G.R. No. 169211 - Star Two , Inc. vs. Paper City Corp.

Rizal Commercial Banking Corporation (RCBC), Metropolitan Bank and Trust Company (Metrobank) and Union Bank of the Philippines (Union Bank) are creditor banks; RCBC was named trustee under a Mortgage Trust Indenture (MTI).
Paper City Corporation is a domestic paper‐products manufacturer and borrower.

From January 1990 to November 1991, Paper City obtained peso and dollar loans totaling ₱50,615,000.00 from RCBC, secured by four Deeds of Continuing Chattel Mortgage on its machineries and equipment.
On 26 August 1992, RCBC, Metrobank and Union Bank, as creditors, and Paper City executed the MTI, increasing total indebtedness to ₱280,000,000.00 and securing it by:

Five parcels of land with buildings (real estate mortgage).
“Additional real and personal properties” described in Annexes “Aa” (buildings and improvements) and “Ba” (machinery and equipment).

The MTI was amended on 20 November 1992, 7 June 1994 and 24 January 1995 to raise the loan to ₱555,000,000.00, each amendment expressly including machineries and equipment in the collateral pool.
Paper City defaulted after July 1997. On 21 October 1998 RCBC initiated extrajudicial foreclosure under Act No. 3135 over eight land parcels “including all improvements thereon.” A certificate of sale dated 8 February 1999 reflected the sale of those lands and improvements for ₱702,351,796.28 in favor of the creditor banks.
On 15 June 1999 Paper City filed Civil Case No. 164-V-99 to annul the foreclosure for lack of notice and bad faith, or, alternatively, to have its obligation discharged and recover penalties and damages.
After settling with Union Bank, Paper City moved on 18 December 2002 to remove and sell the machineries, contending they were not included in the real‐estate foreclosure.
The RTC denied that motion on 28 February 2003, ruling the machines were covered by the MTI and the certificate of sale.
On 15 August 2003 and again on 1 December 2003, the RTC granted Paper City’s reconsideration, holding the disputed machineries were chattels by prior chattel mortgages and that the unilateral cancellation of the chattel mortgage on stocks‐in‐trade (25 August 1992) was valid.
RCBC petitioned for certiorari in the Court of Appeals (CA), which on 8 March 2005 and 8 August 2005 dismissed the petition for lack of merit, affirming that:

RCBC (now Star Two SPV-AMC, Inc.) elevated the case to the Supreme Court via a petition for review on certiorari.

Whether Paper City’s ten-year delay in challenging the characterization of the machineries and equipment as real properties amounts to estoppel.
Whether the unilateral Cancellation of Deed of Continuing Chattel Mortgage on stocks-in-trade (25 August 1992) is valid without mortgagor consent.
Whether the MTI (26 August 1992) and its amendments (20 November 1992; 7 June 1994; 24 January 1995) included the machineries and equipment as mortgaged property.
Whether the machineries and equipment were included in the extrajudicial foreclosure sale and the certificate of sale.