SERG’S PRODUCTS AND GOQUIOLAY V.

PCI LEASING
AND FINANCE

338 SCRA 499

FACTS:
PCI filed a case for collection of a sum of money as well
as a writ of replevin for the seizure of machineries, subject
of a chattel mortgage executed by petitioner in favor of PCI.

Machineries of petitioner were seized and petitioner filed a

motion for special protective order. It asserts that the
machineries were real property and could not be subject of a
chattel mortgage.

HELD:
The machineries in question have become immobilized by
destination because they are essential and principal elements in
the industry, and thus have become immovable in nature.

Nonetheless, they are still proper subjects for a chattel

mortgage.

Contracting parties may validly stipulate that a real property be

considered as personal. After agreement, they are
consequently estopped from claiming otherwise.

PRUDENTIAL BANK, petitioner,

vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of
Branch III, Court of First Instance of Zambales and
Olongapo City; FERNANDO MAGCALE & TEODULA
BALUYUT-MAGCALE, respondents.
G.R. No. L-50008 August 31, 1987
Facts:

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 Spouses Magcale secured a loan from Prudential Bank.
As security, respondent’s spouses executed a real estate
mortgage, their residential building as security. Since the
respondents was not able to fulfil their obligation, the
security was extrajudiciaily foreclosed and was eventually
sold in a public auction. Hence this case, to assail the
validity of the mortgage and to recover the foreclosed
land.
Issue:
Whether or not a real estate mortgage can be instituted on
the building of a land belonging to another
Held:
While it is true that a mortgage of land necessarily
includes in the absence of stipulation of the
improvements thereon, buildings, still a building in itself
may be mortgaged by itself apart from the land on which it is
built. Such a mortgage would still be considered as a
REM for the building would still be considered as
immovable property even if dealt with separately and apart
from the land. The original mortgage on the building and
right to occupancy of the land was executed before the
issuance of the sales patent and before the
government was divested of title to the land. Under
the foregoing, it is evident that the mortgage
executed by private respondent on his own building
was a valid mortgage.

Davao Sawmill v. Castillo

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

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 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.

TUMALAD V. VICENCIO
41 SCRA 143
FACTS:

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 Vicencio and Simeon executed a chattel mortgage in favor of plaintiffs Tumalad over their house, which
was being rented by Madrigal and company. This was executed to guarantee a loan, payable in one year
with a 12% per annum interest.

The mortgage was extrajudicially foreclosed upon failure to pay the loan. The house was sold at a public auction
and the plaintiffs were the highest bidder. A corresponding certificate of sale was issued. Thereafter, the
plaintiffs filed an action for ejectment against the defendants, praying that the latter vacate the house as they were
the proper owners.

HELD:
Certain deviations have been allowed from the general doctrine that buildings are immovable property such as
when through stipulation, parties may agree to treat as personal property those by their nature would be real
property. This is partly based on the principle of estoppel wherein the
principle is predicated on statements by the owner declaring his house as chattel, a conduct that may conceivably
stop him from subsequently claiming otherwise.

In the case at bar, though there be no specific statement referring to the subject house as personal property, yet by
ceding, selling or transferring a property through chattel mortgage could only have meant that defendant conveys
the house as chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to make an inconsistent stand by claiming otherwise.

ASSOCIATED INSURANCE AND SURETY COMPANY V. IYA, ET. AL

103 SCRA 972

FACTS:
Spouses Valino were the owners of a house, payable on installments from Philippine Realty Corporation.
To be able to purchase on credit rice from NARIC, they filed a surety bond subscribed by petitioner and
therefor, they executed an alleged chattel mortgage on the house in favor of the surety company. The
spouses didn’t own yet the land on which the house was constructed on at the time of the
undertaking. After being able to purchase the land, to be able to secure payment for
indebtedness, the spouses executed a real estate mortgage in favor of Iya.

The spouses were not able to satisfy obligation with NARIC, petitioner was compelled to pay. The
spouses weren’t able to pay the surety company despite demands and thus, the company foreclosed
the chattel mortgage. It later learned of the real estate mortgage over the house and lot secured
by the spouses. This prompted the company to file an action against the spouses. Also, Iya filed another
civil action against the spouses, asserting that she has a better right over the property. The trial court
heard the two cases jointly and it held that the surety company had a preferred right over the building as
since when the chattel mortgage was secured, the land wasn’t owned yet by the spouses making
the building then a chattel and not a real property.

HELD:
A building certainly cannot be divested of its character of a realty by the fact that the land on which it is
constructed belongs to another. To hold it the other way, the possibility is not remote that it would
result in confusion, for to cloak the building with an uncertain status made dependent on
ownership of the land, would create a situation where apermanent fixture changes its nature or
character as the ownership of the land changes hands. In the case at bar, as personal properties may be
the only subjects of a chattel mortgage, the execution of the chattel mortgage covering said building is
null and void.
Mindanao Bus Co. v. City Assessor & Treasurer
GR No. L-17870
Property Law: Immovable Property

Facts:
The City Assessor of Cagayan De Oro City assessed a realty tax on several equipment and machineries of Mindanao
Bus Co., a public utility solely engaged in transporting passengers and cargoes by motor trucks.. The machineries
sought to be assessed by the respondent as real properties are sitting on cement or wooden platforms.

The petitioner appealed the assessment to the Board of Tax Appeals on the ground that the same are not realty. The
Board of Tax Appeals sustained the assessment of the city assessor.

Additional note (for recit purposes):

– The machineries sought to be assessed by the respondent as real properties are the following:

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 o Hobart Electric Welder Machine;
o Storm Boring machine;
o Lathe machine with motor;
o Black and Decker Grinder;
o PEMCO Hydraulic Press;
o Battery charger (Tungar charge machine); and
o D-Engine Waukesha-M-Fuel.
– These machineries have never been or were never used as industrial equipment to produce finished products for
sale, nor to repair machineries, parts and the like offered to the general public indiscriminately for business or
commercial purposes for which petitioner has never engaged in, to date.”

Issue:
Whether the equipment and machineries in question, are considered immovable properties, and therefore, subject to
realty tax.

Held:
No. The equipment and machineries in question, are movable properties, and therefore, not subject to realty tax.

Movable equipment to be immobilized in contemplation of the law 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.”

The tools and equipment in question in this instant case are, by their nature, not essential and principal elements of
petitioner’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 equipment, its business may be carried on, as petitioner has carried on, without such equipment, before the war.
The transportation business could be carried on without the repair or service shops if its rolling equipment is
repaired or serviced in another shop belonging to another.

Aside from the element of essentiality, Article 415 (5) of the New Civil Code also requires that the industry or works
be carried on in a building or on a piece of land.

But in the case at bar the equipment 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 the law. Said equipment
may not, therefore, be deemed real property.

MAKATI LEASING AND FINANCE CORP. V. WEAREVER TEXTILE MILLS, INC.

Parties to a contract may by agreement treat as personal property that which by nature is a real property, as long
as no interest of 3rd party would be prejudiced.

FACTS:
To obtain financial accommodations from Makati Leasing, Wearever Textile discounted and assigned several
receivables under a Receivable Purchase Agreement with Makati Leasing. To secure the collection of receivables, it
executed a chattel mortgage over several raw materials and a machinery – Artos Aero Dryer Stentering Range
(Dryer).

Wearever defaulted thus the properties mortgaged were extrajudicially foreclosed. The sheriff, after the restraining
order was lifted, was able to enter the premises of Wearever and removed the drive motor of the Dryer. The CA
reversed the order of the CFI, ordering the return of the drive motor since it cannot be the subject of a replevin suit
being an immovable bolted to the ground. Thus the case at bar.

ISSUE:
Whether the dryer is an immovable property

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 HELD: NO
The SC relied on its ruling in Tumalad v. Vicencio, that if a house of strong materials can be the subject of a Chattel
Mortgage as long as the parties to the contract agree and no innocent 3rd party will be prejudiced then moreso that a
machinery may treated as a movable since it is movable by nature and becomes immobilized only by destination.
And treating it as a chattel by way of a Chattel Mortgage, Wearever is estopped from claiming otherwise.

Evangelista v. Alto Surety

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.

SIBAL v. VALDEZ

For the purpose of attachment and execution, and for the purposes of the Chattel Mortgage Law, "ungathered
products" have the nature of personal property.

FACTS:

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 (this case has a lot of confusing facts, just read the original if this digest fails to compress everything) The 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. Included also in those attached were real properties wherein 8mout of the 11 parcels of land, house
and camarin which was first acquired by Macondray & Co and then later on bought by Valdez in an auction. First
Cause for petitioner: 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.
Second Cause for petitioner: That Valdez was trying to harvest palay from four out of seven parcels of land.
Petitioner filed for preliminary injunction to stop defendant from 1) distributing the lands 2) harvesting and selling
the sugar canes, and 3) harvesting and selling the palay. The writ was issued which prevented defendant from
planting and harvesting the lands. Defendant later appealed claiming that he was the owner of many of the alleged
land thus he also owns the crops of it. The court awarded the defendant 9,439.08 because the petitioner unduly
denied the defendant to plant in his land thus preventing him to profit thereto.

ISSUE:
Whether the sugar cane is personal o real property? (The relevance of the issue is with regards to the sugar cane of
the Petitioner which came from the land that now belongs to the defendant)

RULING:

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 crops may be considered as personal property.

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 therein. Our jurisprudence recognizes the possible
mobilization of the growing crop."

For the purpose of attachment and execution, and for the purposes of the Chattel Mortgage Law, "ungathered
products" have the nature of personal property. SC lowered the award for damages to the defendant to 8,900.80 by
acknowledging the fact that some of the sugar canes were owned by the petitioner and by reducing the calculated
expected yield or profit that defendant would have made if petitioner did not judicially prevent him from planting
and harvesting his lands.

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