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Tsai v. CA

FACTS:

Ever Textile Mills, Inc. (EVERTEX) obtained loan from Philippine Bank of Communications

(PBCom), secured by 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 againgranted a second loan to EVERTEX which was secured by a Chattel Mortgage over personal properties

enumerated in a list attached thereto. These listed properties were similar to those listed in the first

mortgage deed. After the date of the execution of the second mortgage mentioned above, EVERTEX

purchased various machines and equipments. Upon EVERTEX's failure to meet

its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX

under Act 3135 and Act 1506 or "The Chattel Mortgage Law". PBCom then consolidated its ownership

over the lot and all the properties in it. It leased the entire factory premises to Ruby Tsai and sold to the

same the factory, lock, stock and barrel including the contested machineries.

EVERTEX filed a complaint for annulment of sale, reconveyance, and damages against PBCom,

alleging inter alia that the extrajudicial foreclosure of subject mortgage was not valid, and that PBCom,

without any legal or factual basis, appropriated the contested properties which were not included in theReal and Chattel Mortgage of the first mortgage contract nor in the second contract which is a Chattel

Mortgage, and neither were those properties included in the Notice of Sheriff's Sale.

ISSUES:

1) W/N the contested properties are personal or movable properties

2) W/N the sale of these properties to a third person (Tsai) by the bank through an irregular foreclosure

sale is valid.

HELD:

1) Nature of the Properties and Intent of the Parties

The nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real

property mortgaged does not make them ipso facto immovable under Article 415 (3) and (5) of the New

Civil Code. While it is true that the properties appear to be immobile, a perusal of the contract of Real

and Chattel Mortgage executed by the parties herein reveal their intent, that is - to treat machinery and

equipment as chattels.

In the first mortgage contract, reflective of the true intention of PBCOM and EVERTEX was the typing in

capital letters, immediately following the printed caption of mortgage, of the phrase "real and chattel."So

also, the "machineries and equipment" in the printed form of the bank had to be inserted in the blank

space of the printed contract and connected with the word "building" by typewritten slash marks. 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 second 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 63 individually described machineries while the schedule listed

only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.

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UNDER PRINCIPLE OF STOPPEL

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, an immovable may be considered a personal property if there is a stipulation as when it is usedas security in the payment of an obligation where a chattel mortgage is executed over it.

2) Sale of the Properties Not Included in the Subject of Chattel Mortgage is Not Valid

The auction sale of the subject properties to PBCom is void. Inasmuch as the subject mortgages were

intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the

Chattel Mortgage Law applies. Section 7 provides thereof that: "a chattel mortgage shall be deemed to

cover only the property described therein and not like or substituted property thereafter acquired by the

mortgagor and placed in the same depository as the property originally mortgaged, anything in the

mortgage to the contrary notwithstanding." Since the disputed machineries were acquired later after the

two mortgage contracts were executed, it was consequently an error on the part of the Sheriff to include

subject machineries with the properties enumerated in said chattel mortgages.

As the lease and sale of said personal properties were irregular and illegal because they were not duly

foreclosed nor sold at the auction, no valid title passed in its favor. Consequently, the sale thereof

to Ruby Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give

what one does not have.

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SERGS PRODUCTS, INC., and SERGIO GOQUIOLAY, petitioners, vs. PCILEASING AND FINANCE,

INC., respondent.PANGANIBAN, J

Facts:

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filedwith the

RTC-QC a complaint for a sum of money, with an application for a writ of replevin docketed asCivil CaseNo. Q-98-33500. Upon an ex-parte application of PCI Leasing, respondent judge issued a writof replevin

directing its sheriff to seize and deliver the machineries and equipment to PCI Leasing. OnMarch 24,

1998, in implementation of said writ, the sheriff proceeded to petitioners factory, seized onemachinery

with the word that he would return for the other machineries.

Petitioners (SERGs Products Inc.) filed amotion for special protective order, invoking the power of the

court to control the conduct of its officers and amend and control its processes, praying for adirective for

the sheriff to defer enforcement of the writ of replevin. This motion was opposed by PCILeasing, on the

ground that the properties were still personal and therefore still subject to seizure and awrit of replevin. In

their Reply, petitioners asserted that the properties sought to be seized [were]immovable as defined in

Article 415 of the Civil Code, the parties agreement to the contrarynotwithstanding. They argued that to

give effect to the agreement would be prejudicial to innocent thirdparties. They further stated that PCILeasing [was] estopped from treating these machineries as personalbecause the contracts in which the

alleged agreement [were] embodied [were] totally sham and farcical.

On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of

theremaining properties. He was able to take two more, but was prevented by the workers from taking

therest. On April 7, 1998, they went to [the CA] via an original action for certiorari. The appellate Court

heldthat the subject machines were personal property, and that they had only been leased, not owned

bypetitioners. Hence, this petition.

Issue:Whether the said machines are personal, not immovable, property which may be a proper subject

of awrit of replevin.(which are issued for the recovery of personal property)

Ruling:

In the present case, the machines that were the subjects of the Writ of Seizure were placed by

petitionersin the factory built on their own land. Indisputably, they were essential and principal elements of

their chocolate-making industry. Hence, although each of them was movable or personal property on its

own,all of them have become immobilized by destination because they are essential and principal

elements inthe industry. In that sense, petitioners are correct in arguing that the said machines are real,

notpersonal, property pursuant to Article 415 (5) of the Civil Code.

But the Court disagree with the submission of the petitioners that the said machines are not

proper subjects of the Writ of Seizure. It has held that contracting parties may validly stipulate that a

realproperty be considered as personal. After agreeing to such stipulation, they are consequentlyestoppedfrom claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily

precluded fromdenying the truth of any material fact found therein. In the present case, the Lease

Agreement clearlyprovides that the machines in question are to be considered as personal

property. Specifically, Section12.1 of the Agreement reads as follows:

12.1The PROPERTY is, and shall at all times be and remain, personal property notwithstanding thatthe

PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed or attachedto or

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embedded in, or permanently resting upon, real property or any building thereon, or attached

in anymanner to what is permanent.

Clearly then, petitioners are estopped from denying the characterization of the subject

machines aspersonal property. Under the circumstances, they are proper subjects of the Writ of Seizure.

It should be stressed, however, that the Courts holding -- that the machines should be deemedpersonalproperty pursuant to the Lease Agreement is good only insofar as the contracting parties

areconcerned. Hence, while the parties are bound by the Agreement, third persons acting in good faith

arenot affected by its stipulation characterizing the subject machinery as personal.DOCTRINE:

Principle of Estoppel

- After agreeing to a contract stipulating that a real or immovableproperty be considered as personal or

movable, a party is estopped from subsequently claimingotherwise

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