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Republic of the Philippines

SUPREME COURT Manila

EN BANC

G.R. No. L-11658 February 15, 1918

LEUNG YEE, plaintiff-appellant,

vs.

FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.

Booram and Mahoney for appellant.

Williams, Ferrier and SyCip for appellees.

CARSON, J.:

The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery company

from the defendant machinery company, and executed a chattel mortgage thereon to secure payment of

the purchase price. It included in the mortgage deed the building of strong materials in which the

machinery was installed, without any reference to the land on which it stood. The indebtedness secured by

this instrument not having been paid when it fell due, the mortgaged property was sold by the sheriff, in

pursuance of the terms of the mortgage instrument, and was bought in by the machinery company. The

mortgage was registered in the chattel mortgage registry, and the sale of the property to the machinery

company in satisfaction of the mortgage was annotated in the same registry on December 29, 1913.

A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia Agricola Filipina"

executed a deed of sale of the land upon which the building stood to the machinery company, but this

deed of sale, although executed in a public document, was not registered. This deed makes no reference to

the building erected on the land and would appear to have been executed for the purpose of curing any

defects which might be found to exist in the machinery company's title to the building under the sheriff's

certificate of sale. The machinery company went into possession of the building at or about the time when

this sale took place, that is to say, the month of December, 1913, and it has continued in possession ever

since.

At or about the time when the chattel mortgage was executed in favor of the machinery company, the

mortgagor, the "Compañia Agricola Filipina" executed another mortgage to the plaintiff upon the

building, separate and apart from the land on which it stood, to secure payment of the balance of its

indebtedness to the plaintiff under a contract for the construction of the building. Upon the failure of the

mortgagor to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured judgment

for that amount, levied execution upon the building, bought it in at the sheriff's sale on or about the 18th

of December, 1914, and had the sheriff's certificate of the sale duly registered in the land registry of the

Province of Cavite.

At the time when the execution was levied upon the building, the defendant machinery company, which

was in possession, filed with the sheriff a sworn statement setting up its claim of title and demanding the

release of the property from the levy. Thereafter, upon demand of the sheriff, the plaintiff executed an

indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon which the sheriff sold the

property at public auction to the plaintiff, who was the highest bidder at the sheriff's sale.

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This action was instituted by the plaintiff to recover possession of the building from the machinery

company.

The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of the

machinery company, on the ground that the company had its title to the building registered prior to the

date of registry of the plaintiff's certificate.

Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the ownership shall be transfer to

the person who may have the first taken possession thereof in good faith, if it should be personal

property.

Should it be real property, it shall belong to the person acquiring it who first recorded it in the

registry.

Should there be no entry, the property shall belong to the person who first took possession of it in

good faith, and, in the absence thereof, to the person who presents the oldest title, provided there

is good faith.

The registry her referred to is of course the registry of real property, and it must be apparent that the

annotation or inscription of a deed of sale of real property in a chattel mortgage registry cannot be given

the legal effect of an inscription in the registry of real property. By its express terms, the Chattel

Mortgage Law contemplates and makes provision for mortgages of personal property; and the sole

purpose and object of the chattel mortgage registry is to provide for the registry of "Chattel mortgages,"

that is to say, mortgages of personal property executed in the manner and form prescribed in the statute.

The building of strong materials in which the rice-cleaning machinery was installed by the "Compañia

Agricola Filipina" was real property, and the mere fact that the parties seem to have dealt with it separate

and apart from the land on which it stood in no wise changed its character as real property. It follows that

neither the original registry in the chattel mortgage of the building and the machinery installed therein,

not the annotation in that registry of the sale of the mortgaged property, had any effect whatever so far as

the building was concerned.

We conclude that the ruling in favor of the machinery company cannot be sustained on the ground

assigned by the trial judge. We are of opinion, however, that the judgment must be sustained on the

ground that the agreed statement of facts in the court below discloses that neither the purchase of the

building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was made in good

faith, and that the machinery company must be held to be the owner of the property under the third

paragraph of the above cited article of the code, it appearing that the company first took possession of the

property; and further, that the building and the land were sold to the machinery company long prior to the

date of the sheriff's sale to the plaintiff.

It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith," in

express terms, in relation to "possession" and "title," but contain no express requirement as to "good

faith" in relation to the "inscription" of the property on the registry, it must be presumed that good faith is

not an essential requisite of registration in order that it may have the effect contemplated in this article.

We cannot agree with this contention. It could not have been the intention of the legislator to base the

preferential right secured under this article of the code upon an inscription of title in bad faith. Such an

interpretation placed upon the language of this section would open wide the door to fraud and collusion.

The public records cannot be converted into instruments of fraud and oppression by one who secures an

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inscription therein in bad faith. The force and effect given by law to an inscription in a public record

presupposes the good faith of him who enters such inscription; and rights created by statute, which are

predicated upon an inscription in a public registry, do not and cannot accrue under an inscription "in bad

faith," to the benefit of the person who thus makes the inscription.

Construing the second paragraph of this article of the code, the supreme court of Spain held in its

sentencia of the 13th of May, 1908, that:

This rule is always to be understood on the basis of the good faith mentioned in the first

paragraph; therefore, it having been found that the second purchasers who record their purchase

had knowledge of the previous sale, the question is to be decided in accordance with the

following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911] edition.)

Although article 1473, in its second paragraph, provides that the title of conveyance of ownership

of the real property that is first recorded in the registry shall have preference, this provision must

always be understood on the basis of the good faith mentioned in the first paragraph; the

legislator could not have wished to strike it out and to sanction bad faith, just to comply with a

mere formality which, in given cases, does not obtain even in real disputes between third persons.

(Note 2, art. 1473, Civ. Code, issued by the publishers of the La Revista de los Tribunales, 13th

edition.)

The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the

sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery company had

bought the building from plaintiff's judgment debtor; that it had gone into possession long prior to the

sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. The execution

of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery company had filed its

sworn claim of ownership, leaves no room for doubt in this regard. Having bought in the building at the

sheriff's sale with full knowledge that at the time of the levy and sale the building had already been sold

to the machinery company by the judgment debtor, the plaintiff cannot be said to have been a purchaser in

good faith; and of course, the subsequent inscription of the sheriff's certificate of title must be held to

have been tainted with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of sale to the

plaintiff was not made in good faith, we should not be understood as questioning, in any way, the good

faith and genuineness of the plaintiff's claim against the "Compañia Agricola Filipina." The truth is that

both the plaintiff and the defendant company appear to have had just and righteous claims against their

common debtor. No criticism can properly be made of the exercise of the utmost diligence by the plaintiff

in asserting and exercising his right to recover the amount of his claim from the estate of the common

debtor. We are strongly inclined to believe that in procuring the levy of execution upon the factory

building and in buying it at the sheriff's sale, he considered that he was doing no more than he had a right

to do under all the circumstances, and it is highly possible and even probable that he thought at that time

that he would be able to maintain his position in a contest with the machinery company. There was no

collusion on his part with the common debtor, and no thought of the perpetration of a fraud upon the

rights of another, in the ordinary sense of the word. He may have hoped, and doubtless he did hope, that

the title of the machinery company would not stand the test of an action in a court of law; and if later

developments had confirmed his unfounded hopes, no one could question the legality of the propriety of

the course he adopted.

But it appearing that he 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

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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. A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and

then claim that he acted in good faith under the belief that there was no defect in the title of the vendor.

His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of

the existence of a defect in his vendor's title, will not make him an innocent purchaser for value, if

afterwards develops that the title was in fact defective, and it appears that he had such notice of the

defects as would have led to its discovery had he acted with that measure of precaution which may

reasonably be acquired of a prudent man in a like situation. Good faith, or lack of it, is in its analysis a

question of intention; but in ascertaining the intention by which one is actuated on a given occasion, we

are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward

motive may, with safety, be determined. So it is that "the honesty of intention," "the honest lawful intent,"

which constitutes good faith implies a "freedom from knowledge and circumstances which ought to put a

person on inquiry," and so it is that proof of such knowledge overcomes the presumption of good faith in

which the courts always indulge in the absence of proof to the contrary. "Good faith, or the want of it, is

not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can

only be judged of by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf.

Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich.,

8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part of the decision and judgment

entered in the court below should be affirmed with costs of this instance against the appellant. So ordered.

Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.

Torres, Avanceña and Fisher, JJ., took no part.

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Republic of the Philippines

SUPREME COURT Manila

EN BANC

G.R. No. L-20329 March 16, 1923

THE STANDARD OIL COMPANY OF NEW YORK, petitioner,

vs.

JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.

Ross, Lawrence and Selph for petitioner.

City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.

STREET, J.:

This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo, register

of deeds of the City of Manila, to an original petition of the Standard Oil Company of New York,

seeking a peremptory mandamus to compel the respondent to record in the proper register a

document purporting to be a chattel mortgage executed in the City of Manila by Gervasia de la

Rosa, Vda. de Vera, in favor of the Standard Oil Company of New York.

It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de Vera, was

the lessee of a parcel of land situated in the City of Manila and owner of the house of strong

materials built thereon, upon which date she executed a document in the form of a chattel

mortgage, purporting to convey to the petitioner by way of mortgage both the leasehold interest

in said lot and the building which stands thereon.

The clauses in said document describing the property intended to be thus mortgage are expressed

in the following words:

Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by way of

mortgage, the following described personal property, situated in the City of Manila, and

now in possession of the mortgagor, to wit:

(1) All of the right, title, and interest of the mortgagor in and to the contract of lease

hereinabove referred to, and in and to the premises the subject of the said lease;

(2) The building, property of the mortgagor, situated on the aforesaid leased premises.

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

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property, within the meaning of the Chattel Mortgage Law, and registration was refused on this

ground only.

We are of the opinion that the position taken by the respondent is untenable; and it is his duty to

accept the proper fee and place the instrument on record. The duties of 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.

The original provisions touching this matter are contained in section 15 of the Chattel Mortgage

Law (Act No. 1508), as amended by Act No. 2496; but these have been transferred to section

198 of the Administrative Code, where they are now found. There is nothing in any of these

provisions conferring upon the register of deeds any authority whatever in respect to the

"qualification," as the term is used in Spanish law, of chattel mortgage. His duties in respect to

such instruments are ministerial only. The efficacy of the act of recording a chattel mortgage

consists in the fact that it operates as constructive notice of the existence of the contract, and the

legal effects of the contract must be discovered in the instrument itself in relation with the fact of

notice. Registration adds nothing to the instrument, considered as a source of title, and affects

nobody's rights except as a specifies of notice.

Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating between

real property and personal property for purpose of the application of the Chattel Mortgage Law.

Those articles state rules which, considered as a general doctrine, are law in this jurisdiction; but

it must not be forgotten that under given conditions property may have character different from

that imputed to it in said articles. It is undeniable that the parties to a contract may by agreement

treat as personal property that which by nature would be real property; and it is a familiar

phenomenon to see things classed as real property for purposes of taxation which on general

principle might be considered personal property. Other situations are constantly arising, and from

time to time are presented to this court, in which the proper classification of one thing or another

as real or personal property may be said to be doubtful.

The point submitted to us in this case was determined on September 8, 1914, in an administrative

ruling promulgated by the Honorable James A. Ostrand, now a Justice of this Court, but acting at

that time in the capacity of Judge of the fourth branch of the Court of First Instance of the Ninth

Judicial District, in the City of Manila; and little of value can be here added to the observations

contained in said ruling. We accordingly quote therefrom as follows:

It is unnecessary here to determine whether or not the property described in the document

in question is real or personal; the discussion may be confined to the point as to whether a

register of deeds has authority to deny the registration of a document purporting to be a

chattel mortgage and executed in the manner and form prescribed by the Chattel

Mortgage Law.

Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor continued:

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Based principally upon the provisions of section quoted the Attorney-General of the

Philippine Islands, in an opinion dated August 11, 1909, held that a register of deeds has

no authority to pass upon the capacity of the parties to a chattel mortgage which is

presented to him for record. A fortiori a register of deeds can have no authority to pass

upon the character of the property sought to be encumbered by a chattel mortgage. Of

course, if the mortgaged property is real instead of personal the chattel mortgage would

no doubt be held ineffective as against third parties, but this is a question to be

determined by the courts of justice and not by the register of deeds.

In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this court held

that where the interest conveyed is of the nature of real, property, the placing of the document on

record in the chattel mortgage register is a futile act; but that decision is not decisive of the

question now before us, which has reference to the function of the register of deeds in placing the

document on record.

In the light of what has been said it becomes unnecessary for us to pass upon the point whether

the interests conveyed in the instrument now in question are real or personal; and we declare it to

be the duty of the register of deeds to accept the estimate placed upon the document by the

petitioner and to register it, upon payment of the proper fee.

The demurrer is overruled; and unless within the period of five days from the date of the

notification hereof, the respondent shall interpose a sufficient answer to the petition, the writ of

mandamus will be issued, as prayed, but without costs. So ordered.

Araullo, C.J., Malcolm, Avanceña, Ostrand, Johns, and Romualdez, JJ., concur.

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Republic of the Philippines

SUPREME COURT Manila

EN BANC

G.R. No. L-26278 August 4, 1927

LEON SIBAL , plaintiff-appellant,

vs.

EMILIANO J. VALDEZ ET AL., defendants.

EMILIANO J. VALDEZ, appellee.

J. E. Blanco for appellant.

Felix B. Bautista and Santos and Benitez for appellee.

JOHNSON, J.:

The action was commenced in the Court of First Instance of the Province of Tarlac on the 14th day of

December 1924. The facts are about as conflicting as it is possible for facts to be, in the trial causes.

As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal, deputy sheriff of the

Province of Tarlac, by virtue of a writ of execution issued by the Court of First Instance of Pampanga,

attached and sold to the defendant Emiliano J. Valdez the sugar cane planted by the plaintiff and his

tenants on seven parcels of land described in the complaint in the third paragraph of the first cause of

action; that within one year from the date of the attachment and sale the plaintiff offered to redeem said

sugar cane and tendered to the defendant Valdez the amount sufficient to cover the price paid by the

latter, the interest thereon and any assessments or taxes which he may have paid thereon after the

purchase, and the interest corresponding thereto and that Valdez refused to accept the money and to return

the sugar cane to the plaintiff.

As a second cause of action, the plaintiff alleged that the defendant Emiliano J. Valdez was attempting to

harvest the palay planted in four of the seven parcels mentioned in the first cause of action; that he had

harvested and taken possession of the palay in one of said seven parcels and in another parcel described in

the second cause of action, amounting to 300 cavans; and that all of said palay belonged to the plaintiff.

Plaintiff prayed that a writ of preliminary injunction be issued against the defendant Emiliano J. Valdez

his attorneys and agents, restraining them (1) from distributing him in the possession of the parcels of

land described in the complaint; (2) from taking possession of, or harvesting the sugar cane in question;

and (3) from taking possession, or harvesting the palay in said parcels of land. Plaintiff also prayed that a

judgment be rendered in his favor and against the defendants ordering them to consent to the redemption

of the sugar cane in question, and that the defendant Valdez be condemned to pay to the plaintiff the sum

of P1,056 the value of palay harvested by him in the two parcels above-mentioned ,with interest and

costs.

On December 27, 1924, the court, after hearing both parties and upon approval of the bond for P6,000

filed by the plaintiff, issued the writ of preliminary injunction prayed for in the complaint.

The defendant Emiliano J. Valdez, in his amended answer, denied generally and specifically each and

every allegation of the complaint and step up the following defenses:

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(a) That the sugar cane in question had the nature of personal property and was not, therefore,

subject to redemption;

(b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of the

complaint;

(c) That he was the owner of the palay in parcels 1, 2 and 7; and

(d) That he never attempted to harvest the palay in parcels 4 and 5.

The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of the preliminary

injunction he was unable to gather the sugar cane, sugar-cane shoots (puntas de cana dulce) palay in said

parcels of land, representing a loss to him of P8,375.20 and that, in addition thereto, he suffered damages

amounting to P3,458.56. He prayed, for a judgment (1) absolving him from all liability under the

complaint; (2) declaring him to be the absolute owner of the sugar cane in question and of the palay in

parcels 1, 2 and 7; and (3) ordering the plaintiff to pay to him the sum of P11,833.76, representing the

value of the sugar cane and palay in question, including damages.

Upon the issues thus presented by the pleadings the cause was brought on for trial. After hearing the

evidence, and on April 28, 1926, the Honorable Cayetano Lukban, judge, rendered a judgment against the

plaintiff and in favor of the defendants —

(1) Holding that the sugar cane in question was personal property and, as such, was not subject to

redemption;

(2) Absolving the defendants from all liability under the complaint; and

(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal

to jointly and severally pay to the defendant Emiliano J. Valdez the sum of P9,439.08 as follows:

(a) P6,757.40, the value of the sugar cane;

(b) 1,435.68, the value of the sugar-cane shoots;

(c) 646.00, the value of palay harvested by plaintiff;

(d) 600.00, the value of 150 cavans of palay which the defendant was not able to raise by

reason of the injunction, at P4 cavan. 9,439.08 From that judgment the plaintiff appealed

and in his assignments of error contends that the lower court erred: (1) In holding that the

sugar cane in question was personal property and, therefore, not subject to redemption;

(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as well as parcels 7 and

8, and that the palay therein was planted by Valdez;

(3) In holding that Valdez, by reason of the preliminary injunction failed to realized P6,757.40

from the sugar cane and P1,435.68 from sugar-cane shoots (puntas de cana dulce);

(4) In holding that, for failure of plaintiff to gather the sugar cane on time, the defendant was

unable to raise palay on the land, which would have netted him the sum of P600; and.

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(5) In condemning the plaintiff and his sureties to pay to the defendant the sum of P9,439.08.

It appears from the record:

(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by virtue of writ of

execution in civil case No. 20203 of the Court of First Instance of Manila (Macondray & Co., Inc.

vs. Leon Sibal),levied an attachment on eight parcels of land belonging to said Leon Sibal,

situated in the Province of Tarlac, designated in the second of attachment as parcels 1, 2, 3, 4, 5,

6, 7 and 8 (Exhibit B, Exhibit 2-A).

(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels of land, at the

auction held by the sheriff of the Province of Tarlac, for the sum to P4,273.93, having paid for the

said parcels separately as follows (Exhibit C, and 2-A):

Parcel

1 ..................................................................... P1.00

2 ..................................................................... 2,000.00

3 ..................................................................... 120.93

4 ..................................................................... 1,000.00

5 ..................................................................... 1.00

6 ..................................................................... 1.00

7 with the house thereon .......................... 150.00

8 .....................................................................

1,000.00

==========

4,273.93

(3) That within one year from the sale of said parcel of land, and on the 24th day of September,

1923, the judgment debtor, Leon Sibal, paid P2,000 to Macondray & Co., Inc., for the account of

the redemption price of said parcels of land, without specifying the particular parcels to which

said amount was to applied. The redemption price said eight parcels was reduced, by virtue of

said transaction, to P2,579.97 including interest (Exhibit C and 2).

The record further shows:

(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the Province of

Tarlac, by virtue of a writ of execution in civil case No. 1301 of the Province of Pampanga

(Emiliano J. Valdez vs. Leon Sibal 1.º — the same parties in the present case), attached the

personal property of said Leon Sibal located in Tarlac, among which was included the sugar cane

now in question in the seven parcels of land described in the complaint (Exhibit A).

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(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal

properties of Leon Sibal, including the sugar cane in question to Emilio J. Valdez, who paid

therefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A).

(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of execution, also attached

the real property of said Leon Sibal in Tarlac, including all of his rights, interest and participation

therein, which real property consisted of eleven parcels of land and a house and camarin situated

in one of said parcels (Exhibit A).

(4) That on June 25, 1924, eight of said eleven parcels, including the house and the camarin, were

bought by Emilio J. Valdez at the auction held by the sheriff for the sum of P12,200. Said eight

parcels were designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and 11. The house

and camarin were situated on parcel 7 (Exhibit A).

(5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels 2, 12, and

13, were released from the attachment by virtue of claims presented by Agustin Cuyugan and

Domiciano Tizon (Exhibit A).

(6) That on the same date, June 25, 1924, Macondray & Co. sold and conveyed to Emilio J.

Valdez for P2,579.97 all of its rights and interest in the eight parcels of land acquired by it at

public auction held by the deputy sheriff of Tarlac in connection with civil case No. 20203 of the

Court of First Instance of Manila, as stated above. Said amount represented the unpaid balance of

the redemption price of said eight parcels, after payment by Leon Sibal of P2,000 on September

24, 1923, fro the account of the redemption price, as stated above. (Exhibit C and 2).

The foregoing statement of facts shows:

(1) The Emilio J. Valdez bought the sugar cane in question, located in the seven parcels of land

described in the first cause of action of the complaint at public auction on May 9 and 10, 1924,

for P600.

(2) That on July 30, 1923, Macondray & Co. became the owner of eight parcels of land situated

in the Province of Tarlac belonging to Leon Sibal and that on September 24, 1923, Leon Sibal

paid to Macondray & Co. P2,000 for the account of the redemption price of said parcels.

(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray & Co. all of its rights and

interest in the said eight parcels of land.

(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights and interest which

Leon Sibal had or might have had on said eight parcels by virtue of the P2,000 paid by the latter

to Macondray.

(5) That Emilio J. Valdez became the absolute owner of said eight parcels of land.

The first question raised by the appeal is, whether the sugar cane in question is personal or real property.

It is contended that sugar cane comes under the classification of real property as "ungathered products" in

paragraph 2 of article 334 of the Civil Code. Said paragraph 2 of article 334 enumerates as real property

the following: Trees, plants, and ungathered products, while they are annexed to the land or form an

integral part of any immovable property." That article, however, has received in recent years an

interpretation by the Tribunal Supremo de España, which holds that, under certain conditions, growing

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crops may be considered as personal property. (Decision of March 18, 1904, vol. 97, Civil Jurisprudence

of Spain.)

Manresa, the eminent commentator of the Spanish Civil Code, in discussing section 334 of the Civil

Code, in view of the recent decisions of the supreme Court of Spain, admits that growing crops are

sometimes considered and treated as personal property. He says:

No creemos, sin embargo, que esto excluya la excepcionque muchos autores hacen tocante a la

venta de toda cosecha o de parte de ella cuando aun no esta cogida (cosa frecuente con la uvay y

la naranja), y a la de lenas, considerando ambas como muebles. El Tribunal Supremo, en

sentencia de 18 de marzo de 1904, al entender sobre un contrato de arrendamiento de un predio

rustico, resuelve que su terminacion por desahucio no extingue los derechos del arrendario, para

recolectar o percibir los frutos correspondientes al año agricola, dentro del que nacieron aquellos

derechos, cuando el arrendor ha percibido a su vez el importe de la renta integra correspondiente,

aun cuando lo haya sido por precepto legal durante el curso del juicio, fundandose para ello, no

solo en que de otra suerte se daria al desahucio un alcance que no tiene, sino en que, y esto es lo

interesante a nuestro proposito, la consideracion de inmuebles que el articulo 334 del Codigo

Civil atribuge a los frutos pendientes, no les priva del caracter de productos pertenecientes,

como tales, a quienes a ellos tenga derecho, Ilegado el momento de su recoleccion.

x x x x x x x x x

Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en 16 de

diciembre de 1909, con las reformas introducidas por la de 21 de abril anterior, la hipoteca, salvo

pacto expreso que disponga lo contrario, y cualquiera que sea la naturaleza y forma de la

obligacion que garantice, no comprende los frutos cualquiera que sea la situacion en que se

encuentre. (3 Manresa, 5. edicion, pags. 22, 23.)

From the foregoing it appears (1) that, under Spanish authorities, pending fruits and ungathered products

may be sold and transferred as personal property; (2) that the Supreme Court of Spain, in a case of

ejectment of a lessee of an agricultural land, held that the lessee was entitled to gather the products

corresponding to the agricultural year, because said fruits did not go with the land but belonged separately

to the lessee; and (3) that under the Spanish Mortgage Law of 1909, as amended, the mortgage of a piece

of land does not include the fruits and products existing thereon, unless the contract expressly provides

otherwise.

An examination of the decisions of the Supreme Court of Louisiana may give us some light on the

question which we are discussing. Article 465 of the Civil Code of Louisiana, which corresponds to

paragraph 2 of article 334 of our Civil Code, provides: "Standing crops and the fruits of trees not

gathered, and trees before they are cut down, are likewise immovable, and are considered as part of the

land to which they are attached."

The Supreme Court of Louisiana having occasion to interpret that provision, held that in some cases

"standing crops" may be considered and dealt with as personal property. In the case of Lumber Co. vs.

Sheriff and Tax Collector (106 La., 418) the Supreme Court said: "True, by article 465 of the Civil Code

it is provided that 'standing crops and the fruits of trees not gathered and trees before they are cut down . .

. are considered as part of the land to which they are attached, but the immovability provided for is only

one in abstracto and without reference to rights on or to the crop acquired by others than the owners of the

property to which the crop is attached. . . . The existence of a right on the growing crop is a mobilization

by anticipation, a gathering as it were in advance, rendering the crop movable quoad the right acquired

13

therein. Our jurisprudence recognizes the possible mobilization of the growing crop." (Citizens' Bank vs.

Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761; Sandel vs. Douglass, 27 La. Ann., 629;

Lewis vs. Klotz, 39 La. Ann., 267.)

"It is true," as the Supreme Court of Louisiana said in the case of Porche vs. Bodin (28 La. An., 761) that

"article 465 of the Revised Code says that standing crops are considered as immovable and as part of the

land to which they are attached, and article 466 declares that the fruits of an immovable gathered or

produced while it is under seizure are considered as making part thereof, and incurred to the benefit of the

person making the seizure. But the evident meaning of these articles, is where the crops belong to the

owner of the plantation they form part of the immovable, and where it is seized, the fruits gathered or

produced inure to the benefit of the seizing creditor.

A crop raised on leased premises in no sense forms part of the immovable. It belongs to the

lessee, and may be sold by him, whether it be gathered or not, and it may be sold by his judgment

creditors. If it necessarily forms part of the leased premises the result would be that it could not

be sold under execution separate and apart from the land. If a lessee obtain supplies to make his

crop, the factor's lien would not attach to the crop as a separate thing belonging to his debtor, but

the land belonging to the lessor would be affected with the recorded privilege. The law cannot be

construed so as to result in such absurd consequences.

In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:

If the crop quoad the pledge thereof under the act of 1874 was an immovable, it would be

destructive of the very objects of the act, it would render the pledge of the crop objects of the act,

it would render the pledge of the crop impossible, for if the crop was an inseparable part of the

realty possession of the latter would be necessary to that of the former; but such is not the case.

True, by article 465 C. C. it is provided that "standing crops and the fruits of trees not gathered

and trees before they are cut down are likewise immovable and are considered as part of the land

to which they are attached;" but the immovability provided for is only one in abstracto and

without reference to rights on or to the crop acquired by other than the owners of the property to

which the crop was attached. The immovability of a growing crop is in the order of things

temporary, for the crop passes from the state of a growing to that of a gathered one, from an

immovable to a movable. The existence of a right on the growing crop is a mobilization by

anticipation, a gathering as it were in advance, rendering the crop movable quoad the right

acquired thereon. The provision of our Code is identical with the Napoleon Code 520, and we

may therefore obtain light by an examination of the jurisprudence of France.

The rule above announced, not only by the Tribunal Supremo de España but by the Supreme Court of

Louisiana, is followed in practically every state of the Union.

From an examination of the reports and codes of the State of California and other states we find that the

settle doctrine followed in said states in connection with the attachment of property and execution of

judgment is, that growing crops raised by yearly labor and cultivation are considered personal property. (6

Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329: Raventas vs. Green, 57 Cal., 254;

Norris vs. Watson, 55 Am. Dec., 161; Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on Sales, sec. 126;

McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts and Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn.,

528; Preston vs. Ryan, 45 Mich., 174; Freeman on Execution, vol. 1, p. 438; Drake on Attachment, sec.

249; Mechem on Sales, sec. 200 and 763.)

14

Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in existence, is

reasonably certain to come into existence as the natural increment or usual incident of something already

in existence, and then belonging to the vendor, and then title will vest in the buyer the moment the thing

comes into existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange,

21 Am. St. Rep., 63.) Things of this nature are said to have a potential existence. A man may sell property

of which he is potentially and not actually possessed. He may make a valid sale of the wine that a

vineyard is expected to produce; or the gain a field may grow in a given time; or the milk a cow may yield

during the coming year; or the wool that shall thereafter grow upon sheep; or what may be taken at the

next cast of a fisherman's net; or fruits to grow; or young animals not yet in existence; or the good will of

a trade and the like. The thing sold, however, must be specific and identified. They must be also owned at

the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].)

It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil Code has been

modified by section 450 of the Code of Civil Procedure as well as by Act No. 1508, the Chattel Mortgage

Law. Said section 450 enumerates the property of a judgment debtor which may be subjected to

execution. The pertinent portion of said section reads as follows: "All goods, chattels, moneys, and other

property, both real and personal, * * * shall be liable to execution. Said section 450 and most of the other

sections of the Code of Civil Procedure relating to the execution of judgment were taken from the Code of

Civil Procedure of California. The Supreme Court of California, under section 688 of the Code of Civil

Procedure of that state (Pomeroy, p. 424) has held, without variation, that growing crops were personal

property and subject to execution.

Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are personal property.

Section 2 of said Act provides: "All personal property shall be subject to mortgage, agreeably to the

provisions of this Act, and a mortgage executed in pursuance thereof shall be termed a chattel mortgage."

Section 7 in part provides: "If growing crops be mortgaged the mortgage may contain an agreement

stipulating that the mortgagor binds himself properly to tend, care for and protect the crop while growing.

It is clear from the foregoing provisions that Act No. 1508 was enacted on the assumption that "growing

crops" are personal property. This consideration tends to support the conclusion hereinbefore stated, that

paragraph 2 of article 334 of the Civil Code has been modified by section 450 of Act No. 190 and by Act

No. 1508 in the sense that "ungathered products" as mentioned in said article of the Civil Code have the

nature of personal property. In other words, the phrase "personal property" should be understood to

include "ungathered products."

At common law, and generally in the United States, all annual crops which are raised by yearly

manurance and labor, and essentially owe their annual existence to cultivation by man, . may be

levied on as personal property." (23 C. J., p. 329.) On this question Freeman, in his treatise on the

Law of Executions, says: "Crops, whether growing or standing in the field ready to be harvested,

are, when produced by annual cultivation, no part of the realty. They are, therefore, liable to

voluntary transfer as chattels. It is equally well settled that they may be seized and sold under

execution. (Freeman on Executions, vol. p. 438.)

We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been modified by

section 450 of the Code of Civil Procedure and by Act No. 1508, in the sense that, for the purpose of

attachment and execution, and for the purposes of the Chattel Mortgage Law, "ungathered products" have

the nature of personal property. The lower court, therefore, committed no error in holding that the sugar

cane in question was personal property and, as such, was not subject to redemption.

15

All the other assignments of error made by the appellant, as above stated, relate to questions of fact only.

Before entering upon a discussion of said assignments of error, we deem it opportune to take special

notice of the failure of the plaintiff to appear at the trial during the presentation of evidence by the

defendant. His absence from the trial and his failure to cross-examine the defendant have lent

considerable weight to the evidence then presented for the defense.

Coming not to the ownership of parcels 1 and 2 described in the first cause of action of the complaint, the

plaintiff made a futile attempt to show that said two parcels belonged to Agustin Cuyugan and were the

identical parcel 2 which was excluded from the attachment and sale of real property of Sibal to Valdez on

June 25, 1924, as stated above. A comparison of the description of parcel 2 in the certificate of sale by the

sheriff (Exhibit A) and the description of parcels 1 and 2 of the complaint will readily show that they are

not the same.

The description of the parcels in the complaint is as follows:

1. La caña dulce sembrada por los inquilinos del ejecutado Leon Sibal 1.º en una parcela de

terreno de la pertenencia del citado ejecutado, situada en Libutad, Culubasa, Bamban, Tarlac, de

unas dos hectareas poco mas o menos de superficie.

2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal 1.º, Ilamado Alejandro

Policarpio, en una parcela de terreno de la pertenencia del ejecutado, situada en Dalayap,

Culubasa, Bamban, Tarlac de unas dos hectareas de superficie poco mas o menos." The

description of parcel 2 given in the certificate of sale (Exhibit A) is as follows:

2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090 metros cuadrados de

superficie, linda al N. con Canuto Sibal, Esteban Lazatin and Alejandro Dayrit; al E. con

Francisco Dizon, Felipe Mañu and others; al S. con Alejandro Dayrit, Isidro Santos and Melecio

Mañu; y al O. con Alejandro Dayrit and Paulino Vergara. Tax No. 2854, vador amillarado P4,200

pesos.

On the other hand the evidence for the defendant purported to show that parcels 1 and 2 of the complaint

were included among the parcels bought by Valdez from Macondray on June 25, 1924, and corresponded

to parcel 4 in the deed of sale (Exhibit B and 2), and were also included among the parcels bought by

Valdez at the auction of the real property of Leon Sibal on June 25, 1924, and corresponded to parcel 3 in

the certificate of sale made by the sheriff (Exhibit A). The description of parcel 4 (Exhibit 2) and parcel 3

(Exhibit A) is as follows:

Parcels No. 4. — Terreno palayero, ubicado en el barrio de Culubasa,Bamban, Tarlac, I. F. de

145,000 metros cuadrados de superficie, lindante al Norte con Road of the barrio of Culubasa that

goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño y Canuto Sibal y al Oeste

con Esteban Lazatin, su valor amillarado asciende a la suma de P2,990. Tax No. 2856.

As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint and parcel 4

(Exhibit 2 and B) and parcel 3 (Exhibit A). But, inasmuch as the plaintiff did not care to appear at the trial

when the defendant offered his evidence, we are inclined to give more weight to the evidence adduced by

him that to the evidence adduced by the plaintiff, with respect to the ownership of parcels 1 and 2 of the

compliant. We, therefore, conclude that parcels 1 and 2 of the complaint belong to the defendant, having

acquired the same from Macondray & Co. on June 25, 1924, and from the plaintiff Leon Sibal on the

same date.

16

It appears, however, that the plaintiff planted the palay in said parcels and harvested therefrom 190

cavans. There being no evidence of bad faith on his part, he is therefore entitled to one-half of the crop, or

95 cavans. He should therefore be condemned to pay to the defendant for 95 cavans only, at P3.40 a

cavan, or the sum of P323, and not for the total of 190 cavans as held by the lower court.

As to the ownership of parcel 7 of the complaint, the evidence shows that said parcel corresponds to

parcel 1 of the deed of sale of Macondray & Co, to Valdez (Exhibit B and 2), and to parcel 4 in the

certificate of sale to Valdez of real property belonging to Sibal, executed by the sheriff as above stated

(Exhibit A). Valdez is therefore the absolute owner of said parcel, having acquired the interest of both

Macondray and Sibal in said parcel.

With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of the second cause of

action, it appears from the testimony of the plaintiff himself that said parcel corresponds to parcel 8 of the

deed of sale of Macondray to Valdez (Exhibit B and 2) and to parcel 10 in the deed of sale executed by

the sheriff in favor of Valdez (Exhibit A). Valdez is therefore the absolute owner of said parcel, having

acquired the interest of both Macondray and Sibal therein.

In this connection the following facts are worthy of mention:

Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were attached under said

execution. Said parcels of land were sold to Macondray & Co. on the 30th day of July, 1923. Rice paid

P4,273.93. On September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 on the redemption of

said parcels of land. (See Exhibits B and C ).

Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was attached, including the

sugar cane in question. (Exhibit A) The said personal property so attached, sold at public auction May 9

and 10, 1924. April 29, 1924, the real property was attached under the execution in favor of Valdez

(Exhibit A). June 25, 1924, said real property was sold and purchased by Valdez (Exhibit A).

June 25, 1924, Macondray & Co. sold all of the land which they had purchased at public auction on the

30th day of July, 1923, to Valdez.

As to the loss of the defendant in sugar cane by reason of the injunction, the evidence shows that the

sugar cane in question covered an area of 22 hectares and 60 ares (Exhibits 8, 8-b and 8-c); that said area

would have yielded an average crop of 1039 picos and 60 cates; that one-half of the quantity, or 519 picos

and 80 cates would have corresponded to the defendant, as owner; that during the season the sugar was

selling at P13 a pico (Exhibit 5 and 5-A). Therefore, the defendant, as owner, would have netted P

6,757.40 from the sugar cane in question. The evidence also shows that the defendant could have taken

from the sugar cane 1,017,000 sugar-cane shoots (puntas de cana) and not 1,170,000 as computed by the

lower court. During the season the shoots were selling at P1.20 a thousand (Exhibits 6 and 7). The

defendant therefore would have netted P1,220.40 from sugar-cane shoots and not P1,435.68 as allowed by

the lower court.

As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint, amounting to 190 cavans,

one-half of said quantity should belong to the plaintiff, as stated above, and the other half to the

defendant. The court erred in awarding the whole crop to the defendant. The plaintiff should therefore pay

the defendant for 95 cavans only, at P3.40 a cavan, or P323 instead of P646 as allowed by the lower court.

The evidence also shows that the defendant was prevented by the acts of the plaintiff from cultivating

about 10 hectares of the land involved in the litigation. He expected to have raised about 600 cavans of

17

palay, 300 cavans of which would have corresponded to him as owner. The lower court has wisely

reduced his share to 150 cavans only. At P4 a cavan, the palay would have netted him P600.

In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff and his sureties

Cenon de la Cruz, Juan Sangalang and Marcos Sibal are hereby ordered to pay to the defendant jointly

and severally the sum of P8,900.80, instead of P9,439.08 allowed by the lower court, as follows:

P6,757.40 for the sugar cane;

1,220.40 for the sugar cane shoots;

323.00 for the palay harvested by plaintiff in parcels 1 and 2;

600.00 for the palay which defendant could have raised.

8,900.80

============

In all other respects, the judgment appealed from is hereby affirmed, with costs. So ordered.

Street, Malcolm, Villamor, Romualdez and Villa-Real., JJ., concur.

18

Republic of the Philippines

SUPREME COURT Manila

EN BANC

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

DAVAO SAW MILL CO., INC., plaintiff-appellant,

vs.

APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.

J.W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the decision in the trial court and as set

forth by counsel for the parties on appeal, involves the determination of the nature of the properties

described in the complaint. The trial judge found that those properties were personal in nature, and as a

consequence absolved the defendants from the complaint, with costs against the plaintiff.

The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the

Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of Davao,

Province of Davao. 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 party of

the first part without any obligation on its part to pay any amount for said improvements and

buildings; also, in the event the party of the second part should leave or abandon the land leased

before the time herein stipulated, the improvements and buildings shall likewise pass to the

ownership of the party of the first part as though the time agreed upon had expired: Provided,

however, That the machineries and accessories are not included in the improvements which will

pass to the party of the first part on the expiration or abandonment of the land leased.

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 in that action; 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. Indeed the bidder, which was

the plaintiff in that action, and the defendant herein having consummated the sale, proceeded to take

possession of the machinery and other properties described in the corresponding certificates of sale

executed in its favor by the sheriff of Davao.

19

As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a

number of occasions treated the machinery as personal property by executing chattel mortgages in favor

of third persons. One of such persons is the appellee by assignment from the original mortgages.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property

consists of —

1. Land, buildings, roads and constructions of all kinds adhering to the soil;

x x x x x x x x x

5. 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 of industry.

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain no

doubt that the trial judge and appellees are right in their appreciation of the legal doctrines flowing from

the facts.

In the first place, it must again be pointed out that the appellant should have registered its protest before

or at the time of the sale of this property. It must further be pointed out that while not conclusive, the

characterization of the property as chattels by the appellant is indicative of intention and impresses upon

the property the character determined by the parties. In this connection the decision of this court in the

case of Standard Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not,

furnishes the key to such a situation.

It is, however not necessary to spend overly must time in the resolution of this appeal on side issues. It is

machinery which is involved; moreover, machinery not intended by the owner of any building or land for

use in connection therewith, but intended by a lessee for use in a building erected on the land by the latter

to be returned to the lessee on the expiration or abandonment of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme Court, it

was held 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. In the opinion written

by Chief Justice White, whose knowledge of the Civil Law is well known, it was in part said:

To determine this question involves fixing the nature and character of the property from the point

of view of the rights of Valdes and its nature and character from the point of view of Nevers &

Callaghan as a judgment creditor of the Altagracia Company and the rights derived by them from

the execution levied on the machinery placed by the corporation in the plant. Following the Code

Napoleon, the Porto Rican Code treats as immovable (real) property, not only land and buildings,

but also attributes immovability in some cases to property of a movable nature, that is, personal

property, because of the destination to which it is applied. "Things," says section 334 of the Porto

Rican Code, "may be immovable either by their own nature or by their destination or the object to

which they are applicable." Numerous illustrations are given in the fifth subdivision of section

335, which is as follows: "Machinery, vessels, instruments or implements intended by the owner

of the tenements for the industrial or works that they may carry on in any building or upon any

land and which tend directly to meet the needs of the said industry or works." (See also Code

Nap., articles 516, 518 et seq. to and inclusive of article 534, recapitulating the things which,

20

though in themselves movable, may be immobilized.) So far as the subject-matter with which we

are dealing — machinery placed in the plant — it is plain, both under the provisions of the Porto

Rican Law and of the Code Napoleon, that machinery which is movable in its nature only

becomes immobilized when placed in a plant by the owner of the property or plant. Such result

would not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a

usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No. 203; Aubry et

Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman

ed. Code Napoleon under articles 522 et seq.) The distinction rests, as pointed out by

Demolombe, upon the fact that one only having a temporary right to the possession or enjoyment

of property is not presumed by the law to have applied movable property belonging to him so as

to deprive him of it by causing it by an act of immobilization to become the property of another.

It follows that abstractly speaking the machinery put by the Altagracia Company in the plant

belonging to Sanchez did not lose its character of movable property and become immovable by

destination. But in the concrete immobilization took place because of the express provisions of

the lease under which the Altagracia held, since the lease in substance required the putting in of

improved machinery, deprived the tenant of any right to charge against the lessor the cost such

machinery, and it was expressly stipulated that the machinery so put in should become a part of

the plant belonging to the owner without compensation to the lessee. Under such conditions the

tenant in putting in the machinery was acting but as the agent of the owner in compliance with the

obligations resting upon him, and the immobilization of the machinery which resulted arose in

legal effect from the act of the owner in giving by contract a permanent destination to the

machinery.

x x x x x x x x x

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant by

the Altagracia Company, being, as regards Nevers & Callaghan, movable property, it follows that

they had the right to levy on it under the execution upon the judgment in their favor, and the

exercise of that right did not in a legal sense conflict with the claim of Valdes, since as to him the

property was a part of the realty which, as the result of his obligations under the lease, he could

not, for the purpose of collecting his debt, proceed separately against. (Valdes vs. Central

Altagracia [192], 225 U.S., 58.)

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of this

instance to be paid by the appellant.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

21

Republic of the Philippines

SUPREME COURT Manila

EN BANC

G.R. No. L-41643 July 31, 1935

B.H. BERKENKOTTER, plaintiff-appellant,

vs.

CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY,

MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF PAMPANGA, defendants-appellees.

Briones and Martinez for appellant.

Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.

No appearance for the other appellees.

VILLA-REAL, J.:

This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of First

Instance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs.

In support of his appeal, the appellant assigns six alleged errors as committed by the trial court in its

decision in question which will be discussed in the course of this decision.

The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is

whether or not the lower court erred in declaring that the additional machinery and equipment, as

improvement incorporated with the central are subject to the mortgage deed executed in favor of the

defendants Cu Unjieng e Hijos.

It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar

central situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan

secured by a first mortgage constituted on two parcels and land "with all its buildings, improvements,

sugar-cane mill, steel railway, telephone line, apparatus, utensils and whatever forms part or is necessary

complement of said sugar-cane mill, steel railway, telephone line, now existing or that may in the future

exist is said lots."

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, so

that instead of milling 150 tons daily, it could produce 250. The estimated cost of said additional

machinery and equipment was approximately P100,000. In order to carry out this plan, 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 mortgagees, the herein defendants Cu Unjieng e Hijos. Having

agreed to said proposition made in a letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on

October 9th of the same year, delivered the sum of P1,710 to B.A. Green, president of the Mabalacat

Sugar Co., Inc., the total amount supplied by him to said B.A. Green having been P25,750. Furthermore,

B.H. Berkenkotter had a credit of P22,000 against said corporation for unpaid salary. With the loan of

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P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional machinery

and equipment now in litigation.

On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos

for an additional loan of P75,000 offering as security the additional machinery and equipment acquired by

said B.A. Green and installed in the sugar central after the execution of the original mortgage deed, on

April 27, 1927, together with whatever additional equipment acquired with said loan. B.A. Green failed to

obtain said loan.

Article 1877 of the Civil Code provides as follows.

ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, and rents

not collected when the obligation falls due, and the amount of any indemnities paid or due the

owner by the insurers of the mortgaged property or by virtue of the exercise of the power of

eminent domain, with the declarations, amplifications, and limitations established by law,

whether the estate continues in the possession of the person who mortgaged it or whether it passes

into the hands of a third person.

In the case of Bischoff vs. Pomar and Compañia General de Tabacos (12 Phil., 690), cited with approval

in the case of Cea vs. Villanueva (18 Phil., 538), this court laid shown the following doctrine:

1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND

FIXTURES. — It is a rule, established by the Civil Code and also by the Mortgage Law, with

which the decisions of the courts of the United States are in accord, 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. (Arts. 110 and 111 of the Mortgage Law, and 1877 of the Civil

Code; decision of U.S. Supreme Court in the matter of Royal Insurance Co. vs. R. Miller,

liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)

2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. — In order that it may be

understood that the machinery and other objects placed upon and used in connection with a

mortgaged estate are excluded from the mortgage, 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.

The appellant contends that the installation of the machinery and equipment claimed by him in the sugar

central of the Mabalacat Sugar Company, Inc., was not permanent in character inasmuch as B.A. Green,

in proposing to him to advance the money for the purchase thereof, made it appear in the letter, Exhibit E,

that in case B.A. Green should fail to obtain an additional loan from the defendants Cu Unjieng e Hijos,

said machinery and equipment would become security therefor, said B.A. Green binding himself not to

mortgage nor encumber them to anybody until said plaintiff be fully reimbursed for the corporation's

indebtedness to him.

Upon acquiring the machinery and equipment in question with money obtained as loan from the plaintiff-

appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter became owner of said

machinery and equipment, otherwise B.A. Green, as such president, could not have offered them to the

plaintiff as security for the payment of his credit.

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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.

If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar Co.,

Inc., in lieu of the other of less capacity existing therein, for its sugar industry, converted them into real

property by reason of their purpose, it cannot be said that their incorporation therewith was not permanent

in character because, 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.

Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold said

machinery and equipment as security for the payment of the latter's credit and to refrain from mortgaging

or otherwise encumbering them until Berkenkotter has been fully reimbursed therefor, is not incompatible

with the permanent character of the incorporation of said machinery and equipment with the sugar central

of the Mabalacat Sugar Co., Inc., as nothing could prevent B.A. Green from giving them as security at

least under a second mortgage.

As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they had been

permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and while the mortgage

constituted on said sugar central to Cu Unjieng e Hijos remained in force, only the right of redemption of

the vendor Mabalacat Sugar Co., Inc., in the sugar central with which said machinery and equipment had

been incorporated, was transferred thereby, subject to the right of the defendants Cu Unjieng e Hijos

under the first mortgage.

For the foregoing considerations, we are of the opinion and so hold: (1) That 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); (2) that 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; and (3) that the sale of the machinery and equipment in question by the purchaser who was

supplied the purchase money, as a loan, to the person who 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.

Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to the

appellant. So ordered.

Malcolm, Imperial, Butte, and Goddard, JJ., concur.

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