BERKENKOTTER V.

CU UNJIENG
G.R. No. 41643. July 31, 1935

FACTS:

The Mabalacat Sugar Co., Inc., the owner of the sugar central situated in Pampanga, obtained
from the defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage over two parcels of
land “with all its buildings, improvements, sugar-cane mill, steel railway, telephone line,
apparatus, utensils and whatever forms part or is the necessary complement of the said sugar-
cane mill, steel railway, telephone line, now existing or that may in the future exist is said lots.”

Shortly upon the constitution of the aforementioned mortgage, the Mabalacat Sugar Co., Inc.
bought additional machinery and equipment in the approximate amount of P100,000. Green, the
president of the aforementioned corporation proposed to the plaintiff, Berkenkotter, to advance
the amount necessary for the purchase of the aforementioned equipment and that he would
immediately reimburse Berkenkotter the moment he obtains an additional loan from Cu Unjieng
e Hijos, the now defendant mortgagees.

Plaintiff Berkenkotter agreed and delivered P25,750 and had a credit of P22,000. The company
bought additional machinery and equipment with the said amount. Green also applied for an
additional loan with the amount of P75,000 while offering the additional machinery and
equipment as security, with the defendants Cu Unjieng e Hijos. However Green failed to obtain
the said loan. Hence, the aforementioned mortgage was in effect.

Berkenkotter argues that the new equipment and machinery installed were not permanent in
character and hence were not permanent in nature and that Green bound himself not to
mortgage nor encumber the aforementioned machinery and equipment until the company
reimburses its indebtedness to him when Green offered it as security.

ISSUE:

W/O the additional machinery and equipment were permanent in nature and
consequently, should also be considered mortgaged in favor of Cu Unjieng e Hijos.

RULING:

Yes. The additional machinery and equipment are permanent in nature and that
consequently, the same should be included in the mortgage.

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.”
If the installation of the machinery and equipment in question were for its sugar industry, then it
was converted into real property by reason of their purpose. It cannot be said that their
incorporation therewith was not permanent in character because, without them, the sugar
industry would be unable to function or carry out its industrial purpose for which it was
established. Inasmuch as the central is permanent in character, the necessary machinery and
equipment installed for carrying on the sugar industry for which it has been established must
necessarily be permanent.