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G.R. No.


October 2, 2001

RUBY L. TSAI vs.HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R VILLALUZ, FACTS: In 1975 Ever Textile Mills, Inc. (EVERTEX) obtained a three million peso loan from petitioner PBCom and executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot , where its factory stands, and the chattels located therein as enumerated in a schedule attached to the mortgage contract. PBCom granted a second loan on 1979 of P3,356,000.00 to EVERTEX which was secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto. After the date of the execution of the second mortgage mentioned above, EVERTEX purchased various machines and equipments. Due to business reverses, EVERTEX filed insolvency proceedings and the CFI issued an order declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court. Upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX . A Notice of Sheriff's Sale was issued . Two public auctions were held where petitioner PBCom emerged as the highest bidder and a Certificate of Sales were issued in its favor . PBCom consolidated its ownership over the lot and all the properties in it and subsequently leased the entire factory premises to petitioner Ruby L. Tsai . Later PBCom sold the factory, lock, stock and barrel to Tsai including the contested machineries. EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the RTC against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights over such assets. EVERTEX averred that PBCom appropriated the contested properties, which were not included in the Real and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties included in the Notice of Sheriff's Sale and Certificate of Sale . The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment. The RTC found that the lease and sale were irregular and illegal because thuey were not duly foreclosed nor sold. The CA affirmed the RTCs judgment. ISSUES: Whether or not the inclusion of the questioned properties in the foreclosed properties is proper. RULING: No. Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue. We have to look at the parties' intent. While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. The true intention of PBCOM and the owner, EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion of respondent appellate court's ruling is quoted below: It should be noted that the printed form used by appellant bank was mainly for real estate mortgages. But reflective of the true intention of appellant PBCOM and appellee EVERTEX was the typing in capital letters, immediately following the printed caption of mortgage, of the phrase "real and chattel." Now, then, if the machineries in question were contemplated to be included in the real estate mortgage, there would have been no necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a listing of the machineries covered thereby. It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the land and building involved.

As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely to chattels. The inventory list of the mortgaged properties is an itemization of sixty-three (63) individually described machineries while the schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics. Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if there is a stipulation as when it is used as security in the payment of an obligation where a chattel mortgage is executed over it, as in the case at bar. In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treat all properties included therein as immovable, and (2) attached to the said contract a separate "LIST OF MACHINERIES & EQUIPMENT". These facts, taken together, evince the conclusion that the parties' intention is to treat these units of machinery as chattels. And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with the properties enumerated in said chattel mortgages. Asthe auction sale of the subject properties to PBCom is void, no valid title passed in its favor. The sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one does not have.