Davao Sawmill vs.

Castillo

Facts: Davao Sawmill Co., operated a sawmill. The land upon which the business was
conducted was leased from another person. On the land, Davao Sawmill erected a
building which housed the machinery it used. Some of the machines were mounted and
placed on foundations of cement. In their contract of lease, the parties had the following
agreement:

“That on the expiration of the period agreed upon, all the improvements and
buildings introduced and erected by the party of the second part (Davao
Sawmill) shall pass to the exclusive ownership of the party of the first part
(Owner of the Land)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 the above contract of lease, Davao Sawmill agreed to turn over free of charge all
improvements and buildings erected by it on the premises with the exception of
machineries, which shall remain with the Davao Sawmill.

In an action brought by the Davao Light and Power Co., judgment was rendered against
Davao Sawmill. A writ of execution was issued and the machineries placed on the sawmill
were levied upon as personalty by the sheriff. Davao Light and Power Co., proceeded to
purchase the machinery and other properties auctioned by the sheriff.

Issue: Are the machineries real property which cannot be levied?

Held:
No.

Art.415(5) of the New Civil Code provides that Real Property provides that:

Machinery, receptacles, instruments or implements intended by the owner of the

tenement for an industry or works which may be carried on in a building or on a piece of
needs of the said industry or works.

General Rule: The machinery only becomes immobilized if placed in a plant by the
owner of the property or plant.
As a rule, therefore, the machinery should be considered as Personal Property, since it
was not placed on the land by the owner of the said land.

Will it fall under the exception to the exception?

Exception to the exception: The tenant, usufructuary, or temporary possessor acted as
agent of the owner of the premises; or he intended to permanently give away the
property in favor of the owner.

It could have fallen under the exception to exception if not because of the last sentence
of the lease contract between the owner of the land and Davao Sawmill which provides
that:

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.