Makati Leasing & Finance Corp. v.

Wearever Textile Mills (GR L-58469)

FACTS: Wearever Textile Mills, Inc. discounted and assigned several receivables with Makati
Leasing and Financial Corp. under a Receivable Purchase Agreement so that the latter would
lend money to the former. In order to secure the collection of the receivables assigned,
Wearever executed a Chattel Mortgage over certain raw materials inventory as well as a
machinery (Artos Aero Dryer Stentering Range). Upon default of Wearever in paying what is
due, Makati Leasing filed a petition for extrajudicial foreclosure of the properties mortgaged to it.
The Sheriff assigned to execute such foreclosure, however, failed to enter the premises
of Wearever to effect the seizure of the machinery. After which, petitioner filed a complaint for a
judicial foreclosure with the RTC of Rizal which was granted. Enforcing then the writ of seizure
issued by the lower court, the Sheriff removed the main drive motor of the machinery.
Upon appeal, CA reversed the ruling of the RTC and ordered the return of the motor to
Wearever since the said machinery cannot be the subject of a replevin and chattel mortgage for
it is a real property pursuant to Art. 415 (3) of the NCC. CA argued that the machinery is
attached to the ground by means of bolts and the only way to remove it from the respondent’s
plant would be to drill out or destroy the concrete floor – which is why all that the sheriff could do
to enforce the writ was to take the main drive motor of the machinery. Hence, this petition for
certiorari.

ISSUE: Whether or not the subject machinery is a real property or a personal property to
subject it to chattel mortgage

HELD: By destination, it is a real property but by virtue of the intention of the parties stipulated
in their chattel mortgage contract, the machinery was intended to be a personal property. The
Court made reference to its ruling in Tumalad v. Vicencio and Standard Oil Co. of New York v.
Jaramillo where it held that a real property may be considered as a 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, and once the parties so agreed,
they are already estopped from claiming otherwise. The characterization of an immovable as
chattel by the parties in the contract is indicative of intention and impresses upon the property
the character determined by the parties. 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.
An immovable 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. This is because one who has so agreed is estopped from denying the
existence of the chattel mortgage. The characterization of an immovable as chattel by the
parties in the contract is indicative of intention and impresses upon the property the character
determined by the parties. 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.