4.

Leung Yee vs Strong Machinery

FACTS:
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.
12. MANARANG AND MANARANG V. OFILADA AND ESTEBAN

FACTS:

Manarang secured a loan from Esteban guaranteed by a chattel mortgage over a house of mixed
materials. Due to failure to pay, the chattel mortgage was foreclosed. Before the sale of the
property, Manarang tried to pay for the property but the sheriff refused to accept tender unless there is
payment for the publication of the notice of sale in the newspapers.

This prompted Manarang to bring this suit to compel the sheriff to accept payment. He averred that the
publication was unnecessary as the house should be considered as personal property per
agreement in the chattel mortgage, and the publication for notice of sale is unnecessary.

ISSUE:

W/N the fact that the parties entering into a contract regarding a house gave said property the
consideration of personal property in their contract, binding the sheriff in advertising the property's sale
at public auction as personal property.

HELD:

There is no question that a building of mixed materials may be a subject of chattel mortgage, in which
case it is considered as between the parties as personal property.

The mere fact that a house was the subject of chattel mortgage and was considered as personal
property by the parties doesnt make the said house personal property for purposes of the notice to
be given for its sale in public auction. It is real property within the purview of Rule 39, Section 16 of the
Rules of Court as it has become a permanent fixture on the land, which is real property.
13. Evangelista v. Alto Surety

Facts:

In 1949, Santos Evangelista instituted Civil Case No. 8235 of the CFI Manila (Santos Evangelista vs.
Ricardo Rivera) for a sum of money. On the same date, he obtained a writ of attachment, which was
levied upon a house, built by Rivera on a land situated in Manila and leased to him, by filing copy of said
writ and the corresponding notice of attachment with the Office of the Register of Deeds of Manila. In due
course, judgment was rendered in favor of Evangelista, who bought the house at public auction held in
compliance with the writ of execution issued in said case on 8 October 1951.

The corresponding definite deed of sale was issued to him on 22 October 1952, upon expiration of the
period of redemption. When Evangelista sought to take possession of the house, Rivera refused to
surrender it, upon the ground that he had leased the property from the Alto Surety & Insurance Co., Inc.
and that the latter is now the true owner of said property. It appears that on 10 May 1952, a definite deed
of sale of the same house had been issued to Alto Surety, as the highest bidder at an auction sale held,
on 29 September 1950, in compliance with a writ of execution issued in Civil Case 6268 of the same court
(Alto Surety & Insurance vs. Maximo Quiambao, Rosario Guevara and Ricardo Rivera)" in which
judgment for the sum of money, had been rendered in favor of Alto Surety. Hence, on 13 June 1953,

Evangelista instituted an action against Alto Surety and Ricardo Rivera, for the purpose of establishing his
title over said house, and securing possession thereof, apart from recovering damages. After due trial, the
CFI Manila rendered judgment for Evangelista, sentencing Rivera and Alto Surety to deliver the house in
question to Evangelista and to pay him, jointly and severally, P40.00 a month from October 1952, until
said delivery. The decision was however reversed by the Court of Appeals, which absolved Alto Surety
from the complaint on account that although the writ of attachment in favor of Evangelista had been filed
with the Register of Deeds of Manila prior to the sale in favor of Alto Surety, Evangelista did not acquire
thereby a preferential lien, the attachment having been levied as if the house in question were immovable
property.

Issue:
Whether or not a house constructed by the lessee of the land on which it is built, should be dealt with, for
purpose of attachment, as immovable property?

Held:
The court ruled that the house is not personal property, much less a debt, credit or other personal
property not capable of manual delivery, but immovable property. As held in Laddera vs. Hodges (48 OG
5374), "a true building is immovable or real property, whether it is erected by the owner of the land or by a
usufructuary or lessee.

The opinion that the house of Rivera should have been attached, as "personal property capable of
manual delivery, by taking and safely keeping in his custody", for it declared that "Evangelista could not
have validly purchased Ricardo Rivera's house from the sheriff as the latter was not in possession thereof
at the time he sold it at a public auction is untenable.

Parties to a deed of chattel mortgage may agree to consider a house as personal property for purposes of
said contract. However, this view is good only insofar as the contracting parties are concerned. It is
based, partly, upon the principle of estoppel. Neither this principle, nor said view, is applicable to
strangers to said contract.

The rules on execution do not allow, and should not be interpreted as to allow, the special consideration
that parties to a contract may have desired to impart to real estate as personal property, when they are
not ordinarily so. Sales on execution affect the public and third persons. The regulation governing sales
on execution are for public officials to follow.
The form of proceedings prescribed for each kind of property is suited to its character, not to the character
which the parties have given to it or desire to give it. The regulations were never intended to suit the
consideration that parties, may have privately given to the property levied upon.

The court therefore affirms the decision of the CA with cost against Alto Surety.

14. DAVAO SAW MILL vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC. G.R.
No. L-40411 August 7, 1935

Facts:
Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the Philippine
Islands. 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 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 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; 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

It must be noted also that on number of occasion, Davao Sawmill treated the machinery as personal
property by executing chattel mortgages in favor of third persons. One of such is the appellee by
assignment from the original mortgages.

The lower court rendered decision in favor of the defendants herein. Hence, this instant appeal.

Issue:
whether or not the machineries and equipments were personal in nature.

Ruling/ Rationale:
Yes. The Supreme Court affirmed the decision of the lower court.

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.

15. Tsai vs CA
FACTS:

Ever Textile Mills, Inc. (EVERTEX) obtained loan from Philippine Bank of Communications
(PBCom), secured by a deed of Real and Chattel Mortgage over the lot where its factory stands, and the
chattels located therein as enumerated in a schedule attached to the mortgage contract. PBCom again
granted a second loan to EVERTEX which was secured by a Chattel Mortgage over personal properties
enumerated in a list attached thereto. These listed properties were similar to those listed in the first
mortgage deed. After the date of the execution of the second mortgage mentioned above, EVERTEX
purchased various machines and equipments. Upon EVERTEX's failure to meet its obligation to PBCom,
the latter commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135 and Act
1506 or "The Chattel Mortgage Law". PBCom then consolidated its ownership over the lot and all the
properties in it. It leased the entire factory premises to Ruby Tsai and sold to the same the factory, lock,
stock and barrel including the contested machineries.

EVERTEX filed a complaint for annulment of sale, reconveyance, and damages against PBCom,
alleging inter alia that the extrajudicial foreclosure of subject mortgage was not valid, and that PBCom,
without any legal or factual basis, appropriated the contested properties which were not included in the
Real and Chattel Mortgage of the first mortgage contract nor in the second contract which is a Chattel
Mortgage, and neither were those properties included in the Notice of Sheriff's Sale.

ISSUES:
1) W/N the contested properties are personal or movable properties
2) W/N the sale of these properties to a third person (Tsai) by the bank through an irregular foreclosure
sale is valid.

HELD:

1) Nature of the Properties and Intent of the Parties

The nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real
property mortgaged does not make them ipso facto immovable under Article 415 (3) and (5) of the New
Civil Code. While it is true that the properties appear to be immobile, a perusal of the contract of Real
and Chattel Mortgage executed by the parties herein reveal their intent, that is - to treat machinery and
equipment as chattels.
 In the first mortgage contract, reflective of the true intention of PBCOM and EVERTEX was the
typing in capital letters, immediately following the printed caption of mortgage, of the phrase "real and
chattel." So also, the "machineries and equipment" in the printed form of the bank had to be inserted in
the blank space of the printed contract and connected with the word "building" by typewritten slash
marks. Now, then, if the machineries in question were contemplated to be included in the real estate
mortgage, there would have been no necessity to ink a chattel mortgage specifically mentioning as part III
of Schedule A a listing of the machineries covered thereby. It would have sufficed to list them as
immovables in the Deed of Real Estate Mortgage of the land and building involved. As regards the
second contract, the intention of the parties is clear and beyond question. It refers solely to chattels. The
inventory list of the mortgaged properties is an itemization of 63 individually described machineries while
the schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton
fabrics.

UNDER PRINCIPLE OF STOPPEL

Assuming arguendo that the properties in question are immovable by nature, nothing detracts the
parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back
as Navarro v. Pineda, an immovable may be considered a personal property if there is a stipulation as
when it is used as security in the payment of an obligation where a chattel mortgage is executed over it.

2) Sale of the Properties Not Included in the Subject of Chattel Mortgage is Not Valid

The auction sale of the subject properties to PBCom is void. Inasmuch as the subject mortgages
were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the
Chattel Mortgage Law applies. Section 7 provides thereof that: "a chattel mortgage shall be deemed to
cover only the property described therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally mortgaged, anything in the
mortgage to the contrary notwithstanding." Since the disputed machineries were acquired later after the
two mortgage contracts were executed, it was consequently an error on the part of the Sheriff to include
subject machineries with the properties enumerated in said chattel mortgages.

As the lease and sale of said personal properties were irregular and illegal because they were not
duly foreclosed nor sold at the auction, no valid title passed in its favor. Consequently, the sale thereof
to Ruby Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give
what one does not have
16. Mindanao Bus Co. vs City Assessor and Treasurer

Facts: Petitioner is a public utility company engaged in the transport of passengers and cargo by motor vehicles in
Mindanao with main offices in Cagayan de Oro (CDO). Petitioner likewise owned a land where it maintains a garage,
a repair shop and blacksmith or carpentry shops. The machineries are placed thereon in wooden and cement
platforms. The City Assessor of CDO then assessed a P4,400 realty tax on said machineries and repair equipment.
Petitioner appealed to the Board of Tax Appeals but it sustained the City Assessor's decision, while the Court of Tax
Appeals (CTA) sustained the same.

Issue: Whether or not the machineries and equipments are considered immobilized and thus subject to a
realty tax

Held: The Supreme Court decided otherwise and held that said machineries and equipments are not subject to the
assessment of real estate tax.

Said equipments are not considered immobilized as they are merely incidental, not esential and principal to the
business of the petitioner. The transportation business could be carried on without repair or service shops of its rolling
equipment as they can be repaired or services in another shop belonging to another

HELD
Art. 415 of the NCC classifies the following as immovable property:
Xxx (5) Machinery, receptacles, instruments or implements intended by the owner pf 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;

Note that the stipulation expressly states that the equipment are placed on wooden or cement
platforms. They can be moved around and about in petitioner's repair shop.

Before movables may be deemed immobilized in contemplation of Article 415 (5), it is

necessary that they must first be essential and principal elements of an industry or
works without which such industry or works would be unable to function or carry on the industrial
purpose for which it was established.
In this case, the tools and equipment in question are by their nature, not essential and
principal elements of Mindanao Bus Co.s business of transporting passengers and cargoes by
motor trucks. They are merely incidentals acquired as movables and used only for
expediency to facilitate and/or improve its service. Even without such tools and equipments,
its business may be carried on.

Aside from the element of essentiality the Art.415 (5) also requires that the industry or works
be carried on in a building or on a piece of land. A sawmill would also be installed in a building
on land more or less permanently, and the sawing is conducted in the land/building.
However, in the instant case, the equipments in question are destined only to repair or service
the transportation business, which is not carried on in a building or permanently on a piece of
land, as demanded by law. The equipments in question are not absolutely essential to the
petitioner's transportation business, and petitioner's business is not carried on in a building,
tenement or on a specified land.
As such, the equipments in question are not deemed real property because the transportation
business is not carried on in a building or permanently on a piece of land,as demanded by law.
The transportation business could be carried on without the repair or service shop, if its rolling
equipment is repaired or serviced in another shop belonging to another.
Therefore, the imposition of realty tax on the maintenance and repair equipment was not
proper because the properties involved were not real property under Article 415 (5).

Board of Assessment Appeals, Q.C. vs Meralco

10 SCRA 68
GR No. L-15334
January 31, 1964

FACTS
On November 15, 1955, 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 P11,651.86 as 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 of
P11,651.86.

ISSUE
Are the steel towers or poles of the MERALCO considered real or personal
properties?

HELD
Pole long, comparatively slender, usually cylindrical piece of wood, timber, object of
metal or the like; an upright standard to the top of which something is affixed or by
which something is supported.

MERALCO's steel supports consists of a framework of 4 steel bars/strips which are

bound by steel cross-arms atop of which are cross-arms supporting 5 high-voltage
transmission wires, and their sole function is to support/carry such wires. The
exemption granted to poles as quoted from Part II, Par.9 of respondent's franchise is
determined by the use to which such poles are dedicated.

It is evident that the word poles, as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as
to defeat the very object for which the franchise was granted. The poles should be
taken and understood as part of MERALCO's electric power system for the
conveyance of electric current to its consumers.

Art. 415 of the NCC classifies the following as immovable property:

(1) Lands, buildings, roads and constructions of all kinds adhered to the soil;
xxx
 (3) 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;
xxx
(5) Machinery, receptacles, instruments or implements intended by the owner pf the
tenement for an industry ot 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;

Following these classifications, MERALCO's steel towers should be considered personal

property. It should be noted that the steel towers:
(a) are neither buildings or constructions adhered to the soil;

(b) are not attached to an immovable in a fixed manner they can be separated
without breaking the material or deterioration of the object;

are not machineries, receptacles or instruments, and even if they are, they are not
intended for an industry to be carried on in the premises.