This case involves a dispute over whether certain machinery and equipment owned by Paper City were considered real property that could be included in an extrajudicial foreclosure conducted by RCBC and other banks. Paper City had previously mortgaged the machinery through deeds of chattel mortgage to RCBC, but RCBC later unilaterally cancelled these. Paper City then entered a Mortgage Trust Indenture with RCBC and other banks to obtain additional loans, secured by real estate mortgages that listed the machinery in an annex. When Paper City defaulted, RCBC sought to foreclose on the real estate, including the machinery. The Supreme Court ruled the machinery was properly included, as the parties stipulated in the MTI
This case involves a dispute over whether certain machinery and equipment owned by Paper City were considered real property that could be included in an extrajudicial foreclosure conducted by RCBC and other banks. Paper City had previously mortgaged the machinery through deeds of chattel mortgage to RCBC, but RCBC later unilaterally cancelled these. Paper City then entered a Mortgage Trust Indenture with RCBC and other banks to obtain additional loans, secured by real estate mortgages that listed the machinery in an annex. When Paper City defaulted, RCBC sought to foreclose on the real estate, including the machinery. The Supreme Court ruled the machinery was properly included, as the parties stipulated in the MTI
This case involves a dispute over whether certain machinery and equipment owned by Paper City were considered real property that could be included in an extrajudicial foreclosure conducted by RCBC and other banks. Paper City had previously mortgaged the machinery through deeds of chattel mortgage to RCBC, but RCBC later unilaterally cancelled these. Paper City then entered a Mortgage Trust Indenture with RCBC and other banks to obtain additional loans, secured by real estate mortgages that listed the machinery in an annex. When Paper City defaulted, RCBC sought to foreclose on the real estate, including the machinery. The Supreme Court ruled the machinery was properly included, as the parties stipulated in the MTI
consider the disputed machineries and equipment as real Petitioner: Star Two (SPV-AMC), Inc., properties when they signed the MTI. Respondent: Paper City Corporation of the Philippines Paper City argued: 1.) The machineries and equipment are chattels Ponente: Perez, J. by agreement thru the Deeds of Continuing Chattel Mortgages and they did not consent to consider the disputed machineries and Short Facts and Doctrine/s: Paper City obtained loans from RCBC equipment as real property. 2) They also contend that the (substituted by Star Two) secured by a chattel mortgage over Paper City’s cancellation of the chattel mortgage was invalid because it was machineries and equipment. This CM was unilaterally cancelled by RCBC. done unilaterally hence such chattel mortgage remains subsisting. Subsequently, Paper City entered into a Mortgage Trust Indenture with RCBC and 2 other banks. In the MTI, Paper City obtained additional loans secured by a deed of real estate mortgage plus real and personal property Issues: 1. Whether the subject machineries and equipment were considered which was annexed. This necessarily included the machineries and real properties and should therefore be included in the extra-judicial equipment of Paper City. Defaulted. Foreclosed. They were arguing over foreclosure which in turn were sold to the banks. whether the machineries and equipment are to be considered as real property and thus included in the foreclosure. RCBC poses that Paper City Ruling: gave its consent to consider the disputed machineries and equipment as real 1. Yes properties. Paper City contends that the machineries and equipment are chattels by agreement thru the deeds of CM Held: SC said that the parties Ratio: stipulated in the MTI that the properties mortgaged are various parcels of 1. Explanation of Answer to Issue 1 land including buildings and existing improvements thereon as well as the The SC said that repeatedly in the MTI's, the parties stipulated that machineries and equipment. The real estate mortgage over the machineries the properties mortgaged by Paper City to RCBC are various and equipment is even in full accord with the classification of such properties parcels of land including buildings and existing improvements by the NCC as immovable property (Art. 415. Par 5. Machinery, receptacles, thereon as well as the machineries and equipment. instruments or implements…). The MTI is clear. The plain language and literal interpretation of the MTI's must be applied. The petitioner, other creditor banks, and Facts: Paper City intended from the very first indenture that the Paper City was granted loans and credit accommodations by machineries and equipment in the annex in the MTI's are included. RCBC. The loans were secured by Deeds of Continuing Chattel Considering that the MTI which is the instrument of the mortgage Mortgages on Paper City's machineries and equipment. However, that was foreclosed exactly states through the Deed of Amendment RCBC unilaterally cancelled the deeds. that the machineries and equipments listed in Annexes "A" and "B" Subsequently, RCBC, together with Metrobank and Union Bank, form part of the improvements listed and located on the parcels of entered into a Mortgage Trust Indenture with Paper City. In the said land subject of the mortgage, such machineries and equipments MTI, Paper City acquired additional loans secured by Deeds of are surely part of the foreclosure of the "real estate properties, Real Estate Mortgage, plus real and personal properties in an including all improvements thereon" as prayed for in the petition. annex to the MTI, which covered the machineries and equipment of The real estate mortgages which specifically included the Paper City. machineries and equipments were subsequent to the chattel Paper City defaulted. RCBC filed a petition for extra-judicial mortgages. Without doubt, the real estate mortgages superseded foreclosure against the real estate executed by Paper City – the earlier chattel mortgages. including all the improvements. As highest bidders, the three banks The real estate mortgage over the machineries and equipment are were issued a Certificate of Sale. even in full accord with the classification of such properties by the Paper City filed with the trial court a motion to remove machinery Civil Code of the Philippines as immovable property. Thus: out of the foreclosed land and building, saying that the same were not included in the foreclosure of the real estate mortgage. Article 415. The following are immovable property: (5) Machinery, receptacles, instruments or implements intended by August 2005 upholding the 15 August 2003 and 1 December 2003 Orders of the owner of the tenement for an industry or works which may be the Valenzuela Regional Trial Court are hereby REVERSED and SET ASIDE carried on in a building or on a piece of land, and which tend and the original Order of the trial court dated 28 February 2003 denying the directly to meet the needs of the said industry or works; motion of respondent to remove or dispose of machinery is hereby REINSTATED. Disposition: WHEREFORE, the petition is GRANTED. Accordingly, the Decision and Resolution of the Court of Appeals dated 8 March 2005 and 8