Leung Yee vs Strong Machinery Co.

37 PHIL 644
GR No. L-11658
February 15, 1918

FACTS
The Compania Agricola Filipina (CAF) purchased from Strong Machinery Co. rice
cleaning machines which CAF installed in one of its buildings.
As security for the purchase price, CAF executed a chattel mortgage on the machines
and the building on which they had been installed.
When CEF failed to pay, the registered mortgage was foreclosed and Strong
Machinery Co. purchased the building. This sale was annotated in the Chattel Mortgage
Registry.
Later, Strong Machinery Co. also purchased from Agricola the lot on which the building
was constructed. The sale wasn't registered in the Registry of Property BUT Strong
Machinery Co. took possession of the building and the lot.
However, the same building had been previously purchased by Leung Yee, a creditor
ofAgricola, at a sheriff's sale despite his knowledge of the prior sale in favor of Strong
Machinery Co.. The sale to Leung Yee was registered in the Registry of Property.

ISSUES
1. Was the property's nature changed by its registration in the Chattel Mortgage Registry?
2. Who has a better right to the property?

HELD
1. Where the interest conveyed is of the nature of real property, the placing of the
document on record in the Chattel Mortgage Registry is a futile act.

Chattel Mortgage refers to the mortgage of Personal Property executed in the

manner and form prescribed in the statute.

Since the building is REAL PROPERTY, its sale as annotated in the Chattel Mortgage
Registry cannot be given the legal effect of registration in the Registry of Real Property.
 The mere fact that the parties decided to deal with the building as personal property does
not change its character as real property.

Neither the original registry in the chattel mortgage registry, nor the annotation in said
registry of the sale of the mortgaged property had any effect on the building.

1. Art. 1473 of the New Civil Code provides the following rules on determining ownership
of property which has been sold to different vendees:

If Personal Property grant ownership to person who 1st possessed it in

good faith

If Real Property grant ownership to person who 1st recorded it in the

Registry

If no entry grant to person who 1st possessed in good faith

If no proof of possession grant to person who presents oldest title

Since Leung Yee purchased the property despite knowledge of the previous purchase of
the same by Strong Machinery Co., it follows that Leung Yee 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. 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.

Good Faith, or the want of it, is a state or condition of mind which can only be
judged of by actual or fancied tokens or signs. (Wilder vs. Gilman, 55Vt., 504, 505;
Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs.
Bromley, 119Mich., 8, 10, 17.)

Honesty Of Intention is the honest lawful intent constituting good faith. It implies
afreedom from knowledge and circumstances which ought to put a person on
inquiry.

As such, proof of such knowledge overcomes the presumption of good faith.

Following the rule on possessory rights provided in Art. 1473, Strong Machinery Co. has
a better right to the property since it first purchased the same ahead of Leung Yee, the
latter not being a purchaser in good faith.

Davao Sawmill v. Castillo

DAVAO SAW MILL vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC. G.R. No. L-40411 August 7, 1935

Facts:
Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of
the Philippine Islands. However, the land upon which the business was conducted
belonged to another person. On the land the sawmill company erected a building which
housed the machinery used by it. Some of the implements thus used were clearly
personal property, the conflict concerning machines which were placed and mounted on
foundations of cement. In the contract of lease between the sawmill company and the
owner of the land there appeared the following provision: That on the expiration of the
period agreed upon, all the improvements and buildings introduced and erected by the
party of the second part shall pass to the exclusive ownership of the lessor without any
obligation on its part to pay any amount for said improvements and buildings; which do
not include the machineries and accessories in the improvements.

In another action wherein the Davao Light & Power Co., Inc., was the plaintiff and the
Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the
plaintiff in that action against the defendant; a writ of execution issued thereon, and the
properties now in question were levied upon as personalty by the sheriff. No third party
claim was filed for such properties at the time of the sales thereof as is borne out by the
record made by the plaintiff herein

It must be noted also that on number of occasion, Davao Sawmill treated the machinery
as personal property by executing chattel mortgages in favor of third persons. One of
such is the appellee by assignment from the original mortgages.

The lower court rendered decision in favor of the defendants herein. Hence, this instant
appeal.

ISSUE
Are the machineries real or personal property?

HELD
Art.415 of the New Civil Code provides that Real Property consists of:

(1) Lands, buildings, roads and constructions of all kinds adhered to the soil;

xxx

(5) Machinery, receptacles, instruments or implements intended by the owner pf

the tenement for an industry ot 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;

Appellant should have registered its protest before or at the time of the sale of the
property. While not conclusive, the appellant's characterization of the property as
chattels is indicative of intention and impresses upon the property the character
determined by the parties.

Machinery is naturally movable. However, machinery may be immobilized by destination

or purpose under the following conditions:

General Rule: The machinery only becomes immobilized if placed in a plant by the
owner of the property or plant.
 Immobilization cannot be made by a tenant, a usufructuary, or any person having
only a temporary right.

Exception: The tenant, usufructuary, or temporary possessor acted as agent of the owner
of the premises; or he intended to permanently give away the property in favor of the
owner.

As a rule, therefore, the machinery should be considered as Personal Property, since it

was not placed on the land by the owner of the said land.

STANDARD OIL COMPANY V JARAMILLO

The Power of the Registry of Deeds is Ministerial, and The absolute criterion to
determine between real and personal property is NOT supplied by the civil code. Parties
may agree what to treat as personal property and what to treat as real property.

FACTS
On November 27, 1922, Gervasia de la Rosa was the lessee of a parcel of land situated in
the City of Manila and owner of the house of really tough materials built thereon. She
executed that fine day a document in the form of a chattel mortgage, purporting to convey
to Standard Oil Company of New York (by way of mortgage) both the leasehold interest
in said lot and the building.

After said document had been duly acknowledged and delivered, Standard Oil presented
it to Joaquin Jaramillo, as register of deeds of the City of Manila, for the purpose of
having the same recorded in the book of record of chattel mortgages. Upon examination
of the instrument, Jaramillo opined that it was not chattel mortgage, for the reason that
the interest therein mortgaged did not appear to be personal property, within the meaning
of the Chattel Mortgage Law, and registration was refused on this ground only.

Later this confusion was brought to the Supreme Court upon demurrer by Joaquin
Jaramillo, register of deeds of the City of Manila, to an original petition of the Standard
Oil Company of New York, demanding a mandamus to compel the respondent to record
in the proper register a document purporting to be a chattel mortgage executed in the City
of Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the Standard Oil Company of
New York.

The Supreme Court overruled the demurrer, and ordered that unless Jaramillo interposes
a sufficient answer to the petition for mandamus by Standard Oil within 5 days of
notification, the writ would be issued as prayed, but without costs.

ISSUE:
w/n the Registry of Deeds can determine the nature of property to be registered.
w/n the Registry of Deeds has powers beyond Ministerial discretion.

RESOLUTION:
1.Jaramillo, register of deeds, does not have judicial or quasi-judicial power to determine
nature of document registered as chattel mortgage Section 198 of the Administrative
Code, originally of Section 15 of the Chattel Mortgage Law (Act 1508 as amended by
Act 2496), does not confer upon the register of deeds any authority whatever in respect to
the "qualification," as the term is used in Spanish law, of chattel mortgages. His duties in
respect to such instruments are ministerial only. The efficacy of the act of recording a
chattel mortgage consists in the fact that it operates as constructive notice of the existence
of the contract, and the legal effects of the contract must be discovered in the instrument
itself in relation with the fact of notice.

2.Article 334 and 335 of the Civil Code does not supply absolute criterion on distinction
between real and personal property for purpose of the application of the Chattel Mortgage
Law Article 334 and 335 of the Civil Code supply no absolute criterion for discriminating
between real property and personal property for purposes of the application of the Chattel
Mortgage Law. Those articles state rules which, considered as a general doctrine, are law
in this jurisdiction; but it must not be forgotten that under given conditions property may
have character different from that imputed to it in said articles. It is undeniable that the
parties to a contract may be agreement treat as personal property that which by nature
would be real property; and it is a familiar phenomenon to see things classed as real
property for purposes of taxation which on general principle might be considered
personal property. Other situations are constantly arising, and from time to time are
presented to the Supreme Court, in which the proper classification of one thing or another
as real or personal property may be said to be doubtful.]
 MINDANAO BUS COMPANY v. THE CITY ASSESSOR
& TREASURER and the BOARD OF TAX APPEALS
of Cagayan de Oro City
G.R. No. L-17870 September 29, 1962

FACTS:

Petitioner is a public utility solely engaged in transporting passengers and cargoes by

motor trucks. It owns a land where it maintains and operates a garage for its TPU motor
trucks; a repair shop; blacksmith and carpentry shops, and with machineries 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.

The machineries have never been or were never used as industrial equipment to produce
finished products for sale, nor to repair machineries, parts and the like offered to the
general public indiscriminately for business or commercial purposes.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioners 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.

The CTA held the petitioner liable to the payment of the realty tax on its maintenance and
repair equipment mentioned above. Hence, this petition.

Jul 6, 2014
MINDANAO BUS COMPANY v. THE CITY ASSESSOR &
TREASURER and the BOARD OF TAX APPEALS of
Cagayan de Oro City
G.R. No. L-17870 September 29, 1962

FACTS:
Petitioner is a public utility solely engaged in transporting passengers and cargoes by
motor trucks. It owns a land where it maintains and operates a garage for its TPU motor
trucks; a repair shop; blacksmith and carpentry shops, and with machineries 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.

The machineries have never been or were never used as industrial equipment to produce
finished products for sale, nor to repair machineries, parts and the like offered to the
general public indiscriminately for business or commercial purposes.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioners 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.

The CTA held the petitioner liable to the payment of the realty tax on its maintenance and
repair equipment mentioned above. Hence, this petition.

ISSUE:

Should the tools and equipment in the petitioner companys repair shop be considered
immovable taxable real properties?

HELD

Art. 415 of the NCC classifies the following as immovable property:

xxx

(5) Machinery, receptacles, instruments or implements intended by the owner pf

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;

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.

Before movables may be deemed immobilized in contemplation of Article 415 (5), it is

necessary that they 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.

In this case, the tools and equipment in question are by their nature, not essential and
principal elements of Mindanao Bus Co.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.

Aside from the element of essentiality the Art.415 (5) also requires that the industry or
works be carried on in a building or on a piece of land. A sawmill would also be installed
in a building on land more or less permanently, and the sawing is conducted in the
land/building.

However, in the instant case, 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 law. 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.

As such, the equipments in question are not deemed real property because the
transportation business is not carried on in a building or permanently on a piece of
land, as demanded by law.

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.

Therefore, the imposition of realty tax on the maintenance and repair equipment was not
proper because the properties involved were not real property under Article 415 (5)

Board of Assessment Appeals v. MERALCO [G.R. No. L-15334. January 31, 1964.]
 Jun28
En Banc, Paredes (J): 8 concur, 1 concur in result, 1 took no part.

Facts: On 20 October 1902, the Philippine Commission enacted Act 484 which
authorized the Municipal Board of Manila to grant a franchise to construct, maintain and
operate an electric street railway and electric light, heat and power system in the City of
Manila and its suburbs to the person or persons making the most favorable bid. Charles
M. Swift was awarded the said franchise on March 1903, the terms and conditions of
which were embodied in Ordinance 44 approved on 24 March 1903. Meralco became the
transferee and owner of the franchise. Meralcos electric power is generated by its hydro-
electric plant located at Botocan Falls, Laguna and is transmitted to the City of Manila by
means of electric transmission wires, running from the province of Laguna to the said
City. These electric transmission wires which carry high voltage current, are fastened to
insulators attached on steel towers constructed by respondent at intervals, from its
hydroelectric plant in the province of Laguna to the City of Manila. Meralco has
constructed 40 of these steel towers within Quezon City, on land belonging to it.

On 15 November 1955, City Assessor of Quezon City declared the aforesaid steel towers
for real property tax under Tax Declaration 31992 and 15549. After denying Meralcos
petition to cancel these declarations an appeal was taken by Meralco to the Board of
Assessment Appeals of Quezon City, which required Meralco to pay the amount of
P11,651.86 as real property tax on the said steel towers for the years 1952 to 1956.
Meralco paid the amount under protest, and filed a petition for review in the Court of Tax
Appeals which rendered a decision on 29 December 1958, ordering the cancellation of
the said tax declarations and the City Treasurer of Quezon City to refund to Meralco the
sum of P11,651.86. The motion for reconsideration having been denied, on 22 April
1959, the petition for review was filed.

Issue: Whether or not the steel towers of an electric company constitute real property for
the purposes of real property tax.

Held: The steel towers of an electric company dont constitute real property for the
purposes of real property tax.

Steel towers are not immovable property under paragraph 1, 3 and 5 of Article 415.
HELD
Pole long, comparatively slender, usually cylindrical piece of wood, timber, object of
metal or the like; an upright standard to the top of which something is affixed or by which
something is supported.

MERALCO's steel supports consists of a framework of 4 steel bars/strips which are

bound by steel cross-arms atop of which are cross-arms supporting 5 high-voltage
transmission wires, and their sole function is to support/carry such wires. The exemption
granted to poles as quoted from Part II, Par.9 of respondent's franchise is determined by
the use to which such poles are dedicated.

It is evident that the word poles, as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to
defeat the very object for which the franchise was granted. The poles should be taken and
understood as part of MERALCO's electric power system for the conveyance of electric
current to its consumers.

Art. 415 of the NCC classifies the following as immovable property:

(1) Lands, buildings, roads and constructions of all kinds adhered to the soil;

xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it

cannot be separated therefrom without breaking the material or deterioration of
the object;

xxx

(5) Machinery, receptacles, instruments or implements intended by the owner pf

the tenement for an industry ot 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;

Following these classifications, MERALCO's steel towers should be considered personal

property. It should be noted that the steel towers:
 (a) are neither buildings or constructions adhered to the soil;

(b) are not attached to an immovable in a fixed manner they can be separated
without breaking the material or deterioration of the object;

are not machineries, receptacles or instruments, and even if they are, they are
not intended for an industry to be carried on in the premises.

Petitioner is not engaged in an industry or works on the land in which the steel supports
or towers are constructed.

The Supreme Court affirmed the decision appealed from, with costs against the
petitioners.