Haystack: Davao Sawmill v. Castillo (GR 40411, 7 August 1935)

Davao Sawmill v. Castillo
[G.R. No. 40411. August 7, 1935.]
En Banc, Malcolm (J): 4 concur

Facts: The Davao Saw Mill is the holder of a lumber concession from the Government. 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 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 stipulated that on the expiration of the period agreed upon, or if the Lessee should leave or abandon the land leased, 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; which do not include the machineries and accessories in the improvements.

In another action (Davao Light & Power vs. Davao Saw Mill), a judgment was rendered in favor of Davao Light & Power; a writ of execution issued thereon, and the properties 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 Davao Light & Power, 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.

It must be noted that on a number of occasions, Davao Sawmill 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.

Instance on how controversy arose can’t be found in the case facts. Impliedly, the issue on the character of the properties arose from the consummation of a sale following the execution of the judgment in the other action, Davao Light & Power v. Davao Sawmill

The trial judge found that the properties were personal in nature, and as a consequence absolved the defendants from the complaint. The issue was raised in the Supreme Court involving the determination of the nature of said properties.

The Supreme Court affirmed the judgment appealed from, with costs against the appellant.

1. Standard Oil ruling key to issue on the character of the property
It must be pointed out that Davao Sawmill should 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 Davao Sawmill is indicative of intention and impresses upon the property the character determined by the parties. In this connection the decision of the 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.

2. Immobilization of machinery; when placed in plant by owner
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. The distinction rests 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.

3. Concrete immobilization of lessee’s machinery only if lease stipulates transfer of ownership on its termination
Concrete immobilization takes place because of the express provisions of the lease which requires 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. (Valdes v. Altagracia)

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