Davao Sawmill Co.

vs Castillo
A tenant placed machines for use in a sawmill on the landlord's land.
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
machiner it used. Some of the machines were mounted and placed on foundations of cement.
!n the contract of lease, Davo Sawmill agreed to turn over free of charge all improvements and
buildings erected b it on the premises with the e"ception of machineries, which shall remain
with the Davao Sawmill. !n an action brought b the Davao #ight and $ower Co., %udgment was
rendered against Davao Sawmill. A writ of e"ecution was issued and the machineries placed on
the sawmill were levied upon as personalt b the sheriff. Davao #ight and $ower Co.,
proceeded to purchase the machiner and other properties auctioned b the sheriff.
!SS&'( Are the machineries real or personal propert)
*'#D(Art.+,- of the .ew Civil Code provides that /eal $ropert consists of(
0,1 #ands, buildings, roads and constructions of all 2inds adhered to the soil3
"""
0-1 4achiner, receptacles, instruments or implements intended b the owner pf the tenement
for an industr or wor2s which ma be carried on in a building or on a piece of land, and which
tend directl to meet the needs of the said industr or wor2s3
Appellant should have registered its protest before or at the time of the sale of the propert.
5hile not conclusive, the appellant's characteri6ation of the propert as chattels is indicative of
intention and impresses upon the propert the character determined b the parties.
4achiner is naturall movable. *owever, machiner ma be immobili6ed b destination or
purpose under the following conditions(
7eneral /ule( The machiner onl becomes immobili6ed if placed in a plant b the owner of the
propert or plant.
!mmobili6ation cannot be made b a tenant, a usufructuar, or an person having onl a
temporar right.
'"ception( The tenant, usufructuar, or temporar possessor acted as agent of the owner of the
premises3 or he intended to permanentl give awa the propert in favor of the owner.
As a rule, therefore, the machiner should be considered as $ersonal $ropert, since it was not
placed on the land b the owner of the said land.
Berkenkotter v. Cu Unjieng
Facts( On 89 April ,:89, the 4abalacat Sugar Compan obtained from Cu &n%ieng e *i%os, a
loan secured b a first mortgage constituted on 8 parcels of land ;with all its buildings,
improvements, sugar<cane mill, steel railwa, telephone line, apparatus, utensils and whatever
forms part or is a necessar complement of said sugar<cane mill, steel railwa, telephone line,
now e"isting or that ma in the future e"ist in said lots.=
On - October ,:89, the 4abalacat Sugar Compan decided to increase the capacit of its
sugar central b buing additional machiner and e>uipment, so that instead of milling ,-? tons
dail, it could produce 8-?. 7reen proposed to the @er2en2otter, to advance the necessar
amount for the purchase of said machiner and e>uipment, promising to reimburse him as soon
as he could obtain an additional loan from the mortgagees, Cu &n%ieng e *i%os, and that in case
7reen should fail to obtain an additional loan from Cu &n%ieng e *i%os, said machiner and
e>uipment would become securit therefore, said 7reen binding himself not to mortgage nor
encumber them to anbod until @er2en2otter be full reimbursed for the corporation's
indebtedness to him.
*aving agreed to said proposition made in a letter dated - October ,:89, @er2en2otter, on :
October ,:89, delivered the sum of $,,A,? to 7reen, the total amount supplied b him to 7reen
having been$8-,A-?. Furthermore, @er2en2otter had a credit of $88,??? against said
corporation for un paid salar. 5ith the loan of $8-,A-? and said credit of $88,???, the
4abalacat Sugar Co., !nc., purchased the additional machiner and e>uipment.
On ,? Bune ,:8A, 7reen applied to Cu &n%ieng e *i%os for an additional loan of $A-,??? offering
as securit the additional machiner and e>uipment ac>uired b said 7reen and installed in the
sugar central after the e"ecution of the original mortgage deed, on 8A April ,:8A, together with
whatever additional e>uipment ac>uired with said loan. 7reen failed to obtain said loan. *ence,
abovementioned mortgage was in effect.
!ssue( Are the additional machines also considered mortgaged)
*eld( Article ,CAA of the Civil Code provides that mortgage includes all natural accessions,
improvements, growing fruits, and rents not collected when the obligation falls due, and the
amount of an indemnities paid or due the owner b the insurers of the mortgaged propert or
b virtue of the e"ercise of the power of eminent domain, with the declarations, amplifications,
and limitations established b law, whether the state continues in the possession of the person
who mortgaged it or whether it passes into the hands of a third person. !t is a rule, that in a
mortgage of real estate, the improvements on the same are included3 therefore, all ob%ects
permanentl attached to a mortgaged building or land, although the ma have been placed
there after the mortgage was constituted, are also included.
Article DD+, paragraph -, of the Civil Code gives the character of real propert to machiner,
li>uid containers, instruments or implements intended b the owner of an building or land for
use in connection with an industr or trade being carried on therein and which are e"pressl
adapted to meet the re>uirements of such trade or industr. The installation of a machiner and
e>uipment in a mortgaged sugar central, in lieu of another of less capacit, for the purpose of
carring out the industrial functions of the latter and increasing production, constitutes a
permanent improvement on said sugar central and sub%ects said machiner and e>uipment to
the mortgage constituted thereon.
Lopez v. Orosa
FACTS(
<$etitioner #ope6 was engaged in doing business under the trade name #ope6<Castelo Sawmill.
Orosa, a resident of the same province as #ope6, invited the latter to ma2e an investment in the
theatre business. #ope6 declined to invest but agreed to suppl the lumber necessar for the
construction of the proposed theatre. The had an oral agreement that Orosa would be
personall liable for an account that the said construction might incur and that pament would
be on demand and not cash on deliver basis.
#ope6 delivered the which was used for construction amounting to $98,8--.C-. *e was paid
onl $8?,C+C.-?, leaving a balance of $+,,AA,.D-.
The land on which the building was erected previousl owned b Orosa, was later on ac>uired
b the corporation.
. As #ope6 was pressing Orosa for pament, the latter and president of the corporation
promised to obtain a ban2 loan b mortgaging the properties of the $la6a Theatre., out of which
the unpaid balance would be satisfied. @ut un2nown to #ope6, the corporation alread obtained
a loan with #u6on Suret Compan as suret, and the corporation in turn e"ecuted a mortgage
on the land and building in favor of the said compan as counter<securit.
Due to the persistent demands of #ope6, Orosa e"ecuted a Edeed of assignment= over his
shares of stoc2 in the corporation.
As it remained unsettled, #ope6 filed a case against Orosa and $la6a theatre praing that the
be sentenced to pa him %ointl and severall of the unpaid balance3 and in case defendants fail
to pa, the land and building owned b the corporation be sold in public auction with the
proceeds be applied to the balance3 or the shares of stoc2 be sold in public auction.
The lower court held that defendants were %ointl liable for the unpaid balance and #ope6 thus
ac>uired the material manFs lien over the construction. The lien was merel confined to the
building and did not e"tend to the on which the construction was made.
#ope6 tried to secure a modification of the decision, but was denied.
!SS&'S(
5hether the material manFs lien for the value of the materials used in the construction of the
building attaches to said structure alone and doesnFt e"tend to the land on which the building is
adhered to.
5hether the lower court and CA erred in not providing that the material mans liens is superior to
the mortgage e"ecuted in favor of suret compan not onl on the building but also on the land.
*'#D(
<The material manFs lien could be charged onl to the building for which the credit was made or
which received the benefit of refection, the lower court was right in, holding at the interest of the
mortgagee over the land is superior and cannot be made sub%ect to the material man's lien.
<7enerall, real estate connotes the land and the building constructed thereon, it is obvious that
the inclusion of the building in the enumeration of what ma constitute real properties could onl
mean one thingGthat a building is b itself an immovable propert.
<!n the absence of an specific provision to the contrar, a building is an immovable propert
irrespective of whether or not said structure and the land on which it is adhered to belong to the
same owner.
<The law gives preference to unregistered refectionar credits onl with respect to the real
estate upon which the refectionar or wor2 was made.
< The lien so created attaches merel to the immovable propert for the construction or repair of
which the obligation was incurred. Therefore, the lien in favor of appellant for the unpaid value
of the lumber used in the construction of the building attaches onl to said structure and to no
other propert of the obligors.
TUMALAD V. VC!"CO
Although a building is an immovable3 the parties to a contract ma b agreement treat as
personal propert that which b nature is a real propert however the are estopped from
subse>uentl claiming otherwise.
FACTS(
Alberta Hicencio and 'miliano Simeon received a loan of $+, C?? from 7avino and 7enerosa
Tumalad. To guarant said loan, Hicencio e"ecuted a chattel mortgage in favor of Tumalad over
their house of strong materials which stood on a land which was rented from the 4adrigal I
Compan, !nc. 5hen Hicencio defaulted in paing, the house was e"tra%udiciall foreclosed,
pursuant to their contract. !t was sold to Tumalad and the instituted a Civil case in the
4unicipal Court of 4anila to have Hicencio vacate the house and pa rent.
The 4TC decided in favor of Tumalad ordering Hicencio to vacate the house and pa rent until
the have completel vacated the house. Hicencio is >uestioning the legalit of the chattel
mortgage on the ground that ,1 the signature on it was obtained thru fraud and 81 the mortgage
is a house of strong materials which is an immovable therefore can onl be the sub%ect of a
/'4. On appeal, the CF! found in favor of Tumalad, and since the Hicencio failed to deposit the
rent ordered, it issued a writ of e"ecution, however the house was alread demolished pursuant
to an order of the court in an e%ectment suit against Hicencio for non<pament of rentals. Thus
the case at bar.
!SS&'(
5hether or not the chattel mortgage is void since its sub%ect is an immovable
*'#D(
.O.
Although a building is b itself an immovable propert, parties to a contract ma treat as
personal propert that which b nature would be real propert and it would be valid and good
onl insofar as the contracting parties are concerned. @ principle of estoppel, the owner
declaring his house to be a chattel ma no longer subse>uentl claim otherwise.
5hen Hicencio e"ecuted the Chattel 4ortgage, it specificall provides that the mortgagor cedes,
sells and transfers b wa of Chattel mortgage. The intended to treat it as chattel therefore are
now estopped from claiming otherwise. Also the house stood on rented land which was held in
previous %urisprudence to be personalt since it was placed on the land b one who had onl
temporar right over the propert thus it does not become immobili6ed b attachment.
JHicencio though was not made to pa rent since the action was instituted during the period of
redemption therefore Hicencio still had a right to remain in possession of the propert.K
Makati Leasing an# $inan%e Corp.& vs 'earever Te(tile Mills& n%.&
FACTS( 5earever Te"tile 4ills, !nc. e"ecuted a chattel mortgage contract in favor of 4a2ati
#easing and Finance Corporation covering certain raw materials and machiner. &pon default,
4a2ati #easing fi led a petition for %udicial foreclosure of the properties mortgaged. Acting on
4a2ati #easingFs application for replevin, the lower court issued a writ of sei6ure. $ursuant
thereto, the sheriff enforcing the sei6ure order sei6ed the machiner sub%ect matter of the
mortgage. !n a petition for certiorari and prohibition, the Court of Appeals ordered the return of
the machiner on the ground that the same can<not be the sub%ect of replevin because it is a
real propert pursuant to Article+,- of the new Civil Code, the same being attached to the
ground b means of bolts and the onl wa to remove it from 5earever te"tileFs plant would be
to drill out or destro the concrete fl oor. 5hen the motion for reconsideration of 4a2ati #easing
was denied b the Court of Appeals, 4a2ati #easing elevated the matter to the Supreme Court.
!SS&'( 5hether the machiner in suit is real or personal propert from the point of view of the
parties.
*'#D( There is no logical %ustification to e"clude the rule out the present case from the
application of the pronouncement in Tumalad v Hicencio, +, SC/A ,+D. !f a house of strong
materials, li2e what was involved in the Tumalad case, ma be considered as personal propert
for purposes of e"ecuting a chattel mortgage thereon as long as the parties to the contract so
agree and no innocent third part will be pre%udiced thereb, there is absolutel no reason wh a
machiner, which is movable in its nature and becomes immobili6ed onl b destination or
purpose, ma not be li2ewise treated as such. This is reall because one who has so agreed is
estopped from the dening the e"istence of the chattel mortgage.
!n re%ecting petitionerFs assertion on the applicabilit of the Tumalad doctrine, the CA las stress
on the fact that the house involved therein was built on a land that did not belong to the owner of
such house. @ut the law ma2es no distinction with respect to the ownership of the land on which
the house is built and 5e should not la down distinctions not contemplated b law.
!t must be pointed out that the characteri6ation b the private respondent is indicative of the
intention and impresses upon the propert the character determined b the parties. As stated in
Standard Oil Co. of .ew Lor2 v. Baramillo, ++ $hil. 9D?, it is undeniable that the parties to a
contract ma, b agreement, treat as personal propert that which b nature would be a real
propert as long as no interest of third parties would be pre%udiced thereb.
The status of the sub%ect matter as movable or immovable propert was not raised as an issue
before the lower court and the CA, e"cept in a supplemental memorandum in support of the
petition filed in the appellate court. There is no record showing that the mortgage has been
annulled, or that steps were ta2en to nullif the same. On the other hand, respondent has
benefited from the said contract.
'>uit dictates that one should not benefit at the e"pense of another.
As such, private respondent could no longer be allowed to impugn the efficac of the chattel
mortgage after it has benefited therefrom.
Therefore, the >uestioned machiner should be considered as personal propert.
Boar# o) Assessment Appeals& *.C. vs Meral%o
FACTS
On .ovember ,-, ,:--, the MC Cit Assessor declared the 4'/A#CO's steel towers sub%ect to
real propert ta". After the denial of 4'/A#CO's petition to cancel these declarations, an
appeal was ta2en to the MC @oard of Assessment Appeals, which re>uired respondent to pa
$,,,9-,.C9 as real propert ta" on the said steel towers for the ears ,:-8 to ,:-9.
4'/A#CO paid the amount under protest, and filed a petition for review in the Court of Ta"
Appeals 0CTA1 which rendered a decision ordering the cancellation of the said ta" declarations
and the refunding to 4'/A#CO b the MC Cit Treasurer of $,,,9-,.C9.
!SS&'
Are the steel towers or poles of the 4'/A#CO considered real or personal properties)
*'#D
$ole N long, comparativel slender, usuall clindrical piece of wood, timber, ob%ect of metal or
the li2e3 an upright standard to the top of which something is affi"ed or b which something is
supported.
4'/A#CO's steel supports consists of a framewor2 of + steel barsOstrips which are bound b
steel cross<arms atop of which are cross<arms supporting - high<voltage transmission wires,
and their sole function is to supportOcarr such wires. The e"emption granted to poles as >uoted
from $art !!, $ar.: of respondent's franchise is determined b the use to which such poles are
dedicated.
!t is evident that the word Epoles=, as used in Act .o. +C+ and incorporated in the petitioner's
franchise, should not be given a restrictive and narrow interpretation, as to defeat the ver
ob%ect for which the franchise was granted. The poles should be ta2en and understood as part
of 4'/A#CO's electric power sstem for the conveance of electric current to its consumers.
Art. +,- of the .CC classifies the following as immovable propert(
0,1 #ands, buildings, roads and constructions of all 2inds adhered to the soil3
"""
0D1 'verthing attached to an immovable in a fi"ed manner, in such a wa that it cannot be
separated therefrom without brea2ing the material or deterioration of the ob%ect3
"""
0-1 4achiner, receptacles, instruments or implements intended b the owner pf the tenement
for an industr ot wor2s which ma be carried on in a building or on a piece of land, and which
tend directl to meet the needs of the said industr or wor2s3
Following these classifications, 4'/A#CO's steel towers should be considered personal
propert. !t should be noted that the steel towers(
0a1 are neither buildings or constructions adhered to the soil3
0b1 are not attached to an immovable in a fi"ed manner N the can be separated without
brea2ing the material or deterioration of the ob%ect3
P are not machineries, receptacles or instruments, and even if the are, the are not intended
for an industr to be carried on in the premises.
Meral%o Se%urities v. Central Boar# o) Assessment Appeals
Facts( $etitioner >uestions the decision of the respondent which held that petitionerFs pipeline is
sub%ect to realt ta". $ursuant to a concession, petitioner installed a pipeline sstem from 4anila
to @atangas. 4eanwhile, the provincial assessor of #aguna treated the pipeline as real propert.
So, petitioner appealed the assessments to the @oard of Assessment Appeals of #aguna. The
board upheld the assessments and the decision became final and e"ecutor after the lapse of
fifteen das from the date of receipt of a cop of the decision b the appellant. 4eralco
Securities contends that the Court of Ta" Appeals has no %urisdiction to review the decision of
the Central @oard of Assessment Appeals and no %udicial review of the @oard's decision is
provided for in the /eal $ropert Ta" Code. *ence, the petitionerFs recourse to file a petition for
certiorari.
*eld( !t was held that certiorari was properl availed of in this case. !t is a writ issued b a
superior court to an inferior court, board or officer e"ercising %udicial or >uasi<%udicial functions
whereb the record of a particular case is ordered to be elevated for review and correction in
matters of law.
The rule is that as to administrative agencies e"ercising >uasi<%udicial power there is an
underling power in the courts to scrutini6e the acts of such agencies on >uestions of law and
%urisdiction even though no right of review is given b the statute. The purpose of %udicial review
is to 2eep the administrative agenc within its %urisdiction and protect substantial rights of parties
affected b its decisions. The review is a part of the sstem of chec2s and balances which is a
limitation on the separation of powers and which forestalls arbitrar and un%ust ad%udications.
Budicial review of the decision of an official or administrative agenc e"ercising >uasi<%udicial
functions is proper in cases of lac2 of %urisdiction, error of law, grave abuse of discretion, fraud
or collusion or in case the administrative decision is corrupt, arbitrar or capricious.
Calte( vs Central Boar# o) Assessment Appeals + Cit, Assessor o) -asa,
This case is about the realt ta" on machiner and e>uipment installed b Calte" 0$hilippines1
!nc., in its gas stations located on leased land.
FACTS
Calte" loaned machines and e>uipment to gas station operators under an appropriate lease
agreement or receipt. The lease contract stipulated that upon demand, the operators shall
return to Calte" the machines and e>uipment in good condition as when received, ordinar wear
and tear e"cepted.
The lessor of the land, where the gas station is located, does not become the owner of the
machines and e>uipment installed therein. Calte" retains the ownership thereof during the term
of the lease.
The Cit Assessor of $asa Cit characteri6ed the said items of gas station e>uipment and
machiner as ta"able realt. *owever, the Cit @oard of Ta" Appeals ruled that the are
personalt. The Assessor appealed to the Central @oard of Assessment Appeals.
The @oard held on Bune D, ,:AA that the said machines are real propert within the meaning of
Ses. D021 I 0m1 and DC of the /eal $ropert Ta" Code, $D +9+, and that the Civil Code
definitions of real and personal propert in Articles +,- and +,9 are not applicable in this case.
!SS&'
5O. the pieces of gas station e>uipment and machiner permanentl affi"ed b Calte" to its
gas station and pavement should be sub%ect to realt ta".
*'#D
Sec.8 of the Assessment #aw provides that the realt ta" is due on real propert, including land,
buildings, machiner, and other improvements not specificall e"empted in Sec.D thereof.
Sec.D of the /eal $ropert Ta" Code provides the following definitions(
21 !mprovements N a valuable addition made to propert or an amelioration in its conditionQ
more than mere repairs or replacement of wasteQintended to enhance its value, beaut, or
utilit
m1 4achiner N machines, mechanical contrivances, instruments, appliances, and apparatus
attached to the real estateQincludes the phsical facilities available for productionQinstallation
and appurtenant service facilities.
The sub%ect machines and e>uipment are ta"able improvement and machiner within the
meaning of the Assessment #aw and the /eal $ropert Ta" Code, because the same are
necessar to the operation of the gas station and have been attachedOaffi"edOembedded
permanentl to the gas station site.
!mprovements on land are commonl ta"ed as realt even though the might be considered
personalt. E!t is a familiar phenomenon to see things classified as real propert for purposes of
ta"ation which on general principle might be considered personal propert= 0Standard Oil Co.,
vs Baramillo, ++ $*!# 9D?1.
This case is also easil distinguishable from @oard of Assessment Appeals vs. 4anila 'lectric
Co., 0,,: $hil. D8C1 where 4eralco's steel towers were e"empted from ta"ation. The steel
towers were considered personalt because the were attached to s>uare metal frames b
means of bolts and could be moved from place to place when unscrewed and dismantled.
.or are Calte"'s gas station e>uipment and machiner the same as the tools and e>uipment in
the repair shop of a bus compan which were held to be personal propert not sub%ect to realt
ta" 04indanao @us Co. vs. Cit Assessor, ,,9 $hil. -?,1.
The Central Board of Assessment Appeals did not commit a grave abuse of discretion in
upholding the City Assessor's imposition of the realty tax on Caltex's gas station and
equipment.
B!".U!T CO/-. vs. CBAA./ "o. 012130. 4anuar, 56& 0667. 508 SC/A 590
A dam is an immovable propert b nature and b incorporation. *ence, it is sub%ect to realt
ta".
!ssue( Should tailings dams be classified as real propert)
FACTS
R @'.7&'T CO/$. owned a mine and a dam.
R The $rovincial Assessor of Sambales classified the dam as a ta"able improvement of the
mine. On appeal b @'.7&'T CO/$. to the C'.T/A#@OA/D OF ASS'SS4'.T A$$'A#S
0C@AA1, the latter declared that the tailings dam and the land submerged under it are sub%ect to
realt ta".
R @'.7&'T CO/$. then filed a petition to the SC via certiorari as2ing the court set aside the
resolution of C@AA.
R !t contended that the dam should not be sub%ect to ta" because it was not an assessable
improvement of the mine but rather an integral part of the mineFs operation.
R The Sol. 7en argued however that the dam was an assessable improvement because it
enhanced the value and utilit of the mine li2e holding waste from the mine and impounding
water for reccling.
!SS&'( 5hether or not the dam was an assessable improvement of the mine and thus sub%ect
to realt ta".
/&#!.7
R L'S, the dam was an assessable improvement of the mine and sub%ect to realt ta".
R The mine can operate without the dam because the primar function of the dam is merel to
receive and retain the wastes and water coming from the mine.
R There was no allegation that it was the onl source of water as to ma2e the dam an integral
part of the mine.
R The /eal $ropert Code did not define what is real propert that the definition in Art. +,- of
the Civil Code shall appl.
R The dam was an immovable under pars. , and D of Art. +,- hence it was ta"able realt.
R &nder par. ,, the dam was an immovable propert since it was a construction adhered to the
soil.
R &nder par. D, it was an immovable since it was fi"ed in a manner that it cannot be separated
from the land without brea2ing or deteriorating.