G.R. No. 166734 ; July 3, 2009
MANDY COMMODITIES CO., INC., Petitioner, vs. THE INTERNATIONAL COMMERCIAL BANK OF CHINA, Respondent.

FACTS

Petitioner Mandy Commodities Co., Inc. obtained a loan from respondent International Commercial Bank of China, secured by two deeds of chattel mortgage over twenty-five concrete buildings erected on leased land. The parties executed an agreement stipulating that the buildings were to be considered as chattels for purposes of the mortgage. Upon petitioner’s default, respondent extrajudicially foreclosed the mortgage under Act No. 3135 (the law governing real estate mortgages) and was the highest bidder at the sale. Respondent then filed an ex parte petition for a writ of possession pending redemption in the Regional Trial Court (RTC), which granted the petition and issued the writ.
Petitioner moved for reconsideration, arguing that the governing law was Act No. 1508 (the Chattel Mortgage Law), not Act No. 3135 , because the parties had contractually agreed to treat the buildings as chattels. It contended the foreclosure was void for non-compliance with the specific procedural requirements of the Chattel Mortgage Law, particularly the 10-day personal notice to the mortgagor. The RTC denied the motion. Petitioner’s subsequent petition for certiorari to the Court of Appeals was denied, prompting this appeal.

ISSUE

Whether the Court of Appeals erred in affirming the RTC’s orders which granted the writ of possession based on Act No. 3135 , despite the parties’ agreement to treat the mortgaged buildings as chattels subject to Act No. 1508 .

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. The legal logic is anchored on the principle that parties cannot by agreement alter the legal nature of property for purposes of circumventing specific laws and public policy. While the parties contractually stipulated the buildings were chattels, the Court applied the doctrine of immovable property by destination under Article 415 of the Civil Code. Buildings are inherently immovable, and their classification as real property is determined by law, not by party stipulation. Since the buildings are permanently attached to the land (albeit leased), they are legally immovable. Consequently, the mortgage constituted thereon is a real estate mortgage, making Act No. 3135 the applicable law for foreclosure. The extrajudicial foreclosure and the subsequent issuance of the writ of possession under Section 7 of Act No. 3135 were therefore valid. The Court emphasized that the procedural requirements of the Chattel Mortgage Law do not apply, and the parties’ contrary agreement cannot override the mandatory character of the laws on property classification.