Property: Title I, Chapter 2 — Movable Property

 Property

Chapter 2 — Movable Property

(AS-FT)

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 personalty; 

(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.

(1) Examples of the Various Kinds of Personal Property 

• Paragraph 1
• a fountain pen;
• a piano; 
• a guitar;
• animals. 
• Paragraph 2
• growing crops for the purposes of the Chattel Mortgage Law; 
• machinery placed on a tenement by a tenant who did not act as the agent of the tenement owner.
• aragraph 3
• electricity
• gas
• light
• nitrogen
• Paragraph 4
• machinery not attached to land nor needed for the carrying on of an industry conducted therein; 
• portable radio; 
• a laptop computer; 
• a diploma hanging on the wall. 

(2) Cases

• Sibal v. Valdez, 50 Phil 512, G.R. No. L-26278, August 4, 1927  ⭐
• In a case brought by plaintiff against defendant, the latter won. For the purpose of satisfying the judgment won by the defendant, the sheriff attached the sugar cane that was then growing on the lots of the plaintiff. Said lots incidentally had already been previously attached by another judgment creditor of the plaintiff. Within the one-year period given by law for redemption, the plaintiff wanted to redeem the lots from one creditor, and the sugar cane from the other creditor. The lots were redeemed, the redemption of the sugar cane was however refused by the defendant, who contended that the sugar cane was personal property, and therefore could not be the subject of the legal redemption sought to be enforced. The plaintiff upon the other hand claimed that the sugar cane was real property for same could be considered as “growing fruits” under par. 2 of Art. 415. 
• How should the sugar cane be regarded — as real property or as personal property?
• The sugar cane, although considered as “growing fruits” and therefore ordinarily real property under Par. 2 of Art. 415 of the Civil Code, must be regarded as personal property for purposes of the Chattel Mortgage Law, and also for purposes of attachment, because as ruled by the Louisiana Supreme Court, the right to the growing crops mobilizes (makes personal, as contradistinguished from immobilization) the crops by anticipation. 
• More specifically, it said that the existence of a right on the growing crop is a mobilization by anticipation, a gathering as it were, in advance, rendering the crop movable. 

• U.S. v. Carlos 21 Phil. 543
• The defendant used a “jumper” and was thus able to divert the flow of electricity, causing loss to the Meralco of over 2000 kilowatts of current. Accused of theft, his defense was that electricity was an unknown force, not a fluid, and being intangible, could not be the object of theft.
• While electric current is not a fluid, still its manifestations and effects like those of gas may be seen and felt. 
• The true test of what may be stolen is not whether it is corporeal or incorporeal, but whether, being possessed of value, a person other than the owner, may appropriate the same. Electricity, like gas, is a valuable merchandise, and may thus be stolen.

• Involuntary Insolvency of Stochecker v. Ramirez 44 Phil. 933 
• A half-interest in a drugstore business, being capable of appropriation, but not included in the enumeration of real prop erties under Art. 415, should be considered personal property, and may thus be the subject of a chattel mortgage. 

(3) Three Tests to Determine whether Property Is Movable or Immovable

1. Test by Description
• If the property is capable of being carried from place to place;
2. Test by Description
• If such change in location can be made without injuring the real property to which it may in the meantime be attached (test by description); and 
3. Test by Exclusion
• If the object is not one of those enumerated or included in Art. 415, then the inevitable conclusion is that the prop erty is personal property. 

• Test by exclusion is superior to the test by description.

(4) Other Incorporeal Movables

• Intellectual properties which should be considered as personal property:
• a patent
• a copyright
• the right to an invention

(5) Personal Effects  

• “Personal effects’’ are personal property.
• But not all personal property are “personal effects.’’
• “Personal effects’’ include only such tangible property as applied to a person and cannot include automobiles, although they indeed are personal property.

(6) ‘Order of Demolition’ 

• City of Baguio v. Niño 487 SCRA 21, G.R. No. 161811, April 12, 2006  ⭐
• The requirement of Sec. 10(d) of Rule 39 of the Rules of Court that the executing officer shall not destroy, demolish, or remove improvements except upon special order of the court, issued upon motion and after due hearing, echoes the constitutional provision that “no person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied of equal protection of the laws.” 
• What is the extent to which an administrative entity may exercise process depend largely on?
• Such depend largely, if not wholly, on the provisions of the statute creating or empowering such agency. 
• There is, however, no explicit provision granting the Bureau of Lands (now the Land Management Bureau) or the Department of Environment and Natural Resources (DENR) –– which exercises control over the Land Management Bureau (LMB) –– the authority to issue an order of demolition. 

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.

Other Kinds of Personal Property

• Paragraph 1: “Obligations and actions which have for their object movables or demandable sums.’’ 
• Examples: 
1. If somebody steals my car, my right to bring an action to recover the automobile is personal property by itself. 
• If my debtor owes me P1 million, my credit as well as my right to collect by judicial action is also personal property. 
• This is because, although the law uses the term “obligations,” same really refers to rights or credits. 
• If my credit has not yet matured, my right to collect it eventually is considered personal property, even if in the meantime, the money is not yet due. 
• Of course, till the debt matures, I have no right yet to actually collect; but a right to collect in the future exists already (now); and this is why I am allowed to bring in the meantime, actions to preserve my right. 
• If the object is illegal, it is not considered demandable and therefore no right exists. 
• Note, however, that a right to recover possession for instance of a piece of land is considered real, and not personal property. 
• This is because the object of my right is an immovable. 
2. A promissory note is personal property; the right to collect it is also personal property;
• A mortgage on real estate is real property by analogy. 

• Paragraph 2: “Shares of stock of agricultural, commercial, and industrial entities, although they may have real estate.” 
• Examples: 
• A share of stock in a gold mining corporation is personal property; but the gold mine itself, as well as any land of the corporation, is regarded as real property by the law. 
• The certificate itself evidencing ownership of the share, as well as the share itself, is regarded as personal property. 
• Being personal, it may be the object of a chattel mortgage. 
• Note: Even if the sole property of a corporation should consist only of real property, a share of stock in said corporation is considered personal property. 

• Is a share in a partnership considered personal property? 
• It is submitted that the answer is yes; as a matter of fact, all shares in all juridical persons should be considered personal property for there is no reason to discriminate between shares in a corporation, and shares in other juridical persons. 
• This is true even if the law apparently refers only to a corporation in view of the use of the term “stock.’’ 
• It is believed, however, that the term “stock’’ should be understood not in its technical sense of being categorized under securities (which include options, warrants, derivatives, swaps, swaptions, bonds, asset-backed securities, etc.) but in its generic meaning of “participation.’’ 
• As a matter of fact, the Supreme Court has held that a half-interest in a drugstore business is personal property, capable of being the subject of a chattel mortgage. 
• However, a half-interest in a drugstore, considered as a building (and not a business) is a real right in real property and is, therefore, by itself real property. 

• Enforcement of Property Rights in Shares of Stock
• “Shares of stock are a peculiar kind of personal property, and are unlike other classes of personal property in that the property right of shares of stock can only be exercised or enforced where the corporation is organized and has its place of business, and can exist only as an incident to and connected with the corporation, and this class of property is inseparable from the domicile of the corporation itself.’’ 
• If, however, the suit is directed not against the corporation itself but involves the commission of a crime — one element of which may be the ownership of shares of stock — the domicile of the corporation is not an important factor, as long as any other element of the crime is committed elsewhere, for instance, the place where the criminal case is brought. 

(2) Is Money Merchandise? 

• When it is in domestic circulation
• money is legal tender and is, therefore, not merchandise. 
• When, however, it is attempted to be exported or smuggled
• deemed to be taken out of domestic circulation and may be, therefore, now considered as merchandise or commodity subject to forfeiture pursuant to Central Bank Circular 37 in relation to Section 1363(f) of the Revised Administrative Code. 
• It should be noted, however, that whether money is legal tender or not, whether it is merchandise or not, it still is personal property. 

Art. 418. 

Movable property is either consumable or non consumable

To the first class belong those movables 

which cannot be used in a manner appropriate to their nature

without their being consumed; 

to the second class belong all the others. 

(1) Consumable and Non-Consumable Properties

• Consumable — this cannot be used according to its nature without its being consumed. 
• Non-consumable — any other kind of movable property. 

(2) Classification and Examples 

• According to their nature
1. consumable
2. non-consumable
• According to the intention of the parties:
1. fungible (res fungibles)
2. non-fungible (res nec fungibles)

• Explanation:
1. If it is agreed that the identical thing be returned, it is non-fungible, even though by nature it is consumable.
• Hence, if I borrow a sack of rice, not for consumption but for display or exhibition merely (ad ostentationem), the rice is considered non-fungible. 
2. If it is agreed that the equivalent be returned, the property is fungible.
• Hence, if I borrow vinegar (to consume) and promise to return an equivalent amount of the same quality, the property is not only consumable; it is also fungible.
3. In the law of credit transactions
• a loan of rice for consumption is considered a simple loan or mutuum
• while a loan of rice for exhibition is a commodatum

• Note: The Civil Code, in many instances, uses the words “consumable’’ and “fungible’’ interchangeably.
• Note: It is evident, however, that fungibles are those replaceable by an equal quality and quantity, either by the nature of things, or by common agreement. If irreplaceable, because the identical objects must be returned, they are referred to as non-fungibles.

Cases:

Capitol Wireless v. City of Batangas, G.R. No. 180110, May 30, 2016

Facts: 

• Capitol Wireless Inc. (Capwire) provides international telecommunications services, with agreements covering international network of submarine cable systems such as the Asia Pacific Cable Network System (APCN).
• Capwire claims co-ownership of the "Wet Segment" of APCN but alleges that landing stations and Segment E in Nasugbu, Batangas belong to PLDT, and the Wet Segment lies in international waters.
• Capwire claims that as co-owner, it does not own any particular physical part of the cable system but, consistent with its financial contributions, it owns the right to use a certain capacity of the said system. 
• However, for loan restructuring purposes, Capwire claims that "it was required to register the value of its right," hence, it engaged an appraiser to "assess the market value of the international submarine cable system and the cost to Capwire.
• As a result, the Provincial Assessor issued Assessments of Real Property (ARP) against Capwire, considering the cable systems taxable real property.

Issue: 

• Whether the submarine communications cables be classified as taxable real property by the local governments. YES

Held:

Submarine or undersea communications cables are akin to electric transmission lines which this Court has recently declared in Manila Electric Company v. City Assessor and City Treasurer of Lucena City, as "no longer exempted from real property tax" and may qualify as "machinery" subject to real property tax under the Local Government Code.

To the extent that the equipment's location is determinable to be within the taxing authority's jurisdiction, the Court sees no reason to distinguish between submarine cables used for communications and aerial or underground wires or lines used for electric transmission, so that both pieces of property do not merit a different treatment in the aspect of real property taxation. 

Both electric lines and communications cables, in the strictest sense, are not directly adhered to the soil but pass through posts, relays or landing stations, but both may be classified under the term "machinery" as real property under Article 415(5)  of the Civil Code for the simple reason that such pieces of equipment serve the owner's business or tend to meet the needs of his industry or works that are on real estate. Even objects in or on a body of water may be classified as such, as "waters" is classified as an immovable under Article 415(8) of the Code. 

A classic example is a boathouse which, by its nature, is a vessel and, therefore, a personal property but, if it is tied to the shore and used as a residence, and since it floats on waters which is immovable, is considered real property.  Besides, the Court has already held that "it is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property." 

Thus, absent any showing from Capwire of any express grant of an exemption for its lines and cables from real property taxation, then this interpretation applies and Capwire's submarine cable may be held subject to real property tax.

Meralco v. City Assessor of Lucena, G.R. No. 166102, August 05, 2015

Facts: 

• In 1989, MERALCO received from the City Assessor of Lucena a notice that electric facilities, classified as capital investment of the company: (a) transformer and electric post; (b) transmission line; (c) insulator; and (d) electric meter, were subjected to real property tax as of 1985. 
• MERALCO appealed the Tax Declaration before the LBAA of Lucena City claiming that its capital investment consisted only of its substation facilities and that MERALCO was exempted from payment of real property tax on said substation facilities.
• LBAA: Held that:
1. the steel towers fell within the term “poles” expressly exempted from taxes under the franchise of MERALCO; and
2. the steel towers were personal properties under the provisions of the Civil Code and, hence, not subject to real property tax.  
• In 1997, MERALCO received a letter from the City Treasurer of Lucena assessing the company for real property delinquency on its machineries beginning 1990.
• MERALCO argues that its transformers, electric posts, transmission lines, insulators, and electric meters are not subject to real property tax, given that the definition of “machinery” under Section 199(o) of the Local Government Code, on which real property tax is imposed, must still be within the contemplation of real or immovable property under Article 415 of the Civil Code because it is axiomatic that a statute should be construed to harmonize with other laws on the same subject matter as to form a complete, coherent, and intelligible system.

Issue: 

• Whether the transformers, electric posts, transmission lines, insulators, and electric meters are not subject to real property tax being movable or personal properties. NO

Held:

The Court finds that the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO are no longer exempted from real property tax and may qualify as "machinery" subject to real property tax under the Local Government Code. Nevertheless, the Court declares null and void the appraisal and assessment of said properties of MERALCO by the City Assessor in 1997 for failure to comply with the requirements of the Local Government Code and, thus, violating the right of MERALCO to due process.

The Court highlights that under Section 199(o) of the Local Government Code, machinery, to be deemed real property subject to real property tax, need no longer be annexed to the land or building as these "may or may not be attached, permanently or temporarily to the real property," and in fact, such machinery may even be "mobile."

The conclusions of the Court in the 1964 MERALCO case do not hold true anymore under the Local Government Code. Therefore, for determining whether machinery is real property subject to real property tax, the definition and requirements under the Local Government Code are controlling.

Star Two v. Paper City. G.R. No. 169211, March 6, 2013

Facts: 

• From 1990 to 1991, Paper City obtained several loans from RCBC, secured by chattel mortgages on its machinery and equipment.
• In 1992, RCBC unilaterally cancelled a deed of chattel mortgage on Paper City's merchandise and stocks-in-trade in 1992.
• RCBC, Metrobank, and Union Bank entered into a Mortgage Trust Indenture (MTI) with Paper City, increasing the loan to ₱280,000,000 and securing it with real estate mortgages and additional real and personal properties.
• Amendments to the MTI increased the loan, with additional securities, including newly constructed buildings and equipment located in the existing plant site.
• In 1997, Paper City defaulted on its loan obligations. RCBC foreclosed the properties listed in the MTI through an extrajudicial foreclosure sale.
• In 2002, Paper City filed a Manifestation with Motion to Remove and/or Dispose Machinery arguing that the machineries located inside the foreclosed land and building were deteriorating. And since the machineries were not included in the foreclosure of the real estate mortgage, it is appropriate that it be removed from the building and sold to a third party.

Issue: 

• Whether the subject machineries and equipment of Paper City Corporation (Paper City) are movable properties by agreement of the parties and cannot be considered as included in the extrajudicial foreclosure sale of the mortgaged land and building of Paper City. NO

Held:

By contracts, all uncontested in this case, machineries and equipment are included in the mortgage in favor of RCBC, in the foreclosure of the mortgage and in the consequent sale on foreclosure also in favor of petitioner.

Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are various parcels of land including the buildings and existing improvements thereon as well as the machineries and equipments, which as stated in the granting clause of the original mortgage, are "more particularly described and listed that is to say, the real and personal properties listed in Annexes ‘A’ and ‘B’ x x x of which the Paper City is the lawful and registered owner." Significantly, Annexes "A" and "B" are itemized listings of the buildings, machineries and equipments typed single spaced in twenty-seven pages of the document made part of the records. The plain language and literal interpretation of the MTIs must be applied.

Indeed, the lower courts ought to have noticed the fact that the chattel mortgages adverted to were dated 8 January 1990, 19 July 1990, 28 June 1991 and 28 November 1991. The real estate mortgages which specifically included the machineries and equipments were subsequent to the chattel mortgages dated 26 August 1992, 20 November 1992, 7 June 1994 and 24 January 1995. Without doubt, the real estate mortgages superseded the earlier chattel mortgages.

The real estate mortgage over the machineries and equipments is even in full accord with the classification of such properties by the Civil Code of the Philippines as immovable property. Thus:

Article 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds adhered to the soil;

xxxx

(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;

FELS Energy, Inc. v. The Province of Batangas, G.R. No. 168557, February 16, 2007

Facts: 

• The National Power Corporation (NPC) entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel engine power barges moored in Batangas.
• Polar Energy, Inc. assigned its rights under the agreement to FELS Energy, Inc. (FELS).
• FELS received an assessment of real property taxes on the power barges.
• FELS referred the matter to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes.
• NPC filed a petition with the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the necessary corrections
• Provincial Assessor: Averred that the barges were real property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Issue: 

• Whether power barges, which are floating and movable, are personal properties and therefore, not subject to real property tax. NO

Held:

As found by the appellate court, the CBAA and LBAA power barges are real property and are thus subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having the burden of proving otherwise. Besides, factual findings of administrative bodies, which have acquired expertise in their field, are generally binding and conclusive upon the Court; we will not assume to interfere with the sensible exercise of the judgment of men especially trained in appraising property. Where the judicial mind is left in doubt, it is a sound policy to leave the assessment undisturbed.  We find no reason to depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., a power company brought an action to review property tax assessment. On the city’s motion to dismiss, the Supreme Court of New York held that the barges on which were mounted gas turbine power plants designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant barges, and the accessory equipment mounted on the barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work.