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[No. 40411. August 7, 1935]

DAVAO SAW MILL Co., INC., plaintiff and appellant, vs.APRONIANO G. CASTILLO and DAVAO LIGHT &POWER Co., INC., def endants and appellees.

PROPERTY; MACHINERY AS PERSONAL PROPERTY;CIVIL CODE, ARTICLE 334, PARAGRAPHS 1 and 5,CONSTRUED.—A lessee placed machinery in a buildingerected on land belonging to another, with theunderstanding that the machinery was not included in theimprovements which would pass to the lessor on theexpiration or abandonment of the land leased. The lesseealso treated the machinery as personal property byexecuting chattel mortgages in f favor of third persons.The machinery was levied upon by the sheriff aspersonalty pursuant to a writ of execution obtainedwithout any protest being registered. Held: That themachinery must be classified as personal property.

ID.; ID.; ID.—Machinery which is movable in its natureonly becomes immobilized when placed in a plant by theowner of the property or plant, but not when so placed bya tenant, a usufructuary, or any person having only atemporary right, unless such person acted as the agent ofthe owner.

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APPEAL from a judgment of the Court of First Instance ofDavao. Hilario, J.

The facts are stated in the opinion of the court.Arsenio Suazo & Jose L. Palma Gil and Pablo Lorenzo &

Delfin Joven for appellant.J. W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the openingsentence of the decision in the trial court and as set forthby counsel for the parties on appeal, involves thedetermination of the nature of the properties described inthe complaint. The trial judge found that those propertieswere personal in nature, and as a consequence absolved thedefendants from the complaint, with costs against theplaintiff.

The Davao Saw Mill Co., Inc., is the holder of a lumberconcession from the Government of the Philippine Islands.It has operated a sawmill in the sitio of Maa, barrio ofTigatu, municipality of Davao, Province of Davao.However, the land upon which the business was conductedbelonged to another person. On the land the sawmillcompany erected a building which housed the machineryused by it. Some of the implements thus used were clearlypersonal property, the conflict concerning machines whichwere placed' and mounted on f oundations of cement. In thecontract of lease between the sawmill company and theowner of the land there appeared the following provision:

"That on the expiration of the period agreed upon, allthe improvements and buildings introduced and erected bythe party of the second part shall pass to the exclusiveownership of the party of the first part without anyobligation on its part to pay any amount for saidimprovements and buildings; also, in the event the party ofthe second part should leave or abandon the land leasedbefore the time herein stipulated, the improvements andbuildings shall likewise pass to the ownership of the partyof the first part as

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though the time agreed upon had expired: Provided,however, That the machineries and accessories are notincluded in the improvements which will pass to the partyof the first part on the expiration or abandonment of theland leased."

In another action, wherein the Davao Light & PowerCo., Inc., was the plaintiff and the Davao Saw Mill Co.,Inc., was the defendant, a judgment was rendered in favorof the plaintiff in that action against the def endant in thataction; a writ of execution issued thereon, and theproperties now in question were levied upon as personaltyby the sheriff. No third party claim was filed for such

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properties at the time of the sales thereof as is borne out bythe record made by the plaintiff herein. Indeed the bidder,which was the plaintiff in that action, and the defendantherein having consummated the sale, proceeded to takepossession of the machinery and other properties describedin the corresponding certificates of sale executed in itsfavor by the sheriff of Davao.

As connecting up with the facts, it should further beexplained that the Davao Saw Mill Co., Inc., has on anumber of occasions treated the machinery as personalproperty by executing chattel mortgages in favor of thirdpersons. One of such persons is the appellee by assignmentfrom the original mortgagees.

Article 334, paragraphs 1 and 5, of the Civil Code, is inpoint. According to the Code, real property consists of—

Land, buildings, roads and constructions of allkinds adhering to the soil;

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Machinery, liquid containers, instruments orimplements intended by the owner of any buildingor land for use in connection with any industry ortrade being carried on therein and which areexpressly adapted to meet the requirements of suchtrade or industry."

Appellant emphasizes the first paragraph, and appelleesthe last mentioned paragraph. We entertain no doubt that

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the trial judge and the appellees are right in theirappreciation of the legal doctrines flowing from the facts.

In the first place, it must again be pointed out that theappellant should have registered its protest before or at thetime of the sale of this property. It must further be pointedout that while not conclusive, the characterization of theproperty as chattels by the appellant is indicative ofintention and impresses upon the property the characterdetermined by the parties. In this connection the decisionof this court in the case of Standard Oil Co. of New York vs.Jaramillo ([1923], 44 Phil., 630), whether obiter dicta ornot, furnishes the key to such a situation.

It is, however, not necessary to spend overly much timein the resolution of this appeal on side issues. It ismachinery which is involved; moreover, machinery notintended by the owner of any building or land for use inconnection therewith, but intended by a lessee for use in abuilding erected on the land by the latter to be returned tothe lessee on the expiration or abandonment of the lease.

A similar question arose in Puerto Rico, and on appealbeing taken to the United States Supreme Court, it washeld that machinery which is movable in its nature onlybecomes immobilized when placed in a plant by the ownerof the property or plant, but not when so placed by atenant, a usufructuary, or any person having only atemporary right, unless such person acted as the agent ofthe owner. In the opinion written by Chief Justice White,whose knowledge of the Civil Law is well known, it was inpart said:

"To determine this question involves fixing the natureand character of the property from the point of view of therights of Valdes and its nature and character from thepoint of view of Nevers & Callaghan as a judgment creditorof the Altagracia Company and the rights derived by themfrom the execution levied on the machinery placed by thecorporation in the plant. Following the Code Napoleon, thePorto Rican Code treats as immovable (real) property,

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not only land and buildings, but also attributesimmovability in some cases to property of a movablenature, that is, personal property, because of thedestination to which it is applied. 'Things,' says section 334of the Porto Rican Code, 'may be immovable either by theirown nature or by their destination or the object to whichthey are applicable.' Numerous illustrations are given inthe fifth subdivision of section 335, which is as follows:'Machinery, vessels, instruments or implements intendedby the owner of the tenements for the industry or worksthat they may carry on in any building or upon any landand which tend directly to meet the needs of the saidindustry or works.' (See also Code Nap., articles 516, 518 etseq. to and inclusive of article 534, recapitulating thethings which, though in themselves movable, may beimmobilized.) So far as the subject-matter with which weare dealing—machinery placed in the plant—it is plain,

both under the provisions of the Porto Rican Law and ofthe Code Napoleon, that machinery which is movable in itsnature only becomes immobilized when placed in a plant bythe owner of the property or plant. Such result would notbe accomplished, therefore, by the placing of machinery ina plant by a tenant or a usufructuary or any person havingonly a temporary right. (Demolombe, Tit. 9, No. 203; Aubryet Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447;and decisions quoted in Fuzier-Herman ed. Code Napoleonunder articles 522 et seq.) The distinction rests, as pointedout by Demolombe, upon the fact that one only having atemporary right to the possession or enjoyment of propertyis not presumed by the law to have applied movableproperty belonging to him so as to deprive him of it bycausing it by an act of immobilization to become theproperty of another. It follows that abstractly speaking themachinery put by the Altagracia Company in the plantbelonging to Sanchez did not lose its character of movableproperty and become immovable by destination. But in theconcrete immobilization took place because of the expressprovisions of

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the lease under which the Altagracia held, since the leasein substance required the putting in of improvedmachinery, deprived the tenant of any right to chargeagainst the lessor the cost of such machinery, and it wasexpressly stipulated that the machinery so put in shouldbecome a part of the plant belonging to the owner withoutcompensation to the lessee. Under such conditions thetenant in putting in the machinery was acting but as theagent of the owner in compliance with the obligationsresting upon him, and the immobilization of the machinerywhich resulted arose in legal effect from the act of theowner in giving by contract a permanent destination to themachinery.

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"The machinery levied upon by Nevers & Callaghan, thatis, that which was placed in the plant by the AltagraciaCompany, being, as regards Nevers & Callaghan, movableproperty, it follows that they had the right to levy on itunder the execution upon the judgment in their favor, and

the exercise of that right did not in a legal sense conflictwith the claim of Valdes, since as to him the property was apart of the realty which, as the result of his obligationsunder the lease, he could not, for the purpose of collectinghis debt, proceed separately against." (Valdes vs. CentralAltagracia [1912], 225 U. S., 58.)

Finding no reversible error in the record, the judgmentappealed from will be affirmed, the costs of this instance tobe paid by the appellant.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

Judgment affirmed.

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