Makati Leasing and Finance Corporation v. Wearever Textile Mills, Inc.
REITERATIONFacts
The Antecedents: Petitioner Makati Leasing and Finance Corporation (Makati Leasing) entered into a Receivable Purchase Agreement with respondent Wearever Textile Mills, Inc. (Wearever). To secure the collection of assigned receivables, Wearever executed a Chattel Mortgage over its inventory and a specific machinery (Artos Aero Dryer Stentering Range). Procedural History: Upon Wearever's default, Makati Leasing initiated extrajudicial foreclosure but failed to seize the machinery. Subsequently, Makati Leasing filed a complaint for judicial foreclosure. The trial court issued a writ of seizure, which was initially restrained but later ordered to be enforced, including breaking open the premises. The sheriff seized the main drive motor of the machinery. The Petition: The Court of Appeals set aside the trial court's orders, ruling that the machinery was real property and thus not subject to replevin or chattel mortgage. The appellate court rejected the argument of estoppel. The Court of Appeals denied Makati Leasing's motion for reconsideration. Makati Leasing filed a petition for review on certiorari with the Supreme Court.
Issue(s)
Whether the petition was rendered moot and academic by the return of the seized motor drive. Whether the machinery in suit is real or personal property for the purpose of the chattel mortgage. Whether the respondent is estopped from claiming the machinery is real property.
Ruling
The Supreme Court reversed and set aside the decision and resolution of the Court of Appeals, reinstating the orders of the lower court. The Court held that the machinery is considered personal property for the purpose of the chattel mortgage due to the parties' agreement and the principle of estoppel.
Ratio Decidendi
On the mootness of the petition: The Court ruled that the petition was not moot and academic. The return of the motor drive was made without prejudice to Makati Leasing's right to seek reconsideration of the Court of Appeals' decision, as evidenced by the receipt signed by the respondent's representative. Therefore, the petitioner's reservation to question the appellate court's decision sustained the continuation of the petition. On the nature of the machinery (real vs. personal property): The Court held that the machinery in suit is to be considered personal property for the purpose of the chattel mortgage. Citing Tumalad v. Vicencio, the Court stated that parties to a contract may agree to treat as personal property that which by nature might be real property, especially when no innocent third parties are prejudiced. The Court found no logical justification to exclude the present case from this rule, emphasizing that machinery, being movable in nature and immobilized only by destination, can be treated as personalty by agreement. On the applicability of estoppel: The Court found that the principle of estoppel applies to the respondent. By executing a chattel mortgage over the machinery, Wearever Textile Mills, Inc. implicitly agreed to treat the machinery as personal property. The Court rejected the respondent's contention that it was merely dictated to sign a printed form, noting that the issue of the machinery's status was not raised in the lower courts and that the respondent had benefited from the contract. Equity dictates that one who has benefited from a contract cannot later impugn its validity. The Court distinguished the case from Machinery and Engineering Supplies, Inc. v. CA, where the nature of the property was not disputed and no chattel mortgage was involved.
Main Doctrine
A machinery, even if attached to the ground, may be considered personal property for the purpose of a chattel mortgage if the parties to the contract agree to treat it as such, and the principle of estoppel applies to the mortgagor who seeks to invalidate the mortgage after benefiting from it.