EN BANC

[G.R. No. 40411. August 7, 1935.]

DAVAO SAW MILL CO., INC., plaintiff-appellant, vs.

APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC., defendants-appellees.

Arsenio, Suazo & Jose L. Palma Gil and Pablo Lorenzo & Delfin Joven for
appellant.
J. W. Ferrier for appellees.

SYLLABUS

1. PROPERTY; MACHINERY AS PERSONAL PROPERTY; CIVIL CODE,

ARTICLE 334, PARAGRAPHS 1 and 5, CONSTRUED. — A lessee placed
machinery in a 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 or abandonment of the land
leased. The lessee also treated the machinery as personal property by
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. Held: That the machinery
must be classified as personal property.
2. ID.; ID.; ID. — 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.

DECISION

MALCOLM, J : p

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
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 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 mortgagees.
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 or industry."
Appellant emphasizes the first paragraph, and appellees the last
mentioned paragraph. We entertain no doubt that the trial judge and the
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
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 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
York vs. 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 much 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 industry 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
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 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 of 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 [1912], 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.

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