MAKATI LEASING AND FINANCE CORP. V. WEAREVER TEXTILE MILLS, INC.

Parties to a contract may by agreement treat as personal property that which by nature is a real property, as long as no interest of 3rd party would be prejudiced.

FACTS:

To obtain financial accommodations from Makati Leasing, Wearever Textile discounted and assigned several receivables under a Receivable Purchase Agreement with Makati Leasing. To secure the collection of receivables, it executed a chattel mortgage over several raw materials and a machinery – Artos Aero Dryer Stentering Range (Dryer).

Wearever defaulted thus the properties mortgaged were extrajudicially foreclosed. The sheriff, after the restraining order was lifted, was able to enter the premises of Wearever and removed the drive motor of the Dryer. The CA reversed the order of the CFI, ordering the return of the drive motor since it cannot be the subject of a replevin suit being an immovable bolted to the ground. Thus the case at bar.

ISSUE:

Whether the dryer is an immovable property

HELD: NO

The SC relied on its ruling in Tumalad v. Vicencio, that if a house of strong materials can be the subject of a Chattel Mortgage as long as the parties to the contract agree and no innocent 3rd party will be prejudiced then moreso that a machinery may treated as a movable since it is movable by nature and becomes immobilized only by destination. And treating it as a chattel by way of a Chattel Mortgage, Wearever is estopped from claiming otherwise.