Star Two

(SPV-AMC),
Inc., vs Paper
City
Corporation of
the
Philippines,
G.R. No.
169211, March
6, 2013
Facts:
From 1990-
1991, Paper
City applied for
and was
granted four (4)
loans and credit
accommodation
s by Rizal
Commercial
Banking
Corporation
(RCBC), now
substituted by
Star Two (SPV-
AMC), Inc by
virtue of
Republic
Act No. 9182.
The loans were
secured by four
(4) Deeds of
Continuing
Chattel
Mortgages on
its machineries
and
equipments
found inside its
paper plants.
However,
RCBC
eventually
executed a
unilateral
Cancellation of
Deed
of Contining
Chattel
Mortgage. In
1992, RCBC,
as the trustee
bank, together
with Metrobank
and Union
Bank,
entered into a
Mortgage Trust
Indenture
(MTI), with
Paper City. In
the said MTI,
Paper City
acquired
additional
loans secured
by five (5)
Deed of Real
Estate
Mortgage, plus
real and
personal
properties in an
annex to the
MTI,
which covered
the machineries
and equipment
of Paper City.
The MTI was
later on
amended and
supplemented
three (3) times,
wherein the
loan was
increased and
included the
same
mortgages with
an additional
building and
other
improvements
inthe plant site.
Paper City was
able to comply
with the loans
but only until
1997 due to an
economic
crisis. RCBC
filed a petition
for extra-
judicial
foreclosure
against the real
estate executed
by Paper City
including all
the
improvements
because of
payment
default. The
property was
foreclosed and
subjected to
public
acution. The
three banks and
the highest
bidder were
issued a
Certificate of
Sale. Paper
City filed a
complaint
alleging that the
sale was null
and void due to
lack of prior
notice. During
the pendency of
the complaint,
Paper
City filed a
motion to
remove
machinery out
of the
foreclosed land
and building,
that the same
were not
included in
the foreclosure
of the real
estate
mortgage. The
trial court
denied the
motion, ruling
that the
machineries
and
equipment were
included.
Thereafter,
Paper City's
Motion for
Reconsideratio
n, the trial court
granted the
same and
justified the
reversal by
finding that the
machineries
and equipment
are chattels by
agreement thru
the four Deeds
of
Continuing
Chattel
Mortgages; and
that the deed of
cancellation
executed by
RCBC of said
mortgage was
not valid
because it was
one
unilaterally.
RCBC's Motion
for
Reconsideratio
n was denied.
The case was
petitioned at
CA
that 1. That
Paper City gave
its consent to
consider the
disputedmachin
eries and
equipment as
real properties
when
they signed the
MTI's and all
its
amendments; 2.
That the
machineries
and equipment
are the same as
inthe MTI's,
hence treated
by agreement
of the parties as
real properties.
The CA
affirmed the
orders of the
trial court
because it
relied on the
plain language
of the MTI's
stating that
nowhere from
any of the
MTIs executed
by the parties
can we
find the alleged
"express"
agreement
adverted to by
petitioner.
There is no
provision in
any of the
parties MTI,
which
expressly states
to the effect
that the parties
shall treat the
equipments and
machineries as
real property.
On
the contrary,
the plain and
unambiguous
language of the
aforecited
MTIs, which
described the
same as
personal
properties,
contradicts
petitioners
claims.

Issue:
Whether the
subsequent
contracts of the
parties such as
Mortgage Trust
Indenture as
well as the
subsequent
supplementary
amendments
included in its
coverage of
mortgaged
properties the
subject
machineries
and
equipment; and
Whether or not
the subject
machineries
and equipment
were
considered real
properties and
should
therefore be
included in the
extra-judicial
foreclosure
which in turn
were sold to the
banks