B. H.

BERKENKOTTER, plaintiff and appellant,

vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY,
MABALACAT SUGAR COMPANY and THE PROVINCIAL SHERIFF OF PAMPANGA,
defendants and appellees.
[No. 41643. July 31, 1935]
Digest Author: Jude Fanila
Topic: Classifications of Property – Based on Movability
Petitioners: BH Berkenkotter
Respondents: Cu Unjieng E Hijos, Yek Tong Lin Fire, Marine Insurance Company, Mabalacat
Sugar Company and Provincial Sheriff of Pampanga

Doctrine: 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."

Facts
1. Appeal by petitioner – CFI Manila dismissed complaint against respondent -
2. April 26 1926 – respondent, Mabalacat Sugar obtained from co-respondent CU Unjieng a
loan secured by a mortgage over two-parcels of land owned by Mabalacat. With the
following terms:
a. with all its buildings, improvements, sugar-cane mill, steel railway, telephone
line, apparatus, utensils and whatever forms part or is a necessary complement of
said sugar-cane mill, steel railway, telephone line, now existing or that may in the
future exist in said lots."
3. October 5 1926 – After mortgage, Mabalacat purchased additional machinery and
equipment to increase capacity of the sugar central (from 150 tons to 250 tons milling per
day).
a. Estimated cost of machinery was P100,000 – led to Mabalacat proposing to
petitioner to advance payments.
b. Berkentoter advanced payments for machinery and equipment with a promise to
be reimbursed upon Mabalacat securing an additional loan from the Mortgagees
(Cu Unjieng).
c. Same day, Berkenkotter agreed gave a loan of P25,570 + P22,000 in credit (for
unpaid salary)
i. Led to Mabalacat purchasing equipment and machinery
4. June 10 1927 – Mabalacat applied for an additional P75,000 loan with Cu Unjieng,
offering machinery and equipment as security.
a. April 27, 1927 – loan was denied.
5. Led to current case, petitioner argues that machineries not part of the mortgage; That
Mabalacat president in the letter bound himself to not mortgage nor encumber
machineries until he could be fully reimbursed.
a. Argues that because machineries not part of mortgage, Mabalacat was the owner,
thus could not have offered them as security and that said machineries were not
incorporated into the land which was mortgaged and subsequently transferred to
Cu Unjieng.
Issues
1. W/N installed machineries real property? – YES
a. Under Art. 344 of the Civil Code, machines become immovables by destination &
incorporation once fixed upon the premises by the owner if they are indispensable
for that industry. Thus, under Art. 1877 they become part of the mortgage
between Mabalacat and Cu Unjieng.
i. The fact that Mabalacat agreed with Berkenkotter not to encumber or
alienate the equipment until the latter was reimbursed is not incompatible
with the incorporation of the same; Nothing could prevent Mabalacat from
giving them as security under a second mortgage.
b. Thus, incorporation of machinery led to the transfer of the right to redemption of
the purchaser (Mabalacat) to the mortgagor (Cu Unjieng) upon the enforcement of
the mortgage.
i. The sale of the machinery and equipment to Berkenkotter is valid, the
incorporation does not vest Cu Unjieng with ownership but instead only
the right to redemption.

Ruling
Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with
costs to the appellant. So ordered

Notes

1. "ART. 1877. 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."

2. 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."