Peoples Bank Vs Dahican Lumber

7. People’s Bank and Trust Co. v. Dahican Lumber Co.
L-17500, May 16, 1967
Topic: Discussed under Article 415, paragraph 5: “Machinery, receptacles, instruments, or implements intended
by the owner of 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.”
FACTS: On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia, a corporation
licensed to do business in the Philippines — hereinafter referred to as ATLANTIC — sold and assigned all its
rights in the Dahican Lumber concession to Dahican Lumber Company — hereinafter referred to as DALCO.
Thereafter, to develop the concession, DALCO obtained various loans from the People's Bank & Trust
Company. As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in
favor of the BANK — the latter acting for itself and as trustee for the Export-Import Bank of Washington D.C.
— a deed of mortgage (real estate mortgage) covering five parcels of land situated in the province of Camarines
Norte together with all the buildings and other improvements existing thereon and all the personal properties of
the mortgagor located in its place of business in the municipalities of Mambulao and Capalonga, Camarines
Norte. On the same date, DALCO executed a second mortgage on the same properties in favor of ATLANTIC
to secure payment of the unpaid balance of the sale price of the lumber concession.
Both deeds contained the following provision extending the mortgage lien to properties to be subsequently
acquired — referred to hereafter as "after acquired properties" — by the mortgagor:
“All property of every nature and description taken in exchange or replacement,

and all buildings, machinery, fixtures, tools equipment and other property which
the Mortgagor may hereafter acquire, construct, install, attach, or use in, to, upon,
or in connection with the premises, shall immediately be and become subject to the
lien of this mortgage in the same manner and to the same extent as if now included
therein, and the Mortgagor shall from time to time during the existence of this mortgage
furnish the Mortgagee with an accurate inventory of such substituted and subsequently
acquired property. Both mortgages were registered in the Office of the Register of
Deeds of Camarines Norte. In addition thereto DALCO and DAMCO pledged to the
BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure the
same obligations.”
Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte.
ISSUE: Should the deed also be registered in the chattel mortgage registry insofar as it covered the after
acquired machinery, fixtures, tools and equipment?
HELD: No more, since the after-acquired properties had been immobilized by destination (they were used in
the development of the lumber concession).
Article 415 does not define real property but enumerates what are considered as such, among them being
machinery, receptacles, instruments or replacements intended by owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and shall tend directly to meet the needs of the said
industry or works.
On the strength of the above-quoted legal provisions, the lower court held that inasmuch as "the chattels were
placed in the real properties mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5
and Art. 2127 of the New Civil Code.
We find the above ruling in agreement with our decisions on the subject:
(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the Civil Code (old)
gives the character of real property to machinery, liquid containers, instruments or replacements 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.
(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage constituted on a
sugar central includes not only the land on which it is built but also the buildings, machinery and accessories
installed at the time the mortgage was constituted as well as the buildings, machinery and accessories belonging
to the mortgagor, installed after the constitution thereof.
It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in
connection with, and for use in the development of its lumber concession and that they were purchased in
addition to, or in replacement of those already existing in the premises on July 13, 1950. In Law, therefore,
they must be deemed to have been immobilized, with the result that the real estate mortgages involved herein
— which were registered as such — did not have to be registered a second time as chattel mortgages in
order to bind the "after acquired properties" and affect third parties.
But defendants, invoking the case of Davao Sawmill Company vs. Castillo, 61 Phil. 709, claim that the "after
acquired properties" did not become immobilized because DALCO did not own the whole area of its lumber
concession all over which said properties were scattered.
The facts in the Davao Sawmill case, however, are not on all fours with the ones obtaining in the present. In the
former, the Davao Sawmill Company, Inc., had repeatedly treated the machinery therein involved as
personal property by executing chattel mortgages thereon in favor of third parties, while in the present
case the parties had treated the "after acquired properties" as real properties by expressly and
unequivocally agreeing that they shall automatically become subject to the lien of the real estate
mortgages executed by them. In the Davao Sawmill decision it was, in fact, stated that "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" (61 Phil. 112, emphasis supplied). In the present case, the characterization of the
"after acquired properties" as real property was made not only by one but by both interested parties.
[NOTE: Please observe that in this case, the parties to the real mortgage had treated the after-acquired
properties as real properties by agreeing that they would be automatically subject to the lien of the real estate
mortgage executed by them. In the Davao Sawmill Co. v. Castillo (61 Phil. 709) case, the parties had treated
after-acquired properties, including the machines, as personal property by executing chattel mortgages thereon.
Hence, this Davao Sawmill case cannot apply to the instant case.].

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7. People’s Bank and Trust Co. v. Dahican Lumber Co.

L-17500, May 16, 1967

“All property of every nature and description taken in exchange or replacement,

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