DAVAO SAW MILL CO., INC.

, plaintiff-appellant, it was held that machinery which is movable in its nature

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC., defendants-appellees.
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. . 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. 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.
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. (Puerto Rico case taken to the US SC). 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.
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.
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.

another action 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. 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 sale. 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.

In connection to facts, 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.

We entertain no doubt that the trial judge and appellees

are right in their appreciation of the legal doctrines flowing
from the facts. appellant should have registered its protest
before or at the time of the sale of this property. 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.
 denying the existence of the chattel mortgage.
(Tumalad case)
SERGS PRODUCTS, INC., and SERGIO T.
GOQUIOLAY, petitioners, vs. PCI It should be stressed, however, that our holding -- that
LEASING AND FINANCE, the machines should be deemed personal property
INC., respondent. pursuant to the Lease Agreement is good only insofar
as the contracting parties are concerned.[22] Hence,
while the parties are bound by the Agreement, third
After agreeing to a contract stipulating that a real or
persons acting in good faith are not affected by its
immovable property be considered as personal or movable,
stipulation characterizing the subject machinery as
a party is estopped from subsequently claiming
personal.[23] In any event, there is no showing that any
otherwise. Hence, such property is a proper subject of a
specific third party would be adversely affected.
writ of replevin obtained by the other contracting party
Petitioners contend that if the Court allows these
On February 13, 1998, respondent PCI Leasing filed with the machineries to be seized, then its workers would be
RTC-QC a complaint for a sum of money ,with an application out of work and thrown into the streets. ] They also
for a writ of replevin. upon an ex-parte application of PCI allege that the seizure would nullify all efforts to
Leasing, respondent judge issued a writ of replevin (Annex rehabilitate the corporation. Petitioners arguments do
B) directing its sheriff to seize and deliver the machineries not preclude the implementation of the Writ
and equipment to PCI Leasing after 5 days and upon the
WHEREFORE, the Petition is DENIED and the assailed
payment of the necessary expenses. implementation of said
Decision of the Court of Appeals AFFIRMED. Costs
writ, the sheriff proceeded to petitioners factory, seized one
against petitioners.
machinery with [the] word that he [would] return for the
other machineries. petitioners filed a motion for special
protective order asserting that properties sought to be
seized were immovable and that respondent is stopped
from treting the machineries as personal because the
contracts in which the alleged agreement [were] embodied
[were] totally sham and farcical.

They went to [the CA] via an original action for certiorari.

the appellate court held that the subject machines were
personal property, and that they had only been leased, not
owned, by petitioners.

ISSUES: A. Whether or not the machineries purchased and

imported by SERGS became real property by virtue of
immobilization.

HELD: The Petition is not meritorious. In the present

case, the machines that were the subjects of the Writ
of Seizure were placed by petitioners in the factory
built on their own land. Indisputably, they were
essential and principal elements of their chocolate-
making industry. Hence, although each of them was
movable or personal property on its own, all of them
have become immobilized by destination because they
are essential and principal elements in the industry.
[16]
In that sense, petitioners are correct in arguing that
the said machines are real, not personal, property
pursuant to Article 415 (5) of the Civil Code.[17]
If a house of strong materials, like what was involved
in the above Tumalad case, may be considered as
personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the
contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why
a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose,
may not be likewise treated as such. This is really
because one who has so agreed is estopped from