Makati Leasing and Finance Corporation v Wearever Textile Mills, Inc and CA

(De Castro, 1983)

Topic: Security Devices

FACTS

In order to obtain financial accommodations from petitioner, private respondent

discounted and assigned several receivables under a Receivable Purchase
Agreement. To secure the receivables assigned, private respondent executed a
Chattel Mortgage over certain raw materials inventory as well as a machinery (Artos
Aero Dryer Stentering Range). Private respondent defaulted. Petitioner filed petitioner
for extrajudicial foreclosure but the Deputy Sheriff was not able to effect the seizure of
the machinery. Petitioner then filed for judicial foreclosure with the CFI of Rizal.

CFI issued a writ of seizure. MR was filed restraining enforcement of writ. CFI finally
lifted restraining order and issued an order to break open premises to enforce the
writ.

CA – certiorari and prohibition filed by private respondent. Ruled that real property
cannot be subject to a Chattel Mortgage. Machinery is real property pursuant to
Article 415 of NCC. MR denied.

ISSUES
WON the chattel mortgage is null and void – NO

Chattel mortgage may be exercised over personal property. In this case, the
machinery is treated as personal property.

Tumalad v Vicencio (penned by JBL Reyes) - 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. The doctrine of estoppel therefore applies to the herein
defendants-appellants, having treated the subject house as personality.

If a house of strong materials, like what was involved in the above Tumalad case,
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. This is really because one who has so agreed is
estopped from denying the existence of the chattel mortgage.

Standard Oil Co of New York 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.

 CA decision reversed and set aside