G.R. No. 137705. August 22, 2000.

SERG’S PRODUCTS, INC., and SERGIO T. GOQUIOLAY,

petitioners, vs. PCI LEASING AND FINANCE, INC., respondent.

Civil Law; Property; The machines although each of them was movable or personal
property on its own, all of them have become immobilized by destination because they are
essential and principal elements of petitioners chocolate-making industry.—In the present
case, the machines that were the subjects of the Writ of Seizure were placed by petitioners in
the factory built on their own land. Indisputably, they were essential and principal elements
of their chocolate-making industry. Hence, although each of them was movable or personal
property on its own, all of them have become immobilized by destination because they are
essential and principal elements in the industry. In that sense, petitioners are correct in
arguing that the said machines are real, not personal, property pursuant to Article 415 (5) of
the Civil Code.

Same; Same; Contracting parties may validly stipulate that a real property be considered
as personal.—The Court has held that contracting parties may validly stipulate that a real
property be considered as personal. After agreeing to such stipulation, they are consequently
estopped from claiming otherwise. Under the principle of estoppel, a party to a contract is
ordinarily precluded from denying the truth of any material fact found therein.

Same; Same; The Lease Agreement clearly provides that the machinesin question are to
be considered as personal property; Under the circumstances they are proper subjects of the
writ of seizure.—In the present case, the Lease Agreement clearly provides that the machines
in question are to be considered as personal property. x x x Clearly then, petitioners are
estopped from denying the characterization of the subject machines as personal property.
Under the circumstances, they are proper subjects of the Writ of Seizure.

Same; Same; That the machines should be deemed personal property pursuant to the
Lease Agreement is good only insofar as the contracting parties are concerned.—It should be
stressed, however, that our holding—that the machines should be deemed personal property
pursuant to the Lease Agreement—is good only insofar as the contracting parties are
concerned. Hence, while the parties are bound by the Agreement, third persons acting in good
faith are not affected by its stipulation characterizing the subject machinery as personal. In
any event, there is no showing that any specific third party would be adversely affected.

Remedial Law; Replevin; Policy under Rule 60 is that questions involving title to the
subject property should be determined in the trial; Remedy of defendants under Rule 60 is
either to post a counterbond or to question the sufficiency of the plaintiff’s bond.—Indeed, in
La Tondeña Distillers v. CA, the Court explained that the policy under Rule 60 was that
questions involving title to the subject property—questions which petitioners are now
raising—should be determined in the trial. In that case, the Court noted that the remedy of
defendants under Rule 60 was either to post a counter-bond or to question the sufficiency of
the plaintiff’s bond. They were not allowed, however, to invoke the title to the subject
property.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.
Antonio R. Bautista & Partners for petitioners.
Perez & Calima Law Offices for respondent.

PANGANIBAN, J.:

After agreeing to a contract stipulating that a real or immovable property be

considered as personal or movable, a party is estopped from subsequently claiming
otherwise. Hence, such property is a proper subject of a writ of replevin obtained by
the other contracting party.

The Case

Before us is a Petition for Review on Certiorari assailing the January 6, 1999

Decision of the Court of Appeals (CA) in CA-GR SP No. 47332 and its February 26,
1 2

1999 Resolution denying reconsideration. The decretal portion of the CA Decision

3

reads as follows:

“WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and
Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The
writ of preliminary injunction issued on June 15, 1998 is hereby LIFTED.” 4

In its February 18, 1998 Order, the Regional Trial Cour (RTC) of Quezon City
5

(Branch 218) issued a Writ of Seizure. The March 18, 1998 Resolution denied
6 7 8

petitioners’ Motion for Special Protective Order, praying that the deputy sheriff be
enjoined “from seizing immobilized or other real properties in [petitioners’] factory in
Cainta, Rizal and to return to their original place whatever immobilized machineries
or equipments he may have removed.” 9

The Facts

The undisputed facts are summarized by the Court of Appeals as follows: 10

“On February 13, 1998, respondent PCI Leasing and Finance, Inc. (“PCI Leasing” for
short) filed with the RTC-QC a complaint for [a] sum of money (Annex ‘E’), with an
application for a writ of replevin docketed as Civil Case No. Q-98-33500.

“On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued
a writ of replevin (Annex ‘B’) directing its sheriff to seize and deliver the machineries and
equipment to PCI Leasing after 5 days and upon the payment of the necessary expenses.

“On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioner’s
factory, seized one machinery with [the] word that he [would] return for the other
machineries.
 “On March 25, 1998, petitioners filed a motion for special protective order (Annex ‘C’),
invoking the power of the court to control the conduct of its officers and amend and control
its processes, praying for a directive for the sheriff to defer enforcement of the writ of replevin.

“This motion was opposed by PCI Leasing (Annex ‘F’), on the ground that the properties
[were] still personal and therefore still subject to seizure and a writ of replevin.

“In their Reply, petitioners asserted that the properties sought to be seized [were]
immovable as defined in Article 415 of the Civil Code, the parties’ agreement to the contrary
notwithstanding. They argued that to give effect to the agreement would be prejudicial to
innocent third parties. They further stated that PCI Leasing [was] estopped from treating
these machineries as personal because the contracts in which the alleged agreement [were]
embodied [were] totally sham and farcical.

“On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take
possession of the remaining properties. He was able to take two more, but was prevented by
the workers from taking the rest.

“On April 7, 1998, they went to [the CA] via an original action for certiorari.”

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not owned, by
petitioners. It also ruled that the “words of the contract are clear and leave no doubt
upon the true intention of the contracting parties.” Observing that Petitioner
Goquiolay was an experienced businessman who was “not unfamiliar with the ways
of the trade,” it ruled that he “should have realized the import of the document he
signed.” The CA further held:

“Furthermore, to accord merit to this petition would be to preempt the trial court in ruling
upon the case below, since the merits of the whole matter are laid down before us via a
petition whose sole purpose is to inquire upon the existence of a grave abuse of discretion on
the part of the [RTC] in issuing the assailed Order and Resolution. The issues raised herein
are proper subjects of a full-blown trial, necessitating presentation of evidence by both
parties. The contract is being enforced by one, and [its] validity is attacked by the other—a
matter x x x which respondent court is in the best position to determine.”

Hence, this Petition. 11

The Issues

In their Memorandum, petitioners submit the following issues for our consideration:

1. “A.Whether or not the machineries purchased and imported by SERG’S

became real property by virtue of immobilization.
2. B.Whether or not the contract between the parties is a loan or a lease.” 12
In the main, the Court will resolve whether the said machines are personal, not
immovable, property which may be a proper subject of a writ of replevin. As a
preliminary matter, the Court will also address briefly the procedural points raised
by respondent.

The Court’s Ruling

The Petition is not meritorious.

Preliminary Matter: Procedural Questions

Respondent contends that the Petition failed to indicate expressly whether it was
being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the
Petition erroneously impleaded Judge Hilario Laqui as respondent.

There is no question that the present recourse is under Rule 45. This conclusion
finds support in the very title of the Petition, which is “Petition for Review on
Certiorari.”13

While Judge Laqui should not have been impleaded as a respon-dent, substantial
14

justice requires that such lapse by itself should not warrant the dismissal of the
present Petition. In this light, the Court deems it proper to remove, motu proprio, the
name of Judge Laqui from the caption of the present case.

Main Issue: Nature of the Subject Machinery

Petitioners contend that the subject machines used in their factory were not proper
subjects of the Writ issued by the RTC because they were in fact real property. Serious
policy considerations, they argue, militate against a contrary characterization.

Rule 60 of the Rules of Court provides that writs of replevin are issued for the
recovery of personal property only. Section 3 thereof reads:
15

“SEC. 3. Order.—Upon the filing of such affidavit and approval of the bond, the court shall
issue an order and the corresponding writ of replevin describing the personal property alleged
to be wrongfully detained and requiring the sheriff forthwith to take such property into his
custody.”

On the other hand, Article 415 of the Civil Code enumerates immovable or real
property as follows:

ART. 415. The following are immovable property:

xxx xxx xxx
 (5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works, which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works.

xxx xxx xxx

In the present case, the machines that were the subjects of the Writ of Seizure were
placed by petitioners in the factory built on their own land. Indisputably, they were
essential and principal elements of their chocolate-making industry. Hence, although
each of them was movable or personal property on its own, all of them have become
immobilized by destination because they are essential and principal elements in the
industry.” In that sense, petitioners are correct in arguing that the said machines
16

are real, not personal, property pursuant to Article 415 (5) of the Civil Code. 17

Be that as it may, we disagree with the submission of the petitioners that the said
machines are not proper subjects of the Writ of Seizure.

The Court has held that contracting parties may validly stipulate that a real
property be considered as personal. After agreeing to such stipulation, they are
18

consequently estopped from claiming otherwise. Under the principle of estoppel, a

party to a contract is ordinarily precluded from denying the truth of any material fact
found therein.

Hence, in Tumalad v. Vicencio the Court upheld the intention of the parties to
19

treat a house as a personal property because it had been made the subject of a chattel
mortgage. The Court ruled:

x x x Although there is no specific statement referring to the subject house as personal

property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise.”

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever
Textile Mills also held that the machinery used in a factory and essential to the
20

industry, as in the present case, was a proper subject of a writ of replevin because it
was treated as personal property in a contract. Pertinent portions of the Court’s
ruling are reproduced hereunder:

“x x x If a house of strong materials, like what was involved in the above Tumalad 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.”
In the present case, the Lease Agreement clearly provides that the machines in
question are to be considered as personal property. Specifically, Section 12.1 of the
Agreement reads as follows: 21

“12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter become,
in any manner affixed or attached to or embedded in, or permanently resting upon, real
property or a building thereon, or attached in any manner to what is permanent.”

Clearly then, petitioners are estopped from denying the characterization of the
subject machines as personal property. Under the circumstances, they are proper
subjects of the Writ of Seizure. It should be stressed, however, that our holding—that
the machines should be deemed personal property pursuant to the Lease
Agreement—is good only insofar as the contracting parties are concerned. Hence, 22

while the parties are bound by the Agreement, third persons acting in good faith are
not affected by its stipulation characterizing the subject machinery as personal. In 23

any event, there is no showing that any specific third party would be adversely
affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease. Submitting documents supposedly showing that they own the subject
24

machines, petitioners also argue in their Petition that the Agreement suffers from
“intrinsic ambiguity which places in serious doubt the intention of the parties and
the validity of the lease agreement itself.” In their Reply to respondent’s Comment,
25

they further allege that the Agreement is invalid. 26

These arguments are unconvincing. The validity and the nature of the contract are
the lis mota of the civil action pending before the RTC. A resolution of these
questions, therefore, is effectively a resolution of the merits of the case. Hence, they
should be threshed out in the trial, not in the proceedings involving the issuance of
the Writ of Seizure.

Indeed, in La Tondeña Distillers v. CA, the Court explained that the policy under
27

Rule 60 was that questions involving title to the subject property—questions which
petitioners are now raising—should be determined in the trial. In that case, the Court
noted that the remedy of defendants under Rule 60 was either to post a counter-bond
or to question the sufficiency of the plaintiff’s bond. They were not allowed, however,
to invoke the title to the subject property. The Court ruled:

“In other words, the law does not allow the defendant to file a motion to dissolve or discharge
the writ of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds
relied upon therefor, as in proceedings on preliminary attachment or injunction, and thereby
put at issue the matter of the title or right of possession over the specific chattel being
replevied, the policy apparently being that said matter should be ventilated and determined
only at the trial on the merits.”
28

Besides, these questions require a determination of facts and a presentation of

evidence, both of which have no place in a petition for certiorari in the CA under Rule
65 or in a petition for review in this Court under Rule 45. 29

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease Agreement,
for nothing on record shows that it has been nullified or annulled. In fact, petitioners
assailed it first only in the RTC proceedings, which had ironically been instituted by
respondent. Accordingly, it must be presumed valid and binding as the law between
the parties.

Makati Leasing and Finance Corporation is also instructive on this point. In that
30

case, the Deed of Chattel Mortgage, which characterized the subject machinery as
personal property, was also assailed because respondent had allegedly been required
“to sign a printed form of chattel mortgage which was in a blank form at the time of
signing.” The Court rejected the argument and relied on the, Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There
is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same, x x x”

Alleged Injustice Committed on the Part of Petitioners

Petitioners contend that “if the Court allows these machineries to be seized, then its
workers would be out of work and thrown into the streets.” They also allege that the
31

seizure would nullify all efforts to rehabilitate the corporation.

Petitioners’ arguments do not preclude the implementation of the Writ. As earlier

discussed, law and jurisprudence support its propriety. Verily, the above-mentioned
consequences, if they come true, should not be blamed on this Court, but on the
petitioners for failing to avail themselves of the remedy under Section 5 of Rule 60,
which allows the filing of a counter-bond. The provision states:

“SEC. 5. Return of property.—If the adverse party objects to the sufficiency of the applicant’s
bond, or of the surety or sureties thereon, he cannot immediately require the return of the
property, but if he does not so object, he may, at any time before the delivery of the property
to the applicant, require the return thereof, by filing with the court where the action is
pending a bond executed to the applicant, in double the value of the property as stated in the
applicant’s affidavit for the delivery thereof to the applicant, if such delivery be adjudged,
and for the payment of such sum to him as may be recovered against the adverse party, and
by serving a copy bond on the applicant.”
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.

SO ORDERED.

Melo (Chairman), Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

Petition denied, judgment affirmed.