B. H. Berkenkotter v. Cu Unjieng E Hijos

Summary

This case establishes that machinery and equipment permanently installed in mortgaged real property become subject to the existing mortgage under Article 1877 of the Civil Code. Berkenkotter advanced money to Mabalacat Sugar Company for additional machinery to increase their sugar central's capacity, but when the company failed to obtain refinancing, he claimed ownership of the machinery. The Supreme Court ruled that machinery installed for industrial purposes in a sugar central constitutes permanent improvements that become real property under Article 334(5) of the Civil Code. Therefore, the machinery became subject to Cu Unjieng e Hijos' prior mortgage. The decision clarifies that subsequent sales of such incorporated machinery only transfer redemption rights, not ownership free from existing encumbrances.