Makati Leasing and Finance Corporation vs. Wearever Textile Mills, Inc.

MAKATI LEASING and FINANCE CORPORATION, Petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, Respondents.

G.R. No. L-58469
May 16, 1983

FACTS:

Respondent Wearever Textile Mills, Inc. (Wearever) discounted and assigned several receivables with petitioner Makati Leasing and Finance Corporation (Makati Leasing) in order to obtain financial accommodations from the latter. To secure the collection of the receivables assigned, Wearever executed a Chattel Mortgage over certain raw materials inventory and a machinery described as an Artos Aero Dryer Stentering Range.

Upon Wearever’s default, Makati Leasing filed a petition for extrajudicial foreclosure of the properties mortgage to it. Due to failure to effect the seizure of the machinery, Makati Leasing filed a complaint for judicial foreclosure with the CFI. Upon an application for replevin, the CFI issued a writ of seizure. Eventually, the sheriff enforced the order, repaired to the premises of Wearever, and removed the main drive motor of the subject machinery. 

On petition of Wearever, the CA set aside the orders of CFI and ordered the return of the drive motor. It ruled that the machinery cannot be the subject of replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the NCC, the same being attached to the ground by means of bolts and the only way to remove it from respondent’s plant would be to drill out or destroy the concrete floor, the reason why all that the sheriff could do to enforce the writ was to take the main drive motor of said machinery. It ruled that Wearever was not estopped from claiming that the machine is real property by constituting a chattel mortgage thereon.

ISSUE:

Is the subject machinery a real or a personal property?

HELD: 

The machinery is personal property.

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.

Thus, if a house of strong materials (as held in a previous 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.

Equity dictates that one should not benefit at the expense of another. Private respondent Wearever could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom.