BERKENKOTTER v.

CU UNJIENG e HIJOS,
MCSI
August 11, 2015 | Villa-Real, J. |
Corporeal - Immoveables
Digester: Chan, Ysabelle
SUMMARY: Mabalacat Sugar Co., Inc.
thru B.A. Green, its president,
purchased a machinery and equipment,
which would be necessary for
production in the corporations sugar
central. It is contesded whether or not
such machinery and equipment would
be categorized as a permanent
improvement or not. The court ruled
that having been an essential element
of the sugar central, it would be
necessary that such machinery and
equipment be considered permanent.
DOCTRINE: The installation of the
machinery and equipment converts
such into real property by reason of
their purpose. Their incorporation
makes them permanent in character
because they are essential to carry on
the industrial purpose for which they
were established.

In a mortgage of real estate, the

improvements on the same are
included all objects permanently
attached to a mortgaged building or
land are also included unless otherwise
stipulated.
FACTS:
April 26, 1926: the Mabalacat Sugar
Co., Inc., (MSCI) owner of the sugar
central situated in Mabalacat,
Pampanga obtained from Cu Unjieng a
loan secured by a first mortgage
constituted on 2 parcels and land with
all its buildings, improvements, sugarcane mill, steel railway, apparatus,
utensils, now existing or that may in the
future exist in said lots.
MSCI bought additional machinery and
equipment, costing approximately
P100,000, shortly thereafter to increase
the production capacity of its sugar
central from 150 tons/day to 250
tons/day.
To buy this, B.A. Green, the president of
said corporation, proposed to
Berkenkotter, to advance the necessary
amount for the purchase of said

machinery and equipment. He was

going to be reimbursed as soon as
Green obtained an additional loan from
Cu Unjieng. Berkenkotter then delivered
the sum of P1,710 to Green, the total
amount supplied by him having been
P25,750 in addition to a credit of
P22,000 that Berkenkotter had against
MCSI for unpaid salary.
Green applied to Cu Unjieng for an
additional loan of P75,000 offering as
security the additional machinery and
equipment acquired by Green. Green
failed to obtain said loan.
Berkenkotter: the installation of the
machinery and equipment was not
permanent in character inasmuch as
Green made it appear to him that
should he fail to obtain an additional
loan from the Cu Unjieng, said
machinery and equipment would
become security therefor, said Green
binding himself not to mortgage nor
encumber them to anybody until
Berkenkotter be fully reimbursed for the
corporations indebtedness to him
RULING: Appealed judgment, affirmed

Whether the additional machinery and

equipment is considered a permanent
improvement subject to the mortgage
executed in favor of MCSI by Cu Unjieng
- YES
In Bischoff v. Pomar and Compaia
General de Tabacos, the court,
supported by the Civil Code (Art. 1877)
and the Mortgage Law (Arts. 110 and
111), ruled 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 exclude such
improvements, buildings and
machineries, it is indispensable that the
exclusion be stipulated.
Upon acquiring the machinery and
equipment 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
Article 334, paragraph 5, of the Civil
Code gives the character of real
property to machinery, liquid
containers, instruments or implements
intended by the owner of any building
or land for use in connection with any
industry or trade being carried on
therein and which are expressly
adapted to meet the requirements of
such trade or industry.
The installation of the machinery and
equipment converted them into real
property by reason of their purpose. It
cannot therefore be said that their
incorporation was not permanent in
character because, as essential and
principal elements of a sugar central,
the sugar central would not function or
carry on the industrial purpose for
which it was established without them.
Said machinery and equipment must
necessarily be permanent.
The fact that Green bound himself to
the person supplying him the purchase
money to hold them as security for the
payment of the latter's credit, and to

refrain from mortgaging or otherwise

encumbering them does not alter the
permanent character of the
incorporation of said machinery and
equipment with the central.
The sale of the machinery and
equipment by the person who was
supplied the purchase money (Green),
as a loan, to the person who supplied
the money (Berkenkotter), after the
incorporation thereof with the
mortgaged sugar central, does not vest
the creditor (Berkenkotter) with
ownership of said machinery and
equipment but simply with the right of
redemption.
NOTES
Article 1877CC: 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