Title
Berkenkotter vs. Cu Unjieng e Hijos
Case
G.R. No. 41643
Decision Date
Jul 31, 1935
A dispute over ownership of machinery added to a mortgaged sugar central; court ruled improvements were permanent, subject to the original mortgage.
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Case Digest (G.R. No. 41643)

Facts:

  1. Parties Involved:

    • Plaintiff and Appellant: B. H. Berkenkotter
    • Defendants and Appellees: Cu Unjieng e Hijos, Yek Tong Lin Fire and Marine Insurance Company, Mabalacat Sugar Company, and the Provincial Sheriff of Pampanga
  2. Background:

    • On April 26, 1926, the Mabalacat Sugar Co., Inc. obtained a loan from Cu Unjieng e Hijos, secured by a first mortgage on two parcels of land, including all buildings, improvements, and machinery related to the sugar central.
    • The mortgage covered existing and future improvements on the property.
  3. Additional Machinery and Equipment:

    • On October 5, 1926, the Mabalacat Sugar Co., Inc. decided to increase its sugar central's capacity by purchasing additional machinery and equipment, increasing daily production from 150 to 250 tons.
    • B. A. Green, the company's president, proposed to B. H. Berkenkotter to advance the necessary funds for the purchase, promising reimbursement once an additional loan was secured from Cu Unjieng e Hijos.
    • Berkenkotter advanced P25,750 and had a credit of P22,000 for unpaid salary, which was used to purchase the additional machinery and equipment.
  4. Failure to Secure Additional Loan:

    • On June 10, 1927, B. A. Green applied for an additional loan of P75,000 from Cu Unjieng e Hijos, offering the newly acquired machinery and equipment as security. The loan was not granted.
  5. Legal Dispute:

    • Berkenkotter claimed ownership of the machinery and equipment, arguing that they were not permanently incorporated into the sugar central and were intended as security for his loan.
    • Cu Unjieng e Hijos contended that the machinery and equipment were part of the mortgaged property under Article 1877 of the Civil Code.

Issue:

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Ruling:

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Ratio:

  1. Mortgage Coverage:

    • Under Article 1877 of the Civil Code, a mortgage includes all natural accessions, improvements, and fixtures, whether existing at the time of the mortgage or added afterward.
  2. Permanent Incorporation:

    • Machinery and equipment installed in a sugar central for industrial purposes are considered real property under Article 334, paragraph 5, of the Civil Code, and their incorporation is permanent.
  3. Security Interest vs. Mortgage:

    • A creditor’s security interest in machinery and equipment does not override the rights of a mortgagee if the machinery is permanently incorporated into the mortgaged property.
  4. Right of Redemption:

    • A sale of machinery and equipment after their incorporation into a mortgaged property only transfers the right of redemption, not ownership, which remains subject to the mortgage.


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