Davao Sawmill v.
Castillo
G.R. No. L-11658 Case Digest
G.R. No. L-11658, February 15, 1918
Leung Yee
vs Frank L. Strong Machinery Company and J.G/
Williamson
Ponente: Carson
Facts:
"Compania Agricola Filipina" bought a quantity
of rice-cleaning machinery company from Strong
Machinery and executed a chattel mortgage
thereon to secure payment of the purchase
price. It include the building of strong
materials in which the mahinery is installed
without reference to the land it stood. The
debt was not paid, and the mortgage property
was sold by the sheriff.
Few weeks after, Compania executed a deed of
slae of the land upon which the building stood
but it was not registered. On the other hand,
Yee, another creditor of CAF who engaged in
the construction of the building, being the
highest bidder in an auction conducted by the
sheriff, purchased the same building where the
machines were installed. Apparently CAF was
also executed a chattel mortgage in favor Yee.
Yee registered the sale in the registry of
land. Yee was however aware that prior to his
buying, the property has been sold in favor of
SMCo – evidence is the chattel mortgage
already registered by SMCo.
Issue: To whom the ownership of the building
belongs to?
Held:
But it appearing that Yee had full knowledge
of the machinery company's claim of ownership
when he executed the indemnity bond and bought
in the property at the sheriff's sale, and it
appearing further that the machinery company's
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.
Art. 1473 of the New Civil Code provides the
following rules on determining ownership of
property which has been sold to different
vendees:
If Personal Property – grant ownership to
person who 1st possessed it in good faith
If Real Property – grant ownership to person
who 1st recorded it in the Registry
If no entry – grant to person who 1st
possessed in good faith
If no proof of possession – grant to person
who presents oldest title
DAVAO SAW MILL vs. APRONIANO G. CASTILLO and
DAVAO LIGHT & POWER CO., INC. G.R. No. L-40411 August
7, 1935
Facts:
Davao Saw Mill Co., Inc., is the holder of a lumber concession
from the Government of the Philippine Islands. 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 lessor without any obligation on its
part to pay any amount for said improvements and buildings;
which do not include the machineries and accessories in the
improvements.
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; 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
It must be noted also that on number of occasion, Davao
Sawmill treated the machinery as personal property by
executing chattel mortgages in favor of third persons. One of
such is the appellee by assignment from the original
mortgages.
The lower court rendered decision in favor of the defendants
herein. Hence, this instant appeal.
Issue:
whether or not the machineries and equipments were personal
in nature.
Ruling/ Rationale:
Yes. The Supreme Court affirmed the decision of the lower
court.
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.
SERG'S V. PCI LEASING
Serg’s Products, Inc. vs. PCI Leasing G.R. No. 137705. August
22, 2000
FACTS:
PCI Leasing and Finance filed a complaint for sum of money,
with an application for a writ of replevin.
Judge issued a writ of replevin 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.
The sheriff proceeded to petitioner's factory, seized one
machinery, with word that he would return for other
machineries.
Petitioner (Serg’s Products) filed a motion for special
protective order to defer enforcement of the writ of replevin.
PCI Leasing opposed the motion on the ground that the
properties were still personal and therefore can still be
subjected to seizure and writ of replevin.
Petitioner asserted that properties sought to be seized were
immovable as defined in Article 415 of the Civil Code.
Sheriff was still able to take possession of two more
machineries
In its decision on the original action for certiorari filed by the
Petitioner, the appellate court, Citing the Agreement of the
parties, held that the subject machines were personal property,
and that they had only been leased, not owned, by petitioners;
and ruled that the "words of the contract are clear and leave no
doubt upon the true intention of the contracting parties."
ISSUE: Whether or not the machineries became real property
by virtue of immobilization.
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.
Writ of Replevin: Rule 60 of the Rules of Court provides that
writs of replevin are issued for the recovery of personal
property only.
Article 415 (5) of the Civil Code provides that 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
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.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.”
However, contracting parties may validly stipulate that a real
property be considered as personal. 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.
Section 12.1 of the Agreement between the parties provides
“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.”
The machines are personal property and they are proper
subjects of the Writ of Replevin
Board of Assessment Appeals, Q.C. v. Meralco,
G.R. No. L-15334 (January 31, 1964) Case
Digest
Article 415 of the Civil Code: Real
Facts:
Meralco constructed 40 steel towers within Quezon City, which carry
electric transmission wires attached to insulators from its hydro-electric
plant located in the province of Laguna to the City of Manila.
The City Assessor of Quezon City declared Meralco's steel towers for
real property tax.
Issue:
Whether or not Meralco's steel towers are considered real properties so
that they can be subject to real property
Held:
No, Meralco's steel towers are not considered real properties that can
be subject to real property
Article 415 of the Civil Code states the following are immovable
properties:
(1) Land, buildings, roads, and constructions of all kinds adhered to the
soil;
(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;
(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;
The steel towers do not come within the objects mentioned in above
paragraphs.
They are not construction analogous to buildings nor adhering to the
soil. 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 are also 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.
They are not machinery, receptacles, instruments or implements
intended for industry or works on the land. Meralco is not engaged in
an industry or works on the land in which the steel towers are
constructed.
The decision of the Court of Tax Appeals, which ordered the
cancellation of the tax declarations, were affirmed by the Supreme
Court.
MANILA ELECTRIC COMPANY v. CITY ASSESSOR, GR No.
166102, 2015-08-05
Facts:
On February 20, 1989, MERALCO received from the City Assessor of
Lucena a copy of Tax Declaration No. 019-6500... these electric
facilities had a market value of P81,811,000.00 and an assessed value
of P65,448,800.00, and were subjected... to real property tax as of
1985.
MERALCO appealed... that
MERALCO was exempted from payment of real property tax on said
substation facilities.
The LBAA rendered a Decision... the Board overrules the claim of the
[City Assessor of Lucena] and sustain the claim of [MERALCO].
Property
Six years later, on October 29, 1997, MERALCO received a letter19
dated October 16, 1997 from the City Treasurer of Lucena, which
stated that the company was being assessed real property tax
delinquency on its machineries beginning 1990
MERALCO appealed Tax Declaration
MERALCO asked the LBAA to cancel... and nullify the Notice of
Assessment dated October 20, 1997 and declare the properties
covered by Tax Declaration Nos. 019-6500 and 019-7394 exempt from
real property tax.
MERALCO's appeal be dismissed for lack of merit
tax.
Disgruntled, MERALCO sought recourse from the Court of Appeals
The Court of Appeals rendered a Decision on May 13, 2004 rejecting
all arguments proffered by MERALCO.
tax.
MERALCO similarly failed to persuade the Court of Appeals that the Therefore, for determining whether machinery is real property subject
transformers, transmission lines, insulators, and electric meters to real property tax, the definition and requirements under the Local
mounted on the electric posts of MERALCO were not real properties. Government Code are controlling.

Court of Appeals denied the Motion for Reconsideration of MERALCO Principles:

MERALCO is presently before the Court via the instant Petition for
Review on Certiorari
Issues:
whether or not the poles, wires, insulators, transformers, and electric
meters of MERALCO were real properties
Ruling:
The Court finds that the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO are no longer exempted
from real property tax and may qualify as "machinery" subject to real
property tax under the Local Government Code.
Through the years, the relevant laws have consistently considered
"machinery" as real property subject to real property tax.
Granting for the purpose of argument that the steel supports or towers
in question are not embraced within the term poles, the logical question
posited is whether they constitute real properties, so that they can be
subject to a real property tax. 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;... x x x x
under Section 199(o) of the Local Government Code, machinery, to be
deemed real property subject to real property tax, need no longer be
annexed to the land or building as these "may or may not be attached,
permanently or temporarily to the real... property," and in fact, such
machinery may even be "mobile."[55] The same provision though
requires that to be machinery subject to real property tax, the physical
facilities for production, installations, and appurtenant service facilities,
those which are... mobile, self-powered or self-propelled, or not
permanently attached to the real property (a) must be actually, directly,
and exclusively used to meet the needs of the particular industry,
business, or activity; and (2) by their very nature and purpose, are
designed for, or... necessary for manufacturing, mining, logging,
commercial, industrial, or agricultural purposes.
Article 415 of the Civil Code... the following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the
soil;... x x x x
(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;... x x x x
(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;... x x x x

(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;... x x x x
(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;... x x x x
Furthermore, in Caltex (Philippines), Inc. v. Central Board of
Assessment Appeals,[62] the Court acknowledged that "[i]t is a familiar
phenomenon to see things classed as real property for purposes of
taxation which on general principle might be... considered personal
property[.]"

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 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.

These steel towers or supports do not also fall under paragraph 5, for
they are not machineries or receptacles, instruments or implements,
and even if they were, they are not intended for industry or works on
the land.

The aforequoted conclusions of the Court in the 1964 MERALCO case

do not hold true anymore under the Local Government Code.

While the Local Government Code still does not provide for a specific
definition of "real property," Sections 199(o) and 232 of the said Code,
respectively, gives an extensive definition of what constitutes
"machinery" and unequivocally subjects such machinery to real
property... tax

As between the Civil Code, a general law governing property and

property relations, and the Local Government Code, a special law
granting local government units the power to impose real property tax,
then the latter shall prevail.

in Caltex (Philippines), Inc. v. Central Board of Assessment

Appeals,[62] the Court acknowledged that "[i]t is a familiar
phenomenon to see things classed as real property for purposes of
taxation which on general principle might be... considered personal
property[.]"