Case Summary (G.R. No. L-58469)
Petitioner’s Cause of Action and Procedural History
- Petitioner filed for extrajudicial foreclosure of the mortgaged properties upon respondent’s default, but the deputy sheriff could not seize the subject machinery due to lack of access.
- Petitioner then instituted a judicial foreclosure action and applied for a writ of replevin. The trial court issued a writ of seizure, later restrained by respondent’s motion for reconsideration.
- After several interlocutory motions, on February 11, 1981, the trial court lifted the restraining order and authorized forced entry to enforce the writ. On July 13, 1981, the sheriff removed the main drive motor of the machinery.
Appellate Court’s Ruling
• The Court of Appeals, in certiorari and prohibition proceedings, set aside the trial court’s orders and directed the return of the seized motor drive.
• It held that the machinery was real property under Article 415 of the Civil Code—being permanently attached to the ground by bolts—and thus incapable of being mortgaged or replevied as chattel.
• It rejected petitioner’s estoppel argument, finding no inconsistency or agreement to treat the machinery as personalty.
Issue Before the Supreme Court
Whether the subject machinery should be classified as real property (immovable) or personal property (movable) for purposes of a chattel mortgage, and whether respondent is estopped from denying its classification as chattel.
Applicable Law (1973 Constitution in force at decision)
• Civil Code (New), Article 415 – definition of fixtures and real property.
• Civil Code, Articles on contract validity and estoppel principles.
• Jurisprudence: Tumalad v. Vicencio, 41 SCRA 143; Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630; Machinery & Engineering Supplies, Inc. v. CA, 96 Phil. 70.
Supreme Court’s Legal Analysis
Mootness Argument
– Return of the motor drive by petitioner was without prejudice to appellate review, as confirmed by respondent’s signed receipt. Thus, the petition remains justiciable.Classification of the Machinery
– Parties’ Agreement and Estoppel – Under Tumalad, a house may be treated as chattel by mutual agreement and estoppel; by parity, a movable machinery immobilized only by destination or purpose may likewise be treated as personalty if so mortgaged.
– Nature of the Machinery – The Artos dryer, though bolted, remains inherently movable and became “immobile” solely by installation. Its status as chattel derives from the contract itself and the benefit derived by respondent.
– Third-Party Protection – No innocent third party is prejudiced by treating the machinery as chattel.Rejection of Machine
Case Syllabus (G.R. No. L-58469)
Procedural History
- Petition for certiorari filed by Makati Leasing and Finance Corporation to review the Court of Appeals decision dated August 27, 1981 in CA-G.R. No. SP-12731.
- The Court of Appeals set aside certain orders issued by the Court of First Instance of Rizal, Branch VI, in Civil Case No. 36040.
- Petitioner’s motion for reconsideration before the Court of Appeals was denied on September 22, 1981.
- Petitioner elevated the matter to the Supreme Court by writ of certiorari.
Facts
- Wearever Textile Mills, Inc. (“private respondent”) obtained financial accommodations from Makati Leasing and Finance Corporation (“petitioner”) by discounting and assigning several receivables under a Receivable Purchase Agreement.
- To secure the obligation, private respondent executed a chattel mortgage over:
- Certain raw materials inventory.
- A machinery described as an Artos Aero Dryer Stentering Range.
- Upon default, petitioner initiated extrajudicial foreclosure; the deputy sheriff failed to enter the premises and seize the machinery.
- Petitioner then filed a complaint for judicial foreclosure in CFI Rizal, Branch VI (Civil Case No. 36040), and obtained a writ of seizure (replevin).
- A restraining order was issued on private respondent’s motion for reconsideration; later lifted on February 11, 1981, along with an order to break open the premises.
- On July 13, 1981, the sheriff removed the main drive motor of the subject machinery.
- Private respondent filed certiorari and prohibition with the Court of Appeals, which set aside the lower court’s seizure orders and ordered the return of the drive motor.
- The Court of Appeals ruled that the machinery is real property under Article 415 of the Civil Code and that the chattel mortgage is null and void.
- Petitioner returned the drive motor under reservation of rights and brought the case to the Supreme Court.
Issue Presented
- Whether the Artos Aero Dryer Stentering Range machinery is real or personal property from the parties’ perspective, thereby