G.R. No.

L-11658

February 15, 1918

LEUNG YEE, plaintiff-appellant,

vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery
company from the defendant machinery company, and executed a chattel mortgage thereon to
secure payment of the purchase price. It included in the mortgage deed the building of strong
materials in which the machinery was installed, without any reference to the land on which it stood.
The indebtedness secured by this instrument not having been paid when it fell due, the mortgaged
property was sold by the sheriff, in pursuance of the terms of the mortgage instrument, and was
bought in by the machinery company. The mortgage was registered in the chattel mortgage registry,
and the sale of the property to the machinery company in satisfaction of the mortgage was
annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola Filipina"
executed a deed of sale of the land upon which the building stood to the machinery company, but
this deed of sale, although executed in a public document, was not registered. This deed makes no
reference to the building erected on the land and would appear to have been executed for the
purpose of curing any defects which might be found to exist in the machinery company's title to the
building under the sheriff's certificate of sale. The machinery company went into possession of the
building at or about the time when this sale took place, that is to say, the month of December, 1913,
and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery company,
the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to the plaintiff upon the
building, separate and apart from the land on which it stood, to secure payment of the balance of its
indebtedness to the plaintiff under a contract for the construction of the building. Upon the failure of
the mortgagor to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured
judgment for that amount, levied execution upon the building, bought it in at the sheriff's sale on or
about the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered in the
land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant machinery company,
which was in possession, filed with the sheriff a sworn statement setting up its claim of title and
demanding the release of the property from the levy. Thereafter, upon demand of the sheriff, the
plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon
which the sheriff sold the property at public auction to the plaintiff, who was the highest bidder at the
sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the machinery
company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of the
machinery company, on the ground that the company had its title to the building registered prior to
the date of registry of the plaintiff's certificate.

Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the ownership shall be transfer
to the person who may have the first taken possession thereof in good faith, if it should be
personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in the
registry.
Should there be no entry, the property shall belong to the person who first took possession of
it in good faith, and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be apparent that the
annotation or inscription of a deed of sale of real property in a chattel mortgage registry cannot be
given the legal effect of an inscription in the registry of real property. By its express terms, the
Chattel Mortgage Law contemplates and makes provision for mortgages of personal property; and
the sole purpose and object of the chattel mortgage registry is to provide for the registry of "Chattel
mortgages," that is to say, mortgages of personal property executed in the manner and form
prescribed in the statute. The building of strong materials in which the rice-cleaning machinery was
installed by the "Compaia Agricola Filipina" was real property, and the mere fact that the parties
seem to have dealt with it separate and apart from the land on which it stood in no wise changed its
character as real property. It follows that neither the original registry in the chattel mortgage of the
building and the machinery installed therein, not the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on the ground
assigned by the trial judge. We are of opinion, however, that the judgment must be sustained on the
ground that the agreed statement of facts in the court below discloses that neither the purchase of
the building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was made
in good faith, and that the machinery company must be held to be the owner of the property under
the third paragraph of the above cited article of the code, it appearing that the company first took
possession of the property; and further, that the building and the land were sold to the machinery
company long prior to the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith,"
in express terms, in relation to "possession" and "title," but contain no express requirement as to
"good faith" in relation to the "inscription" of the property on the registry, it must be presumed that
good faith is not an essential requisite of registration in order that it may have the effect
contemplated in this article. We cannot agree with this contention. It could not have been the
intention of the legislator to base the preferential right secured under this article of the code upon an
inscription of title in bad faith. Such an interpretation placed upon the language of this section would
open wide the door to fraud and collusion. The public records cannot be converted into instruments
of fraud and oppression by one who secures an inscription therein in bad faith. The force and effect
given by law to an inscription in a public record presupposes the good faith of him who enters such
inscription; and rights created by statute, which are predicated upon an inscription in a public
registry, do not and cannot accrue under an inscription "in bad faith," to the benefit of the person who
thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain held in its
sentencia of the 13th of May, 1908, that:

This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in accordance
with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911]
edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have preference, this
provision must always be understood on the basis of the good faith mentioned in the first
paragraph; the legislator could not have wished to strike it out and to sanction bad faith, just
to comply with a mere formality which, in given cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of the La
Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the
sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery company
had bought the building from plaintiff's judgment debtor; that it had gone into possession long prior to
the sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery company
had filed its sworn claim of ownership, leaves no room for doubt in this regard. Having bought in the
building at the sheriff's sale with full knowledge that at the time of the levy and sale the building had
already been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent inscription of the sheriff's
certificate of title must be held to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of sale
to the plaintiff was not made in good faith, we should not be understood as questioning, in any way,
the good faith and genuineness of the plaintiff's claim against the "Compaia Agricola Filipina." The
truth is that both the plaintiff and the defendant company appear to have had just and righteous
claims against their common debtor. No criticism can properly be made of the exercise of the utmost
diligence by the plaintiff in asserting and exercising his right to recover the amount of his claim from
the estate of the common debtor. We are strongly inclined to believe that in procuring the levy of
execution upon the factory building and in buying it at the sheriff's sale, he considered that he was
doing no more than he had a right to do under all the circumstances, and it is highly possible and
even probable that he thought at that time that he would be able to maintain his position in a contest
with the machinery company. There was no collusion on his part with the common debtor, and no
thought of the perpetration of a fraud upon the rights of another, in the ordinary sense of the word.
He may have hoped, and doubtless he did hope, that the title of the machinery company would not
stand the test of an action in a court of law; and if later developments had confirmed his unfounded
hopes, no one could question the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of ownership when he
executed the indemnity bond and bought in the property at the sheriff's sale, and it appearing further
that the machinery company's claim of ownership was well founded, he cannot be said to have been
an innocent purchaser for value. He took the risk and must stand by the consequences; and it is in
this sense that we find that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim
that he has acquired title thereto in good faith as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable

man upon his guard, and then claim that he acted in good faith under the belief that there was no
defect in the title of the vendor. His mere refusal to believe that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in his vendor's title, will not make him
an innocent purchaser for value, if afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defects as would have led to its discovery had he acted with
that measure of precaution which may reasonably be acquired of a prudent man in a like situation.
Good faith, or lack of it, is in its analysis a question of intention; but in ascertaining the intention by
which one is actuated on a given occasion, we are necessarily controlled by the evidence as to the
conduct and outward acts by which alone the inward motive may, with safety, be determined. So it is
that "the honesty of intention," "the honest lawful intent," which constitutes good faith implies a
"freedom from knowledge and circumstances which ought to put a person on inquiry," and so it is
that proof of such knowledge overcomes the presumption of good faith in which the courts always
indulge in the absence of proof to the contrary. "Good faith, or the want of it, is not a visible, tangible
fact that can be seen or touched, but rather a state or condition of mind which can only be judged of
by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of the decision and judgment
entered in the court below should be affirmed with costs of this instance against the appellant. So
ordered.

G.R. No. L-20329

March 16, 1923

THE STANDARD OIL COMPANY OF NEW YORK, petitioner,

vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo, register of
deeds of the City of Manila, to an original petition of the Standard Oil Company of New York, seeking
a peremptory mandamusto compel the respondent to record in the proper register a document
purporting to be a chattel mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. de
Vera, in favor of the Standard Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de Vera, was the
lessee of a parcel of land situated in the City of Manila and owner of the house of strong materials
built thereon, upon which date she executed a document in the form of a chattel mortgage,
purporting to convey to the petitioner by way of mortgage both the leasehold interest in said lot and
the building which stands thereon.
The clauses in said document describing the property intended to be thus mortgage are expressed
in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by way of
mortgage, the following described personal property, situated in the City of Manila, and now
in possession of the mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the contract of lease
hereinabove referred to, and in and to the premises the subject of the said lease;
(2) The building, property of the mortgagor, situated on the aforesaid leased premises.
After said document had been duly acknowledge and delivered, the petitioner caused the same to
be presented to the respondent, Joaquin Jaramillo, as register of deeds of the City of Manila, for the
purpose of having the same recorded in the book of record of chattel mortgages. Upon examination
of the instrument, the respondent was of the opinion that it was not a chattel mortgage, for the
reason that the interest therein mortgaged did not appear to be personal property, within the
meaning of the Chattel Mortgage Law, and registration was refused on this ground only.
We are of the opinion that the position taken by the respondent is untenable; and it is his duty to
accept the proper fee and place the instrument on record. The duties of a register of deeds in
respect to the registration of chattel mortgage are of a purely ministerial character; and no provision
of law can be cited which confers upon him any judicial or quasi-judicial power to determine the
nature of any document of which registration is sought as a chattel mortgage.
The original provisions touching this matter are contained in section 15 of the Chattel Mortgage Law
(Act No. 1508), as amended by Act No. 2496; but these have been transferred to section 198 of the
Administrative Code, where they are now found. There is nothing in any of these provisions
conferring upon the register of deeds any authority whatever in respect to the "qualification," as the
term is used in Spanish law, of chattel mortgage. His duties in respect to such instruments are

ministerial only. The efficacy of the act of recording a chattel mortgage consists in the fact that it
operates as constructive notice of the existence of the contract, and the legal effects of the contract
must be discovered in the instrument itself in relation with the fact of notice. Registration adds
nothing to the instrument, considered as a source of title, and affects nobody's rights except as a
specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating between real
property and personal property for purpose of the application of the Chattel Mortgage Law. Those
articles state rules which, considered as a general doctrine, are law in this jurisdiction; but it must not
be forgotten that under given conditions property may have character different from that imputed to it
in said articles. It is undeniable that the parties to a contract may by agreement treat as personal
property that which by nature would be real property; and it is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might be considered
personal property. Other situations are constantly arising, and from time to time are presented to this
court, in which the proper classification of one thing or another as real or personal property may be
said to be doubtful.
The point submitted to us in this case was determined on September 8, 1914, in an administrative
ruling promulgated by the Honorable James A. Ostrand, now a Justice of this Court, but acting at
that time in the capacity of Judge of the fourth branch of the Court of First Instance of the Ninth
Judicial District, in the City of Manila; and little of value can be here added to the observations
contained in said ruling. We accordingly quote therefrom as follows:
It is unnecessary here to determine whether or not the property described in the document in
question is real or personal; the discussion may be confined to the point as to whether a
register of deeds has authority to deny the registration of a document purporting to be a
chattel mortgage and executed in the manner and form prescribed by the Chattel Mortgage
Law.
Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor continued:
Based principally upon the provisions of section quoted the Attorney-General of the
Philippine Islands, in an opinion dated August 11, 1909, held that a register of deeds has no
authority to pass upon the capacity of the parties to a chattel mortgage which is presented to
him for record. A fortiori a register of deeds can have no authority to pass upon the character
of the property sought to be encumbered by a chattel mortgage. Of course, if the mortgaged
property is real instead of personal the chattel mortgage would no doubt be held ineffective
as against third parties, but this is a question to be determined by the courts of justice and
not by the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this court held that
where the interest conveyed is of the nature of real, property, the placing of the document on record
in the chattel mortgage register is a futile act; but that decision is not decisive of the question now
before us, which has reference to the function of the register of deeds in placing the document on
record.
In the light of what has been said it becomes unnecessary for us to pass upon the point whether the
interests conveyed in the instrument now in question are real or personal; and we declare it to be the
duty of the register of deeds to accept the estimate placed upon the document by the petitioner and
to register it, upon payment of the proper fee.

The demurrer is overruled; and unless within the period of five days from the date of the notification
hereof, the respondent shall interpose a sufficient answer to the petition, the writ of mandamus will
be issued, as prayed, but without costs. So ordered.