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G.R. No. L-15829ROMAN R. SANTOS, petitioner-appellee, vs.HON. FLORENCIO MORENO, as


Secretary of Public Works and Communications and JULIAN C. CARGULLO, respondents-
appellants.

Facts:
The Zobel family of Spain formerly owned vast track of marshland in the municipality of
Macabebe, Pampanga province. Called Hacienda San Esteban, it was administered and managed by the
Ayala y Cia. From the year 1860 to about the year 1924 Ayala y Cia., devoted the hacienda to the
planting and cultivation of nipa palms from which it gathered nipa sap or "tuba." It operated a distillery
plant in barrio San Esteban to turn nipa tuba into potable alcohol, which was in turn manufactured into
liquor.
Accessibility through the nipa palms deep into the hacienda posed as a problem. Ayala y Cia.,
therefore dug canals leading towards the hacienda's interior where most of them interlinked with each
other. The canals facilitated the gathering of tuba and the guarding and patrolling of the hacienda by
security guards called "arundines." By the gradual process of erosion these canals acquired the
characteristics and dimensions of rivers.
In 1924 Ayala y Cia shifted from the business of alcohol production to bangus culture. It
converted Hacienda San Esteban from a forest of nipa groves to a web of fishponds. To do so, it cut down
the nipa palm, constructed dikes and closed the canals criss-crossing the hacienda.

Sometime in 1925 or 1926 Ayala y Cia., sold a portion of Hacienda San Esteban to Roman
Santos who also transformed the swamp land into a fishpond. In so doing, he closed and built dikes
across Sapang Malauling Maragul, Quiorang Silab, Pepangebunan, Bulacus, Nigui and Nasi.

The closing of the man-made canals in Hacienda San Esteban drew complaints from residents of the
surrounding communities. Claiming that the closing of the canals caused floods during the rainy season,
and that it deprived them of their means of transportation and fishing grounds, said residents demanded
re-opening of those canals.
Subsequently, Mayor Lazaro Yambao of Macabebe, accompanied by policemen and some
residents went to Hacienda San Esteban and opened the closure dikes at Sapang Malauling Maragul
Nigui and Quiorang Silab.
Whereupon, Roman Santos filed Civil Case No. 4488 in the Court of First Instance of Pampanga
which preliminarily enjoined Mayor Yambao and others from demolishing the dikes across the canals. The
municipal officials of Macabebe countered by filing a complaint (docketed as Civil Case No. 4527) in the
same court. The Pampanga Court of First Instance rendered judgment in both cases against Roman
Santos who immediately elevated the case to the Supreme Court.
Issue:
Do the streams involved in this case belong to the public domain or to the owner of Hacienda San
Esteban according to law and the evidence submitted to the Department of Public Works and
Communications?

Ruling:
A private person may take possession of a watercourse if he constructed the same within his
property.
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One and all, the evidence, oral and documentary, presented by Roman Santos in the
administrative proceedings supports the conclusion of the lower court that the streams involved in this
case were originally man-made canals constructed by the former owners of Hacienda San Esteban and
that said streams were not held open for public use. This same conclusion was reached 27 years earlier
by an investigator of the Bureau of Public Works whose report and recommendations were approved by
the Director of Public Works and submitted to the Secretary of Commerce and Communications.
The streams in question were artificially made, hence of private ownership.
Pursuant to Article 71 of the Spanish Law of Waters of August 3, 1866, and Article 408(5) of the
Spanish Civil Code, channels of creeks and brooks belong to the owners of estates over which they flow.
The channels, therefore, of the streams in question, which may be classified creeks, belong to the owners
of Hacienda San Esteban.

With the exception of Sapang Cansusu, being a natural stream and a continuation of the
Cansusu River, admittedly a public stream, belongs to the public domain. Its closure therefore by the
predecessors of Roman Santos was illegal.
All the other streams, being artificial and devoted exclusively for the use of the hacienda owner
and his personnel, are declared of private ownership. Hence, the dams across them should not he
ordered demolished as public nuisances.
Property Ownership of streams and canals.Pursuant to Article 71 of the Spanish Law of
Waters of August 3, 1866 and Article 408(5) of the Spanish Civil Code, channels of creeks and brooks
belong to the owners of estates over which they flow. The channels, therefore, of the streams in question,
which may be classified as creeks, belong to the owners of Hacienda San Esteban. The streams,
considered as canals, of which they originally were, are of private ownership in contemplation of Article
339(1) of the Spanish Civil Code. Under Article 339, canals constructed by the State and devoted to
public use are of public ownership. Conversely, canals constructed by private persons within private lands
and devoted exclusively for private use must be of public ownership.

G.R. No. L-50008 August 31, 1987


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PRUDENTIAL BANK, petitioner,


vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of
Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUT-
MAGCALE, respondents.

PARAS, J.:

This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court of First
Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses Fernando A.
Magcale and Teodula Baluyut-Magcale vs. Hon. Ramon Y. Pardo and Prudential Bank" declaring that the
deeds of real estate mortgage executed by respondent spouses in favor of petitioner bank are null and
void.

The undisputed facts of this case by stipulation of the parties are as follows:

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula Baluyut
Magcale secured a loan in the sum of P70,000.00 from the defendant Prudential Bank. To
secure payment of this loan, plaintiffs executed in favor of defendant on the aforesaid
date a deed of Real Estate Mortgage over the following described properties:

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces


containing a total floor area of 263 sq. meters, more or less, generally constructed of
mixed hard wood and concrete materials, under a roofing of cor. g. i. sheets declared
and assessed in the name of FERNANDO MAGCALE under Tax Declaration No. 21109,
issued by the Assessor of Olongapo City with an assessed value of P35,290.00. This
building is the only improvement of the lot.

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of


occupancy on the lot where the above property is erected, and more particularly
described and bounded, as follows:

A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo
Townsite Subdivision) Ardoin Street, East Bajac-Bajac, Olongapo City,
containing an area of 465 sq. m. more or less, declared and assessed in
the name of FERNANDO MAGCALE under Tax Duration No. 19595
issued by the Assessor of Olongapo City with an assessed value of
P1,860.00 bounded on the

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

All corners of the lot marked by conc. cylindrical


monuments of the Bureau of Lands as visible limits.
( Exhibit "A, " also Exhibit "1" for defendant).
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Apart from the stipulations in the printed portion of the aforestated deed
of mortgage, there appears a rider typed at the bottom of the reverse
side of the document under the lists of the properties mortgaged which
reads, as follows:

AND IT IS FURTHER AGREED that in the event the


Sales Patent on the lot applied for by the Mortgagors as
herein stated is released or issued by the Bureau of
Lands, the Mortgagors hereby authorize the Register of
Deeds to hold the Registration of same until this
Mortgage is cancelled, or to annotate this encumbrance
on the Title upon authority from the Secretary of
Agriculture and Natural Resources, which title with
annotation, shall be released in favor of the herein
Mortgage.

From the aforequoted stipulation, it is obvious that the mortgagee


(defendant Prudential Bank) was at the outset aware of the fact that the
mortgagors (plaintiffs) have already filed a Miscellaneous Sales
Application over the lot, possessory rights over which, were mortgaged to
it.

Exhibit "A" (Real Estate Mortgage) was registered under the Provisions
of Act 3344 with the Registry of Deeds of Zambales on November 23,
1971.

On May 2, 1973, plaintiffs secured an additional loan from defendant


Prudential Bank in the sum of P20,000.00. To secure payment of this
additional loan, plaintiffs executed in favor of the said defendant another
deed of Real Estate Mortgage over the same properties previously
mortgaged in Exhibit "A." (Exhibit "B" also Exhibit "2" for defendant).
This second deed of Real Estate Mortgage was likewise registered with
the Registry of Deeds, this time in Olongapo City, on May 2,1973.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No.
4776 over the parcel of land, possessory rights over which were mortgaged to defendant
Prudential Bank, in favor of plaintiffs. On the basis of the aforesaid Patent, and upon its
transcription in the Registration Book of the Province of Zambales, Original Certificate of
Title No. P-2554 was issued in the name of Plaintiff Fernando Magcale, by the Ex-Oficio
Register of Deeds of Zambales, on May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and
upon application of said defendant, the deeds of Real Estate Mortgage (Exhibits "A" and
"B") were extrajudicially foreclosed. Consequent to the foreclosure was the sale of the
properties therein mortgaged to defendant as the highest bidder in a public auction sale
conducted by the defendant City Sheriff on April 12, 1978 (Exhibit "E"). The auction sale
aforesaid was held despite written request from plaintiffs through counsel dated March
29, 1978, for the defendant City Sheriff to desist from going with the scheduled public
auction sale (Exhibit "D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate Mortgage
as null and void (Ibid., p. 35).
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On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed by
private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10, 1979 (Ibid.,
p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the instant petition ( Ibid., pp.
5-28).

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the respondents
to comment (Ibid., p. 65), which order was complied with the Resolution dated May 18,1979, (Ibid., p.
100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties were
required to submit simultaneously their respective memoranda. (Ibid., p. 114).

On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents filed
their Memorandum on August 1, 1979 (Ibid., pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P. 158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF


MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE
COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT OF
INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p.
122).

This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the
building erected on the land belonging to another.

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled
that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said provision of
law can only mean that a building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L-
10817-18, Feb. 28, 1958 Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958).

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the
improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on which
it has been built. Such a mortgage would be still a real estate mortgage for the building would still be
considered immovable property even if dealt with separately and apart from the land (Leung Yee vs.
Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also established that possessory
rights over said properties before title is vested on the grantee, may be validly transferred or conveyed as
in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on the
2-storey semi-concrete residential building with warehouse and on the right of occupancy on the lot where
the building was erected, was executed on November 19, 1971 and registered under the provisions of Act
3344 with the Register of Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent No.
4776 on the land was issued on April 24, 1972, on the basis of which OCT No. 2554 was issued in the
name of private respondent Fernando Magcale on May 15, 1972. It is therefore without question that the
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original mortgage was executed before the issuance of the final patent and before the government was
divested of its title to the land, an event which takes effect only on the issuance of the sales patent and its
subsequent registration in the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515
Director of Lands vs. De Leon, 110 Phil. 28 Director of Lands vs. Jurado, L-14702, May 23, 1961 Pena
"Law on Natural Resources", p. 49). Under the foregoing considerations, it is evident that the mortgage
executed by private respondent on his own building which was erected on the land belonging to the
government is to all intents and purposes a valid mortgage.

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted that
Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under the Public Land
Act, or any improvement thereon and therefore have no application to the assailed mortgage in the case
at bar which was executed before such eventuality. Likewise, Section 2 of Republic Act No. 730, also a
restriction appearing on the face of private respondent's title has likewise no application in the instant
case, despite its reference to encumbrance or alienation before the patent is issued because it refers
specifically to encumbrance or alienation on the land itself and does not mention anything regarding the
improvements existing thereon.

But it is a different matter, as regards the second mortgage executed over the same properties on May 2,
1973 for an additional loan of P20,000.00 which was registered with the Registry of Deeds of Olongapo
City on the same date. Relative thereto, it is evident that such mortgage executed after the issuance of
the sales patent and of the Original Certificate of Title, falls squarely under the prohibitions stated in
Sections 121, 122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is therefore null
and void.

Petitioner points out that private respondents, after physically possessing the title for five years,
voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be annotated,
without requiring the bank to get the prior approval of the Ministry of Natural Resources beforehand,
thereby implicitly authorizing Prudential Bank to cause the annotation of said mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118, 120, 122
and 123 of Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as in pari
delicto may not be invoked to defeat the policy of the State neither may the doctrine of
estoppel give a validating effect to a void contract. Indeed, it is generally considered that
as between parties to a contract, validity cannot be given to it by estoppel if it is
prohibited by law or is against public policy (19 Am. Jur. 802). It is not within the
competence of any citizen to barter away what public policy by law was to preserve
(Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal vs. IAC, 143
SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not pass upon any
new contract between the parties (Ibid), as in the case at bar. It should not preclude new contracts that
may be entered into between petitioner bank and private respondents that are in accordance with the
requirements of the law. After all, private respondents themselves declare that they are not denying the
legitimacy of their debts and appear to be open to new negotiations under the law (Comment Rollo, pp.
95-96). Any new transaction, however, would be subject to whatever steps the Government may take for
the reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City is
hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid but ruling that
the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is null and void, without prejudice
to any appropriate action the Government may take against private respondents.
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SO ORDERED.

Civil Law Mortgages Property Under Art 415, Civil Code, the inclusion of a building separate
and distinct from the land means that a building is by itself an immovable property.In the enumeration of
properties under Article 415 of the Civil Code of the Philippines, this Court ruled that, "it is obvious that the
inclusion of 'building' separate and distinct from the land, in said provision of law can only mean that a
building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L1081718, Feb. 28, 1958
Associated Inc. and Surety Co., Inc. vs. lya, et al., L1083738, May 30, 1958).

Same Same Same While a mortgage of land necessarily includes buildings, a building by itself
may be mortgaged apart from the land on which it has been built Mortgage is still a real estate mortgage
for the building would still be considered immovable property even if dealt with separately from the land
Possessory rights over property before title is vested on the grantee may be validly transferred as in a
deed of mortgage.Thus, while it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may be mortgaged apart from
the land on which it has been built. Such a mortgage would be still a real estate mortgage for the building
would still be considered immovable property even if dealt with separately and apart from the land (Leung
Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also established that
possessory rights over said properties before title is vested on the grantee, may be validly transferred or
conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).

Same Same Same Same A mortgage executed by a private respondent on his own building
erected on the land belonging to the government is a valid mortgage The original mortgage was
executed before the issuance of the final patent and before the government was divested of its title to the
land.Coming back to the case at bar, the records show, as aforestated that the original mortgage deed
on the 2storey semiconcrete residential building with warehouse and on the right of occupancy on the lot
where the building was erected, was executed on November 19, 1971 and registered under the
provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971. Miscellaneous
Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of which OCT No. 2554
was issued in the name of private respondent Fernando Magcale on May 15, 1972. It is therefore without
question that the original mortgage was executed before the issuance of the final patent and before the
government was divested of its title to the land, an event which takes effect only on the issuance of the
sales patent and its subsequent registration in the Office of the Register of Deeds (Visayan Realty Inc. vs.
Meer, 96 Phil. 515 Director of Lands vs. De Leon, 110 Phil. 28 Director of Lands vs. Jurado, L14702,
May 23, 1961 Pea, "Law on Natural Resources", p. 49). Under the foregoing considerations, it is evident
that the mortgage executed by private respondent on his own building which was erected on the land
belonging to the government is to all intents and purposes a valid mortgage.

Same Same Same Same Restrictions expressly mentioned on the face of the respondents'
title, are valid, as under the Public Land Act what are referred to are lands or any improvements thereon,
and have no application to the assailed mortgage which was executed before such eventuality Case at
bar.As to restrictions expressly mentioned on the face of respondents' OCT No. P2554, it will be noted
that Sections 121,122 and 124 of the Public Land Act, refer to land already acquired under the Public
Land Act, or any improvement thereon and therefore have no application to the assailed mortgage in the
case at bar which was appearing on the face of private respondent's title has likewise no application in
the instant case, despite its reference to encumbrance or alienation before the patent is issued because it
refers specifically to encumbrance or alienation on the land itself and does not mention anything
regarding the improvements existing thereon.

Same Same Same Same A mortgage executed after the issuance of the sales patent and of
the original certificate of title falls squarely under the prohibition of the Public Land Act and Republic Act
730, and is null and void.But it is a different matter, as regards the second mortgage executed over the
same properties on May 2, 1973 for an additional loan of P20.000.00 which was registered with the
Registry of Deeds of Olongapo City on the same date. Relative thereto, it is evident that such mortgage
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executed after the issuance of the sales patent and of the Original Certificate of Title, falls squarely under
the prohibitions stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of Republic Act
730, and is therefore null and void.

Same Same Same Same As between parties to a contract validity cannot be given to it by
estoppel if it is prohibited by law or is against public policy.Petitioner points out that private
respondents, after physically possessing the title for five years, voluntarily surrendered the same to the
bank in 1977 in order that the mortgaged may be annotated, without requiring the bank to get the prior
approval of the Ministry of Natural Resources beforehand, thereby implicitly authorizing Prudential Bank
to cause the annotation of said mortgage on their title. However, the Court, in recently ruling on violations
of Section 124 which refers to Sections 118,120, 122 and 123 of Commonwealth Act 141, has held: "x x x
Nonetheless, we apply our earlier rulings because we believe that as in pari delicto may not be invoked to
defeat the policy of the State neither may the doctrine of estoppel give a validating effect to a void
contract. Indeed, it is generally considered that as between parties to a contract, validity cannot be given
to it by estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is not within the
competence of any citizen to barter away what public policy by law seeks to preserve (Gonzalo Puyat &
Sons, Inc. vs. De los Amas and Alino, supra). x x x" (Arsenal vs. IAC, 143 SCRA 54 [1986]).

G.R. No. L-11658 February 15, 1918

LEUNG YEE, plaintiff-appellant,


vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.
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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.
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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
11

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.
12

1. CHATTEL MORTGAGE REGISTRY OF MORTGAGE .COVERING REAL PROPERTY.The


sole purpose and object of the chattel mortgage registry is to provide for the registry of "chattel
mortgages," and transfers thereof, that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. Neither the original registry in a chattel mortgage
registry of an instrument purporting to be a chattel mortgage of a building and the machinery
installed therein, nor the an notation in that registry of the sale of the mortgaged property, had any
effect whatever so far as the building is concerned.
2. ID. ID.A factory building is real property, and the mere fact that it is mortgaged and sold,
separate and apart from the land on which it stands, in no wise changes its character as real
property.

3. VENDOR AND PURCHASER REGISTRY OF TITLE GOOD FAITH.The rights secured under
the provisions of article 1473 of the Civil Code to that one of two purchasers of the same real
estate, who has secured and inscribed his title thereto in the Land Registry,. do not accrue unless
such inscription is made in good faith.

4. ID. SEPARATE PURCHASERS DETERMINATION OF RIGHTS.The respective rights of two


or more separate purchasers of the same real estate from the same owner in case none of them
has secured an inscription of his title in the land registry in good faith, are to be determined in
accord with the third, and not the second paragraph of that article.

5. ID. 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.

6. ID. ID.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.

7. ID. ID.Good faith, or the lack of it, is in its last 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.

8. ID. ID."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."