Haystack: Makati Leasing v. Wearever Textiles (GR L-58469, 16 May 1983)

Makati Leasing v. Wearever Textiles
[G.R. No. L-58469. May 16, 1983.]
Second Division, de Castro (J): 5 concur, 1 concur in result

Facts: To obtain financial accommodations from Makati Leasing and Finance Corporation, Wearever Textile Mills, discounted and assigned several receivables with the former under a Receivable Purchase Agreement. To secure the collection of the receivables assigned, Wearever Textile executed a Chattel Mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range. Upon Wearever's default, Makati Leasing 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 Wearever's premises and was not able to effect the seizure of the machinery. Makati Leasing thereafter filed a complaint for judicial foreclosure with the CFI Rizal (Branch VI, Civil Case 36040).

Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of which was restrained upon Wearever's filing of a motion for reconsideration. The lower court finally issued on 11 February 1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to break open the premises of Wearever to enforce said writ. The lower court reaffirmed its stand upon Wearever's filing of a further motion for reconsideration. On 13 July 1981, the sheriff enforcing the seizure order, repaired to the premises of Wearever and removed the main drive motor of the subject machinery.

On 27 August 1981, the Court of Appeals, in certiorari and prohibition proceedings filed by Wearever, 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 appellate court also rejected the argument that Wearever is estopped from claiming that the machine is real property by constituting a chattel mortgage thereon. A motion for reconsideration was filed by Makati Leasing, which was later denied. Makati Leasing brought the case to the Supreme Court by review by writ of certiorari.

The Supreme Court reversed and set aside the decision and resolution of the Court of Appeals, and reinstated the orders of the lower court, with costs against Wearever Textiles.

1. Case not moot and academic with the return of the seized motor
When the subject motor drive was returned, it was made 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 Wearever's representative. Considering that Makati Leasing has reserved its right to question the propriety of the CA' decision, the contention of Wearever that the petition has been mooted by such return may not be sustained.

2. Similar case; Estoppel applies to parties as having treated the house as personalty
“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. 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 personalty" (Tumalad v. Vicencio). One who has so agreed is estopped from denying the existence of the chattel mortgage.

3. Pronouncement on estoppel involving chattel mortgage applies to machinery
There is no logical justification to exclude the rule out the present case from the application of the pronouncement in Tumalad v. Vicencio. If a house of strong materials 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.

4. Chattel mortgage treating real property as personal property valid, as long as third parties are not prejudiced
The characterization of the subject machinery as chattel is indicative of intention and impresses upon the property the character determined by the parties. As stated in Standard Oil v. Jaramillo, , 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.

5. Equity prevents respondent to impugn the efficacy of the chattel mortgage
Equity dictates that one should not benefit at the expense of another. Weareverf could not be allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom.

6. Machinery and Engineering Supplies v. CA not applicable; Tumalad case more in parity with case
The case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by the Court of Appeals, is not applicable to the present case as 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 present case to be the more controlling jurisprudential authority.

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