Star Two (SPV-AMC), Inc., vs Paper City Corporation of the Philippines, G.R. No.

169211, March 6, 2013Facts:From 1990-1991, Paper City applied for and was granted four (4)

loans and credit accommodations by RizalCommercial Banking Corporation (RCBC), now substituted by

Star Two (SPV-AMC), Inc by virtue of RepublicAct No. 9182. The loans were secured by four (4) Deeds of

Continuing Chattel Mortgages on its machineries andequipments found inside its paper plants.

However, RCBC eventually executed a unilateral Cancellation of Deedof 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

additionalloans 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 supplementedthree (3) times, wherein the loan was increased and included the

same mortgages with an additional building andother improvements inthe plant site. Paper City was

able to comply with the loans but only until 1997 due to aneconomic crisis. RCBC filed a petition for extra-

judicial foreclosure against the real estate executed by Paper Cityincluding all the improvements

because of payment default. The property was foreclosed and subjected to publicacution. 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 inthe foreclosure of the real estate mortgage. The trial court denied the

motion, ruling that the machineries andequipment were included. Thereafter, Paper City's

Motion for Reconsideration, 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 Reconsideration was denied. The case was petitioned at

CAthat 1. That Paper City gave its consent to consider the disputedmachineries and equipment as

real properties whenthey 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 itrelied on the plain language of the MTI's stating that

nowhere from any of the MTIs executed by the parties can wefind 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. Onthe contrary,

the plain and unambiguous language of the aforecited MTIs, which described the same as personal

 properties, contradicts petitioner’s claims. Issue:Whether the subsequent

contracts of the parties such as Mortgage Trust Indenture as well as the subsequentsupplementary amendments

included in its coverage of mortgaged properties the subject machineries andequipment; and

Whether or not the subject machineries and equipment were considered real properties and should

therefore beincluded in the extra-judicial foreclosure which in turn were sold to the banks