Classification of Property (Castan)
I. According to Nature (Article 414)
Art. 414. All things which are or may be the object of appropriation are considered either:
(1) Immovable or real property; or (2) Movable or personal property.
1. Real or immovable (Article 415)
4 Categories of Immovables
a. Real by nature (Article 415, ¶1 and ¶8)
i. Land, buildings, roads, and constructions of all kinds adhered to the soil
In the case of Lopez vs. Orosa, a theater was constructed by using lumber. The lumber supplier was not paid. The lumber supplier was contending his material man’s lien extends to the land. The SC said that the material man’s lien attaches only to the building since a building is an immovable property by itself.
In Associated Insurance vs. Iya, the SC said that the chattel mortgage over the house was void since a house is an immovable and not chattel. On the other hand, in Tumalad vs.
Vicencio, the SC said that the parties may treat the house as chattel. The SC further added that the mortgagor is estopped from assailing the validity of the chattel mortgage over the house.
How do you reconcile the rulings of Associated Insurance vs. Iya and Tumalad vs. Vicencio? Tumalad vs. Vicencio applies only if no 3rd parties are prejudiced.
Is it correct to say that the Tumalad ruling tells us that a chattel mortgage over a building is proper? No, it does not. A chattel mortgage over a building is always improper since a building is always an immovable. In Tumalad vs. Vicencio, as between the parties, the chattel mortgage is enforceable. The parties are estopped from assailing the validity.
Grey Area in Associated Insurance vs. Iya – What if the 3rd party was aware of the existence of the chattel mortgage and despite such knowledge, the 3rd party entered into the real estate mortgage? According to Professor Balane, there may be 2 ways of answering this:
One can argue that the real estate mortgage is valid despite knowledge of the 3rd party. That’s probably why the 3rd party entered into the real estate mortgage. He knew that the chattel mortgage is ineffective as between 3rd parties.
One can argue that the 3rd party is in bad faith (Articles 19 and 20)
ii. Mines, quarries and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.
Art. 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.
b. Real by incorporation (Article 415, ¶s 2,3, and 7)
i. Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable
Growing fruits and crops are movables in other laws (i.e. chattel mortgage law)
ii. Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object
It is the result which is important; that it cannot be removed without causing damage.
There is no requirement that the attachment be done by the owner (can be done by anyone).
In Board of Assessments vs. MERALCO, the MERALCO was assessed real property tax on its electric poles. The theory was that the same are real property being adhered to the soil. The SC said that the electric poles are not real property since they can be removed. Such poles were not attached in fixed manner.
iii. Fertilizer actually used on a piece of land
Growing fruits The fertilizer is real property since it becomes an integral part of the soil.
c. Real by destination (Article 415, ¶s 4, 5, 6 and 9)
i. Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such manner that it reveals the intention to attach them permanently to the tenements
Requisites for Immobilization
1. It is an object of ornamentation or object of use.
2. The object is placed on a building or land.
3. The installation was made by the owner of the building or the land.
4. It is attached in such a manner that it reveals an intention to attach it permanently.
ii. 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
Requisites for Immobilization
1. The object must be either machinery, receptacles, instruments or implements for an industry or work.
2. The object is installed in a tenement.
3. The installation is by the owner of the tenement.
4. Industry or works are carried on in the tenement.
5. The object carries out directly the industry or work.
In Berkenkotter vs. Cu Unjieng, there was a real estate mortgage over the sugar central. Additional machinery was bought to increase the sugar central’s capacity. The SC said that the additional machinery became immobilized under Article 415 (5). Thus, the additional machinery is included in the real estate mortgage.
In Berkenkotter vs. Cu Unjieng, would it have made a difference if there was no stipulation that the real estate mortgage would cover future improvements? No, the improvements would be covered automatically by law as the same are immobilized. Of course, the parties are free to stipulate what may be excluded from the mortgage.
In Davao Saw Mill vs. Castillo, the machinery was installed by the lessee. The contract of lease stated that all improvements introduced by the lessee except machineries would belong to the lessor after the expiration of the lease contract. The SC said that the machinery was not immobilized under Article 415 (5) since the same was installed by the lessee and not the owner of the building or land.
Suppose in Davao Saw Mill vs. Castillo, there was a provision in the lease contract that the machinery would pass to the lessor.
Would the machinery be immobilized? Yes, it would since the lessor acts as an agent of the owner (the owner installs through the agent).
Suppose in Davao Saw Mill vs. Castillo, the lease contract was silent on whether or not the machinery would pass to the lessor.
Professor Balane is not sure. He thinks that Article 1678 may be applicable. Under Article 1678, the lessor upon the termination of the lease shall pay ½ of the value of the improvements.
Should the lessor refuse to reimburse the improvements, then the lessee may remove the same even though the principal thing may be damaged.
Article 1678 does not answer when the machinery becomes immobilized in case the lessor decides to buy it. Is it immobilized upon installation or upon purchase? Article 1678 is not clear on this.
iii. Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included
Requisites
1. The structure is placed by the owner.
2. The installation must be with the intention to have them permanently attached and forming a part of it.
The animals are real property only for as long as they remain there. Thus, if the pigeons fly out of the pigeon house, then they are no longer real property.
iv. Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast
d. Real by analogy (Article 415, ¶10)
Contracts for public works, and servitudes and other real rights over immovable property
In contracts for public works, the contract itself is the real property. For example, the contract to build the EDSA flyover is real property in itself. In contracts for private works, the contract is personal property.
Real rights are those rights which are enforceable against the whole world. (i.e. ownership, possession in concept of holder, servitude, mortgage).
For a real right to be considered real property, the real right must be over an immovable property. For example, the real right of ownership of the land is considered real property while the real right of ownership over a bag is considered personal property.
2. Personal or movable
Art. 416. The following things are deemed to be personal property:
(1) Those movables susceptible of appropriation which are not included in the preceding article;
(2) Real property which by any special provision of law is considered as personal property;
(3) Forces of nature which are brought under control by science; and
(4) In general, all things which can be transported from place to place without impairment of the real property to which they are fixed.
Art. 417. The following are also considered as personal property:
(1) Obligations and actions which have for their object movables or demandable sums; and
(2) Shares of stock of agricultural, commercial and industrial entities, although they may have real estate.
Since Article 415 is exclusive, Articles 416 and 417 are superfluous.
Shares of stock (even if they shares of stock of Ayala Land) are always personal property.
NOTE: The terms “real property” and “personal property” are common law terms while “immovable property” and “movable property” are civil law terms.
The distinction between immovable and movable property is important in mortgages (Lopez vs. Orosa, Associated Insurance vs. Iya, and Tumalad vs. Vicencio).
The distinction is also important in donations since the form will be different.