Davao sawmill vs castillo61 SCRA 709

FACTS:

Petitioner is the holder of a lumber concession. It operated a sawmill on a land, which it doesn’t own.
Part of the lease agreement was a stipulation in which after the lease agreement, all buildings and
improvements would pass to the ownership of the lessor, which would not include machineries and
accessories. In connection to this, petitioner had in its sawmill machineries and other equipment
wherein some were bolted in foundations of cement.

HELD:

The machinery must be classified as personal property.

The lessee placed the machinery in the 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 of the lease agreement. The lessee also treated the machinery as personal

property in 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.

Furthermore, machinery only becomes immobilized when placed in a plant by the owner of the property
or plant, but not when so placed by a tenant, usufructuary, or any person having temporary right,
unless such person acted as the agent of the owner.

DAVAO SAW MILL CO. VS. CASTILLO G.R. No. L-40411 August 7, 1935

DAVAO SAW MILL CO. VS. CASTILLO G.R. No. L-40411 August 7, 1935

FACTS:

Petitioner is the holder of a lumber concession. It operated a sawmill on a land, which it doesn’t own.
Part of the lease agreement was a stipulation in which after the lease agreement, all buildings and
improvements would pass to the ownership of the lessor, which would not include machineries and
accessories. In connection to this, petitioner had in its sawmill machineries and other equipment
wherein some were bolted in foundations of cement.

Issue:

Whether or not the trial judge erred in finding that the subject properties are personal in nature.

HELD:

The machinery must be classified as personal property.

The lessee placed the machinery in the 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 of the lease agreement. The lessee also treated the machinery as personal

property in 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

. Berkenkotter vs Cu Unjieng 61 Phil 663

Berkenkotter - plaintiff-appellant

CU UNJIENG E HIJOS - defendants-appellees.

Facts:

The Mabalacat Sugar Co., Inc., owner of the sugar central, obtained from the defendants, Cu Unjieng e
Hijos, a loan secured two parcels and land "with all its buildings, improvements, etc. and whatever forms
part or is necessary complement of said sugar-cane mill ... now existing or that may in the future exist is
said lots."

Shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc., bought additional
machinery and equipment. Plaintiff, B.H. Berkenkotter, was asked by the company president, B.A.
Green, to advance the necessary amount for the purchase of said machinery and equipment. Plaintiff
was promised to get reimbursement when an additional loan from the mortgagees is obtained. Green
failed to obtain said loan.

Appellant's Contention:

Installation of the machinery and equipment claimed by him in the sugar central was not permanent in
character ... in case Green should fail to obtain an additional loan said machinery and equipment would
become security for the company's debt to him.

Issue:

Whether or not the additional machinery and equipment is considered an improvement subject to the
mortgage executed in favor of Mabalacat Sugar Co., Inc. by Cu Unjieng e Hijos.

Held:

Yes.

The installation of the machinery and equipment in question in the central converted them into real
property by reason of their purpose. As essential and principal elements of a sugar central, without
them the sugar central would be unable to function or carry on the industrial purpose for which it was
established. Inasmuch as the central is permanent in character, the necessary machinery and equipment
installed for carrying on the sugar industry for which it has been established must necessarily be
permanent.

Case Cited: Bischoff vs. Pomar and Compania General de Tabacos (cited with approval in the case of Cea
vs. Villanueva)

(1) in a mortgage of real estate, the improvements on the same are included; therefore, all objects
permanently attached to a mortgaged building or land, although they may have been placed there after
the mortgage was constituted, are also included.

(2) when it was stated in the mortgage that the improvements, buildings, and machinery that existed
thereon were also comprehended, it is indispensable that the exclusion thereof be stipulated between
the contracting parties

Lopez v. Orosa
LOPEZ V. OROSA AND PLAZA THEATREG.R. Nos. L-10817-18 February 28, 1958

FACTS:

-Petitioner Lopez was engaged in doing business under the trade name Lopez-Castelo Sawmill.

Orosa, a resident of the same province as Lopez, invited the latter to make an investment in the theatre
business. Lopez declined to invest but agreed to supply the lumber necessary for the construction of the
proposed theatre. They had an oral agreement that Orosa would be personally liable for any account
that the said construction might incur and that payment would be on demand and not cash on delivery
basis.

Lopez delivered the which was used for construction amounting to P62,255.85. He was paid only
P20,848.50, leaving a balance of P41,771.35.

The land on which the building was erected previously owned by Orosa, was later on acquired by the
corporation.

. As Lopez was pressing Orosa for payment, the latter and president of the corporation promised to
obtain a bank loan by mortgaging the properties of the Plaza Theatre., out of which the unpaid balance
would be satisfied. But unknown to Lopez, the corporation already obtained a loan with Luzon Surety
Company as surety, and the corporation in turn executed a mortgage on the land and building in favor
of the said company as counter-security.
Due to the persistent demands of Lopez, Orosa executed a “deed of assignment” over his shares of stock
in the corporation.

As it remained unsettled, Lopez filed a case against Orosa and Plaza theatre praying that they be
sentenced to pay him jointly and severally of the unpaid balance; and in case defendants fail to pay, the
land and building owned by the corporation be sold in public auction with the proceeds be applied to
the balance; or the shares of stock be sold in public auction.

The lower court held that defendants were jointly liable for the unpaid balance and Lopez thus acquired
the material man’s lien over the construction. The lien was merely confined to the building and did not
extend to the on which the construction was made.

Lopez tried to secure a modification of the decision, but was denied.

ISSUES:
Whether the material man’s lien for the value of the materials used in the construction of the building
attaches to said structure alone and doesn’t extend to the land on which the building is adhered to.

Whether the lower court and CA erred in not providing that the material mans liens is superior to the
mortgage executed in favor of surety company not only on the building but also on the land.

HELD:
-The material man’s lien could be charged only to the building for which the credit was made or which
received the benefit of refection, the lower court was right in, holding at the interest of the mortgagee
over the land is superior and cannot be made subject to the material man's lien.

-Generally, real estate connotes the land and the building constructed thereon, it is obvious that the
inclusion of the building in the enumeration of what may constitute real properties could only mean one
thing—that a building is by itself an immovable property.

-In the absence of any specific provision to the contrary, 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.
-The law gives preference to unregistered refectionary credits only with respect to the real estate upon
which the refectionary or work was made.
- The lien so created attaches merely to the immovable property for the construction or repair of which
the obligation was incurred. Therefore, the lien in favor of appellant for the unpaid value of the lumber
used in the construction of the building attaches only to said structure and to no other property of the
obligors.
Tumalad vs Vicencio et al 41 SCRA 143
Tumalad - plaintiffs-appellees
Vicencio et al - defendants-appellants.

Facts:
Vicencio and Simeon executed a chattel mortgage in favor of plaintiffs Tumalad over their house,
which was being rented by Madrigal and company. This was executed to guarantee a loan,
payable in one year with an interest of 12% pa.
When defendants-appellants defaulted in paying, the mortgage was extrajudicially foreclosed. The
house was sold at a public auction and the plaintiffs were the highest bidder. Thereafter, the plaintiffs
filed an action for ejectment against the defendants, praying that the latter vacate the house as they
were the proper owners.
Defendants-appellants, questioned the legality of the chattel mortgage. They maintained the nullity of
the chattel mortgage based on two grounds:
(a) that, their signatures on the chattel mortgage were obtained through fraud, deceit, or trickery; and
(b) that the subject matter of the mortgage is a house of strong materials, and, being an immovable, it
can only be the subject of a real estate mortgage and not a chattel mortgage.

Issue: Whether or not the property in question can be the subject matter of a chattel mortgage.

Held:
Yes.
Certain deviations have been allowed from the general doctrine that buildings are immovable
property such as when through stipulation, parties may agree to treat as personal property those by
their nature would be real property. This is partly based on the principle of estoppel wherein the
principle is predicated on statements by the owner declaring his house as chattel, a conduct that may
conceivably estop him from subsequently claiming otherwise.

In the case at bar, though there be no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property through chattel mortgage could only have
meant that defendant conveys or intends to treat the house as chattel, 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 defendats-appellants merely had a temporary right as lessee, and
although this can not 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, unlike the cases of Lopez vs. Orosa and Leung Yee vs. F. L. Strong Machinery, wherein
third persons assailed the validity of the chattel mortgage, 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.
ASSOCIATED INSURANCE AND SURETY COMPANY V. IYA, ET. AL
103 SCRA 972
G.R. Nos. L-10837-38 May 30, 1958

FACTS:
Spouses Valino were the owners of a house, payable on installments from Philippine Realty Corporation.
To be able to purchase on credit rice from NARIC, they filed a surety bond subscribed by petitioner and
therefor, they executed an alleged chattel mortgage on the house in favor of the surety company. The
spouses didn’t own yet the land on which the house was constructed on at the time of the undertaking.
After being able to purchase the land, to be able to secure payment for indebtedness, the spouses
executed a real estate mortgage in favor of Iya.

The spouses were not able to satisfy obligation with NARIC, petitioner was compelled to pay. The
spouses weren’t able to pay the surety company despite demands and thus, the company foreclosed the
chattel mortgage. It later learned of the real estate mortgage over the house and lot secured by the
spouses. This prompted the company to file an action against the spouses. Also, Iya filed another civil
action against the spouses, asserting that she has a better right over the property. The trial court heard
the two cases jointly and it held that the surety company had a preferred right over the building as since
when the chattel mortgage was secured, the land wasn’t owned yet by the spouses making the building
then a chattel and not a real property.

ISSUE:

WHETHER OR NOT auction sale was null and void

WHETHER OR NOT the house can be considered as personal property.
HELD:
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 ownership of
the land, would create a situation where apermanent fixture changes its nature or character as the
ownership of the land changes hands. In the case at bar, as personal properties may be the only subjects
of a chattel mortgage, the execution of the chattel mortgage covering said building is null and void.
14. Makati Leasing and Finance Corporation vs Wennever Texttile Mills

FACTS:

To obtain financial accommodations from Makati Leasing, Wearever Textile discounted and assigned
several receivables under a Receivable Purchase Agreement with Makati Leasing. To secure the
collection of receivables, it executed a chattel mortgage over several raw materials and a machinery –
Artos Aero Dryer Stentering Range (Dryer). Wearever defaulted thus the properties mortgaged were
extrajudicially foreclosed. The sheriff, after the restraining order was lifted, was able to enter the
premises of Wearever and removed the drive motor of the Dryer. The CA reversed the order of the CFI,
ordering the return of the drive motor since it cannot be the subject of a replevin suit being an
immovable bolted to the ground. Thus the case at bar.

ISSUE: Whether the dryer is an immovable property

HELD: NO. The SC relied on its ruling in Tumalad v. Vicencio, that if a house of strong materials can be
the subject of a Chattel Mortgage as long as the parties to the contract agree and no innocent 3rd party
will be prejudiced then moreso that a machinery may treated as a movable since it is movable by nature
and becomes immobilized only by destination. And treating it as a chattel by way of a Chattel Mortgage,
Wearever is estopped from claiming otherwise.

21. BOARD OF ASSESSMENT APPEALS V. MERALCO G.R. No. L-15334. January 31, 1964
FACTS:
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.
Meralco has constructed 40 of these steel towers within Quezon City, on land belonging to it.
The QC City Assessor declared the MERALCO's steel towers subject to real property tax. After the denial
of MERALCO's petition to cancel these declarations, an appeal was taken to the QC Board of Assessment
Appeals, which required respondent to pay real property tax on the said steel towers for the years 1952
to 1956. MERALCO paid the amount under protest, and filed a petition for review in the Court of Tax
Appeals (CTA) which rendered a decision ordering the cancellation of the said tax declarations and the
refunding to MERALCO by the QC City Treasurer.
ISSUE:
Whether or not the steel towers of an electric company constitute real property for the purposes of real
property tax.
HELD:
NO. The steel towers of an electric company do not constitute real property for the purposes of real
property tax.
Steel towers are not immovable property under paragraph 1, 3 and 5 of Article 415 (NCC) because
they do not constitute buildings or constructions adhered 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 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. 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.
22. MANILA ELECTRIC CO. V. CENTRAL BOARD OF ASSESSMENT APPEALS 114 SCRA 273
FACTS:
Petitioner owns two oil storage tanks, made of steel plates wielded and assembled on the spot. Their
bottoms rest on a foundation consisted of compacted earth, sand pad as immediate layer, and asphalt
stratum as top layer. The tanks are within the Caltex refinery compound. They are used for storing fuel
oil for Meralco's power plants. The municipal treasurer of Batangas made an assessment for realty tax
on the two tanks, based on the report of the Board of Assessors. Meralco contends that the said oil
storage tanks do not fall within any of the kinds of real property enumerated in article 415 of the Civil
Code the tanks are not attached to the land and that they were placed on leased land, not on the land
owned by Meralco.
ISSUE : Whether or not the oil storage tanks constitute real property for the purposes of real property
tax HELD:
YES. While the two storage tanks are not embodied in the land, they may nevertheless be considered as
improvements in the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable
that the two tanks have been installed with some degree of permanence as receptacles for the
considerable quantities of oil needed by Meralco for its operations. For purposes of taxation, the term
real property may include things, which should generally be considered as personal property. It is a
familiar phenomenon to see things classified as real property for purposes of taxation which on general
principle may be considered as personal property.

Caltex vs Central Board of Assessment Appeals

114 SCRA 273

Facts:
This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its
gas stations located on leased land.The lessor of the land, where the gas station is located, does not
become the owner of the machines and equipment installed therein. Caltex retains the ownership
thereof during the term of the lease.

The city assessor of Pasay City characterized the said items of gas station equipment and machinery as
taxable realty. But The city board of tax appeals ruled that they are personalty.
Issue:
Whether or not the subject machinery and equipment installed by Caltex in its gas stations should be
considered realty.

Held:
Yes.
Improvements on land are commonly taxed as realty. The equipment and machinery as appurtenances
to the gas station building or shed owned by Caltex 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 and
fixed 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.

(appurtenance: an object that is used with or for something)

Benguet Corp. vs CBAA 218 SCRA 271

Facts:
In 1985, the Provincial Assessor of Zambales assessed the petitioner's tailings dam as taxable
improvements.

Petitioner contended that the 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 because it is an
integral part of the mine.

To supporty its contention, petitioner cited the following cases:

(1) Municipality of Cotabato v. Santos
dikes and gates constructed in connection with a fishpond operation as integral parts of the fishpond.
(2) Bislig Bay Lumber Co. v. Provincial
Government of Surigao the realty tax was not imposed on a road constructed by the timber
concessionaire because the government had the right to use the road to promote its varied activities.
(3) Kendrick v. Twin Lakes Reservoir Co. (American Case)
A reservoir dam went with and formed part of the reservoir
(4) Ontario Silver Mining Co. v. Hixon (Canada)
Involved drain tunnels constructed when mining operations were expanded... it was held that "whatever
value they have is connected with and in fact is an integral part of the mine itself."

On the other hand, Solicitor General's argues that the dam is an assessable improvement because it
enhances the value and utility of the mine.

Issue: Whether or not the tailings dam in question is an "improvement" upon the land within the
meaning of the Real Property Tax Code.
Held:
Yes.
The court ruled 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. 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.

Summary:

US vs Tambunting
Under Art. 416 (3) of the NCC, forces of nature which are brought under the control of science such as
gas, electricity, water, etc. are considered to be (personal) property. Therefore, these can be the subjest
of larceny (or theft).

Berkenkotter vs Cu Unjieng
Machinery and equipment deemed as essential and principal elements of an industry or work is
classified as immovable under Art. 415 (5) of the NCC.

Philippine Refining Co. vs Jarque

Vessels (as well as land vehicles) are considered personal property under the civil law. A mortgage on a
vessel is in the nature a chattel mortgage.

Mindanao Bus Co. vs. City Assessor

For movable equipment to be immobilized in contemplation of law, (1) it must be absolutely essential to
the business (industry or work); amd (2) it must be in the place where said business id carried on.

Davao Sawmill vs. Castillo

Machineries only becomes immobilized when placed in a building by the owner of the property or
building, but not when so placed by a tenant, usufructuary, or any person having temporary right
over the property, unless such person acted as the agent of the owner.

Prudential Bank vs Panis

A valid real estate mortgage can be constituted on the building erected on the land belonging to
another. The inclusion of "building" distinct and separate from the land In the enumeration of
properties under Article 415 (1) of the NCC can only mean that the building itself is an immovable
property.

Caltex vs Central Board of Assessment Appeals

Improvements on land are commonly taxed as realty moreso when the fixtures are necessary to the
operation of the industry or work and have been attached and fixed (or embedded) permanently to the
site where the business is carried on.
Art. 415 (3) and (5) of the NCC applies.
Benguet Corp. vs CBAA
an "improvement" on a property is permanent in character and enhances both the value and utility of
said property. Its immovable nature efines its character as real property.

Tumalad vs Vicencio
Certain deviations have been allowed from the general doctrine that buildings are immovable
property such as when through stipulation, parties may agree to treat as personal property those by
their nature would be real property.
Principle of estoppel: by declaring his house as chattel, the owner is etopped from subsequently
claiming otherwise.