Property Cases

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11658

February 15, 1918

LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G.
WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery
company from the defendant machinery company, and executed a chattel mortgage thereon
to secure payment of the purchase price. It included in the mortgage deed the building of
strong materials in which the machinery was installed, without any reference to the land on
which it stood. The indebtedness secured by this instrument not having been paid when it fell
due, the mortgaged property was sold by the sheriff, in pursuance of the terms of the
mortgage instrument, and was bought in by the machinery company. The mortgage was
registered in the chattel mortgage registry, and the sale of the property to the machinery
company in satisfaction of the mortgage was annotated in the same registry on December 29,
1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia Agricola
Filipina" executed a deed of sale of the land upon which the building stood to the machinery
company, but this deed of sale, although executed in a public document, was not registered.
This deed makes no reference to the building erected on the land and would appear to have
been executed for the purpose of curing any defects which might be found to exist in the
machinery company's title to the building under the sheriff's certificate of sale. The
machinery company went into possession of the building at or about the time when this sale
took place, that is to say, the month of December, 1913, and it has continued in possession
ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery
company, the mortgagor, the "Compañia Agricola Filipina" executed another mortgage to the
plaintiff upon the building, separate and apart from the land on which it stood, to secure
payment of the balance of its indebtedness to the plaintiff under a contract for the
construction of the building. Upon the failure of the mortgagor to pay the amount of the
indebtedness secured by the mortgage, the plaintiff secured judgment for that amount, levied
execution upon the building, bought it in at the sheriff's sale on or about the 18th of
December, 1914, and had the sheriff's certificate of the sale duly registered in the land
registry of the Province of Cavite.

At the time when the execution was levied upon the building, the defendant machinery
company, which was in possession, filed with the sheriff a sworn statement setting up its
claim of title and demanding the release of the property from the levy. Thereafter, upon
demand of the sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in the
sum of P12,000, in reliance upon which the sheriff sold the property at public auction to the
plaintiff, who was the highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the
machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in
favor of the machinery company, on the ground that the company had its title to the building
registered prior to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership shall be transfer
to the person who may have the first taken possession thereof in good faith, if it should be
personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in
the registry.
Should there be no entry, the property shall belong to the person who first took possession of
it in good faith, and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be apparent
that the annotation or inscription of a deed of sale of real property in a chattel mortgage
registry cannot be given the legal effect of an inscription in the registry of real property. By
its express terms, the Chattel Mortgage Law contemplates and makes provision for
mortgages of personal property; and the sole purpose and object of the chattel mortgage
registry is to provide for the registry of "Chattel mortgages," that is to say, mortgages of
personal property executed in the manner and form prescribed in the statute. The building of
strong materials in which the rice-cleaning machinery was installed by the "Compañia
Agricola Filipina" was real property, and the mere fact that the parties seem to have dealt
with it separate and apart from the land on which it stood in no wise changed its character as
real property. It follows that neither the original registry in the chattel mortgage of the
building and the machinery installed therein, not the annotation in that registry of the sale of
the mortgaged property, had any effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on the
ground assigned by the trial judge. We are of opinion, however, that the judgment must be
sustained on the ground that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription of the sheriff's
certificate of sale in his favor was made in good faith, and that the machinery company must
be held to be the owner of the property under the third paragraph of the above cited article of
the code, it appearing that the company first took possession of the property; and further, that
the building and the land were sold to the machinery company long prior to the date of the
sheriff's sale to the plaintiff.

It has been suggested that since the provisions of article 1473 of the Civil Code require
"good faith," in express terms, in relation to "possession" and "title," but contain no express
requirement as to "good faith" in relation to the "inscription" of the property on the registry,
it must be presumed that good faith is not an essential requisite of registration in order that it
may have the effect contemplated in this article. We cannot agree with this contention. It
could not have been the intention of the legislator to base the preferential right secured under
this article of the code upon an inscription of title in bad faith. Such an interpretation placed
upon the language of this section would open wide the door to fraud and collusion. The
public records cannot be converted into instruments of fraud and oppression by one who
secures an inscription therein in bad faith. The force and effect given by law to an inscription
in a public record presupposes the good faith of him who enters such inscription; and rights
created by statute, which are predicated upon an inscription in a public registry, do not and
cannot accrue under an inscription "in bad faith," to the benefit of the person who thus makes
the inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain held
in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in accordance
with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911]
edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have preference, this
provision must always be understood on the basis of the good faith mentioned in the first
paragraph; the legislator could not have wished to strike it out and to sanction bad faith, just
to comply with a mere formality which, in given cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of the La
Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building
at the sheriff's sale and inscribed his title in the land registry, was duly notified that the
machinery company had bought the building from plaintiff's judgment debtor; that it had
gone into possession long prior to the sheriff's sale; and that it was in possession at the time
when the sheriff executed his levy. The execution of an indemnity bond by the plaintiff in
favor of the sheriff, after the machinery company had filed its sworn claim of ownership,
leaves no room for doubt in this regard. Having bought in the building at the sheriff's sale
with full knowledge that at the time of the levy and sale the building had already been sold to
the machinery company by the judgment debtor, the plaintiff cannot be said to have been a
purchaser in good faith; and of course, the subsequent inscription of the sheriff's certificate
of title must be held to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate
of sale to the plaintiff was not made in good faith, we should not be understood as
questioning, in any way, the good faith and genuineness of the plaintiff's claim against the
"Compañia Agricola Filipina." The truth is that both the plaintiff and the defendant company
appear to have had just and righteous claims against their common debtor. No criticism can
properly be made of the exercise of the utmost diligence by the plaintiff in asserting and

exercising his right to recover the amount of his claim from the estate of the common debtor.
We are strongly inclined to believe that in procuring the levy of execution upon the factory
building and in buying it at the sheriff's sale, he considered that he was doing no more than
he had a right to do under all the circumstances, and it is highly possible and even probable
that he thought at that time that he would be able to maintain his position in a contest with
the machinery company. There was no collusion on his part with the common debtor, and no
thought of the perpetration of a fraud upon the rights of another, in the ordinary sense of the
word. He may have hoped, and doubtless he did hope, that the title of the machinery
company would not stand the test of an action in a court of law; and if later developments
had confirmed his unfounded hopes, no one could question the legality of the propriety of
the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of ownership
when he executed the indemnity bond and bought in the property at the sheriff's sale, and it
appearing further that the machinery company's claim of ownership was well founded, he
cannot be said to have been an innocent purchaser for value. He took the risk and must stand
by the consequences; and it is in this sense that we find that he was not a purchaser in good
faith.
One who purchases real estate with knowledge of a defect or lack of title in his vendor
cannot claim that he has acquired title thereto in good faith as against the true owner of the
land or of an interest therein; and the same rule must be applied to one who has knowledge
of facts which should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. A purchaser cannot close
his eyes to facts which should put a reasonable man upon his guard, and then claim that he
acted in good faith under the belief that there was no defect in the title of the vendor. His
mere refusal to believe that such defect exists, or his willful closing of his eyes to the
possibility of the existence of a defect in his vendor's title, will not make him an innocent
purchaser for value, if afterwards develops that the title was in fact defective, and it appears
that he had such notice of the defects as would have led to its discovery had he acted with
that measure of precaution which may reasonably be acquired of a prudent man in a like
situation. Good faith, or lack of it, is in its analysis a question of intention; but in
ascertaining the intention by which one is actuated on a given occasion, we are necessarily
controlled by the evidence as to the conduct and outward acts by which alone the inward
motive may, with safety, be determined. So it is that "the honesty of intention," "the honest
lawful intent," which constitutes good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry," and so it is that proof of such
knowledge overcomes the presumption of good faith in which the courts always indulge in
the absence of proof to the contrary. "Good faith, or the want of it, is not a visible, tangible
fact that can be seen or touched, but rather a state or condition of mind which can only be
judged of by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf.
Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley,
119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of the decision and
judgment entered in the court below should be affirmed with costs of this instance against
the appellant. So ordered.
Arellano,
C.J.,
Johnson,
Araullo,
Torres, Avanceña and Fisher, JJ., took no part.

Street

and

Malcolm,

JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-40411

August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendantsappellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the trial court
and as set forth by counsel for the parties on appeal, involves the determination of the nature
of the properties described in the complaint. The trial judge found that those properties were

personal in nature, and as a consequence absolved the defendants from the complaint, with
costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of
the Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu,
municipality of Davao, Province of Davao. 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 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 party of the first part 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 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 in that action; 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. Indeed the bidder, which was the plaintiff in that action,
and the defendant herein having consummated the sale, proceeded to take possession of the
machinery and other properties described in the corresponding certificates of sale executed in
its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co.,
Inc., has on a number of occasions treated the machinery as personal property by executing
chattel mortgages in favor of third persons. One of such persons is the appellee by
assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real
property consists of —
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx

xxx

xxx

5. 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 of industry.

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and appellees are right in their appreciation of the legal
doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have registered its
protest before or at the time of the sale of this property. It must further be pointed out that
while not conclusive, the characterization of the property as chattels by the appellant is
indicative of intention and impresses upon the property the character determined by the
parties. In this connection the decision of this court in the case of Standard Oil Co. of New
Yorkvs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to
such a situation.
It is, however not necessary to spend overly must time in the resolution of this appeal on side
issues. It is machinery which is involved; moreover, machinery not intended by the owner of
any building or land for use in connection therewith, but intended by a lessee for use in a
building erected on the land by the latter to be returned to the lessee on the expiration or
abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States
Supreme Court, it was held that 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. In the opinion written by Chief Justice White, whose
knowledge of the Civil Law is well known, it was in part said:
To determine this question involves fixing the nature and character of the property from the
point of view of the rights of Valdes and its nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights derived
by them from the execution levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property, not
only land and buildings, but also attributes immovability in some cases to property of a
movable nature, that is, personal property, because of the destination to which it is applied.
"Things," says section 334 of the Porto Rican Code, "may be immovable either by their own
nature or by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as follows:
"Machinery, vessels, instruments or implements intended by the owner of the tenements for
the industrial or works that they may carry on in any building or upon any land and which
tend directly to meet the needs of the said industry or works." (See also Code Nap., articles
516, 518 et seq. to and inclusive of article 534, recapitulating the things which, though in
themselves movable, may be immobilized.) So far as the subject-matter with which we are
dealing — machinery placed in the plant — it is plain, both under the provisions of the Porto
Rican Law and of the Code Napoleon, that machinery which is movable in its nature only
becomes immobilized when placed in a plant by the owner of the property or plant. Such
result would not be accomplished, therefore, by the placing of machinery in a plant by a
tenant or a usufructuary or any person having only a temporary right. (Demolombe, Tit. 9,
No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions
quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction rests,
as pointed out by Demolombe, upon the fact that one only having a temporary right to the
possession or enjoyment of property is not presumed by the law to have applied movable
property belonging to him so as to deprive him of it by causing it by an act of immobilization

to become the property of another. It follows that abstractly speaking the machinery put by
the Altagracia Company in the plant belonging to Sanchez did not lose its character of
movable property and become immovable by destination. But in the concrete immobilization
took place because of the express provisions of the lease under which the Altagracia held,
since the lease in substance required the putting in of improved machinery, deprived the
tenant of any right to charge against the lessor the cost such machinery, and it was expressly
stipulated that the machinery so put in should become a part of the plant belonging to the
owner without compensation to the lessee. Under such conditions the tenant in putting in the
machinery was acting but as the agent of the owner in compliance with the obligations
resting upon him, and the immobilization of the machinery which resulted arose in legal
effect from the act of the owner in giving by contract a permanent destination to the
machinery.
xxx

xxx

xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable property,
it follows that they had the right to levy on it under the execution upon the judgment in their
favor, and the exercise of that right did not in a legal sense conflict with the claim of Valdes,
since as to him the property was a part of the realty which, as the result of his obligations
under the lease, he could not, for the purpose of collecting his debt, proceed separately
against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed, the
costs of this instance to be paid by the appellant.
Villa-Real, Imperial, Butte, and Goddard, JJ., concur.
The Lawphil Project - Arellano Law Foundation

DAVAO SAW MILL CO. VS. CASTILLO
61 SCRA 709
FACTS:
Petitioner is the holder of a lumber concession. It operated a sawmill on a land, which it doesn’t own.
Part of the lease agreement was a stipulation in which after the lease agreement, all buildings and
improvements would pass to the ownership of the lessor, which would not include machineries and
accessories. In connection to this, petitioner had in its sawmill machineries and other equipment
wherein
some
were
bolted
in
foundations
of
cement.

HELD:
The

machinery

must

be

classified

as

personal

property.

The lessee placed the machinery in the building erected on land belonging to another, with the
understanding that the machinery was not included in the improvements which would pass to the lessor on
the expiration of the lease agreement. The lessee also treated the machinery as personal
property in executing chattel mortgages in favor of third persons. The machinery was levied upon
by the sheriff as personalty pursuant to a writ of execution obtained without any protest being registered.
Furthermore, machinery only becomes immobilized when placed in a plant by the owner of the property
or plant, but not when so placed by a tenant, usufructuary, or any person having temporary right,
unless
such
person
acted
as
the
agent
of
the
owner.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-7057

October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON, JUDGE
OF THE COURT OF FIRST INSTANCE OF MANILA, IPO LIMESTONE CO., INC.,
and ANTONIO VILLARAMA, respondents.
Vicente J. Francisco for petitioner.
Capistrano and Capistrano for respondents.
CONCEPCION, J.:
This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies Inc.,
from a decision of the Court of Appeals denying an original petition for certiorari filed by
said petitioner against Hon. Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio
Villarama, the respondents herein.
The pertinent facts are set forth in the decision of the Court of Appeals, from which we
quote:
On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of First
Instance of Manila, Civil Case No. 19067, entitled "Machinery and Engineering Supplies,
Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama, defendants", for the
recovery of the machinery and equipment sold and delivered to said defendants at their
factory in barrio Bigti, Norzagaray, Bulacan. Upon application ex-parte of the petitioner
company, and upon approval of petitioner's bond in the sum of P15,769.00, on March
13,1953, respondent judge issued an order, commanding the Provincial Sheriff of Bulacan to
seize and take immediate possession of the properties specified in the order (Appendix I,
Answer). On March 19, 1953, two deputy sheriffs of Bulacan, the said Ramon S. Roco, and a
crew of technical men and laborers proceeded to Bigti, for the purpose of carrying the court's
order into effect. Leonardo Contreras, Manager of the respondent Company, and Pedro

Torres, in charge thereof, met the deputy sheriffs, and Contreras handed to them a letter
addressed to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan, signed by
Atty. Adolfo Garcia of the defendants therein, protesting against the seizure of the properties
in question, on the ground that they are not personal properties. Contending that the Sheriff's
duty is merely ministerial, the deputy sheriffs, Roco, the latter's crew of technicians and
laborers, Contreras and Torres, went to the factory. Roco's attention was called to the fact
that the equipment could not possibly be dismantled without causing damages or injuries to
the wooden frames attached to them. As Roco insisted in dismantling the equipment on his
own responsibility, alleging that the bond was posted for such eventuality, the deputy sheriffs
directed that some of the supports thereof be cut (Appendix 2). On March 20, 1953, the
defendant Company filed an urgent motion, with a counter-bond in the amount of P15,769,
for the return of the properties seized by the deputy sheriffs. On the same day, the trial court
issued an order, directing the Provincial Sheriff of Bulacan to return the machinery and
equipment to the place where they were installed at the time of the seizure (Appendix 3). On
March 21, 1953, the deputy sheriffs returned the properties seized, by depositing them along
the road, near the quarry, of the defendant Company, at Bigti, without the benefit of
inventory and without re-installing hem in their former position and replacing the destroyed
posts, which rendered their use impracticable. On March 23, 1953, the defendants' counsel
asked the provincial Sheriff if the machinery and equipment, dumped on the road would be
re-installed tom their former position and condition (letter, Appendix 4). On March 24, 1953,
the Provincial Sheriff filed an urgent motion in court, manifesting that Roco had been asked
to furnish the Sheriff's office with the expenses, laborers, technical men and equipment, to
carry into effect the court's order, to return the seized properties in the same way said Roco
found them on the day of seizure, but said Roco absolutely refused to do so, and asking the
court that the Plaintiff therein be ordered to provide the required aid or relieve the said
Sheriff of the duty of complying with the said order dated March 20, 1953 (Appendix 5). On
March 30, 1953, the trial court ordered the Provincial Sheriff and the Plaintiff to reinstate the
machinery and equipment removed by them in their original condition in which they were
found before their removal at the expense of the Plaintiff (Appendix 7). An urgent motion of
the Provincial Sheriff dated April 15, 1953, praying for an extension of 20 days within which
to comply with the order of the Court (appendix 10) was denied; and on May 4, 1953, the
trial court ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days with the
necessary funds, technical men, laborers, equipment and materials to effect the repeatedly
mentioned re-installation (Appendix 13). (Petitioner's brief, Appendix A, pp. I-IV.)
Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R, entitled
"Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson, Provincial
Sheriff of Bulacan, Ipo Limestone Co., Inc., and Antonio Villarama." In the petition therein
filed, it was alleged that, in ordering the petitioner to furnish the provincial sheriff of
Bulacan "with necessary funds, technical men, laborers, equipment and materials, to effect
the installation of the machinery and equipment" in question, the Court of Firs Instance of
Bulacan had committed a grave abuse if discretion and acted in excess of its jurisdiction, for
which reason it was prayed that its order to this effect be nullified, and that, meanwhile, a
writ of preliminary injunction be issued to restrain the enforcement o said order of may 4,
1953. Although the aforementioned writ was issued by the Court of Appeals, the same
subsequently dismissed by the case for lack of merit, with costs against the petitioner, upon
the following grounds:
While the seizure of the equipment and personal properties was ordered by the respondent
Court, it is, however, logical to presume that said court did not authorize the petitioner or its

agents to destroy, as they did, said machinery and equipment, by dismantling and unbolting
the same from their concrete basements, and cutting and sawing their wooden supports,
thereby rendering them unserviceable and beyond repair, unless those parts removed, cut and
sawed be replaced, which the petitioner, not withstanding the respondent Court's order,
adamantly refused to do. The Provincial Sheriff' s tortious act, in obedience to the insistent
proddings of the president of the Petitioner, Ramon S. Roco, had no justification in law,
notwithstanding the Sheriffs' claim that his duty was ministerial. It was the bounden duty of
the respondent Judge to give redress to the respondent Company, for the unlawful and
wrongful acts committed by the petitioner and its agents. And as this was the true object of
the order of March 30, 1953, we cannot hold that same was within its jurisdiction to issue.
The ministerial duty of the Sheriff should have its limitations. The Sheriff knew or must have
known what is inherently right and inherently wrong, more so when, as in this particular
case, the deputy sheriffs were shown a letter of respondent Company's attorney, that the
machinery were not personal properties and, therefore, not subject to seizure by the terms of
the order. While it may be conceded that this was a question of law too technical to decide on
the spot, it would not have costs the Sheriff much time and difficulty to bring the letter to the
court's attention and have the equipment and machinery guarded, so as not to frustrate the
order of seizure issued by the trial court. But acting upon the directives of the president of
the Petitioner, to seize the properties at any costs, in issuing the order sought to be annulled,
had not committed abuse of discretion at all or acted in an arbitrary or despotic manner, by
reason of passion or personal hostility; on the contrary, it issued said order, guided by the
well known principle that of the property has to be returned, it should be returned in as good
a condition as when taken (Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one had
gone beyond the scope of his authority, it is the respondent Provincial Sheriff. But
considering that fact that he acted under the pressure of Ramon S. Roco, and that the order
impugned was issued not by him, but by the respondent Judge, We simply declare that said
Sheriff' act was most unusual and the result of a poor judgment. Moreover, the Sheriff not
being an officer exercising judicial functions, the writ may not reach him, for certiorari lies
only to review judicial actions.
The Petitioner complains that the respondent Judge had completely disregarded his
manifestation that the machinery and equipment seized were and still are the Petitioner's
property until fully paid for and such never became immovable. The question of ownership
and the applicability of Art. 415 of the new Civil Code are immaterial in the determination of
the only issue involved in this case. It is a matter of evidence which should be decided in the
hearing of the case on the merits. The question as to whether the machinery or equipment in
litigation are immovable or not is likewise immaterial, because the only issue raised before
the trial court was whether the Provincial Sheriff of Bulacan, at the Petitioner's instance, was
justified in destroying the machinery and in refusing to restore them to their original form , at
the expense of the Petitioner. Whatever might be the legal character of the machinery and
equipment, would not be in any way justify their justify their destruction by the Sheriff's and
the said Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)
A motion for reconsideration of this decision of the Court of Appeals having been denied ,
petitioner has brought the case to Us for review by writ of certiorari. Upon examination of
the record, We are satisfied, however that the Court of Appeals was justified in dismissing
the case.
The special civil action known as replevin, governed by Rule 62 of Court, is applicable only
to "personal property".

Ordinarily replevin may be brought to recover any specific personal property unlawfully
taken or detained from the owner thereof, provided such property is capable of identification
and delivery; but replevin will not lie for the recovery of real property or incorporeal
personal property. (77 C. J. S. 17) (Emphasis supplied.)
When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc., machinery
and equipment in question appeared to be attached to the land, particularly to the concrete
foundation of said premises, in a fixed manner, in such a way that the former could not be
separated from the latter "without breaking the material or deterioration of the object."
Hence, in order to remove said outfit, it became necessary, not only to unbolt the same, but ,
also, to cut some of its wooden supports. Moreover, said machinery and equipment were
"intended by the owner of the tenement for an industry" carried on said immovable and
tended." For these reasons, they were already immovable property pursuant to paragraphs 3
and 5 of Article 415 of Civil Code of the Philippines, which are substantially identical to
paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As such immovable property,
they were not subject to replevin.
In so far as an article, including a fixture annexed by a tenant, is regarded as part of the
realty, it is not the subject for personality; . . . .
. . . the action of replevin does not lie for articles so annexed to the realty as to be part as to
be part thereof, as, for example, a house or a turbine pump constituting part of a building's
cooling system; . . . (36 C. J. S. 1000 & 1001)
Moreover, as the provincial sheriff hesitated to remove the property in question, petitioner's
agent and president, Mr. Ramon Roco, insisted "on the dismantling at his own
responsibility," stating that., precisely, "that is the reason why plaintiff posted a bond ." In
this manner, petitioner clearly assumed the corresponding risks.
Such assumption of risk becomes more apparent when we consider that, pursuant to Section
5 of Rule 62 of the Rules of Court, the defendant in an action for replevin is entitled to the
return of the property in dispute upon the filing of a counterbond, as provided therein. In
other words, petitioner knew that the restitution of said property to respondent company
might be ordered under said provision of the Rules of Court, and that, consequently, it may
become necessary for petitioner to meet the liabilities incident to such return.
Lastly, although the parties have not cited, and We have not found, any authority squarely in
point — obviously real property are not subject to replevin — it is well settled that, when the
restitution of what has been ordered, the goods in question shall be returned in substantially
the same condition as when taken (54 C.J., 590-600, 640-641). Inasmuch as the machinery
and equipment involved in this case were duly installed and affixed in the premises of
respondent company when petitioner's representative caused said property to be dismantled
and then removed, it follows that petitioner must also do everything necessary to the
reinstallation of said property in conformity with its original condition.
Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the
petitioner. So ordered.

Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo and Reyes, J.B.L.,
JJ., concur.
Paras, C.J., concurs in the result.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-10837-38

May 30, 1958

ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.
ISABEL IYA, plaintiff,
vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and
SURETY COMPANY. INC.,defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and Surety Co.,
Inc.
FELIX, J.:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a
house of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park
Subdivision in Caloocan, Rizal, which they purchased on installment basis from the
Philippine Realty Corporation. On November 6, 1951, to enable her to purchase on credit
rice from the NARIC, Lucia A. Valino filed a bond in the sum of P11,000.00 (AISCO Bond
No. G-971) subscribed by the Associated Insurance and Surety Co., Inc., and as counterguaranty therefor, the spouses Valino executed an alleged chattel mortgage on the
aforementioned house in favor of the surety company, which encumbrance was duly
registered with the Chattel Mortgage Register of Rizal on December 6, 1951. It is admitted
that at the time said undertaking took place, the parcel of land on which the house is erected
was still registered in the name of the Philippine Realty Corporation. Having completed
payment on the purchase price of the lot, the Valinos were able to secure on October 18,
1958, a certificate of title in their name (T.C.T. No. 27884). Subsequently, however, or on
October 24, 1952, the Valinos, to secure payment of an indebtedness in the amount of
P12,000.00, executed a real estate mortgage over the lot and the house in favor of Isabel Iya,
which was duly registered and annotated at the back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the
surety company was compelled to pay the same pursuant to the undertaking of the bond. In
turn, the surety company demanded reimbursement from the spouses Valino, and as the latter
likewise failed to do so, the company foreclosed the chattel mortgage over the house. As a
result thereof, a public sale was conducted by the Provincial Sheriff of Rizal on December
26, 1952, wherein the property was awarded to the surety company for P8,000.00, the
highest bid received therefor. The surety company then caused the said house to be declared
in its name for tax purposes (Tax Declaration No. 25128).

Sometime in July, 1953, the surety company learned of the existence of the real estate
mortgage over the lot covered by T.C.T. No. 26884 together with the improvements thereon;
thus, said surety company instituted Civil Case No. 2162 of the Court of First Instance of
Manila naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as defendants. The
complaint prayed for the exclusion of the residential house from the real estate mortgage in
favor of defendant Iya and the declaration and recognition of plaintiff's right to ownership
over the same in virtue of the award given by the Provincial Sheriff of Rizal during the
public auction held on December 26, 1952. Plaintiff likewise asked the Court to sentence the
spouses Valino to pay said surety moral and exemplary damages, attorney's fees and costs.
Defendant Isabel Iya filed her answer to the complaint alleging among other things, that in
virtue of the real estate mortgage executed by her co-defendants, she acquired a real right
over the lot and the house constructed thereon; that the auction sale allegedly conducted by
the Provincial Sheriff of Rizal as a result of the foreclosure of the chattel mortgage on the
house was null and void for non-compliance with the form required by law. She, therefore,
prayed for the dismissal of the complaint and anullment of the sale made by the Provincial
Sheriff. She also demanded the amount of P5,000.00 from plaintiff as counterclaim, the sum
of P5,000.00 from her co-defendants as crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the complaint and
denied the others. They, however, prayed for the dismissal of the action for lack of cause of
action, it being alleged that plaintiff was already the owner of the house in question, and as
said defendants admitted this fact, the claim of the former was already satisfied.
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety
company (Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant
to the contract of mortgage executed by the spouses Valino on October 24, 1952, the latter
undertook to pay a loan of P12,000.00 with interest at 12% per annum or P120.00 a month,
which indebtedness was payable in 4 years, extendible for only one year; that to secure
payment thereof, said defendants mortgaged the house and lot covered by T.C.T. No. 27884
located at No. 67 Baltazar St., Grace Park Subdivision, Caloocan, Rizal; that the Associated
Insurance and Surety Co., Inc., was included as a party defendant because it claimed to have
an interest on the residential house also covered by said mortgage; that it was stipulated in
the aforesaid real estate mortgage that default in the payment of the interest agreed upon
would entitle the mortgagee to foreclose the same even before the lapse of the 4-year period;
and as defendant spouses had allegedly failed to pay the interest for more than 6 months,
plaintiff prayed the Court to order said defendants to pay the sum of P12,000.00 with interest
thereon at 12% per annum from March 25, 1953, until fully paid; for an additional sum
equivalent to 20% of the total obligation as damages, and for costs. As an alternative in case
such demand may not be met and satisfied plaintiff prayed for a decree of foreclosure of the
land, building and other improvements thereon to be sold at public auction and the proceeds
thereof applied to satisfy the demands of plaintiff; that the Valinos, the surety company and
any other person claiming interest on the mortgaged properties be barred and foreclosed of
all rights, claims or equity of redemption in said properties; and for deficiency judgment in
case the proceeds of the sale of the mortgaged property would be insufficient to satisfy the
claim of plaintiff.
Defendant surety company, in answer to this complaint insisted on its right over the building,
arguing that as the lot on which the house was constructed did not belong to the spouses at
the time the chattel mortgage was executed, the house might be considered only as a personal
property and that the encumbrance thereof and the subsequent foreclosure proceedings made

pursuant to the provisions of the Chattel Mortgage Law were proper and legal. Defendant
therefore prayed that said building be excluded from the real estate mortgage and its right
over the same be declared superior to that of plaintiff, for damages, attorney's fees and costs.
Taking side with the surety company, defendant spouses admitted the due execution of the
mortgage upon the land but assailed the allegation that the building was included thereon, it
being contended that it was already encumbered in favor of the surety company before the
real estate mortgage was executed, a fact made known to plaintiff during the preparation of
said contract and to which the latter offered no objection. As a special defense, it was
asserted that the action was premature because the contract was for a period of 4 years,
which had not yet elapsed.
The two cases were jointly heard upon agreement of the parties, who submitted the same on
a stipulation of facts, after which the Court rendered judgment dated March 8, 1956, holding
that the chattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was
preferred and superior over the real estate mortgage subsequently executed in favor of Isabel
Iya. It was ruled that as the Valinos were not yet the registered owner of the land on which
the building in question was constructed at the time the first encumbrance was made, the
building then was still a personality and a chattel mortgage over the same was proper.
However, as the mortgagors were already the owner of the land at the time the contract with
Isabel Iya was entered into, the building was transformed into a real property and the real
estate mortgage created thereon was likewise adjudged as proper. It is to be noted in this
connection that there is no evidence on record to sustain the allegation of the spouses Valino
that at the time they mortgaged their house and lot to Isabel Iya, the latter was told or knew
that part of the mortgaged property, i.e., the house, had previously been mortgaged to the
surety company.
The residential building was, therefore, ordered excluded from the foreclosure prayed for by
Isabel Iya, although the latter could exercise the right of a junior encumbrance. So the
spouses Valino were ordered to pay the amount demanded by said mortgagee or in their
default to have the parcel of land subject of the mortgage sold at public auction for the
satisfaction of Iya's claim.
There is no question as to appellant's right over the land covered by the real estate mortgage;
however, as the building constructed thereon has been the subject of 2 mortgages;
controversy arise as to which of these encumbrances should receive preference over the
other. The decisive factor in resolving the issue presented by this appeal is the determination
of the nature of the structure litigated upon, for where it be considered a personality, the
foreclosure of the chattel mortgage and the subsequent sale thereof at public auction, made in
accordance with the Chattel Mortgage Law would be valid and the right acquired by the
surety company therefrom would certainly deserve prior recognition; otherwise, appellant's
claim for preference must be granted. The lower Court, deciding in favor of the surety
company, based its ruling on the premise that as the mortgagors were not the owners of the
land on which the building is erected at the time the first encumbrance was made, said
structure partook of the nature of a personal property and could properly be the subject of a
chattel mortgage. We find reason to hold otherwise, for as this Court, defining the nature or
character of a building, has said:
. . . while it is true that generally, real estate connotes the land and the building constructed
thereon, it is obvious that the inclusion of the building, separate and distinct from the land, in

the enumeration of what may constitute real properties (Art. 415, new Civil Code) could
only mean one thing — that a building is byitself an immovable property . . . Moreover, and
in view of the absence of any specific provision to the contrary, a building is an immovable
property irrespective of whether or not said structure and the land on which it is adhered to
belong to the same owner. (Lopez vs. Orosa, G.R. Nos. supra, p. 98).
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 the ownership of the land, would create a situation where a permanent
fixture changes its nature or character as the ownership of the land changes hands. In the
case at bar, as personal properties could only be the subject of a chattel mortgage (Section 1,
Act 3952) and as obviously the structure in question is not one, the execution of the chattel
mortgage covering said building is clearly invalid and a nullity. While it is true that said
document was correspondingly registered in the Chattel Mortgage Register of Rizal, this act
produced no effect whatsoever for where the interest conveyed is in the nature of a real
property, the registration of the document in the registry of chattels is merely a futile act.
Thus, the registration of the chattel mortgage of a building of strong materials produce no
effect as far as the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil.,
644). Nor can we give any consideration to the contention of the surety that it has acquired
ownership over the property in question by reason of the sale conducted by the Provincial
Sheriff of Rizal, for as this Court has aptly pronounced:
A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale thereof
by virtue of a chattel mortgage constituted in his favor, which mortgage has been declared
null and void with respect to said real properties, acquires no right thereto by virtue of said
sale (De la Riva vs. Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower Court in these two cases appealed from
holding the rights of the surety company, over the building superior to that of Isabel Iya and
excluding the building from the foreclosure prayed for by the latter is reversed and appellant
Isabel Iya's right to foreclose not only the land but also the building erected thereon is hereby
recognized, and the proceeds of the sale thereof at public auction (if the land has not yet been
sold), shall be applied to the unsatisfied judgment in favor of Isabel Iya. This decision
however is without prejudice to any right that the Associated Insurance and Surety Co., Inc.,
may have against the spouses Adriano and Lucia Valino on account of the mortgage of said
building they executed in favor of said surety company. Without pronouncement as to costs.
It is so ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion,
Reyes, J.B.L., and Endencia, JJ., concur.

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 a
permanent 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.

Republic of the Philippines
SUPREME COURT
Manila

EN BANC
G.R. No. L-17870

September 29, 1962

MINDANAO
BUS
COMPANY,
petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro
City,respondents.
Binamira,
Barria
Vicente E. Sabellina for respondents.

and

Irabagon

for

petitioner.

LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710
holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-mentioned
equipment. Petitioner appealed the assessment to the respondent Board of Tax Appeals on the ground that
the same are not realty. The Board of Tax Appeals of the City sustained the city assessor, so petitioner
herein filed with the Court of Tax Appeals a petition for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
Petitioner and respondents, thru their respective counsels agreed to the following stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by motor trucks,
over its authorized lines in the Island of Mindanao, collecting rates approved by the Public Service
Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch Offices and/or
stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe, Bukidnon
Province;
3. That the machineries sought to be assessed by the respondent as real properties are the following:
(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the attached photograph, marked Annex "F";
and

(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex "G".
4. That these machineries are sitting on cement or wooden platforms as may be seen in the attached
photographs which form part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and operates a garage for its TPU motor
trucks; a repair shop; blacksmith and carpentry shops, and with these machineries which are placed
therein, its TPU trucks are made; body constructed; and same are repaired in a condition to be serviceable
in the TPU land transportation business it operates;
6. That these machineries have never been or were never used as industrial equipments 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.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having denied a
motion for reconsideration, petitioner brought the case to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that the questioned
assessments are valid; and that said tools, equipments or machineries are immovable taxable real
properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil Code, and
holding that pursuant thereto the movable equipments are taxable realties, by reason of their being
intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent City Assessor's
power to assess and levy real estate taxes on machineries is further restricted by section 31, paragraph (c)
of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by destination, in accordance
with paragraph 5 of Article 415 of the New Civil Code which provides:
Art. 415. — The following are immovable properties:
xxx

xxx

xxx

(5) 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 land, and which tend directly to
meet the needs of the said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are placed on wooden or cement platforms.
They can be moved around and about in petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu
Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), 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 in the central of the Mabalacat Sugar Co.,

Inc., in lieu of the other of less capacity existing therein, for its sugar and industry, converted them into
real property by reason of their purpose, it cannot be said that their incorporation therewith was not
permanent in character because, as essential and principle elements of a sugar central, without them the
sugar central would be unable to function or carry on the 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. (Emphasis
ours.)
So that movable equipments 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." We may here distinguish,
therefore, those movable which become immobilized by destination because they are essential and
principal elements in the industry for those which may not be so considered immobilized because they are
merely incidental, not essential and principal. Thus, cash registers, typewriters, etc., usually found and
used in hotels, restaurants, theaters, etc. are merely incidentals and are not and should not be considered
immobilized by destination, for these businesses can continue or carry on their functions without these
equity comments. Airline companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc.
which are incidentals, not essentials, and thus retain their movable nature. On the other hand, machineries
of breweries used in the manufacture of liquor and soft drinks, though movable in nature, are immobilized
because they are essential to said industries; but the delivery trucks and adding machines which they
usually own and use and are found within their industrial compounds are merely incidental and retain their
movable nature.
Similarly, the tools and equipments in question in this instant case are, by their nature, not essential and
principle municipal 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 equipments, its business may be carried on, as
petitioner has carried on, without such equipments, before the war. The transportation business could be
carried on without the repair or service shop if its rolling equipment is repaired or serviced in another shop
belonging to another.
The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
xxx

xxx

xxx

(5) 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 land, and which tend directly to
meet the needs of the said industry or works; (Civil Code of the Phil.)
Aside from the element of essentiality the above-quoted provision also requires that the industry or works
be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra,
the "machinery, liquid containers, and instruments or implements" are found in a building constructed on
the land. A sawmill would also be installed in a building on land more or less permanently, and the sawing
is conducted in the land or building.
But in the case at bar the equipments 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 equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in question are not absolutely
essential to the petitioner's transportation business, and petitioner's business is not carried on in a building,
tenement or on a specified land, so said equipment may not be considered real estate within the meaning

of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment in
question declared not subject to assessment as real estate for the purposes of the real estate tax. Without
costs.
So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.

Mindanao Bus Co. vs. City Assessor and Treasurer
G.R. No. L-17870. September 29, 1962.
Labrador, J.
Doctrine: Movable equipment, to be immobilized in contemplation of Article 415 of the Civil Code, must
be the essential and principal elements of an industry or works which are carried on in a building or on a
piece of land. Thus, where the business is one of transportation, which is carried on without a repair or
service shop, and its rolling equipment is repaired or serviced in a shop belonging to another, the tools and
equipment in its repair shop which appear movable are merely incidentals and may not be considered
immovables , and, hence, not subject to assessment as real estate for purposes of the real estate tax.
Facts: Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner’s equipment in its
repair or service shop. Petitioner appealed the assessment to the respondent Board of Tax Appeals on the
ground that the same are not realty. The Board of Tax Appeals of the City sustained the city assessor, so
petitioner herein filed with the Court of Tax Appeals a petition for the review of the assessment. The Court
of Tax Appeals having sustained the respondent city assessor’s ruling, and having denied a motion for
reconsideration, petitioner brought the case to this Court.
Issue: Whether the Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto, the movable equipments are taxable realties, by reason of their
being intended or destined for use in an industry.
Held: Yes. Movable equipments, to be immobilized in contemplation of Article 415 of the Civil Code,
must be the essential and principal elements of an industry or works which are carried on in a building or
on a piece of land. Thus, where the business is one of transportation, which is carried on without a repair
or service shop, and its rolling equipment is repaired or serviced in a shop belonging to another, the tools
and equipments in its repair shop which appear movable are merely incidentals and may not be considered
immovables, and, hence, not subject to assessment as real estate for purposes of the real estate tax.
Similarly, the tool 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 equipments, before the war. The transportation business could be carried on
without the repair or service shop if its rolling equipment is repaired or serviced in another shop belonging
to another.
Article 415 of the Civil Code 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 equipments 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 as real property.