Prudential Bank vs.

Panis

FACTS:

Spouses Magcale obtain a loan from Prudential Bank, o further secure said loan, the
spouses executed a Real Estate Mortgage (2-STOREY, SEMI-CONCRETE
RESIDENTIAL BUILDING) over the residential building, with a right to occupy the
lot. The Real Estate Mortgage also included information about the Sales Patent applied
for by the spouses for the lot to which the building stood. The spouses further executed
another loan, which was secured by another Real Estate Mortgage over the same
properties. Parties failed to pay the outstanding obligation, hence the bank had extra-
judicially foreclosed the bank. The Land to where the building is erected belongs to
another.

Issue: W the REM was a valid valid. The pivotal issue in this case is whether or not a
valid real estate mortgage can be constituted on the building erected on the land
belonging to another.

Held: Yes, the REM is valid.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines,
this Court ruled that, "it is obvious that the inclusion of 'building' separate and distinct
from the land, in said provision of law can only mean that a building is by itself an
immovable property.

Thus, while it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Such a mortgage would be
still a real estate mortgage for the building would still be considered immovable property
even if dealt with separately and apart from the land.

Under the foregoing considerations, it is evident that the mortgage executed by private
respondent on his own building which was erected on the land belonging to the
government is to all intents and purposes a valid mortgage.
Lopez vs. Orosa, Jr., and Plaza Theatre, Inc.

FACTS:

Enrique Lopez, is doing a business under trade name Lopez-Castelo Sawmill. Vicente Orosa, Jr.
has asked the petitioner to put investment on his current business to be named as Plaza Theatre.
Although López expressed his unwillingness to invest on the same, he
Agreed to supply the lumber necessary for the construction of the proposed theatre. Payment
would be on instalment basis. But of the total cost of the materials amounting to P62, 255.85,
Lopez was paid only P20, 848.50, thus leaving a balance of P41, 771.35. Because of his failure
to pay the obligation, Vicente and Belarmino promised to obtain a bank loan and will execute the
Plaza theatre as REM. Unknown to them, the Corporation has already an existing loan from PNB
and executed the land and building as counter-security. Because Lopez failed to secure payment
from Orosa, he filed a complaint praying for payment and the building and the land covered by
OCT No. O-391 owned by the corporation be sold at public auction and the proceeds thereof be
applied to said indebtedness.

RTC ruling: That Vicente and the Corporation were both liable for the unpaid balance and that
he acquired materialman’s lien over the building. In making the pronouncement that the lien was
merely confined to the building and did not extend to the land on which the construction was
made, the trial judge took into consideration the fact that when plaintiff started the delivery of
lumber in May, 1946, the land was not yet owned by the corporation.

Plaintiff sought before the C.A modification of the decision that the lien also extend to the land.

Issue: Whether a materialman's lien for the value of the materials used in the construction of a
building attaches to said structure alone and does not extend to the land on which the
building is adhered to.

HELD:

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 could mean only one thing—that a building is
by itself an immovable property, a doctrine already pronounced by this Court. 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. Considering the conclusion thus arrived at, i.e., that the
materialman's lien could be charged only to the building for which the credit was made or which
received the benefit of refection.

Associated Ins. & Surety Co., Inc. vs. lya, et al.

Spouses Valino are owners of a house.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 & Surety Co., Inc., and, as counter-guaranty
therefor, the spouses Valino executed an alleged chattel mortgage on the Aforementioned house
in favor of the surety company. To be able to secure an indebtedness amounting to 12k, they
executed a REM on the house in favor of IYA. Spouses failed to pay their balances to NARIC,
the latter then foreclosed the property and obtained the same. The petitioners learned the
existence of REM over the property which made them to file a complaint, praying for the
exclusion of the residential house from the REM in favour of Iya. Iya, in turn, file a counter-
compliant alleging 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.

Tumalad vs. Vicencio

Vicencio executed a CHATE MORTGAGE in favour of plaintiffs over their house which was
registered in the Registry of Deeds. The denedants failed to pay, the Mortgage was judicially
foreclosed and was sold at a ublic auction. Defendants impugned the legality of the chattel
mortgage claiming that they are still the owners of the house. Claims of the petitioner, the chattel
mortgage was still null and void ab initio because only personal properties can be subject of a
chattel mortgage. Hence, the sale was void and the property remains to the petitioners.

Issue: That the subject matter of the mortgage is a house of strong materials, and,
being an immovable, it can only be the subject of a real estate mortgage and not a chattel
mortgage.

HELD: The CHATEL MORTGAGE WAS VALID.

While the general rule provides that a Real property can only be the valid object of a REM,
certain deviations on this rule was already established that when a party agrees on a stipulating,
“it is undeniable that the parties to a contract may by agreement treat as personal property that
which by nature would be real property. the house on rented land is not only expressly
designated as Chattel Mortgage; it specifically provides that “the mortgagor . . . . . voluntarily
CEDES, SELLS and TRANSFERS by way of Chattel Mortgage23 the property together with its
leasehold rights over the lot on which it is constructed and participation. Although there is no
specific statement referring to the
subject house as personal property, yet by ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only have meant to convey 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.

Board of Assessment Appeals vs. Manila Electric Company

THE Philippine Commission enacted Act No. 484 which authorized the Municipal Board of
Manila to grant a franchise to construct an electric light. MERALCO became the owner of the
franchise. MERALCO in its business of providing electricity supply is using steel towers which
are attached posts screwed with bolts and, metals to prevent mobility. There was no concrete
foundation.

The City Assessors declared the properties subject to real estate mortgage. The CTA ruled that
properties come within the term “poles” and such properties are personal properties.

ISSUE: W/N the steel towers are proper subject of REAL ESTATE TAX, they being a real
properties. WN steel towers are considered REAL properties.

HELD:

Article 415 of the Civil Code enumerated the properties which are considered immovable of real
ones. The steel towers or supports in question, do not come within the objects mentioned in
paragraph 1, because they do not constitute buildings or constructions adhered to the soil. They
are not constructions analogous to buildings nor adhering to the soil. As per description, given by
the lower court, they are removable and merely attached to a square metal frame by means of
bolts, which when unscrewed could easily be dismantled and moved from place to place. They
cannot be included under paragraph 3, as they are not attached to an immovable in a fixed
manner, and they can be separated without breaking the material or causing deterioration upon
the object to which they are attached.

B.H.BERKENKOTTERvs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY,
MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF PAMPANGA

FACTS: The MABALACAT company is an owner of sugar central situated in Mabalacat

Pampanga, obtained a loan from the defendants secured by a two building and land "with all its
buildings, improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and
whatever forms part or is necessary complement of said sugar-cane mill, steel railway, telephone
line, now existing or that may in the future exist is said lots."

The MABALACAT company had decided to increase the capacity of its sugar central by buying
additional machinery and equipment. Green, president of the corporation secured an additional
loan to plaintiff Berkenkotter offering the additional machineries and equipment installed in the
industry.

Green obtained another loan from Cu Unjieng amounting to 75 ooo offering such machinery and
equipment as security.
The appellant contends that the installation of property and equipment was not permanent in
character.

ISSUE: WN the properties and equipment attached in the sugar central are considered
immovable properties.

HELD: For the foregoing considerations, we are of the opinion and so hold: (1) That the
installation of a machinery and equipment in a mortgaged sugar central, in lieu of another
of less capacity, for the purpose of carrying out the industrial functions of the latter and
increasing production, constitutes a permanent improvement on said sugar central and
subjects said machinery and equipment to the mortgage constituted thereon (article 1877,
Civil Code); (2) that the fact that the purchaser of the new machinery and equipment has
bound himself to the person supplying him the purchase money to hold them as security for
the payment of the latter's credit, and to refrain from mortgaging or otherwise encumbering
them does not alter the permanent character of the incorporation of said machinery and
equipment with the central; and (3) that the sale of the machinery and equipment in question by
the purchaser who was supplied the purchase money, as a loan, to the person who supplied the
money, after the incorporation thereof with the mortgaged sugar central, does not vest the
creditor with ownership of said machinery and equipment but simply with the right of
redemption.

Davao Saw Mill Co. vs. Castillo

Davao Saw mill is merely a lesee in this case.

FACTS:

The Davao Saw Mill Co., Inc., operates a sawmill, holder of lumber concession from
Government 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 machines 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 lessee shall pass to the exclusive ownership of the lessor
without any obligation on its part to pay any amount for said improvements and
buildings; also, in the event the lessee should leave or abandon the land leased before the
time herein stipulated, the improvements and buildings shall likewise pass to the
ownership of the lessor 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 lessor on the expiration or abandonment of the land leased.
In another action, wherein Davao Saw Mill 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.

Davao Saw Mill 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.

ISSUE:

Whether or not the machinery in dispute is a personal property.

RULING:

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.

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.

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.

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.
“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.”

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.

People's Bank and Trust Co. vs. Dahican Lumber Company

PEOPLE'S BANK AND TRUST CO. vs. DAHICAN LUMBER COMPANY G.R. No. L-17500
May 16, 1967
PEOPLE'S BANK AND TRUST CO. vs. DAHICAN LUMBER COMPANY
G.R. No. L-17500 May 16, 1967

Facts:

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia
corporation licensed to do business in the Philippines sold and assigned all its rights in the
Dahican Lumber concession to Dahican Lumber Company - hereinafter referred to as DALCO -
for the total sum of $500,000.00, of which only the amount of $50,000.00 was paid. Thereafter,
to develop the concession, DALCO obtained various loans from the People's Bank & Trust
Company amounting, as of July 13, 1950, to P200,000.00. In addition, DALCO obtained,
through the BANK, a loan of $250,000.00 from the Export-Import Bank of Washington D.C.,
evidenced by five promissory notes of $50,000.00 each, maturing on different dates, executed by
both DALCO and the Dahican America Lumber Corporation, a foreign corporation and a
stockholder of DALCO,

As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in
favor of the BANK a deed of mortgage covering five parcels of land situated in the province of
Camarines Norte together with all the buildings and other improvements existing thereon and all
the personal properties of the mortgagor located in its place of business in the municipalities of
Mambulao and Capalonga, Camarines Norte. On the same date, DALCO executed a second
mortgage on the same properties in favor of ATLANTIC to secure payment of the unpaid
balance of the sale price of the lumber concession amounting to the sum of $450,000.00. Both
deeds contained a provision extending the mortgage lien to properties to be subsequently
acquired by the mortgagor.

Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte. In
addition thereto DALCO and DAMCO pledged to the BANK 7,296 shares of stock of DALCO
and 9,286 shares of DAMCO to secure the same obligation.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the
BANK paid the same to the Export-Import Bank of Washington D.C., and the latter assigned to
the former its credit and the first mortgage securing it. Subsequently, the BANK gave DALCO
and DAMCO up to April 1, 1953 to pay the overdue promissory note.c

After July 13, 1950 - the date of execution of the mortgages mentioned above - DALCO
purchased various machineries, equipment, spare parts and supplies in addition to, or in
replacement of some of those already owned and used by it on the date aforesaid. Pursuant to the
provision of the mortgage deeds quoted theretofore regarding "after acquired properties," the
BANK requested DALCO to submit complete lists of said properties but the latter failed to do
so. In connection with these purchases, there appeared in the books of DALCO as due to Connell
Bros. Company (Philippines) - a domestic corporation who was acting as the general purchasing
agent of DALCO -the sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34.chan

On December 16, 1952, the Board of Directors of DALCO, in a special meeting called for the
purpose, passed a resolution agreeing to rescind the alleged sales of equipment, spare parts and
supplies by CONNELL and DAMCO to it.

On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said
agreements be cancelled but CONNELL and DAMCO refused to do so. As a result, on February
12, 1953; ATLANTIC and the BANK, commenced foreclosure proceedings in the Court of First
Instance of Camarines Norte against DALCO and DAMCO.

Upon motion of the parties the Court, on September 30, 1953, issued an order transferring the
venue of the action to the Court of First Instance of Manila.

On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the
machineries, equipment and supplies of DALCO, and the same were subsequently sold for a total
consideration of P175,000.00 which was deposited in court pending final determination of the
action. By a similar agreement one-half (P87,500.00) of this amount was considered as
representing the proceeds obtained from the sale of the "undebated properties" (those not claimed
by DAMCO and CONNELL), and the other half as representing those obtained from the sale of
the "after acquired properties".

ISSUE:

WON the "after acquired properties" were subject to the deeds of mortgage mentioned
heretofore. Assuming that they are subject thereto,
WON the mortgages are valid and binding on the properties aforesaid inspite of the fact that they
were not registered in accordance with the provisions of the Chattel Mortgage Law.

HELD:

Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every
nature and description taken in exchange or replacement, as well as all buildings, machineries,
fixtures, tools, equipments, and other property that the mortgagor may acquire, construct, install,
attach; or use in, to upon, or in connection with the premises - that is, its lumber concession -
"shall immediately be and become subject to the lien" of both mortgages in the same manner and
to the same extent as if already included therein at the time of their execution. Such stipulation is
neither unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by
circumstances, the original value of the properties given as security.

Article 415 does not define real property but enumerates what are considered as such, among
them being machinery, receptacles, instruments or replacements intended by owner of the
tenement for an industry or works which may be carried on in a building or on a piece of land,
and shall tend directly to meet the needs of the said industry or works. On the strength of the
above-quoted legal provisions, the lower court held that inasmuch as "the chattels were placed
in the real properties mortgaged to plaintiffs, they came within the operation of Art. 415,
paragraph 5 and Art. 2127 of the New Civil Code". In the present case, the characterization of
the "after acquired properties" as real property was made not only by one but by both interested
parties. There is, therefore, more reason to hold that such consensus impresses upon the
properties the character determined by the parties who must now be held in estoppel to question
it.

Manila Electric Company vs. The City Assessor

For determining whether machinery is real property subject to real property tax, the definition and
requirements under the Local Government Code (LGC) are controlling. MERALCO maintains that its
electric posts are not machinery subject to real property tax because said posts are not being exclusively
used by MERALCO; these are also being utilized by cable and telephone companies.

MERALCO is a private corporation organized and existing under Philippine laws to operate as a
public utility engaged in electric distribution. On February 20, 1989, MERALCO received from
the City Assessor of Lucena a copy of Tax Declaration No. 019-650013 covering the following
electric facilities, classified as capital investment, of the company: (a) transformer and electric
post; b) transmission line; (c) insulator; and (d) electric meter,. Raised the earlier characterization
by Supreme Court that such properties are beyond the purview of Real Properties. After 6 years,
they were subjected to TAX delinquency.

CBAA: Applied the provision of Local Government Code in ruling that a new assessment on the
characterization of contested properties were no longer of the same characterization the same as
with the first ruing decidedby Sureme Court,

ISSUE: WN or not machineries are exempted from RET

HELD:
The Court finds that the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO are no longer exempted from real property tax and may qualify as
“machinery” subject to real property tax under the Local Government Code.

Not being among the recognized exemptions from real property tax in Section 234 of the Local
Government Code, then the exemption of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO from real property tax granted under its franchise
was among the exemptions withdrawn upon the effectivity of the Local Government Code on
January 1, 1998.

The transformers, electric posts,

transmission lines, insulators,
and electric meters of MERALC O
may qualify as “machinery” under
the Local Government Code
subject to real property tax.

The Court highlights that under Section 199(o) of Government Code, machinery, to be deemed
realproperty subject to real property tax, need no longer be annexed to the land or building as
these “may or may not be attached, permanently or temporarily to the real property,” and in fact,
such machinery may even be“mobile.”55 The same provision though requires that to be
machinery subject to real property tax, the physical facilities for production, installations, and
appurtenant service facilities, those which are mobile, self-powered or self-propelled, or not
permanently attached to the real property (a) must be actually, directly, and exclusively used to
meet the needs of the particular industry, business, or activity; and (b) by their very nature and
purpose, aredesigned for, or necessary for manufacturing, mining, logging, commercial,
industrial, or agricultural purposes. Thus, Article 290(o) of the Rules and Regulations
Implementing the Local Government Code of 1991 recognizes the following exemption: