Commissioner of Customs vs.

Capistrano
Facts: On March 31, 1955, Caridad Capistrano was booked as an outgoing passenger of a plane bound for
Hongkong. When she was subjected to the customary search by a woman agent of the Bureau of Customs
immediately before the plane she was to board took off, there were found in her 156 pieces of Philippine 50-peso
bills17 pieces of U.S. 20-dollar bills and 1 piece of U.S. 10-dollar bill, although her license from the Central Bank
allowed her to carry only $200, broken down into $50.00 in cash and $150.00 in traveler's check. Consequently,
the bills were seized for alleged violation of Central Bank Circulars Nos. 42 and 55, in relation to Section 1363 (f)
of the Revised Administrative Code.
In the seizure and forfeiture proceedings correspondingly instituted, the Collector of Customs rendered on May 5,
1955, a decision ordering the forfeiture in favor of the Government of the bills in question. This decision was
affirmed by the Commissioner of Customs on July 29, 1955.
Dissatisfied, Caridad Capistrano brought the matter to the Court of Tax Appeals.

Court of Tax Appeals:

June 4, 1956 While Circulars Nos. 37, 20, 42 and 55 were promulgated by the Monetary Board pursuant to the
provisions of Republic Act No. 265, said circulars did not, however, authorize the seizure and forfeiture of the
Philippine peso bills carried by herein petitioner in excess of that allowed by the Central Bank regulations. The
Tax Court further said that neither could Section 1363 (f) of the Revised Administrative Code be invoked because
said section referred merely to "merchandise or prohibited importation or exportation." the U. S. dollar falls
within the term "merchandise". However, the same thing was not said of the Philippine peso. Hence, the decision
of the Commissioner of Customs, insofar as the 156 pieces of Philippine 50-peso bills were concerned, was
reversed, and said bills were ordered to be returned to petitioner Capistrano. From that portion of the decision, the
Commissioner of Customs has appealed to this Court.

Issue: WON the Court of Tax Appeals erred in revoking the order of forfeiture of the Philippine peso bills and
ordering their release to the appellee.
Held:
Section 1363 (f) of the Revised Administrative Code relied upon by the appellant reads as follows: Any
merchandise of prohibited importation or exportation, the importation or exportation of which is effected or
attempted contrary to law, and all other merchandise which, in the opinion of the collector, have been used, are
or were intended to be used as instrument in the importation or exportation of the former.
There can scarcely be any doubt that Philippine money may be exported or brought out of the country. Indeed, the
Court of Tax Appeals recognized this fact in the decision appealed from. That such exportation affects the
stability of the peso cannot be denied. As clearly explained by the Tax Court, it was in the light of compelling
economic reasons that the exportation of Philippine bills and coins were prohibited, subject to certain exceptions.
We believe that Philippine peso bills come within the concept of "merchandise," as this term is understood in the
Revised Administrative Code. As defined by the same Code, merchandise, when used with reference to
importations or exportations, includes goods, wares, and in general anything that may be the subject of
importation or exportation. (Sec. 1419.) It cannot be gainsaid that money may be a commodity — an object of
trade. In the same manner that in the Philippines the United States dollar bills which have ceased to be legal
tender, are considered merchandise, the Philippine peso bills when attempted to be exported, as in the
present case, may be deemed to have been taken out of domestic circulation as legal tender and treated as
commodity. Hence, they may be forfeited pursuant to Central Bank Circular No. 37 in relation to Section 1363 (f)
of the Revised Administrative Code.
Wherefore, the decision appealed from is reversed.

Fernando vs. St. Scholastica's College

Facts: Respondents St. Scholastica’s College and St. Scholastica’s Academy-Marikina, Inc. are educational
institutions. Respondent SSC is the owner of 4 parcels of land, located in Marikina Heights. Located within the
property are SSA- Marikina, the residence of the sisters of the Benedictine Order, the formation house of the
novices, and the retirement house for the elderly sisters. The property is enclosed by a tall concrete perimeter
fence built some 30 years ago. Abutting the fence along the West Drive are buildings, facilities, and other
improvements.
The petitioners are the officials of the City Government of Marikina. On September 30, 1994, the Sangguniang
Panlungsod of Marikina enacted Ordinance No. 192, entitled "Regulating the Construction of Fences and Walls in
the Municipality of Marikina." In 1995 and 1998, Ordinance Nos. 2175 and 2006 were enacted to amend Sections
7 and 5, respectively. It is by virtue of RA No. 7160 or Local Government Code of 1991 empowers the local
legislative body of the municipality to prescribe reasonable limits and restraints on the use of property within the
jurisdiction of the municipality, for public safety and security, for clean, green and beautiful environment for
Marikeños, high and solid walls as fences are considered "un-neighborly" preventing community members to
easily communicate and socialize and deemed to create "boxed-in" mentality among the populace.

Section 1. The Ordinance regulates the construction of all fences, walls and gates on lots classified or used for
residential, commercial, industrial, or special purposes.

Section 3. The standard height of fences or walls allowed under this ordinance are as follows:

(1) Fences on the front yard – shall be no more than one (1) meter in height. Fences in excess of one (1)
meter shall be of an open fence type, at least eighty percent (80%) see-thru; and

(2) Fences on the side and back yard – shall be in accordance with the provisions of P.D. 1096 otherwise
known as the National Building Code.

Section 6. Exemption.

(1) The Ordinance does not cover perimeter walls of residential subdivisions.

(2) When public safety or public welfare requires, the Sangguniang Bayan may allow the construction
and/or maintenance of walls higher than as prescribed herein and shall issue a special permit or
exemption.

Section 7. Transitory Provision. Real property owners whose existing fences and walls do not conform to the
specifications herein are allowed adequate period of time from the passage of this Ordinance within which to
conform, as follows:

(1) Residential houses – eight (8) years

(2) Commercial establishments – five (5) years

(3) Industrial establishments – three (3) years

(4) Educational institutions – five (5) years8 (public and privately owned)

Section 8. Penalty. Walls found not conforming to the provisions of this Ordinance shall be demolished by the
municipal government at the expense of the owner of the lot or structure.

On April 2, 2000, the City Government of Marikina sent a letter to the respondents ordering them to demolish and
replace the fence of their Marikina property to make it 80% see-thru, and, at the same time, to move it back about
six (6) meters to provide parking space for vehicles to park. 9 On April 26, 2000, the respondents requested for an
extension of time to comply with the directive. 10 In response, the petitioners, through then Mayor Fernando,
insisted on the enforcement of the subject ordinance.

The respondents filed a petition for prohibition with an application for a writ of preliminary injunction and
temporary restraining order before the Regional Trial Court, Marikina, Branch 273. They argued that the
petitioners were acting in excess of jurisdiction in enforcing the Ordinance, asserting that such contravenes
Section 1, Article III of the 1987 Constitution. That demolishing their fence and constructing it 6 meters back
would result in the loss of about 19million. It would also result in the destruction of the garbage house, covered
walk, electric house, storage house, comfort rooms, guards’ room, guards’ post, waiting area for visitors, waiting
area for students, Blessed Virgin Shrine, P.E. area, and the multi-purpose hall, resulting in the permanent loss of
their beneficial use. They asserted that the implementation of the ordinance on their property would be tantamount
to an appropriation of property without due process of law; and that the petitioners could only appropriate a
portion of their property through eminent domain. They also pointed out that the goal of the provisions to deter
lawless elements and criminality did not exist as the solid concrete walls of the school had served as sufficient
protection for many years.

The petitioners, on the other hand, countered that the ordinance was a valid exercise of police power.

RTC: October 2, 2002

Agreed with the respondents that the order of the petitioners to demolish the fence at the SSC property in
Marikina and to move it back six (6) meters would amount to an appropriation of property which could only be
done through the exercise of eminent domain. It held that the petitioners could not take the respondents’ property
under the guise of police power to evade the payment of just compensation.  It also found that the respondents
were able to prove that the danger to security had no basis in their case. Moreover, it held that the purpose of
beautification could not be used to justify the exercise of police power.  It also held that such retroactive effect
should not impair the respondents’ vested substantive rights over the property. It ruled that the assailed ordinance
was neither remedial nor curative in nature, considering that at the time the respondents’ perimeter wall was built,
the same was valid and legal, and the ordinance did not refer to any previous legislation that it sought to correct.
petitioners could still take action to expropriate the subject property through eminent domain.

CA: December 1, 2003 

Dismissed the petitioners’ appeal and affirmed the RTC decision. The ordinance did not justify the exercise of
police power, as it did not only seek to regulate, but also involved the taking of the respondents’ property without
due process of law. The respondents were bound to lose an unquantifiable sense of security, the beneficial use of
their structures, and a total of 3,762.36 square meters of property. The assailed ordinance could not be upheld as
valid as it clearly invaded the personal and property rights of the respondents and "[f]or being unreasonable, and
undue restraint of trade."

Issues: WHETHER OR NOT CA ERRED IN DECLARING THAT CITY ORDINANCE 192 SERIES OF 1994
IS NOT A VALID EXERCISE OF POLICE POWER.

WHETHER OR NOT CA ERRED IN RULING THAT AFOREMENTIONED ORDINANCE IS AN EXERCISE

OF THE CITY OF THE EMINENT DOMAIN.

WHETHER OR NOT CA ERRED IN DECLARING THAT THE CITY VIOLATED THE DUE PROCESS
CLAUSE IN IMPLEMENTING ORDINANCE 192 SERIES OF 1994.

WHETHER OR NOT CA ERRED IN RULING THAT THE ABOVE-MENTIONED ORDINANCE CANNOT

BE GIVEN RETROACTIVE APPLICATION.

Held:

Ordinance No. 192 was passed by the City Council of Marikina in the apparent exercise of its police power. To
successfully invoke the exercise of police power as the rationale for the enactment of an ordinance and to free it
from the imputation of constitutional infirmity, two tests have been used by the Court – the rational relationship
test and the strict scrutiny test:

We ourselves have often applied the rational basis test mainly in analysis of equal protection challenges. Using
the rational basis examination, laws or ordinances are upheld if they rationally further a legitimate governmental
interest. Under intermediate review, governmental interest is extensively examined and the availability of less
restrictive measures is considered. Applying strict scrutiny, the focus is on the presence of compelling, rather than
substantial, governmental interest and on the absence of less restrictive means for achieving that interest.

As with the State, local governments may be considered as having properly exercised their police power only if
the following requisites are met: (1) the interests of the public generally, as distinguished from those of a
particular class, require its exercise and (2) the means employed are reasonably necessary for the accomplishment
of the purpose and not unduly oppressive upon individuals. In short, there must be a concurrence of a lawful
subject and lawful method.

The Court joins the CA in finding that the real intent of the setback requirement was to make the parking space
free for use by the public, considering that it would no longer be for the exclusive use of the respondents as it
would also be available for use by the general public. Section 9 of Article III of the 1987 Constitution, a provision
on eminent domain, provides that private property shall not be taken for public use without just compensation.

The petitioners cannot justify the setback by arguing that the ownership of the property will continue to remain
with the respondents. It is a settled rule that neither the acquisition of title nor the total destruction of value is
essential to taking. In fact, it is usually in cases where the title remains with the private owner that inquiry should
be made to determine whether the impairment of a property is merely regulated or amounts to a compensable
taking.32 The Court is of the view that the implementation of the setback requirement would be tantamount to a
taking of a total of 3,762.36 square meters of the respondents’ private property for public use without just
compensation, in contravention to the Constitution.

Regarding the beautification purpose of the setback requirement, it has long been settled that the State may not,
under the guise of police power, permanently divest owners of the beneficial use of their property solely to
preserve or enhance the aesthetic appearance of the community.

Compelling the respondents to construct their fence in accordance with the assailed ordinance is, thus, a clear
encroachment on their right to property, which necessarily includes their right to decide how best to protect their
property.

It also appears that requiring the exposure of their property via a see-thru fence is violative of their right to
privacy, considering that the residence of the Benedictine nuns is also located within the property. The right to
privacy has long been considered a fundamental right guaranteed by the Constitution that must be protected from
intrusion or constraint.

The petitioners argue that Ordinance No. 192 is a curative statute as it aims to correct or cure a defect in the
National Building Code, namely, its failure to provide for adequate guidelines for the construction of fences. They
ultimately seek to remedy an insufficiency in the law. In aiming to cure this insufficiency, the petitioners attempt
to add lacking provisions to the National Building Code. This is not what is contemplated by curative statutes,
which intend to correct irregularities or invalidity in the law. The petitioners fail to point out any irregular or
invalid provision. As such, the assailed ordinance cannot qualify as curative and retroactive in nature.

At any rate, there appears to be no insufficiency in the National Building Code with respect to parking provisions
in relation to the issue of the respondents. Paragraph 1.16.1, Rule XIX of the Rules and Regulations of the said
code requires an educational institution to provide one parking slot for every ten classrooms. As found by the
lower courts, the respondents provide a total of 76 parking slots for their 80 classrooms and, thus, had more than
sufficiently complied with the law.

WHEREFORE, the petition is DENIED. The October 2, 2002 Decision of the Regional Trial Court in SCA Case
No. 2000-381-MK is AFFIRMED but MODIFIED to read as follows:

WHEREFORE, the petition is GRANTED. The writ of prohibition is hereby issued commanding the respondents
to permanently desist from enforcing or implementing Sections 3.1 and 5 of Ordinance No. 192, Series of 1994,
as amended, on the petitioners' property in question located in Marikina Heights, Marikina, Metro Manila.

Ludo &Lyn Development Court vs. Barreto

Facts:

In 1938, Barreto, as tenant of landowner Bartolome, worked on and cultivated two hectares of land devoted to
sugarcane plantation.

In 1956, Antonio Bartolome sold the entire estate to LUDO with the latter absorbing all the farmworkers of the
former. Barreto was designated as a co-overseer with Bartolome on the 6-hectare coco land portion of the estate,
pending the development of the entire estate into a residential-commercial complex. It was agreed that the new
owner, herein petitioner LUDO, Bartolome and complainant Barreto will share in the harvests.In 1972, when
sugarcane production became unprofitable, LUDO discontinued the planting of the same and shifted to cassava
production. Soil analysis revealed later, however, that the land was not suitable for cassava production and so the
same was also discontinued.

In 1975, City Ordinance, Zoning Regulation of Iligan City, was passed. Pursuant thereto, the subject landholding
fell within the Commercial-Residential Zone of the city.

Sometime in 1978, having decided to convert the entire estate into a residential-commercial complex, LUDO
instructed Bartolome, who, in turn, instructed complainant Barreto, to submit a list of its legitimate farmworkers
so that they may be given some sort of disturbance compensation. Accordingly, such list was submitted. Some
farmworkers accepted "disturbance" compensation, while the others who refused to accept the same instituted
Court of Agrarian Reform (CAR) Cases No. 48 and No. 59. In Case No. 59 Barreto was impleaded as a party
defendant in his capacity as a co-overseer of the entire estate. Ultimately, said cases were settled by compromise
agreements.

On 30 March 1978, the Department of Agrarian Reform issued a conversion permit to LUDO authorizing the
conversion of the entire estate into a residential/commercial lot.

10 years later, or on 24 November 1988, herein co-petitioner CPC, the developer of the subject property, wrote
the Secretary of the DAR to ask for the renewal of the conversion permit earlier issued to the owner, herein
petitioner LUDO, as required by the Housing and Land Use Regulatory Board, in relation to the revised
subdivision plan of herein co-petitioner developer CPC for the subject property.

Barreto opposed the above move by filing on 30 April 1991 a letter-complaint before the DARAB Regional
Office in Iligan City, on the ground that such act was one of the prohibited acts enjoined by Section 73 of
Republic Act No. 6657.

SEC. 73. Prohibited Acts and Omissions. - The following are prohibited:

(c) The conversion by any landowner of his agricultural land into any non-agricultural use with intent to avoid
the application of this Act to his landholdings and to dispossess his tenant farmers of the land tilled by them.

CPC formally informed Barreto of the termination of his employment as a co-overseer of the subject landholding
due to the fact that the management has "already commenced selling our subdivision lots and therefore, we have
to start cutting coconut trees and other plants, especially within the subdivision area…."

DARAB Regional Office (Region XII) in Iligan City: April 3, 1992

Judgment is rendered in favor of the respondents and against the complainant. Complainant’s opposition against
the application for renewal of the conversion order, his claims for payment of disturbance compensation and
damages are hereby DISMISSED for lack of merit. Complainant’s relocation or payment of disturbance
compensation is addressed to the humanitarian disposition of the respondents, as the complainant has no legal
right of possession much less ownership over the premises he is residing.

There was no tenancy relationship existing between LUDO and Barreto, thus, no disturbance compensation was
due the latter for having been dispossessed of the 6-hectare landholding he had been tilling. We give credence to
the affidavit of Bartolome, complainant’s co-overseer and former owner of the 36-hectare landholding, stating
that "the complainant was one of his farmworkers who was then cultivating a 2-hectare portion of his land which
was devoted to sugarcane production at the time of sale in 1956. Thereafter, they were jointly designated as
overseers of the entire LUDODEV estate and subsequently on the 6-hectare portion of the estate which was
planted with coconuts."

Likewise, it stated that even if Barreto was indeed a tenant of the landholding, when he did not join as party
plaintiff in either of the CAR cases aforementioned, and instead opted to be designated as a co-overseer with
Bartolome, he waived the alleged tenant status.

Furthermore, the DARAB Regional Office also made the pronouncement that as early as 1975, the subject
landholding ceased to be agricultural in nature when Estrella, Secretary of the DAR, issued a conversion permit
allowing said conversion from agricultural to residential/commercial pursuant to the zoning regulation passed by
the legislative authority of Iligan City. The land having ceased to be agricultural in nature as far back as 1975,
there was no current legitimate tenant to speak of.

With respect to the claim of Barreto for payment of disturbance compensation: RA 3844, SEC. 38.  Statute of
Limitations. – An action to enforce any cause of action under this Code shall be barred if not commenced within
three years after such cause of action accrued.

Barreto appealed the abovementioned decision to the DARAB. He died, heirs substituted

DARAB Regional Office: May 14, 1997

Finding no reversible error in the Decision of the Board a quo, the appeal is hereby DISMISSED for lack of merit.
Filed MR, but denied.

CA

Ruled in favor of petitioners-appellants heirs of Vicente C. Barreto and annulled and set aside the DARAB’s
decision, stating thus:

WHEREFORE, the petition for review is granted. The assailed Decision promulgated on May 14, 1997 and
Resolution dated August 12, 1997 are hereby ANNULLED and SET ASIDE. Respondents are ordered to pay
petitioners disturbance compensation under Sec. 36(1) of R.A. 3844.Let the records of this case be remanded to
the Department of Agrarian Reform Adjudication Board for the computation of disturbance compensation in
accordance to law.17

Respondents-appellees LUDO and CPC filed a motion for reconsideration but said motion was similarly denied
for lack of merit by the Court of Appeals in a resolution dated 02 April 2003.

Issue: WON there existed a tenancy relationship between petitioner LUDO and Vicente Barreto.

Held:

The essential requisites of tenancy relationship are:

1. the parties are the landholder and the tenant;

2. the subject is agricultural land;

3. there is consent;

4. the purpose is agricultural production; and

5. there is consideration.

All of the above requisites are indispensable in order to create or establish tenancy relationship between the
parties. Inexorably, the absence of at least one requisite does not make the alleged tenant a de facto one for the
simple reason that unless an individual has established one’s status as a de jure tenant, he is not entitled to
security of tenure guaranteed by agricultural tenancy laws. Conversely, one cannot be ejected from the
agricultural landholding on grounds not provided by law. This is unequivocally stated in Section 7 of Rep. Act
No. 3844, which provides:

SEC. 7. Tenure of Agricultural Leasehold Relation. – The agricultural leasehold relation once established shall
confer upon the agricultural lessee the right to continue working on the landholding until such leasehold relation
is extinguished. The agricultural lessee shall be entitled to security of tenure on his landholding and cannot be
ejected therefrom unless authorized by the Court for causes herein provided.

The fact that Barreto did not institute a case or did not join the other tenants in CAR Case Nos. 48 and 59 does not
imply that he was not a tenant. He precisely filed his opposition before the Board to protect his rights as tenant on
the subject 6-hectare coconut land. His action or rather inaction in the past does not bar him of the petitioners
from seeking whatever relief they may be entitled to under the law.

The intention of a tenant to surrender the landholding and concomitantly the statutory rights emanating from the
status of being a tenant, absent a positive act, cannot, and should not, be presumed, much less determined by
implication alone. Otherwise, the right of a tenant to security of tenure becomes an illusory one. Tenancy relations
cannot be bargained away except for the strong reasons provided by law which must be convincingly shown by
evidence.

In the case at bar, it bears emphasizing that no one has denied the existence of the tenancy status of deceased
Barreto over the subject 36-hectare landholding with respect to its former owner, Bartolome. There being no
waiver executed by deceased tenant Barreto, no less than the law clarifies that the existence of an agricultural
tenancy relationship is not terminated by mere changes of ownership, in cases of sale or transfer of legal
possession as in lease.
Rep. Act No. 3844 provides that: SEC. 10. Agricultural Leasehold Relation Not Extinguished by Expiration of
Period, etc. – The agricultural leasehold relation under this Code shall not be extinguished … by the sale, … of
the landholding. In case the agricultural lessor sells, … the purchaser … shall be subrogated to the rights and
substituted to the obligations of the agricultural lessor.

For this reason, when petitioner LUDO became the owner of the subject landholding, it became subrogated to the
rights and obligations of its predecessor-in-interest, Bartolome, his obligation under the law to the deceased
tenant, Barreto, continues and subsists until terminated as provided for by law.

Tenant- person who, himself, and with the aid available from within his immediate household, cultivates the land
belonging to or possessed by another, with the latter’s consent for purposes of production, sharing the produce
with the landholder under the share tenancy system, or paying to the landholder a price certain or ascertainable in
produce or in money or both, under the leasehold system. [Section 5(a) of Rep. Act No. 1199]

Though the late Barreto was designated as a co-overseer of the subject landholding, he was also tilling the land
and had a sharing arrangement with petitioner LUDO and Bartolome. Therefore, the deceased also took on the
added duty of being the overseer of the petitioners.

We cannot sustain the pronouncements of the Boards a quo to the effect that as early as 1975, the subject
landholding ceased to be agricultural in nature when the Minister of Agrarian Reform issued a conversion
permit allowing said conversion from agricultural to residential/commercial pursuant to the zoning
regulation passed. The land having ceased to be agricultural as far back as 1975, there can be no current
legitimate tenant to speak of.

Conversion- act of changing the current use of a piece of agricultural land into some other use as approved
by the DAR.

Reclassification- act of specifying how agricultural lands shall be utilized for non-agricultural uses such as
residential, industrial or commercial, as embodied in the land use plan, subject to the requirements and
procedure for land use conversion. Accordingly, a mere reclassification of agricultural land does not
automatically allow a landowner to change its use and thus cause the ejectment of the tenants. Parties can
still continue with their tenurial relationship even after such reclassification. He has to undergo the process
of conversion before he is permitted to use the agricultural land for other purposes.

Not only does the 6-hectare landholding go through the farming activities at one point in, they also
admitted that the land was devoted and utilized for the production and harvest of coconut products.

On the basis of the foregoing, it is indubitable that the subject landholding is agricultural land.

Court proceedings are indispensable where the reclassification/conversion of a landholding is duly determined
before ejectment can be effected, which, in turn, paves the way for the payment of disturbance compensation.

In the case at bar, though there appears to be no court proceeding which took cognizance of the
reclassification/application for conversion of the subject landholding from agricultural to residential/commercial,
the permit issued by the DAR was never assailed and thus, attained finality. Barreto, who used to be a tenant of
petitioner LUDO at the time of the conversion of the subject landholding, is entitled to disturbance compensation
for his dispossession.

Having declared that deceased Barreto, who had been fittingly substituted by his legal heirs, is entitled to
disturbance compensation under the law, the next appropriate concern to be addressed is if such entitlement has
already prescribed by virtue of Section 38 of Rep. Act No. 3844: “An action to enforce any cause of action under
this Code shall be barred if not commenced within three years after such cause of action accrued.”

Barreto’s cause of action arose in 1974 when the latter received notice of the intended conversion of the subject
landholding by LUDO. When the deceased filed the instant complaint in 1991, 13 years had already passed,
hence, beyond the three-year prescriptive period enunciated above.

In fine, the Court cannot, in law and conscience, condone the eviction of the deceased Vicente C. Barreto, absent
the payment of disturbance compensation due him under the law.
WHEREFORE, in view of the foregoing, the instant petition is DENIED. The assailed Decision dated 24
November 2000, and the Resolution dated 26 January 2001, rendered by the Court of Appeals in CA-G.R. SP No.
46025, are hereby AFFIRMED in toto.

Leung Yee vs. Strong Machinery Co.

Facts:

The "Compañia 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.

On January 14, 1914, the "Compañia 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 or on 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 "Compañia 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 December 18, 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.

RTC:

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.

Chattel Mortgage Law- contemplates and makes provision for mortgages of personal property; and the sole
purpose and object of this 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 "Compañia
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.

Held:

The RTC 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. Such an interpretation placed upon the language of this section would open wide
the door to fraud and collusion. 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.

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.

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."

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.