Standard Oil Co.

vs Jaranillo
Posted on June 21, 2013
44 PHIL 631
GR No. L-20329
March 16, 1923
FACTS
Gervasia de la Rosa, Vda. de Vera, who was renting a parcel of land in Manila, constructed a
building of strong materials thereon, which she conveyed to Standard Oil Company of New York
by way of chattel mortgage.
When the mortgagee presented the deed to the Register of Deeds of Manila for registration in the
Chattel Mortgage Registry, Joaquin Jaranillo, the Registrar refused to allow the registration on
the ground that the building was a real property, and therefore could not be the subject of a valid
chattel mortgage.
ISSUES
1. May the deed be registered in the chattel mortgage registry?
2. Whether the interests conveyed in the instrument are real or personal.
HELD
1. Yes. The Registrar's duty is MINISTERIAL in character.
There is no legal provision conferring upon him any judicial or quasi-judicial power to determine
or qualify the nature of the document presented before him.
The determination of the nature of the property lies with the courts of justice, and not by the
Register of Deeds.
Moreover, the act of recording a chattel mortgage 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 and affects nobody's
rights except as a speciefies of notice.
As such, the Registrar should therefore accept the legal fees being tendered, and place the
document on record.
2. Art.334 and 335 of the Civil Code do not supply an absolute criterion for discriminating
between real and personal property for the purpose of applying the Chattel Mortgage Law.
It should also be noted that under given conditions property may have character different from
that imputed in said articles. Parties to a contract may, by agreement, treat as personal property
that which by nature would be real property.

It is undeniable that the parties to a contract may by agreement treat aspersonal property that
which by nature would be a real property, as long as no interest of third parties would be
prejudiced thereby.
However, it should be reiterated that the determination of the nature of the property, with
reference to the placing of the document on record, is neither a function or an authority granted
to the Registrar of the Registry of Deeds.

Davao Sawmill Co. vs Castillo

Posted on June 21, 2013
Davao Sawmill Co. vs Castillo
61 PHIL 709
GR No. L-40411
August 7, 1935
A tenant placed machines for use in a sawmill on the landlord's land.
FACTS
Davao Sawmill Co., operated a sawmill. The land upon which the business was conducted was
leased from another person. On the land, Davao Sawmill erected a building which housed the
machinery it used. Some of the machines were mounted and placed on foundations of cement. In
the contract of lease, Davo Sawmill agreed to turn over free of charge all improvements and
buildings erected by it on the premises with the exception of machineries, which shall remain
with the Davao Sawmill. In an action brought by the Davao Light and Power Co., judgment was
rendered against Davao Sawmill. A writ of execution was issued and the machineries placed on
the sawmill were levied upon as personalty by the sheriff. Davao Light and Power Co.,
proceeded to purchase the machinery and other properties auctioned by the sheriff.
ISSUE
Are the machineries real or personal property?
HELD
Art.415 of the New Civil Code provides that Real Property consists of:
(1) Lands, buildings, roads and constructions of all kinds adhered to the soil;
xxx
(5) Machinery, receptacles, instruments or implements intended by the owner pf the
tenement for an industry ot works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works;

Appellant should have registered its protest before or at the time of the sale of the property.
While not conclusive, the appellant's characterization of the property as chattels is indicative of
intention and impresses upon the property the character determined by the parties.
Machinery is naturally movable. However, machinery may be immobilized by destination or
purpose under the following conditions:
General Rule: The machinery only becomes immobilized if placed in a plant by the owner of
the property or plant.
Immobilization cannot be made by a tenant, a usufructuary, or any person having only a
temporary right.
Exception: The tenant, usufructuary, or temporary possessor acted as agent of the owner of the
premises; or he intended to permanently give away the property in favor of the owner.
As a rule, therefore, the machinery should be considered as Personal Property, since it was not
placed on the land by the owner of the said land.

Leung Yee vs Strong Machinery Co

Posted on June 22, 2013
Leung Yee vs Strong Machinery Co.
37 PHIL 644
GR No. L-11658
February 15, 1918
FACTS
The Compania Agricola Filipina (CAF) purchased from Strong Machinery Co. ricecleaning
machines which CAF installed in one of its buildings.
As security for the purchase price, CAF executed a chattel mortgage on the machines and the
building on which they had been installed.
When CEF failed to pay, the registered mortgage was foreclosed and Strong Machinery Co.
purchased the building. This sale was annotated in the Chattel Mortgage Registry.
Later, Strong Machinery Co. also purchased from Agricola the lot on which the building was
constructed. The sale wasn't registered in the Registry of Property BUT Strong Machinery Co.
took possession of the building and the lot.
However, the same building had been previously purchased by Leung Yee, a creditor of
Agricola, at a sheriff's sale despite his knowledge of the prior sale in favor of Strong Machinery
Co.. The sale to Leung Yee was registered in the Registry of Property.
ISSUES
1. Was the property's nature changed by its registration in the Chattel Mortgage Registry?
2. Who has a better right to the property?

HELD
1. Where the interest conveyed is of the nature of real property, the placing of the document on
record in the Chattel Mortgage Registry is a futile act.
Chattel Mortgage refers to the mortgage of Personal Property executed in the manner and
form prescribed in the statute.
Since the building is REAL PROPERTY, its sale as annotated in the Chattel Mortgage Registry
cannot be given the legal effect of registration in the Registry of Real Property.
The mere fact that the parties decided to deal with the building as personal property does not
change its character as real property.
Neither the original registry in the chattel mortgage registry, nor the annotation in said registry of
the sale of the mortgaged property had any effect on the building.
1. Art. 1473 of the New Civil Code provides the following rules on determining ownership
of property which has been sold to different vendees:
o If Personal Property grant ownership to person who 1st possessed it in good
faith
o If Real Property grant ownership to person who 1st recorded it in the Registry
If no entry grant to person who 1st possessed in good faith
If no proof of possession grant to person who presents oldest title
Since Leung Yee purchased the property despite knowledge of the previous purchase of the same
by Strong Machinery Co., it follows that Leung Yee 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. 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.
Good Faith, or the want of it, is a state or condition of mind which can only be judged of by
actual or fancied tokens or signs. (Wilder vs. Gilman, 55Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119Mich., 8, 10, 17.)
Honesty Of Intention is the honest lawful intent constituting good faith. It implies a freedom
from knowledge and circumstances which ought to put a person on inquiry.
As such, proof of such knowledge overcomes the presumption of good faith.

Following the rule on possessory rights provided in Art. 1473, Strong Machinery Co. has a
better right to the property since it first purchased the same ahead of Leung Yee, the latter not
being a purchaser in good faith.

TAVERA vs El hogar
We find it unnecessary to determine, in the instant case, whether the Crystal Arcade is or is not
a public building, for, even if it is, the loan are valid. It may be said, in passing the evidence is
sufficient to show that the Secretary of Finance and the Bank Commissioner had knowledge of
the loans and of the security given therefor, and that they have impliedly approved the same. On
the other hand, under the legal provision above quoted, a loan given on a property which may
be considered as a public building, is not, in itself, null and void. It is unlawful to make loans on
that kind of security, but the law does not declare the loan, once made, to be null and void. The
unlawful taking of the security may constitute a misuser of the powers conferred upon the
corporation by its charter, for which it may be made to answer in an action for ouster or
dissolution; but certainly the stockholders and depositors of the corporation should not be
punished with a loss of the money loaned nor the borrower be rewarded with it. As held by the
Supreme Court of the United States, in a similar case:
The statute does not declare such a security void. If congress so meant, it would have
been easy to say so; and it is hardly to be believed that this would not have been done,
instead of leaving the question to be settled by the uncertain result of litigation and
judicial decision . . ..
We cannot believe it was meant that stockholders, and perhaps depositors and other
creditors, should be punished and the borrower rewarded, by giving success to this
defense whenever the offensive fact shall occur. The impending danger of a judgment of
ouster and dissolution was, we think, the check, and none other contemplated by
congress.
That has been always the punishment prescribed for the wanton violation of a charter,
and it may be made to follow whenever the proper public authority shall see fit to invoke
its application. . . . (Union Nat. Bank of St. Louis vs. Matthews, 98 U.S., 621; 25 L. ed.,
188.) In the same case it has been likewise held that:
Where it is a simple question of authority to contract, arising either on a question of
regularity of organization or of power conferred by the charter, a party who has had the
benefit of the agreement cannot he permitted, in an action founded upon it, to question
its validity.

Fiestan vs. Court of Appeals, and Developmentt Bank of the Philippines

185 SCRA 751
May 1990
FACTS:
For failure of petitioner spouses Dionisio Fiestan and Juanita Arconada (spouses Fiestan) to pay
their mortgage indebtedness to respondent Development Bank of the Philippines (DBP), the
latter was able to acquire at a public auction sale on August 6, 1979 the parcel of land (Lot No. 2B covered by TCT No. T-13218) that the spouses Fiestan owned in Ilocos Sur after extrajudicial
foreclosure of said property. The Provincial Sheriff issued a certificate of sale that same day
which was registered on September 28 in the Office of the Register of Deeds of Ilocos Sur.
Earlier, or on September 26, spouses Fiestan also executed a Deed of Sale in favor of DBP which
was likewise registered on September 28, 1979. When spouses Fiestan failed to redeem their
parcel of land within the 1 year period which expired on September 28, 1980, the Register of
Deeds cancelled their title over the subject property and issued TCT No. T-19077 to DBP upon
the latters duly executed affidavit of consolidation of ownership.
On April 13, 1982, the DBP sold the lot to Francisco Peria, so the Register of Deeds of Ilocos
Sur cancelled DBPs title over said property and issued TCT No. T-19229 to Perias name, who
later secured a tax declaration for said lot and accordingly paid the taxes due thereon. He
thereafter mortgaged said lot to the PNB-Vigan Branch as security for his loan of P115,000.00.
Since the spouses Fiestan were still in possession of the property, the Provincial Sheriff ordered
them to vacate the premises, but instead of leaving, they filed a complaint in the RTC of Vigan,
Ilocos Sur for annulment of sale, mortgage and cancellation of transfer certificates of title against
the DBP-Laoag City, PNB-Vigan Branch, Ilocos Sur, Francisco Peria and the Register of Deeds
of Ilocos Sur.
The lower court dismissed said complaint, declaring valid the extrajudicial foreclosure sale of the
mortgaged property in favor of the DBP and its subsequent sale to Francisco Peria as well as the
real estate mortgage constituted in favor of PNB-Vigan. The Court of Appeals likewise affirmed
said decision. The spouses Fiestan herein seek to annul the extrajudicial foreclosure sale of the
mortgaged property on the ground that the Provincial Sheriff conducted the foreclosure without
first effecting a levy on said property before selling the same at the public auction sale.
ISSUE:
Who has the right to acquire by purchase the subject property?
COURT RULING:
In denying the petition, the Supreme Court reiterated that the formalities of a levy, which the
Provincial Sheriff of Ilocos Sur allegedly failed to comply with, are not basic requirements
before an extrajudicially foreclosed property can be sold at public auction. The spouses Fiestan
insisted that what prevails over the case are par. (2) of Article 1491 and par. (7) of Article 1409

of the Civil Code which prohibits agents from acquiring by purchase, even at a public or judicial
auction either in person or through the mediation of another, the property whose administration
or sale may have been entrusted to them unless the consent of the principal has been given.
However, the Supreme Court ruled that the power to foreclose is not an ordinary agency that
contemplates exclusively the representation of the principal by the agent but is primarily an
authority conferred upon the mortgagee for the latter's own protection, as provided under Section
5 of Act No 3135, as amended, which is a special law that must prevail over the Civil Code
which is a general law. Even in the absence of statutory provision, there is authority to hold that a
mortgagee, and in this case the DBP, may purchase at a sale under his mortgage to protect his
own interest or to avoid a loss to himself by a sale to a third person at a price below the mortgage
debt.

To ascertain the meaning of the provision of the mortgage contract relied upon by the
appellants, its entirety must be taken into account and not merely its last two sentences. A
reading of the entire provision will readily show that while the appellants were allowed to
amortize their loan at the rate of not less than P300.00 a month, they were under obligation to
liquidate the same within a period of not more than five (5) years from the date of the execution
of the contract; but if they should fall to pay two successive monthly amortizations, then the
entire loan would be due and payable. It is obvious that the phrase "notwithstanding the
foregoing" does not refer to the acceleration clause but to the stipulation that the loan had to be
"amortized at the rate of not less than P300.00, including interest on unpaid balance, at the rate
of 8% per annum, said interest and capital amortization to be effected at the end of each
month." There is nothing inconsistent between the acceleration clause and the last sentence. All
that the parties meant is that while monthly amortizations could be as little as P300.00 the loan
should anyway be paid within 5 years; and that failure to pay two successive amortizations
would render the entire loan due and payable. Consequently, default leaving been committed for
twelve months, the foreclosure of the mortgage was not premature.
Under the second assignment of error, the appellants challenge the validity of the foreclosure
sale on two grounds, namely: (1) that the "Daily Record" wherein the notice of sheriff's sale was
published was not a newspaper of general circulation; and (2) that the appellee bank should
have paid cash for its bid since Section 5 of Act No. 3135 expressly requires that the creditors
must bid "under the same condition as any other bidder."
Neither of the grounds is meritorious. For purposes of extrajudicial foreclosure of mortgage the
party alleging non-compliance with the requisite publication has the burden of proving the same.
In the instant case the appellants did not present evidence to show that the "Daily Record" was
not a newspaper of general circulation. As correctly stated by the lower court:
.... But, the presumption is that the sheriff had complied with his official duty
according to law and this presumption includes the presumption that the sheriff
had caused the notice of sale to be published in a newspaper of general
circulation so that, if the "Daily Record" is not a newspaper of general circulation

as petitioners claim, it is incumbent upon them to prove such fact, which they
failed to do.
As to the second ground, it was not necessary for the appellee, as the highest bidder, to pay
cash to 'the sheriff, since the amount of its bid represented the total mortgage debt. It would
serve no purpose for, the sheriff "to go through the ceremony of receiving the money and paying
it back to the creditor." Certainly the law-making body did not contemplate such a senseless
application of the law requiring that the creditor must bid "under the same condition as any other
bidder."
SPOUSES JESUS RUIZ vs SHERIFF OF MANILA and THE BANK OF THE PHILIPPINE
ISLANDS