Leung Yee vs Frank Strong Machinery Co.

37 Phil. 644 Civil Law Law on Property Multiple Sale to Different Vendees Real
vs Personal Property
In 1913, Compania Agricola Filipina (CAF) was indebted to two personalities: Leung Yee
and Frank L. Strong Machinery Co. CAF purchased some rice cleaning machines from
Strong Machinery. CAF installed the machines in a building. As security for the
purchase price, CAF executed a chattel mortgage on the rice cleaning machines
including the building where the machines were installed. CAF failed to pay Strong
Machinery, hence the latter foreclosed the mortgage the same was registered in the
chattel mortgage registry.
CAF also sold the land (where the building was standing) to Strong Machinery. Strong
Machinery took possession of the building and the land.
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 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 Strong
Machinery evidence is the chattel mortgage already registered by Strong Machinery
(constructive notice).
ISSUE: Who is the owner of the building?
HELD: The SC ruled that Strong Machinery has a better right to the contested property.
Yee cannot be regarded as a buyer in good faith as he was already aware of the fact
that there was a prior sale of the same property to Strong Machinery.
The SC also noted that the Chattel Mortgage Law expressly contemplates provisions for
chattel mortgages which only deal with personal properties. The fact that the parties
dealt the building as if its a personal property does not change the nature of the thing. It
is still a real property. Its inscription in the Chattel Mortgage registry does not modify its
inscription the registry of real property.
Prudential Bank vs. Panis 153 SCRA 390
FACTS:
Spouses Magcale secured a loan from Prudential Bank. To secure payment, they executed a
real estate mortgage over a residential building. The mortgage included also the right to occupy
the lot and the information about the sales patent applied for by the spouses for the lot to which
the building stood. After securing the first loan, the spouses secured another from the same
bank. To secure payment, another real estate mortgage was executed over the same
properties. The Secretary of Agriculture then issued a Miscellaneous Sales Patent over the land
which was later on mortgaged to the bank. The spouses then failed to pay for the loan and the

REM was extrajudicially foreclosed and sold in public auction despite opposition from the
spouses. The respondent court held that the REM was null and void.
ISSUE:
Whether or not a valid REM mortgage can be constituted on the building erected on the
belonging to another.
HELD: A 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 Civil Code can
only mean that the building itself is an immovable property. While it is true that a mortgage of
land necessarily includes in the absence of stipulation of the improvements thereon, buildings,
still a building in itself may be mortgaged by itself apart from the land on which it is built. Such a
mortgage would still be considered as a REM for the building would still be considered as
immovable property even if dealt with separately and apart from the land. The original mortgage
on the building and right to occupancy of the land was executed before the issuance of the
sales patent and before the government was divested of title to the land. Under the foregoing, it
is evident that the mortgage executed by private respondent on his own
building was a valid mortgage. As to the second mortgage, it was done after the sales patent
was issued and thus prohibits pertinent provisions of the Public Land Act.

Standard Oil Co. of New York vs. Jaramillo, 44 SCRA 630

FACTS:
De la Rosa was the lessee of a piece of land, on which a house she owns was built.
She executed a chattel mortgage in favor of the petitionerpurporting the leasehold interest
in the land and the ownership of house. After such, the petitioner moved for its registration
with the Register of Deeds, for the purpose of having the same recorded in the book of record
of chattel mortgages. 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.
ISSUE:

Whether

or

not

respondents

position

is

tenable?

HELD:
No. The respondents duties, as 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. Generally, he should accept the
qualification of the property adopted by the person who presents the instrument for
registration and should place the instrument on record, upon payment of the proper fee,
leaving the effects of registration to be determined by the court if such question should arise for
legal determination. The Civil Code supplies no absolute criterion in discriminating between real
property and personal property for purposes of the application of the Chattel Mortgage
Law. The articles state general doctrines, nonetheless, it must not be forgotten that under
given conditions, property may have character different from that imputed to it in the
said articles. It is undeniable that the parties in a contract may by agreement treat as
personal property that which by nature would be real property.

Biblia Toledo-Banaga and Jovita Tan v CA, GR nO, 127941, January 28, 1989 (302 SCRA 331)
Buyer in Good Faith
Facts:
Petitioner Banaga filed an action for redemption of her property which was earlier foreclosed
and later sold in a public auction to the respondent. The trial court declared petitioner to have
lost her right for redemption and ordered that certificate of title be issued to the respondent
which the petitioner caused an annotation of notice of lis pendens to the title. On appeal, the CA
reversed the decision and allowed the petitioner to redeem her property within a certain period.
Banaga tried to redeem the property by depositing to the trial court the amount of redemption
that was financed by her co-petitioner Tan. Respondent opposed in that she made the
redemption beyond the period ordered by the court. The lower court however upheld the
redemption and ordered the Register of Deeds to cancel the respondents title and issue a new
title in favor of the petitioner. In a petition for certiorari before the CA by the respondent, another
notice of lis pendens was annotated to the title. CA issued a temporary restraining order to
enjoin the execution of the court order. Meanwhile, Banaga sold the property to Tan in the
absolute deed of sale that mentions the title of the property still in the name of the respondent

which was not yet cancelled. Despite the lis pendens on the title, Tan subdivided the lot into a
subdivision plan which she made not in her own name but that of the respondent. Tan then
asked the Register of Deeds to issue a new title in her name. New titles were issued in Tans
name but carried the annotation of the two notices of lis pendens. Upon learning the new title of
Tan the respondent impleaded her in his petition. The CA later sets aside the trial courts
decision and declared the respondent as the absolute owner of the property for failure of the
petitioner to redeem the property within the period ordered by the court. The decision was final
and executory and ordered the Register of Deeds to reinstate the title in the name of the
respondent. The Register of Deeds refused alleging that Tans certificate must be surrendered
first. The respondent cited the register of deeds in contempt but the court denied contending
that the remedy should be consultation with the Land Registration Commissioner and in its other
order denied the motion of respondent for writ of possession holding that the remedy would be
to a separate action to declare Tans title as void. In its motion for certiorari and mandamus to
the CA, the court set aside the two assailed orders of the trial court and declared the title of Tan
as null and void and ordered the Register of Deeds to reinstate the title in the name of the
respondent. Petitioners now argued that Tan is a buyer in good faith and raised the issue on
ownership of the lot.

Issue: Whether or not petitioner Tan is a buyer in good faith?

Ruling: The court held that Tan is not a buyer in good faith because when the property was sold
to her she was aware of the interest of the respondent over the property. She even furnished the
amount used by Banaga to redeem the property. When she bought the property from Banaga
she knows that at that time the property was not registered to the sellers name. The deed of
sale mentioned the title which was named to the respondent. Moreover the title still carries 2
notices of lis pendens. Tan therefore cannot feign ignorance on the status of the property when
she bought it. Because Tan was also impleaded as a party to the litigation, she is bound by the
decision promulgated to the subject of such litigation. It is a settled rule that the party dealing
with a registered land need not go beyond the Certificate of Title to determine the true owner
thereof so as to guard or protect her interest. She has only to look and rely on the entries in the
Certificate of Title. By looking at the title Tan would know that the certificate is in the name of
respondent. Being a buyer in bad faith, Tan does not acquire any better right over the property.
The adjudication of the ownership in favor to the respondent includes the delivery of the
possession by the defeated party to the respondent.

DAVAO SAWMILL V. CASTILLO

G.R. No. L-40411 August 7, 1935

FACTS:
Davao Sawmill Co., operated a sawmill. However, the land upon which the business was
conducted was leased from another person. On the land, Davao Sawmill erected a building
which housed the machinery it used. Some of the machines were mounted and placed on
foundations of cement.. The contract of lease stated that on the expiration of the period agreed
upon, all the improvements and buildings introduced and erected by Davao sawmill 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, a writ of execution was issued against the company and the properties in
question were levied upon. The company assailed the said writ contending that the machineries
and accessories were personal in nature, hence, not subject to writ of execution. The trial judge
ruled in favour of the company.

ISSUE: Whether or not the machineries and equipment were personal property

HELD
Yes, the subject properties are personal in nature.
Art.415 (NCC) provides that real property consists of (5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly to meet the needs of the
said industry or works. Machinery is naturally movable. However, machinery only becomes
immovable when placed in a land by the owner of the property or land but not when so placed
by a tenant or any person having only a temporary right, unless such person acted as the agent
of the owner. In the case at bar, the machinery is intended not by the owner of the land but by
the saw mill company for use in connection with its trade

PEOPLE'S BANK AND TRUST CO. vs. DAHICAN LUMBER COMPANY G.R. No. L17500 May 16, 1967
PEOPLE'S BANK AND TRUST CO. vs. DAHICAN LUMBER COMPANY
G.R. No. L-17500 May 16, 1967
Facts:
On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia
corporation licensed to do business in the Philippines sold and assigned all its rights in
the Dahican Lumber concession to Dahican Lumber Company - hereinafter referred to
as DALCO - for the total sum of $500,000.00, of which only the amount of $50,000.00
was paid. Thereafter, to develop the concession, DALCO obtained various loans from
the People's Bank & Trust Company amounting, as of July 13, 1950, to P200,000.00. In
addition, DALCO obtained, through the BANK, a loan of $250,000.00 from the ExportImport Bank of Washington D.C., evidenced by five promissory notes of $50,000.00
each, maturing on different dates, executed by both DALCO and the Dahican America
Lumber Corporation, a foreign corporation and a stockholder of DALCO,
As security for the payment of the abovementioned loans, on July 13, 1950 DALCO
executed in favor of the BANK a deed of mortgage covering five parcels of land situated
in the province of Camarines Norte together with all the buildings and other
improvements existing thereon and all the personal properties of the mortgagor located
in its place of business in the municipalities of Mambulao and Capalonga, Camarines
Norte. On the same date, DALCO executed a second mortgage on the same properties
in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the
lumber concession amounting to the sum of $450,000.00. Both deeds contained a
provision extending the mortgage lien to properties to be subsequently acquired by the

mortgagor.
Both mortgages were registered in the Office of the Register of Deeds of Camarines
Norte. In addition thereto DALCO and DAMCO pledged to the BANK 7,296 shares of
stock of DALCO and 9,286 shares of DAMCO to secure the same obligation.
Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity,
the BANK paid the same to the Export-Import Bank of Washington D.C., and the latter
assigned to the former its credit and the first mortgage securing it. Subsequently, the
BANK gave DALCO and DAMCO up to April 1, 1953 to pay the overdue promissory
note. After July 13, 1950 - the date of execution of the mortgages mentioned above DALCO purchased various machineries, equipment, spare parts and supplies in
addition to, or in replacement of some of those already owned and used by it on the
date aforesaid. Pursuant to the provision of the mortgage deeds quoted theretofore
regarding "after acquired properties," the BANK requested DALCO to submit complete
lists of said properties but the latter failed to do so. In connection with these purchases,
there appeared in the books of DALCO as due to Connell Bros. Company (Philippines) a domestic corporation who was acting as the general purchasing agent of DALCO -the
sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34.chan
On December 16, 1952, the Board of Directors of DALCO, in a special meeting called
for the purpose, passed a resolution agreeing to rescind the alleged sales of equipment,
spare parts and supplies by CONNELL and DAMCO to it.
On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded
that said agreements be cancelled but CONNELL and DAMCO refused to do so. As a
result, on February 12, 1953; ATLANTIC and the BANK, commenced foreclosure
proceedings in the Court of First Instance of Camarines Norte against DALCO and
DAMCO.
Upon motion of the parties the Court, on September 30, 1953, issued an order
transferring the venue of the action to the Court of First Instance of Manila.
On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the
machineries, equipment and supplies of DALCO, and the same were subsequently sold
for a total consideration of P175,000.00 which was deposited in court pending final
determination of the action. By a similar agreement one-half (P87,500.00) of this
amount was considered as representing the proceeds obtained from the sale of the
"undebated properties" (those not claimed by DAMCO and CONNELL), and the other
half as representing those obtained from the sale of the "after acquired properties".
ISSUE:
WON the "after acquired properties" were subject to the deeds of mortgage mentioned
heretofore. Assuming that they are subject thereto,
WON the mortgages are valid and binding on the properties aforesaid inspite of the fact
that they were not registered in accordance with the provisions of the Chattel Mortgage

Law.
HELD:
Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property
of every nature and description taken in exchange or replacement, as well as all
buildings, machineries, fixtures, tools, equipments, and other property that the
mortgagor may acquire, construct, install, attach; or use in, to upon, or in connection
with the premises - that is, its lumber concession - "shall immediately be and become
subject to the lien" of both mortgages in the same manner and to the same extent as if
already included therein at the time of their execution. Such stipulation is neither
unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by
circumstances, the original value of the properties given as security.
Article 415 does not define real property but enumerates what are considered as such,
among them being machinery, receptacles, instruments or replacements intended by
owner of the tenement for an industry or works which may be carried on in a building or
on a piece of land, and shall tend directly to meet the needs of the said industry or
works. On the strength of the above-quoted legal provisions, the lower court held that
inasmuch as "the chattels were placed in the real properties mortgaged to plaintiffs, they
came within the operation of Art. 415, paragraph 5 and Art. 2127 of the New Civil Code".
In the present case, the characterization of the "after acquired properties" as real
property was made not only by one but by both interested parties. There is, therefore,
more reason to hold that such consensus impresses upon the properties the character
determined by the parties who must now be held in estoppel to question it.

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.

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.

BOARD OF ASSESSMENT APPEALS V. MERALCO

G.R. No. L-15334. January 31, 1964
FACTS:
Meralcos 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.

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 merely sit on its foundation.
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 wished to oppose this
assessment as they averred that the tanks are not real properties.
HELD:
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.

For purposes of taxation, the term real property may include things, which should
generally be considered as personal property. it is familiar phenomenon to see
things classified as real property for purposes of taxation which on general
principle may be considered as personal
property.

G.R. No. L-46245

May 31, 1982

MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,vs.

CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.
Facts:
Pursuant to a pipeline concession issued under the Petroleum Act of 1949, Republic Act
No. 387, 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 pipes are embedded in
the soil and are firmly and solidly welded together so as to preclude breakage or
damage thereto and prevent leakage or seepage of the oil. The valves are welded to
the pipes so as to make the pipeline system one single piece of property from end to
end.
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 where they are buried. In points where the pipeline traversed
rivers or creeks, the pipes were laid beneath the bed thereof. Hence, the pipes are
permanently attached to the land.
Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor
of Laguna treated the pipeline as real property and issued tax declarations, containing
the assessed values of portions of the pipeline.
Meralco appealed the assessments to the defendants, but the latter ruled that pipeline
is subject to realty tax. The defendants argued that the pipeline is subject to realty tax
because they are contemplated in Assessment Law and Real Property Tax Code; that

they do not fall within the category of property exempt from realty tax under those laws;
that Articles 415 & 416 of the Civil Code, defining real and personal property have no
applications to this case because these pipes are constructions adhered to soil and
things attached to the land in a fixed manner, and that Meralco Securities is not exempt
from realty tax under petroleum law.
Meralco insists that its pipeline is not subject to realty tax because it is not real property
within the meaning of Art. 415.
Issue:
Whether the aforementioned pipelines are subject to realty tax.
Held:
Yes, the pipelines are subject to realty tax.
Section 2 of the Assessment Law provides that the realty tax is due on real property,
including land, buildings, machinery, and other improvements. This provision is
reproduced with some modification in Section 38, Real Property Tax Code, which
provides that there shall be levied, assessed, and collected xxx annual ad valorem tax
on real property such as land, buildings, machinery, and other improvements affixed or
attached to real property xxx.
It is incontestable that the pipeline of Meralco Securities does not fall within any of the
classes of exempt real property enumerated in section 3 of the Assessment Law and
section 40 of the Real Property Tax Code.
Pipeline means a line of pipe connected to pumps, valves and control devices for
conveying liquids, gases or finely divided solids. It is a line of pipe running upon or in the
earth, carrying with it the right to the use of the soil in which it is placed.
Article 415[l] 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.
WHEREFORE, the questioned decision and resolution are affirmed. The petition is
dismissed. No costs.