Makati Leasing and Finance Corp., vs Wearever Textile Mills, Inc.

,
122 SCRA 296
GR No. L-58469
May 16, 1983
FACTS
Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor of Makati Leasing and Finance
Corporation covering certain raw materials and machinery. Upon default, Makati Leasing fi led a petition
for judicial foreclosure of the properties mortgaged. Acting on Makati Leasing’s application for replevin, the
lower court issued a writ of seizure. Pursuant thereto, the sheriff enforcing the seizure order seized the
machinery subject matter of the mortgage. In a petition for certiorari and prohibition, the Court of Appeals
ordered the return of the machinery on the ground that the same can-not be the subject of replevin
because it is a real property pursuant to Article415 of the new Civil Code, the same being attached to the
ground by means of bolts and the only way to remove it from Wearever textile’s plant would be to drill out
or destroy the concrete fl oor. When the motion for reconsideration of Makati Leasing was denied by the
Court of Appeals, Makati Leasing elevated the matter to the Supreme Court.
ISSUE
Whether the machinery in suit is real or personal property from the point of view of the parties.
HELD
There is no logical justification to exclude the rule out the present case from the application of the
pronouncement in Tumalad v Vicencio, 41 SCRA 143. If a house of strong materials, like what was involved
in the Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby,
there is absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only
by destination or purpose, may not be likewise treated as such. This is really because one who has so agreed
is estopped from the denying the existence of the chattel mortgage.
In rejecting petitioner’s assertion on the applicability of the Tumalad doctrine, the CA lays stress on the fact
that the house involved therein was built on a land that did not belong to the owner of such house. But the
law makes no distinction with respect to the ownership of the land on which the house is built and We should
not lay down distinctions not contemplated by law.
It must be pointed out that the characterization by the private respondent is indicative of the
intention and impresses upon the property the character determined by the parties. As stated in Standard Oil Co.
of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may, by agreement, treat as
personal property that which by nature would be a real property as long as no interest of third parties would be
prejudiced thereby.
The status of the subject matter as movable or immovable property was not raised as an issue before the
lower court and the CA, except in a supplemental memorandum in support of the petition filed in the
appellate court. There is no record showing that the mortgage has been annulled, or that steps were taken
to nullify the same. On the other hand, respondent has benefited from the said contract.
Equity dictates that one should not benefit at the expense of another.
As such, private respondent could no longer be allowed to impugn the efficacy of the chattel mortgage
after it has benefited therefrom.

Therefore, the questioned machinery should be considered as personal property.

MAKATI LEASING and FINANCE CORPORATION, petitioner, 

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate Court)
promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later specified herein, of
Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI, issued in Civil
Case No. 36040, as wen as the resolution dated September 22, 1981 of the said appellate court, denying
petitioner's motion for reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance
Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned several receivables with
the former under a Receivable Purchase Agreement. To secure the collection of the receivables assigned, private
respondent executed a Chattel Mortgage over certain raw materials inventory as well as a machinery described as
an Artos Aero Dryer Stentering Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to
it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's
premises and was not able to effect the seizure of the aforedescribed machinery. Petitioner thereafter filed a
complaint for judicial foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No.
36040, the case before the lower court.

Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of which was
however subsequently restrained upon private respondent's filing of a motion for reconsideration. After several
incidents, the lower court finally issued on February 11, 1981, an order lifting the restraining order for the
enforcement of the writ of seizure and an order to break open the premises of private respondent to enforce said
writ. The lower court reaffirmed its stand upon private respondent's filing of a further motion for reconsideration.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private respondent and
removed the main drive motor of the subject machinery.

The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private respondent, set
aside the Orders of the lower court and ordered the return of the drive motor seized by the sheriff pursuant to said
Orders, after ruling that the machinery in suit cannot be the subject of replevin, much less of a chattel mortgage,
because it is a real property pursuant to Article 415 of the new Civil Code, the same being attached to the ground by
means of bolts and the only way to remove it from respondent's plant would be to drill out or destroy the concrete
floor, the reason why all that the sheriff could do to enfore the writ was to take the main drive motor of said
machinery. The appellate court rejected petitioner's argument that private respondent is estopped from claiming that
the machine is real property by constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has brought the
case to this Court for review by writ of certiorari. It is contended by private respondent, however, that the instant
petition was rendered moot and academic by petitioner's act of returning the subject motor drive of respondent's
machinery after the Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner returned the subject motor drive, it made itself
unequivocably clear that said action was without prejudice to a motion for reconsideration of the Court of Appeals
decision, as shown by the receipt duly signed by respondent's representative. 1 Considering that petitioner has
reserved its right to question the propriety of the Court of Appeals' decision, the contention of private respondent that this
petition has been mooted by such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the machinery in suit is real or
personal property from the point of view of the parties, with petitioner arguing that it is a personality, while the
respondent claiming the contrary, and was sustained by the appellate court, which accordingly held that the chattel
mortgage constituted thereon is null and void, as contended by said respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court, speaking through
Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personal property, yet by
ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could
only have meant to convey the house as chattel, or at least, intended to treat the same as such, so
that they should not now be allowed to make an inconsistent stand by claiming otherwise. Moreover,
the subject house stood on a rented lot to which defendants-appellants merely had a temporary right
as lessee, and although this can not in itself alone determine the status of the property, it does so
when combined with other factors to sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personality. Finally, unlike in the Iya cases, Lopez vs.
Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third
persons assailed the validity of the chattel mortgage, it is the defendants-appellants themselves, as
debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case. The doctrine
of estoppel therefore applies to the herein defendants-appellants, having treated the subject house
as personality.

Examining the records of the instant case, We find no logical justification to exclude the rule out, as the appellate
court did, the present case from the application of the abovequoted pronouncement. If a house of strong materials,
like what was involved in the above Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will
be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as such. This is really because one who has
so agreed is estopped from denying the existence of the chattel mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays stress on the
fact that the house involved therein was built on a land that did not belong to the owner of such house. But the law
makes no distinction with respect to the ownership of the land on which the house is built and We should not lay
down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is
indicative of intention and impresses upon the property the character determined by the parties. As stated
inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be real property, as long as no interest of third
parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that
the machinery in suit be considered as personal property but was merely required and dictated on by herein
petitioner to sign a printed form of chattel mortgage which was in a blank form at the time of signing. This contention
lacks persuasiveness. As aptly pointed out by petitioner and not denied by the respondent, the status of the subject
machinery as movable or immovable was never placed in issue before the lower court and the Court of Appeals
except in a supplemental memorandum in support of the petition filed in the appellate court. Moreover, even
granting that the charge is true, such fact alone does not render a contract void ab initio, but can only be a ground
for rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action
in court. There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that steps
were taken to nullify the same. On the other hand, as pointed out by petitioner and again not refuted by respondent,
the latter has indubitably benefited from said contract. Equity dictates that one should not benefit at the expense of
another. Private respondent could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after
it has benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the questioned machinery is real, not
personal property, becomes very apparent. Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA,
96 Phil. 70, heavily relied upon by said court is not applicable to the case at bar, the nature of the machinery and
equipment involved therein as real properties never having been disputed nor in issue, and they were not the
subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant
case to be the more controlling jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set aside,
and the Orders of the lower court are hereby reinstated, with costs against the private respondent.

SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.

Abad Santos, J., concurs in the result.