued:

Based principally upon the provisions of section quoted the Attorney-General of the
Philippine Islands, in an opinion dated August 11, 1909, held that a register of deeds has no
authority to pass upon the capacity of the parties to a chattel mortgage which is presented to
him for record. A fortiori a register of deeds can have no authority to pass upon the character
of the property sought to be encumbered by a chattel mortgage. Of course, if the mortgaged
property is real instead of personal the chattel mortgage would no doubt be held ineffective
as against third parties, but this is a question to be determined by the courts of justice and
not by the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this court held that
where the interest conveyed is of the nature of real, property, the placing of the document on record
in the chattel mortgage register is a futile act; but that decision is not decisive of the question now
before us, which has reference to the function of the register of deeds in placing the document on
record.

In the light of what has been said it becomes unnecessary for us to pass upon the point whether the
interests conveyed in the instrument now in question are real or personal; and we declare it to be the
duty of the register of deeds to accept the estimate placed upon the document by the petitioner and
to register it, upon payment of the proper fee.

The demurrer is overruled; and unless within the period of five days from the date of the notification
hereof, the respondent shall interpose a sufficient answer to the petition, the writ of mandamus will
be issued, as prayed, but without costs. So ordered.

Araullo, C.J., Malcolm, Avancea, Ostrand, Johns, and Romualdez, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-40411 August 7, 1935 DOCTRINE: The characterization of the property as chattels
by the appellant is indicative of intention and impresses upon the property the character
determined by the parties

DAVAO SAW MILL CO., INC., plaintiff-appellant, (LOST)

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the decision in the trial court and as
set forth by counsel for the parties on appeal, involves the determination of the nature of the
properties described in the complaint. The trial judge found that those properties were personal in
nature, and as a consequence absolved the defendants from the complaint, with costs against the
plaintiff.

***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. Some of the implements thus used were clearly personal property, the conflict concerning
machines which were placed and mounted on foundations of cement. In the contract of lease
between the sawmill company and the owner of the land there appeared the following provision:

That on the expiration of the period agreed upon, all the improvements 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 obligation on its part to pay any amount for said
improvements and buildings; also, in the event the party of the second part should leave or
abandon the land leased before the time herein stipulated, the improvements and buildings
shall likewise pass to the ownership of the party of the first part as though the time agreed
upon had expired: Provided, however, That the machineries and accessories are not
included in the improvements which will pass to the party of the first part on the expiration or
abandonment of the land leased.

!!! 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 personalty 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.
Indeed the bidder, which was the plaintiff in that action, and the defendant herein having
consummated the sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has
on a number of occasions treated the machinery as personal property by executing chattel
mortgages in favor of third persons. One of such persons is the appellee by assignment from the
original mortgages.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property
consists of

1. Land, buildings, roads and constructions of all kinds adhering to the soil;

xxx xxx xxx

5. Machinery, liquid containers, instruments or implements intended by the owner of any

building or land for use in connection with any industry or trade being carried on therein and
which are expressly adapted to meet the requirements of such trade of industry.

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain
no doubt that the trial judge and appellees are right in their appreciation of the legal doctrines flowing
from the facts.

In the first place, it must again be pointed out that the appellant should have registered its protest
before or at the time of the sale of this property. It must further be pointed out that while not
conclusive, the characterization of the property as chattels by the appellant is indicative of intention
and impresses upon the property the character determined by the parties. In this connection the
decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil.,
630), whether obiter dicta or not, furnishes the key to such a situation.

It is, however not necessary to spend overly must time in the resolution of this appeal on side issues.
!!!It is machinery which is involved; moreover, machinery not intended by the owner of any building
or land for use in connection therewith, but intended by a lessee for use in a building erected on the
land by the latter to be returned to the lessee on the expiration or abandonment of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme
Court, it was held that 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 the agent of
the owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is well
known, it was in part said:

To determine this question involves fixing the nature and character of the property from the
point of view of the rights of Valdes and its nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights derived
by them from the execution levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property, not
only land and buildings, but also attributes immovability in some cases to property of a
movable nature, that is, personal property, because of the destination to which it is applied.
"Things," says section 334 of the Porto Rican Code, "may be immovable either by their own
nature or by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as follows: "Machinery,
vessels, instruments or implements intended by the owner of the tenements for the industrial
or works that they may carry on in any building or upon any land and which tend directly to
meet the needs of the said industry or works." (See also Code Nap., articles 516, 518 et seq.
 to and inclusive of article 534, recapitulating the things which, though in themselves
movable, may be immobilized.) So far as the subject-matter with which we are dealing
machinery placed in the plant it is plain, both under the provisions of the Porto Rican Law
and of the Code Napoleon, that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant. Such result would
not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a
usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No. 203;
Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in
Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction rests, as
pointed out by Demolombe, upon the fact that one only having a temporary right to 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 by causing it by an act of immobilization
to become the property of another. It follows that abstractly speaking the machinery put by
the Altagracia Company in the plant belonging to Sanchez did not lose its character of
movable property and become immovable by destination. But in the concrete immobilization
took place because of the express provisions of the lease under which the Altagracia held,
since the lease in substance required the putting in of improved machinery, deprived the
tenant of any right to charge against the lessor the cost such machinery, and it was expressly
stipulated that the machinery so put in should become a part of the plant belonging to the
owner without compensation 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 the obligations
resting upon him, and the immobilization of the machinery which resulted arose in legal
effect from the act of the owner in giving by contract a permanent destination to the
machinery.

xxx xxx xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was 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 under the execution upon the judgment in their
favor, and the exercise of 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 obligations
under the lease, he could not, for the purpose of collecting his debt, proceed separately
against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of
this instance to be paid by the appellant.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur.