Case no.

4
Tsai vs. CA 366 SCRA 324

FACTS:

EVERTEX secured a loan from PBC, guaranteed by a real estate and chattel mortgage over a
parcel of land where the factory stands, and the chattels located therein, as included in a
schedule attached to the mortgage contract. Another loan was obtained secured by a
chattel mortgage over
properties with similar descriptions listed in the first schedule. During the date of execution
of the second mortgage, EVERTEX purchased machineries and equipment.

Due to business reverses, EVERTEX filed for insolvency proceedings. It failed to pay its
obligation and thus, PBC initiated extrajudicial foreclosure of the mortgages. PBC was the
highest bidder in the public auctions, making it the owner of the properties. It then leased the
factory premises
to Tsai. Afterwards, EVERTEX sought the annulment of the sale and conveyance of the
properties to PBC as it was allegedly a violation of the INSOLVENCY LAW.

The RTC held that the lease and sale were irregular as it involved properties not
included in the schedule of the mortgage contract.
ISSUES:

1. Whether or not the contested properties are personal or movable properties

2. Whether or not the sale of these properties to a third person (Tsai) by the bank through an
irregular foreclosure sale is valid.

HELD:

While it is true that the controverted properties appear to be immobile, a perusal of the contract
of REM and CM executed by the parties gives a contrary indication. In the case at bar, both the
trial and appellate courts show that the intention was to treat the machineries as movables or
personal property.

Assuming that the properties were considered immovables, nothing detracts the parties
from treating it as chattels to secure an obligation under the principle of estoppel.