Serg's Products vs. PCI Leasing

9/5/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 338
VOL. 338, AUGUST 22, 2000 499

Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc.
*
G.R. No. 137705. August 22, 2000.
SERG’S PRODUCTS, INC., and SERGIO T. GOQUIOLAY,

petitioners, vs. PCI LEASING AND FINANCE, INC.,
respondent.
Civil Law; Property; The machines 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 of petitioners chocolate-making industry.—In
the present case, the machines that were the subjects of the Writ
of Seizure were placed by petitioners in 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 in the industry. In that sense,
petitioners are correct in arguing that the said machines are real,
not personal, property pursuant to Article 415 (5) of the Civil
Code.
Same; Same; Contracting parties may validly stipulate that a
real property be considered as personal.—The Court has held that
contracting parties may validly stipulate that a real property be
considered as personal. After agreeing to such stipulation, they
are consequently estopped from claiming otherwise. Under the
principle of estoppel, a party to a contract is ordinarily precluded
from denying the truth of any material fact found therein.
_______________
* THIRD DIVISION.
500
500 SUPREME COURT REPORTS ANNOTATED
www.central.com.ph/sfsreader/session/0000016cff109357f8663564003600fb002c009e/t/?o=False 1/13
Same; Same; The Lease Agreement clearly provides that the

machinesin question are to be considered as personal property;
Under the circumstances they are proper subjects of the writ of
seizure.—In the present case, the Lease Agreement clearly
provides that the machines in question are to be considered as
personal property. x x x Clearly then, petitioners are estopped
from denying the characterization of the subject machines as
personal property. Under the circumstances, they are proper
subjects of the Writ of Seizure.
Same; Same; That the machines should be deemed personal
property pursuant to the Lease Agreement is good only insofar as
the contracting parties are concerned.—It should be stressed,
however, that our holding—that the machines should be deemed
personal property pursuant to the Lease Agreement—is good only
insofar as the contracting parties are concerned. Hence, while the
parties are bound by the Agreement, third persons acting in good
faith are not affected by its stipulation characterizing the subject
machinery as personal. In any event, there is no showing that any
specific third party would be adversely affected.
Remedial Law; Replevin; Policy under Rule 60 is that
questions involving title to the subject property should be
determined in the trial; Remedy of defendants under Rule 60 is
either to post a counterbond or to question the sufficiency of the
plaintiff’s bond.—Indeed, in La Tondeña Distillers v. CA, the
Court explained that the policy under Rule 60 was that questions
involving title to the subject property—questions which
petitioners are now raising—should be determined in the trial. In
that case, the Court noted that the remedy of defendants under
Rule 60 was either to post a counter-bond or to question the
sufficiency of the plaintiff’s bond. They were not allowed, however,
to invoke the title to the subject property.
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.

Antonio R. Bautista & Partners for petitioners.
Perez & Calima Law Offices for respondent.
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or

immovable property be considered as personal or movable,
a party is estopped
501
VOL. 338, AUGUST 22, 2000 501

from subsequently claiming otherwise. Hence, such

property is a proper subject of a writ of replevin obtained
by the other contracting party.
The Case
Before us is a Petition for Review

1
on Certiorari assailing2
the January 6, 1999 Decision of the Court of Appeals (CA)
in CA-GR3 SP No. 47332 and its February 26, 1999
Resolution denying reconsideration. The decretal portion
of the CA Decision reads as follows:
“WHEREFORE, premises considered, the assailed Order dated

February 18, 1998 and Resolution dated March 31, 1998 in Civil
Case No. Q-98-33500 are hereby AFFIRMED. The writ of
preliminary
4
injunction issued on June 15, 1998 is hereby
LIFTED.”
5
In its February 18, 1998 Order, the Regional
6
Trial Cour
(RTC) of7
Quezon City (Branch 218) issued a8 Writ of
Seizure. The March 18, 1998 Resolution denied
petitioners’ Motion for Special Protective Order, praying
that the deputy sheriff be enjoined “from seizing
immobilized or other real properties in [petitioners’] factory
in Cainta, Rizal and to return to their original place
whatever immobilized
9
machineries or equipments he may
have removed.”
_______________
1 Rollo, pp. 177-180.

2 Penned by Justice Romeo A. Brawner (Division acting chairman),
with the concurrence of Justices Eloy R. Bello, Jr. and Martin S.
Villarama, Jr.
3 Rollo, p. 189.
4 CA Decision, p. 3; rollo, p. 179.
5 Rollo, p. 356.
6 Presided by Judge Hilario L. Laqui.
7 Rollo, pp. 23-24.
8 Rollo, pp. 78-79.
9 Motion for Special Protective Order, pp. 3-4; rollo, pp. 76-77.
502

The Facts
The undisputed facts10

are summarized by the Court of
Appeals as follows:
“On February 13, 1998, respondent PCI Leasing and Finance, Inc.
(“PCI Leasing” for short) filed with the RTC-QC a complaint for
[a] sum of money (Annex ‘E’), with an application for a writ of
replevin docketed as Civil Case No. Q-98-33500.
“On March 6, 1998, upon an ex-parte application of PCI
Leasing, respondent judge issued a writ of replevin (Annex ‘B’)
directing its sheriff to seize and deliver the machineries and
equipment to PCI Leasing after 5 days and upon the payment of
the necessary expenses.
“On March 24, 1998, in implementation of said writ, the sheriff
proceeded to petitioner’s factory, seized one machinery with [the]
word that he [would] return for the other machineries.
“On March 25, 1998, petitioners filed a motion for special
protective order (Annex ‘C’), invoking the power of the court to
control the conduct of its officers and amend and control its
processes, praying for a directive for the sheriff to defer
enforcement of the writ of replevin.
“This motion was opposed by PCI Leasing (Annex ‘F’), on the
ground that the properties [were] still personal and therefore still
subject to seizure and a writ 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 contrary
notwithstanding. They argued that to give effect to the agreement
would be prejudicial to innocent third parties. They further stated
that PCI Leasing [was] estopped from treating these machineries
as personal because 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 the remaining properties. He
was able to take two more, but was prevented by the workers
from taking the rest.
“On April 7, 1998, they went to [the CA] via an original action
for certiorari.”
_______________
10 CA Decision, pp. 1-2; rollo, pp. 177-178.
503
VOL. 338, AUGUST 22, 2000 503

Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court

held that the subject machines were personal property, and
that they had only been leased, not owned, by petitioners.
It also ruled that the “words of the contract are clear and
leave no doubt upon the true intention of the contracting
parties.” Observing that Petitioner Goquiolay was an
experienced businessman who was “not unfamiliar with the
ways of the trade,” it ruled that he “should have realized
the import of the document he signed.” The CA further
held:
“Furthermore, to accord merit to this petition would be to preempt

the trial court in ruling upon the case below, since the merits of
the whole matter are laid down before us via a petition whose sole
purpose is to inquire upon the existence of a grave abuse of
discretion on the part of the [RTC] in issuing the assailed Order
and Resolution. The issues raised herein are proper subjects of a
full-blown trial, necessitating presentation of evidence by both
parties. The contract is being enforced by one, and [its] validity is
attacked by the other—a matter x x x which respondent court is
in the best position to determine.”
11
Hence, this Petition.
The Issues
In their Memorandum, petitioners submit the following

issues for our consideration:
“A. Whether or not the machineries purchased and

imported by SERG’S became real property by virtue
of immobilization.
B. Whether or not the 12
contract between the parties is
a loan or a lease.”
_______________
11 The case was deemed submitted for resolution on October 21, 1999,
upon receipt by this Court of the petitioners’ Memorandum signed by Atty.
Victor Basilio N. De Leon of Antonio R. Bautista & Partners. Respondent’s
Memorandum, which was signed by Atty. Amador F. Brioso, Jr. of Perez &
Calima Law Offices, had been filed earlier on September 29, 1999.
12 Petitioners’ Memorandum, p. 3; rollo, p. 376.
504

In the main, the Court will resolve whether the said

machines are personal, not immovable, property which may
be a proper subject of a writ of replevin. As a preliminary
matter, the Court will also address briefly the procedural
points raised by respondent.
The Court’s Ruling
The Petition is not meritorious.
Preliminary Matter: Procedural Questions
Respondent contends that the Petition failed to indicate

expressly whether it was being filed under Rule 45 or Rule
65 of the Rules of Court. It further alleges that the Petition
erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under
Rule 45. This conclusion finds support in the very title13of
the Petition, which is “Petition for Review on Certiorari.”
While Judge
14
Laqui should not have been impleaded as a
respon-dent, substantial justice requires that such lapse
by itself should not warrant the dismissal of the present
Petition. In this light, the Court deems it proper to remove,
motu proprio, the name of Judge Laqui from the caption of
the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their

factory were not proper subjects of the Writ issued by the
RTC because they were in fact real property. Serious policy
considerations, they argue, militate against a contrary
characterization.
_______________
13 Section 1, Rule 45 of the Rules of Court.

14 Section 4 (a) of Rule 45 provides that the petition shall state the full
name of the parties, “without impleading the lower courts or judges
thereof either as petitioners or respondents.”
505
VOL. 338, AUGUST 22, 2000 505

Rule 60 of the Rules of Court provides that writs of

replevin
15
are issued for the recovery of personal property
only. Section 3 thereof reads:
“SEC. 3. Order.—Upon the filing of such affidavit and approval of

the bond, the court shall issue an order and the corresponding
writ of replevin describing the personal property alleged to be
wrongfully detained and requiring the sheriff forthwith to take
such property into his custody.”
On the other hand, Article 415 of the Civil Code

enumerates immovable or real property as follows:
ART. 415. The following are immovable property:

x x x x x x x x x
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or works,
which may be carried on in a building or on a piece of land, and
which tend directly to meet the needs of the said industry or
works.
x x x x x x x x x
In the present case, the machines that were the subjects of

the Writ of Seizure were placed by petitioners in 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 they16 are essential and
principal elements in the industry.” In that sense,
petitioners are correct in arguing that the said machines
are real, not personal,
17
property pursuant to Article 415 (5)
of the Civil Code.
_______________
15 BA Finance v. CA, 258 SCRA 102, July 5, 1996; Filinvest Credit v.

CA, 248 SCRA 549, September 27, 1995; Machinery Engineering Supply v.
CA, 96 Phil. 70, October 29, 1954.
16 Mindanao Bus Co. v. City Assessor and Treasurer, 66 SCRA 197,
September 29, 1962, per Labrador, J. See also Vitug, Compendium of Civil
Law and Jurisprudence, 1986, ed., pp. 99-100.
17 People’s Bank & Trust Co. v. Dahican Lumber, |20 SCRA 84, May
16, 1967; Burgos v. Chief of Staff, 133 SCRA 800, December 26, 1984;
Davao Sawmill Co. v. Castillo, 61 Phil. 709, August 7, 1935.
506

Be that as it may, we disagree with the submission of the

petitioners that the said machines are not proper subjects
of the Writ of Seizure.
The Court has held that contracting parties may validly 18
stipulate that a real property be considered as personal.
After agreeing to such stipulation, they are consequently
estopped from claiming otherwise. Under the principle of
estoppel, a party to a contract is ordinarily precluded from
denying the truth of any material fact
19
found therein.
Hence, in Tumalad v. Vicencio the Court upheld the
intention of the parties to treat a house as a personal
property because it had been made the subject of a chattel
mortgage. The Court ruled:
x x x 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.”
Applying Tumalad, the Court in Makati 20

Leasing and
Finance Corp. v. Wearever Textile Mills also held that the
machinery used in a factory and essential to the industry,
as in the present case, was a proper subject of a writ of
replevin because it was treated as personal property in a
contract. Pertinent portions of the Court’s ruling are
reproduced hereunder:
“x x x 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
_______________
18 Chua Peng Hian v. CA, 133 SCRA 572, December 19, 1984; Standard Oil Co.
v. Jaranillo, 44 Phil. 630, March 16, 1923; Luna v. Encarnacion, 91 Phil. 531, June
30, 1952; Manarang v. Ofilada, 99 Phil. 109, May 18, 1956; People’s Bank & Trust
Co. v. Dahican Lumber, supra.
19 41 SCRA 143, 153, September 30, 1971, per Reyes, JBL, J.
20 122 SCRA 296, 300, May 16, 1983, per De Castro, J.
507
VOL. 338, AUGUST 22, 2000 507

be likewise treated as such. This is really because one who has so

agreed is estopped from denying the existence of the chattel
mortgage.”
In the present case, the Lease Agreement clearly provides

that the machines in question are to be considered as
personal property. Specifically,
21
Section 12.1 of the
Agreement reads as follows:
“12.1 The PROPERTY is, and shall at all times be and remain,
personal property notwithstanding that the PROPERTY or any
part thereof may now be, or hereafter become, in any manner
affixed or attached to or embedded in, or permanently resting
upon, real property or a building thereon, or attached in any
manner to what is permanent.”
Clearly then, petitioners are estopped from denying the

characterization of the subject machines as personal
property. Under the circumstances, they are proper
subjects of the Writ of Seizure. It should be stressed,
however, that our holding—that the machines should be
deemed personal property pursuant to the Lease
Agreement—is22good only insofar as the contracting parties
are concerned. Hence, while the parties are bound by the
Agreement, third persons acting in good faith are not
affected by its stipulation
23
characterizing the subject
machinery as personal. In any event, there is no showing
that any specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend 24

that the
Agreement is a loan and not a lease. Submitting
documents supposedly showing that they own the subject
machines, petitioners also argue in their Petition that the
Agreement suffers from “intrinsic ambiguity which places
in serious doubt the intention of 25the parties and the

validity of the lease agreement itself.” In their Reply to re-
_______________
21 Rollo, p. 262.
22 Evangelista v. Alto Surety and Insurance Co., 103 Phil. 401, April
23, 1958; Navarro v. Pineda, 9 SCRA 631, November 30, 1963.
23 Vitug, supra, pp. 100-101.
24 Petitioners’ Memorandum, p. 8; rollo, p. 381.
25 Petition, p. 10; rollo, p. 12.
508

spondent’s Comment, 26
they further allege that the
Agreement is invalid.
These arguments are unconvincing. The validity and the
nature of the contract are the lis mota of the civil action
pending before the RTC. A resolution of these questions,
therefore, is effectively a resolution of the merits of the
case. Hence, they should be threshed out in the trial, not in
the proceedings involving the issuance of the Writ of
Seizure. 27
Indeed, in La Tondeña Distillers v. CA, the Court
explained that the policy under Rule 60 was that questions
involving title to the subject property—questions which
petitioners are now raising—should be determined in the
trial. In that case, the Court noted that the remedy of
defendants under Rule 60 was either to post a counter-bond
or to question the sufficiency of the plaintiff’s bond. They
were not allowed, however, to invoke the title to the subject
property. The Court ruled:
“In other words, the law does not allow the defendant to file a
motion to dissolve or discharge the writ of seizure (or delivery) on
ground of insufficiency of the complaint or of the grounds relied
upon therefor, as in proceedings on preliminary attachment or
injunction, and thereby put at issue the matter of the title or right
of possession over the specific chattel being replevied, the policy
apparently being that said matter should 28
be ventilated and
determined only at the trial on the merits.”
Besides, these questions require a determination of facts

and a presentation of evidence, both of which have no place
in a petition for certiorari in the CA under Rule

29
65 or in a
petition for review in this Court under Rule 45.
_________________
26 Reply, p. 7, rollo, p. 301.

27 209 SCRA 553, 567, June 8, 1992, per Narvasa, CJ.
28 Ibid.
29 See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997.
509
VOL. 338, AUGUST 22, 2000 509

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may
rely on the Lease Agreement, for nothing on record shows
that it has been nullified or annulled. In fact, petitioners
assailed it first only in the RTC proceedings, which had
ironically been instituted by respondent. Accordingly, it
must be presumed valid and binding as the law between
the parties. 30
Makati Leasing and Finance Corporation is also
instructive on this point. In that case, the Deed of Chattel
Mortgage, which characterized the subject machinery as
personal property, was also assailed because respondent
had allegedly been required “to sign a printed form of
chattel mortgage which was in a blank form at the time of
signing.” The Court rejected the argument and relied on
the, Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact

alone does not render a contract void ab initio, but can only be a
ground for rendering said contract voidable, or annullable
pursuant to Article 1390 of the new Civil Code, by a proper action
in court. There is nothing on record to show that the mortgage has
been annulled. Neither is it disclosed that steps were taken to
nullify the same, x x x”
Alleged Injustice Committed on the Part of Petitioners

Petitioners contend that “if the Court allows these
machineries to be seized, then its workers
31
would be out of
work and thrown into the streets.” They also allege that
the seizure would nullify all efforts to rehabilitate the
corporation.
Petitioners’ arguments do not preclude the

implementation of the Writ. As earlier discussed, law and
jurisprudence support its propriety. Verily, the above-
mentioned consequences, if they come true, should not be
blamed on this Court, but on the petitioners for
_______________
30 Supra, p. 301.
31 Petition, p. 16; rollo, p. 18.
510

failing to avail themselves of the remedy under Section 5 of

Rule 60, which allows the filing of a counter-bond. The
provision states:
“SEC. 5. Return of property.—If the adverse party objects to the

sufficiency of the applicant’s bond, or of the surety or sureties
thereon, he cannot immediately require the return of the
property, but if he does not so object, he may, at any time before
the delivery of the property to the applicant, require the return
thereof, by filing with the court where the action is pending a
bond executed to the applicant, in double the value of the property
as stated in the applicant’s affidavit for the delivery thereof to the
applicant, if such delivery be adjudged, and for the payment of
such sum to him as may be recovered against the adverse party,
and by serving a copy bond on the applicant.”
WHEREFORE, the Petition is DENIED and the assailed

Decision of the Court of Appeals AFFIRMED. Costs against
petitioners.
SO ORDERED.
Melo (Chairman), Vitug, Purisima and Gonzaga-

Reyes, JJ., concur.
Petition denied, judgment affirmed.
Note.—The Supreme Court is constrained to rule

against petitioner on grounds of fairness and equity
particularly on the principle of estoppel. (Ysmael vs. Court
of Appeals, 273 SCRA 165 [1997])
——o0o——
511
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9/5/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 338

VOL. 338, AUGUST 22, 2000 499

SERG’S PRODUCTS, INC., and SERGIO T. GOQUIOLAY,

Civil Law; Property; The machines although each of them was

500 SUPREME COURT REPORTS ANNOTATED

Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc.

Same; Same; The Lease Agreement clearly provides that the

PETITION for review on certiorari of a decision of the

The facts are stated in the opinion of the Court.

After agreeing to a contract stipulating that a real or

VOL. 338, AUGUST 22, 2000 501

from subsequently claiming otherwise. Hence, such

Before us is a Petition for Review

“WHEREFORE, premises considered, the assailed Order dated

1 Rollo, pp. 177-180.

502 SUPREME COURT REPORTS ANNOTATED

Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc.

The undisputed facts10

10 CA Decision, pp. 1-2; rollo, pp. 177-178.

VOL. 338, AUGUST 22, 2000 503

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court

“Furthermore, to accord merit to this petition would be to preempt

In their Memorandum, petitioners submit the following

“A. Whether or not the machineries purchased and

12 Petitioners’ Memorandum, p. 3; rollo, p. 376.

504 SUPREME COURT REPORTS ANNOTATED

In the main, the Court will resolve whether the said

The Court’s Ruling

The Petition is not meritorious.

Preliminary Matter: Procedural Questions

Respondent contends that the Petition failed to indicate

Main Issue: Nature of the Subject Machinery

Petitioners contend that the subject machines used in their

13 Section 1, Rule 45 of the Rules of Court.

VOL. 338, AUGUST 22, 2000 505

Rule 60 of the Rules of Court provides that writs of

“SEC. 3. Order.—Upon the filing of such affidavit and approval of

On the other hand, Article 415 of the Civil Code

ART. 415. The following are immovable property:

In the present case, the machines that were the subjects of

15 BA Finance v. CA, 258 SCRA 102, July 5, 1996; Filinvest Credit v.

506 SUPREME COURT REPORTS ANNOTATED

Be that as it may, we disagree with the submission of the

x x x Although there is no specific statement referring to the

Applying Tumalad, the Court in Makati 20

“x x x If a house of strong materials, like what was involved in the

VOL. 338, AUGUST 22, 2000 507

be likewise treated as such. This is really because one who has so

In the present case, the Lease Agreement clearly provides

Clearly then, petitioners are estopped from denying the

Validity of the Lease Agreement

In their Memorandum, petitioners contend 24

in serious doubt the intention of 25the parties and the

508 SUPREME COURT REPORTS ANNOTATED

Besides, these questions require a determination of facts

in a petition for certiorari in the CA under Rule

26 Reply, p. 7, rollo, p. 301.

VOL. 338, AUGUST 22, 2000 509

Reliance on the Lease Agreement

x x x. Moreover, even granting that the charge is true, such fact

Alleged Injustice Committed on the Part of Petitioners

Petitioners’ arguments do not preclude the

510 SUPREME COURT REPORTS ANNOTATED

Serg's Products vs. PCI Leasing

Serg's Products vs. PCI Leasing