Property- Case Digests |1

Class Notes:
Davao Saw Mill v. Castillo
61 Phil 709

Facts:
Davao Saw Mill is an operator of a saw mill. The Land upon which the
business was conducted belonged to another person. There, the saw mill
company erected a building which housed the machinery used by it. Some
machines which were placed and mounted on foundations of cement. Part of the
Lease Agreement was a stipulation that on the expiration of the period, all the
improvements and buildings would pass to the ownership of the lessor.

Issue:
What is the proper classification of the machinery?

Ruling:
The Machinery is a personal property.
The lessee placed machinery in a building erected on land belonging to
another, with the understanding that the machinery was not included in the
improvements which would pass to the lessor on the expiration or abandonment
of the land leased. The lessee also treated the machinery as personal property
by executing chattel mortgages in favor of third persons. The machinery was
levied upon by the sheriff as personalty pursuant to a writ of execution obtained
without any protest being registered.
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.
 Property- Case Digests |2
Class Notes:
Berkenkotter v. Cu Unjieng
61 Phil 663

Facts:
The Mabalacat Sugar Co., Inc.,owner of the sugar central, obtained from
the defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage
constituted on 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 necessary complement of said sugar-cane mill, steel railway,
telephone line, now existing or that may in the future exist in said lots."
Shortly after said mortgage had been constituted, Mabalacat Sugar Co.
Inc. decided to increase the capacity of its sugar central by buying additional
machinery and equipment.
B. A. Green, president of said corporation, proposed to the plaintiff, B. H.
Berkenkotter, to advance the necessary amount for the purchase of said
machinery and equipment promising to reimburse him as soon as he could obtain
an additional loan from the defendants Cu Unjieng e Hijos.
B.H. Berkenkotter agreed and sent the amount. Mabalacat Sugar Co. Inc.
purchased the additional machinery and equipment.
B. A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu
Unjieng e Hijos for an additional loan offering as security the additional machinery
and equipment. But he failed to obtain the said loan.

Issue:
WON the additional machinery and Equipment are considered as
improvements and thus subject to the mortgage deed executed in favor of Cu
Unjieng e Hijos.

Ruling:
Yes. These machinery and equipment are considered improvements.
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 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 or industry."
The installation of a machinery and equipment in a mortgaged sugar
central, in lieu of another of less capacity, for the purpose of carrying out the
industrial functions of the latter and increasing production, constitutes a
permanent improvement on said sugar central and subjects said machinery and
equipment to the mortgage constituted thereon (article 1877, Civil Code)
The fact that the purchaser of the new machinery and equipment has
bound himself to the person supplying him 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 permanent character of the
incorporation of said machinery and equipment with the central.
The sale of the machinery and equipment in question by the purchaser
who was supplied the money, after the incorporation thereof with the mortgaged
sugar central, does not vest the creditor with ownership of said machinery and
equipment but simply with the right of redemption.
 Property- Case Digests |3
Class Notes:
Lopez v. Orosa
103 Phil 98

Facts:
Vicente Orosa invited Enrique Lopez to make an investment in the theatre
business. Lopez agreed to supply the lumber necessary for the construction of
the proposed theatre, and at Orosa's behest and assurance that the latter would
be personally liable for any account that the said construction might incur.
Lopez delivered the lumber amounting to P62,255.85 but was only paid
P20,848.50.
Plaza Theatre was erected on a piece of land formerly owned by Vicente
Orosa, Jr., and was acquired by the corporation, Plaza Theatre, Inc.
Unable to get the remaining balance, Lopez filed a complaint against
Orosa praying that defendants be sentenced to pay him jointly and severally the
sum of P41,771.35 with legal interest; that in case defendants fail to pay the
same, that the building and the land owned by the corporation be sold at public
auction and the proceeds thereof be applied to said indebtedness.
The defendants argued that the land on which the movie house was
constructed was not charged with a lien to secure the payment of the unpaid
obligation and that the lien was merely confined to the building and did not extend
to the land.

Issue:
Whether a materialman's lien for the value of the materials used in the
construction of a building attaches to said structure alone and does not extend to
the land on which the building is adhered to.

Ruling:
No it does not extend to the Land.
While it is true that generally, real estate connotes the land and the
building constructed thereon, it is obvious that the inclusion of the building,
separate and distinct from the land, in the enumeration of what constitute real
properties (Art. 415 of the New Civil Code [Art. 334 of the old]) could mean only
one thing, that a building is by itself an immovable property.
A building is an immovable property irrespective of whether or not said
structure and the land on which it is adhered to belong to the same owner.
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 property of the obligors.
 Property- Case Digests |4
Class Notes:
Tumalad v. Vicencio
41 SCRA 143

Facts:
Defendants, Alberta Vicencio and Emiliano Simeon, executed a chattel
mortgage in favor of plaintiffs-appellees, Gavino Tumalad and Generosa
Tumalad, over their house of strong materials located on a Lot which was being
rented from Madrigal & Company, Inc.
The mortgage was executed to guarantee a loan received from Tumalad.
It was also agreed that default in the payment of any of the amortizations would
cause the remaining unpaid balance to become immediately due and payable
and the chattel mortgage will be enforced,
Defendants defaulted on the payment and the mortgage was foreclosed.
Now the defendants claim that the chattel mortgage was null and void
because the subject matter is a house of strong materials, and being immovable,
it can only be a subject of a real state mortgage and not a chattel mortgage.

Issue:
WON the House, which is an immovable property, may be a subject of a
chattel mortgage.

Ruling:
Yes.
In the case of Manarang and Manarang vs. Ofilada, the Court stated that
"it is undeniable that the parties to a contract may by agreement treat as personal
property that which by nature would be real property", citing Standard Oil
Company of New York vs. Jaramillo.
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.
Moreover, the subject house stood on a rented lot to which defendants-
appellants merely had a temporary right as lessee, and although this cannot in
itself alone determine the status of the property, it does so when combined with
other factors to sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personalty
Furthermore, it is the defendants-appellants themselves, as debtors-
mortgagors, who are attacking the validity of the chattel mortgage in this case.
The doctrine of estoppel therefore applies to the herein defendants-appellants,
having treated the subject house as personalty.
 Property- Case Digests |5
Class Notes:
Associated Insurance & Surety Company vs. Iya
103 Phil 972

Facts:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners
and possessors of a house of strong materials constructed on Lot which they
purchased on instalment basis from the Philippine Realty Corporation.
To enable Lucia Valino to purchase on credit rice from the NARIC, Lucia
A. Valino filed a bond subscribed by the Associated Insurance & Surety Co., Inc.,
and as counter-guaranty therefor, the spouses Valino executed an alleged chattel
mortgage on the aforementioned house in favor of the surety company, which
encumbrance was duly registered. At the time said undertaking took place, the
parcel of land on which the house is erected was still registered in the name of
the Philippine Realty Corporation.
Having completed payment on the purchase price of the lot, the Valinos
were able to secure a certificate of title in their name. Subsequently, however, the
Valinos, to secure payment of an indebtedness, executed a real estate mortgage
over the lot and the house in favor of Isabel Iya, which was duly registered and
annotated at the back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to
the NARIC, the surety company was compelled to pay the same pursuant to the
undertaking of the bond. In turn, the surety company demanded reimbursement
from the spouses Valino, and as the latter likewise failed to do so, the company
foreclosed the chattel mortgage over the house. As a result thereof, a public sale
was conducted.
The surety company learned of the existence of the real estate mortgage
over the lot. The company instituted a civil case. It prayed for the exclusion of the
residential house from the real estate mortgage in favor of defendant Iya and the
declaration and recognition of plaintiff's right to ownership over the same in virtue
of the award given by the Provincial Sheriff of Rizal during the public auction.
Defendant surety company, in answer to this complaint insisted on its
right over the building, arguing that as the lot on which the house was
constructed did not belong to the spouses at the time the chattel mortgage was
executed, the house might be considered only as a personal property and that
the encumbrance thereof and the subsequent foreclosure proceedings made
pursuant to the provisions of the Chattel Mortgage Law were proper and legal.

Issue:
WON the house must be considered as personal property.

Ruling:
No. The house is an immovable property.
A building certainly cannot be divested of its character of a realty by the
fact that the land on which it is constructed belongs to another. To hold it the
other way, the possibility is not remote that it would result in confusion, for to
cloak the building with an uncertain status made dependent on the ownership of
the land, would create a situation where a permanent Jxture changes its nature
or character as the ownership of the land changes hands.
As personal properties could only be the subject of a chattel mortgage
(Section 1, Act 3952) and as obviously the structure in question is not one, the
execution of the chattel mortgage covering said building is clearly invalid and a
nullity. While it is true that said document was correspondingly registered in the
Chattel Mortgage Register of Rizal, this act produced no effect whatsoever for
where the interest conveyed is in the nature of a real property, the registration of
the document in the registry of chattels is merely a futile act. Thus, the
registration of the chattel mortgage of a building of strong materials produce no
effect as far as the building is concerned.
 Property- Case Digests |6
Class Notes:
Makati Leasing vs. Wearever
122 SCRA 296

Facts:
In order to obtain Gnancial accommodations from herein petitioner Makati
Leasing and Finance Corporation, the private respondent Wearever Textile Mills,
Inc., discounted and assigned several receivables with the former under a
Receivable Purchase Agreement. To secure the collection of the receivables
assigned, private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero Dryer
Stentering Range.
Upon private respondent's default, petitioner filed a petition for
extrajudicial foreclosure of the properties mortgage to it. However, the Deputy
Sheriff assigned 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 thereafter filed a complaint for judicial
foreclosure and was issued a writ of seizure but was only able to obtain the main
drive motor of the machinery.
Wearever files a prohibition proceedings in the CA and the said court
rules that the machinery cannot be subject of replevin, much less of a chattel
mortgage, because it is a real property pursuant to Article 415 of the New Civil
Code, the same the same being attached to the ground by means of bolts and
the only way to remove it from respondent's plant would be to drill out or destroy
the concrete Noor, the reason why all that the sheriff could do to enforce the writ
was to take the main drive motor of said machinery.

Issue:
Whether the machinery in suit is a real or personal property

Rule:
The machinery is a personal property.
The SC applied the Tumalad Case. The CA rejected this because the
house involved therein was built on a land that did not belong to the owner of
such house. But the law makes no distinction with respect to the ownership of the
land on which the house is built and We should not lay down distinctions not
contemplated by law.
The characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the
character determined by the parties. it is undeniable that the parties to a contract
may by agreement treat as personal property that which by nature would be real
property, as long as no interest of third parties would be prejudiced thereby.

Principle: MACHINERY THOUGH IMMOBILIZED BY DESTINATION IF

TREATED BY THE PARTIES AS A PERSONALTY FOR PURPOSES OF A
CHATTEL MORTGAGE LEGAL, WHERE NO THIRD PARTY IS PREJUDICED.
 Property- Case Digests |7
Class Notes:
Board of Assessment Appeals vs. Meralco
10 SCRA 63 / 119 Phil 328

Facts:
Meralco maintains and operates an electric street railway and electric
light, heat and power system in the City of Manila and its suburbs. 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 which carry high voltage current and 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.
Petitioner City Assessor of Quezon City declared the aforesaid steel
towers for real property tax. Respondent paid the amount under protest, and filed
a petition for review in the Court of Tax Appeals which rendered a decision
ordering the cancellation of the said tax declarations and the petitioner City
Treasurer of Quezon City to refund to the respondent the sum paid.
The CTA held that the steel towers come within the term "poles" which
are declared exempt from taxes under part II paragraph 9 of respondent's
franchise and the steel towers are personal properties and are not subject to real
property tax.

Issue:
WON the steel towers are personal properties and not subject to real
property tax.

Ruling:
Yes. The steel towers are personal properties.
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;
(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 or supports 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 constructions analogous to buildings or 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 cannot 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 or 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 on the land in which the steel supports or towers
are constructed.
 Property- Case Digests |8
Class Notes:
Meralco Securities vs. Board of Assessment Appeals
114 SCRA 273

Facts:
Meralco Securities installed from Batangas to Manila a pipeline system
consisting of cylindrical steel pipes joined together and buried not less than one
meter below the surface along the shoulder of the public highway. The portion
passing through Laguna is about thirty kilometers long.
The pipes are embedded in the soil and are 9rmly and solidly welded
together so as to preclude breakage or damage thereto and prevent leakage or
seepage of the oil. In order to repair, replace, remove or transfer segments of the
pipeline, the pipes have to be cold-cut by means of a rotary hard-metal pipe-
cutter after digging or excavating them out of the ground. However, Meralco
Securities notes that segments of the pipeline can be moved from one place to
another as shown in the permit.
The provincial assessor of Laguna treated the pipeline as real property
and issued Tax Declarations.
The Board of Assessment Appeals of Laguna and the Central Board of
Assessment Appeals affirmed the ruling of the provincial assessor. The steel
pipes were regarded as realty because they are constructions adhered to the soil
and things attached to the land in a 9xed manner and that Meralco Securities is
not exempt from realty tax under the Petroleum Law. Petitioner filed a motion for
reconsideration but the same was denied. Hence, this petition.

Issue:
WON the pipeline in question is classified as a real property.

Ruling:
Yes. The pipeline is a real property.
Article 415[1] and [3] provides that real property may consist of
constructions of all kinds adhered to the soil and 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.
The pipeline system in question is indubitably a construction adhering to
the soil. It is attached to the land in such a way that it cannot be separated
therefrom without dismantling the steel pipes which were welded to form the
pipeline.
It is in a sense a machinery within the meaning of the Assessment Law
and the Real Property Tax Code insofar as the pipeline uses valve, pumps and
control devices to maintain the flow of oil and therefore subject to realty tax.
It should be borne in mind that what are being characterized as real
property are not the steel pipes but the pipeline system as a whole. Meralco
Securities has apparently two pipeline systems.
Petition dismissed. Questioned decision and resolution affirmed.
 Property- Case Digests |9
Class Notes:
Caltex vs. Board of Assessment Appeals
114 SCRA 296

Facts:
Petitioner installed underground tanks, elevated tanks, elevated water
tanks, water tanks, gasoline and computing pumps, car washers, car and tire
hoists, air compressors and tireflators in its gasoline stations located on leased
land. They were attached to the pavement covering the entire lot. The said
machines were loaned by petitioner to gas station operators under lease
contracts to be returned to petitioner upon demand.
The city assessor of Pasay City treated the said machines as taxable
realty and imposed real tax thereon. The city board of tax appeals ruled that they
are personality not subject to realty tax, but the Central Board of Assessment
Appeals reversed the ruling and found that the machines and equipment were
real property within the meaning of Section 3(k) and (m) and 38 of the Real
Property Tax Code, Presidential Decree 464, and that the definitions of real
property and personal property in Articles 415 and 416 of the Civil Code are not
applicable to this case. Hence, this petition.

Issue:
WON the gas station equipment and machinery permanently affixed by
Caltex to its gas station and pavement (which are indubitably taxable realty)
should be subject to the realty tax.

Ruling:
Yes. he said equipment and machinery, as appurtenances to the gas
station building or shed owned by Caltex (as to which it is subject to realty tax)
and which fixtures are necessary to the operation of the gas station, for without
them the gas station would be useless, and which have been attached or aCxed
permanently to the gas station site or embedded therein, are taxable
improvements and machinery within the meaning of the Assessment Law and the
Real Property Tax Code.
Caltex invokes the rule 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
(Davao Saw Mill Co. vs. Castillo, 61 Phil. 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil
Code regarding machinery that becomes real property by destination. In the
Davao Saw Mills case the question was whether the machinery mounted on
foundations of cement and installed by the lessee on leased land should be
regarded as real property for purposes of execution of a judgment against the
lessee. The sheriff treated the machinery as personal property. This Court
sustained the sheriff's action.
Here, the question is whether the gas station equipment and machinery
permanently affixed by Caltex to its gas station and pavement (which are
indubitably taxable realty) should be subject to the realty tax. This question is
different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for
some purposes they might be considered personality. It is a familiar phenomenon
to see things in classed as real property for purposes of taxation which on
general principle might be considered personal property.
 P r o p e r t y - C a s e D i g e s t s | 10
Class Notes:
Benguet Corp. v. Central Board of Assessment Appeals
218 SCRA 271

Facts:
A realty tax assessment has been imposed on the petitioner’s tailings
dam and the land thereunder over its protest. The Provincial Assessor of
Zambales assessed the said properties as taxable improvements. The
assessment was appealed to the Board of Assessment Appeals but was
dismissed. It was elevated to the Central Board of Assessment Appeals which
reversed the dismissal of the appeal but, on the merits, agreed that “the tailings
dam and the lands submerged thereunder (were) subject to realty tax.”
It ruled that: For purposes of taxation the dam is considered as real
property as it comes within the object mentioned in paragraphs (a) and (b) of
Article 415 of the New Civil Code, It is a construction adhered to the soil which
cannot be separated or detached without breaking the material or causing
destruction on the land upon which it is attached, The immovable nature of the
dam as an improvement determines its character as real property, hence taxable
under Section 38 of the Real Property Tax Code. (P.D. 464).
The petitioner contended that the tailings dam is not subject to realty tax
because it is not an "improvement" upon the land within the meaning of the Real
Property Tax Code. The petitioner does not dispute that the tailings dam may be
considered realty within the meaning of Article 415. It insists, however, that the
dam cannot be subjected to realty tax as a separate and independent property
because it does not constitute an "assessable improvement" on the mine
although a considerable sum may have been spent in constructing and
maintaining it.

Issue:
WON the tailings dam an improvement on the mine.

Ruling:
Yes. The dam is an improvement to the mine.
From the definitions and the cases cited above, it would appear that
whether a structure constitutes an improvement so as to partake of the status of
realty would depend upon the degree of permanence intended in its construction
and use, The expression "permanent" as applied to an improvement does not
imply that the improvement must be used perpetually but only until the purpose to
which the principal realty is devoted has been accomplished. It is sufficient that
the improvement is intended to remain as long as the land to which it is annexed
is still used for the said purpose.
The Court is convinced that the subject dam falls within the definition of
an "improvement" because it is permanent in character and it enhances both the
value and utility of petitioner's mine. Moreover, the immovable nature of the dam
defines its character as real property under Article 415 of the Civil Code and thus
makes it taxable under Section 38 of the Real Property Tax Code.