5.

On June 10, 1927, Green applied to Cu Unjieng for an additional loan of P75,000 offering
as security the additional machinery and equipment installed in the sugar central after the
execution of the original mortgage deed. Green failed to obtain said loan.

Berkenkotter v. Cu Unjieng

G.R. No: 41643

Plaintiff and Appellant: B.J. Berkenkotter
Defendants and Appellees: Cu Unjieng E Hijos, Yek Tong Lin Fire and Marine Insurance
Company, Mabalacat Sugar Company, and The Provincial Sheriff of Pampanga
Ponente: J. Villa-Real
Action: Appeal from a judgment of the CFI of Manila
Date: July 31, 1935

ISSUE 1
WON the additional machinery and equipment, as improvement incorporated with the sugar
central, are also subject to the executed mortgage deed YES
Plaintiff: Installation of machinery and equipment not permanent in character, hence they
should not be included in the mortgage
HELD
1. First, the court resolved the issue of permanency in character of the machinery and
equipment. Art. 1877 of CC provides that A mortgage includes all natural accessions,
improvements, growing fruits, and rents not collected when the obligation falls due...

FACTS
1. On April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar central in Mabalacat,
Pampanga, obtained from Cu Unjieng a loan secured by a first mortgage constituted on 2
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 sugarcane mill, steel railway, telephone line, now existing or that may in the future exist in said lots.
2. On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar
Co., Inc. decided to increase the capacity of its sugar central by buying additional machinery
and equipment. (milling production to increase from 150 to 250 tons a day; estimated cost of
machinery : P100,000)
3. To carry out this plan, B.A. Green, president of the corporation, proposed to 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 Cu
Unjieng.
4. On October 9, 1926, Berkenkotter delivered the sum of P1.710 to Green, totaling the
amount supplied by him to Green to P25, 750, and a credit of Berkenkotter of P22,000 against
the said corporation for unpaid salary. With the loan and said credit, the sugar company
purchased the additional machinery and equipment now in litigation.

Bischoff v. Pomar and Compaia General de Tabacos: Mortgage of real estate includes
improvements and fixtures. It is a rule, established by the Civil Code and also by the Mortgage
Law that 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. To be excluded from
the mortgage, it is indespendable that the exclusion of machinery and other objects placed
upon and used in connection with a mortgaged estate be stipulated between the contracting
parties.
2. Art. 334, Par 5, CC 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.
3. Since the installation of the machinery and equipment in question in the central of the
Mabalacat Sugar Co., Inc. converted them into real property by reason of their purpose, then
their incorporation was permanent in character becasue, 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.

THE DIGEST GROUP | B2018 | AY 2015-2016 I UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW

4. The Court then ruled that the installation of a machinery and equipment in a mortgaged
sugar central for the purpose of carrying out its industrial functions and increasing production,
constitutes a permanent improvement on said sugar central and subjects said machinery and
equipment to the mortgage constituted thereon.

DISPO
Judgment of CFI affirmed in all parts. The additional machinery and equipment are permanent
in character and as such, they are also subject to the executed mortgage deed.

THE DIGEST GROUP | B2018 | AY 2015-2016 I UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW