LEUNG YEE, plaintiff-appellant, vs.

FRANK L. STRONG MACHINERY COMPANY and J. G.

WILLIAMSON, defendants-appellees.
G.R. No. L-11658 / February 15, 1918
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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 CAF 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.
ISSUE:
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.
2. Art. 1473 of the New Civil Code provides the following rules on
determining ownership of property which has been sold to different
vendees:
If Personal Property grant ownership to person who 1st
possessed it in good faith
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.
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.

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

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FACTS:
A petition for review on certiorari of the November 13,1978 Decision of the
then CFI of Zambales and Olongapo City declaring that the deeds of real
estate mortgage executed by respondent spouses in favor of petitioner
bank are null and void.
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 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 which is declared and assessed
in the name of FERNANDO MACCALE.
All corners of the lot marked by conc. cylindrical monuments of the Bureau
of Lands as visible limits.
On 24 April 1973, the Secretary of Agriculture issued Miscellaneous Sales
Patent 4776 over the parcel of land, possessory rights over which were
mortgaged to Prudential Bank, in favor of the Magcales.
For failure of the Magcales to pay their obligation to the Bank after it
became due, the deeds of Real Estate Mortgage were extra-judicially
foreclosed. Consequent to the foreclosure was the sale of the properties
mortgaged to the bank as the highest bidder in a public auction sale
conducted by the City Sheriff on 12 April 1978.

The auction sale was held despite written request from the Magcales
through counsel, dated 29 March 1978, for the City Sheriff to desist from
going with the scheduled public auction sale.
The issue was raised to the CF Zambales and Olongapo City which, on 3
November 1978, declared the deeds of Real Estate Mortgage as null and
void.
The bank filed a motion for reconsideration on 14 December 1978, which
the court denied on10 January 1979 for lack of merit. Hence, the petition.
ISSUE: Whether or not a valid real estate mortgage can be constituted on
the building erected on the land belonging to another?
HELD:
1. Building separate and distinct from the land
In the enumeration of properties under Article 415 of the Civil
Code of the Philippines, 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).
2. Building can be mortgaged apart from the land it is built;
possessory rights may be validly transferred in a deed of mortgage
While 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).
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]).
3. A valid real estate mortgage may be constituted on the building
erected on the land belonging to another
The original mortgage was executed (19 November 1971)
before the issuance of the final patent (24 April 1972) and before the
government was divested of its title to the land (15 May 1972), 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; Pea, "Law on
Natural Resources", p.49). In the case at bar, it is evident that the
mortgage executed by Magcale on his own building which was erected on
the land belonging to the government is to all intents and purposes a valid
mortgage.

contracts that may be entered into in accordance with the requirements of

the law. Any new transaction, however, would be subject to whatever steps
the Government may take for the reversion of the land in its favor.
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs. JOAQUIN JARAMILLO, as register of deeds of the City of
Manila, respondent.
G.R. No. L-20329 / March 16, 1923

4. Public land act and RA 730 not violated in first mortgage

As to restrictions appearing to the Magcales title; Sections 121,
122 and 124 of the Public Land Act refer to land already acquired under
the Public Land Act or any improvement thereon. Section 2 of RA
730 refers 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. Both have no application to the assailed mortgage in the
case at bar; as the former, the mortgage was executed before
such eventuality, and the latter, it does not encumber nor alienate the land.

FACTS:
- On November 27, 1922, Gervasia de la Rosa was the lessee of a parcel
of land situated in the City of Manila and owner of the house of really
tough materials built thereon. She executed that fine day a document in
the form of a chattel mortgage, purporting to convey to Standard Oil
Company of New York (by way of mortgage) both the leasehold interest in
said lot and the building.
- After said document had been duly acknowledged and delivered,
Standard Oil presented it to 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, Jaramillo
opined that it was not 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.
- Later this confusion was brought to the Supreme Court upon demurrer by
Joaquin Jaramillo, register of deeds of the City of Manila, to an original
petition of the Standard Oil Company of New York, demanding a
mandamus to 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.
- The Supreme Court overruled the demurrer, and ordered that unless
Jaramillo interposes a sufficient answer to the petition for mandamus by
Standard Oil within 5 days of notification, the writ would be issued as
prayed, but without costs.

5. Mortgage made after issuance of Sales Patent an OCT prohibited;

Estoppel does not give validating effect to a void contract
As regards the second mortgage executed, 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 2of RA 730, and is
therefore null and void. Even if the title was voluntary surrendered to the
bank for the mortgage to be annotated without the prior approval of the
Ministry of Natural Resources; 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 (19Am. 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; Arsenal vs.
IAC, 143 SCRA 54 [1986]). Such does not, however, preclude new

ISSUE: