Serg's Products, Inc. vs. PCI Leasing and Finance, Inc.

Contracting parties are estopped from denying the personal property characterization of an immobilized object when they expressly agreed in a contract to treat it as personal property. Accordingly, such property is a proper subject of a writ of replevin between the parties, notwithstanding its immobilization by destination under Article 415(5) of the Civil Code.

Serg's Products, Inc. and Sergio T. Goquiolay leased machineries from PCI Leasing and Finance, Inc. under an agreement stipulating that the property shall at all times remain personal property regardless of attachment to real property. Upon alleged default, PCI Leasing filed a complaint for a sum of money with an application for a writ of replevin.

• The Lease Agreement: PCI Leasing and Finance, Inc. (respondent) entered into a Lease Agreement with Serg's Products, Inc. and Sergio T. Goquiolay (petitioners). Section 12.1 of the Agreement expressly stipulated that the leased 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."
• Default and Replevin Application: Respondent filed a complaint for a sum of money with an application for a writ of replevin before the Regional Trial Court of Quezon City after petitioners allegedly defaulted.
• Issuance and Enforcement of the Writ: The RTC issued a writ of replevin ex parte. The sheriff seized one machinery and intended to seize the remaining machineries in petitioners' factory.
• Petitioners' Resistance: Petitioners filed a motion for special protective order, arguing the machineries were immobilized and thus real property not subject to replevin. The RTC denied the motion. When the sheriff attempted to seize additional machineries, workers prevented the seizure.

• Petitioners argued that the machineries became real property by immobilization because they were placed in their factory on their own land and were essential to their chocolate-making industry.
• They contended that giving effect to the agreement treating the machines as personal property would prejudice innocent third parties.
• They claimed the contract was a loan, not a lease, and suffered from intrinsic ambiguity, rendering it invalid or sham.
• They argued that seizing the machineries would cause workers to lose their jobs and nullify corporate rehabilitation efforts.

• Respondent argued that the properties remained personal property subject to seizure and replevin based on the parties' agreement.
• Respondent contended that the petition improperly impleaded the RTC judge and failed to specify whether it was filed under Rule 45 or Rule 65.
• Respondent asserted that the validity and nature of the contract should be resolved in a full-blown trial, not in a certiorari proceeding.

• Procedural Issues: Whether the petition properly impleaded the lower court judge and specified the correct rule. Whether the validity and nature of the contract can be resolved in a replevin proceeding or a certiorari petition.
• Substantive Issues: Whether machineries immobilized by destination can be considered personal property subject to a writ of replevin based on the parties' stipulation.

• Procedural: The Court held that impleading the lower court judge was erroneous but did not warrant dismissal in the interest of substantial justice; the judge's name was dropped motu proprio. The Court further ruled that the validity and nature of the contract cannot be resolved in a certiorari proceeding or in the replevin proceedings themselves, as these questions involve the merits of the case and require a full-blown trial. Under Rule 60, questions of title or right of possession should be determined at the trial on the merits, not in proceedings for the issuance of the writ.
• Substantive: The Court ruled that while the machineries were indeed immobilized by destination under Article 415(5) of the Civil Code, the petitioners are estopped from claiming they are real property because of Section 12.1 of the Lease Agreement. By agreeing to treat the property as personal, the parties are bound by that characterization. Thus, the machineries are proper subjects of a writ of replevin. This stipulation, however, binds only the contracting parties and does not prejudice third persons in good faith.

• Estoppel by Contract / Stipulation Characterizing Property — Parties to a contract may validly stipulate that a real property or immobilized property be considered as personal property. After agreeing to such stipulation, they are estopped from subsequently claiming otherwise. The Court applied this doctrine to hold that petitioners could not deny the personal property characterization of the machineries they had agreed to in the Lease Agreement.
• Immobilization by Destination vs. Party Stipulation — While machinery essential to an industry and placed on the owner's land becomes immobilized by destination under Article 415(5) of the Civil Code, this default rule yields to the express agreement of the parties treating the property as personal, at least as between the contracting parties. Third persons acting in good faith are not bound by the stipulation.
• Inquiry into Title in Replevin — Under Rule 60, questions involving title to or right of possession over the property replevied should be ventilated and determined at the trial on the merits, not in proceedings for the issuance or dissolution of the writ. The adverse party's remedy is to post a counter-bond or question the sufficiency of the applicant's bond.

• "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."
• "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."

• Tumalad v. Vicencio, 41 SCRA 143 (1971) — Followed. Held that parties who executed a chattel mortgage over a house are estopped from claiming it is immovable property.
• Makati Leasing and Finance Corp. v. Wearever Textile Mills, 122 SCRA 296 (1983) — Followed. Applied Tumalad to machinery immobilized by destination, holding it can be treated as personal property by agreement of the parties.
• La Tondeña Distillers v. CA, 209 SCRA 553 (1992) — Followed. Held that under Rule 60, questions of title or right of possession over replevied property should be determined at trial, not in proceedings for the writ.

• Article 415(5), Civil Code — Defines machinery intended by the owner for an industry on a building or land as immovable property. The Court acknowledged the machineries fell under this article but applied the exception of party stipulation/estoppel.
• Section 3, Rule 60, Rules of Court — Provides for the issuance of a writ of replevin for the recovery of personal property. The Court held the writ was proper because the property was deemed personal by agreement.
• Section 5, Rule 60, Rules of Court — Allows the adverse party to require the return of the property by filing a counter-bond. The Court noted petitioners failed to avail themselves of this remedy.

Melo, Vitug, Purisima, and Gonzaga-Reyes, JJ.