Arroyo v. de Sane: Case Summary

161. Arroyo v.
De Sane
GR No. 31865 | 28 February 1930 | Malcolm, J.
Aggy | Topic: Significance of Registration of Transactions Affecting Vessels
Case Summary: The 2 Iorchas of Lim Ponzo Navigation were mortgaged to Pauco to guarantee a loan. The mortgage
was registered with the Registry of Deeds. Pauco later assigned his rights to the mortgage to PNB to secure his loan of
P50,000 from the bank. The second mortgage was also registered with the ROD. However, it was registered with the
Collector of Customs only on March 5, 1929. Meanwhile, De Sane secured a judgment against Lim Ponzo Navigation;
and a writ of attachment on the vessels and execution was consequently issued. The notice of seizure on the vessels
was recorded by the Collector on Dec. 4, 1928. The office also disclosed that the vessels at that time were free from
encumbrance. The sheriff was not able to enforce the writs because PNB filed a third party claim asserting its right over
the Iorchas pursuant to the mortgage executed by Pauco in favor of the bank. The sheriff then instituted an action to
compel the parties who have claims to the Iorchas to interplead with one another. Lower court found that the mere fact
that the mortgage was not registered in the Bureau of Customs until March 5, 1929 did not invalidate it because it was
proved during trial that the deferred registration was due to certain doubts entertained by the Collector of Customs
regarding the applicability of Act No. 3324 on the subject mortgage.
SC held that Sec. 1171 has modified the provisions of the Chattel Mortgage Law. It is now not necessary for a chattel
mortgage of a vessel to be noted in the Registry of Deeds. On the other hand, it is essential that a record of documents
affecting the title of a vessel be entered in the office of the Collector of Customs at a port of entry. This requirement is
designed to protect persons who deal with a vessel on the strength of the record title. Mortgages on vessels, although
not recorded, are good as between the parties. However, as against the creditors of the mortgagor, an unrecorded
mortgage is invalid. ITCAB, the mortgage of PNB was recorded in the Office of the Collector of Custom only on March
5, 1929. Notably, De Sane’s execution was noted at the port of entry on Dec. 4, 1928. Based on these facts, the
execution holder would have a better or prior right over the unrecorded mortgage. However, as found by the lower
court, there was an explanation for the delay in the recording. This uncontradicted fact cured PNB’s defective title. The
failure of the Collector to perform his duty was through no fault of the bank. Hence, constructive registration of the
mortgage must be accepted. SC then held that PNB has a superior claim.
Facts:
1. On Nov. 6, 1918, Iorchas China and Cuylim, owned by Lim Ponzo Navigation Co., were mortgaged to
JM Po Pauco to guarantee a loan of P20,000. The mortgage was registered in the Office of the
Register of Deeds of Iloilo, 2 days later.
a. Nov. 28, 1919 – Pauco executed a mortgage in favor of PNB to secure another loan of P50,000.
This covered among other things the titles, rights, and interests of Pauco in the 2 Iorchas. The
mortgage was also registered in the Office of the Register of Deeds of Iloilo a day later.
b. The chattel mortgage was registered with the Collector of Customs only on March 5, 1929.
2. Maria Corazon Yu de Cane secured a judgment against Lim Ponzo Navigation for P7,179.65.
a. A writ of attachment and execution were then secured, and the latter was dated Dec. 6, 1928.
b. The notice of seizure was recorded by the Collector of Customs of Iloilo on Dec. 4, 1928.
On the said date, the office disclosed that the vessels were free from encumbrances.
c. The writ of execution was not carried out by the sheriff because PNB filed a third party claim
asserting its right over the Iorchas pursuant to the mortgage executed by Pauco in favor of the
bank.
3. The sheriff then instituted an action to compel the various persons and entities with claims to the
Iorchas to interplead with one another to determine their conflicting rights. [Po Suy Liong, Ti Liong &
Co, JM Po Pauco, Maria de Sane, and PNB]
4. Lower court found that the mere fact that the mortgage was not registered in the Bureau of Customs
until March 5, 1929 did not invalidate it because it was proved during trial that the deferred registration
was due to certain doubts entertained by the Collector of Customs regarding the applicability of Act No.
3324 on the subject mortgage.
a. The Collector doubted if Act No. 3324, which was enacted on Dec. 1926 applies to the
mortgage executed on Nov. 1918 in favor of a Chinese subject because the said Act provided
for a prohibition that was previously not found in the previous Administrative Code.
b. LC ruled that De Sane may ask for another order of execution and order the sale of the vessels
subject to the mortgages.
c. LC also ordered foreclosure on the mortgaged vessels since the debt of Pauco was already due
and demandable.
5. De Sane appealed the decision arguing that as against PNB, she had preference over the 2 Iorchas.
Issue/s and Holding:

W/N De Sane has a better right over the 2 Iorchas, as against PNB?
● The registration of vessels is not governed by Sec. 1171 of the Administrative Code, which provides
that all transfers, bills of sale, mortgages, liens, or other documents which evidence ownership, or
directly or indirectly affect the title of registered vessels shall be recorded at length in the records of
transfers and incumbrances of vessels, to be kept at each principal port of entry. All receipts, certificate,
or acknowledgements canceling or satisfying, in whole or in part, any obligation shall also be recorded
therein.
○ It is clear that Sec. 1171 has modified the provisions of the Chattel Mortgage Law. It is now not
necessary for a chattel mortgage of a vessel to be noted in the Registry of Deeds.
○ On the other hand, it is essential that a record of documents affecting the title of a vessel be
entered in the office of the Collector of Customs at a port of entry.
○ This requirement is designed to protect persons who deal with a vessel on the strength
of the record title.
○ Mortgages on vessels, although not recorded, are good as between the parties. However, as
against the creditors of the mortgagor, an unrecorded mortgage is invalid.
● ITCAB, the mortgage of PNB was recorded in the Office of the Collector of Custom only on March 5,
1929. Notably, De Sane’s execution was noted at the port of entry on Dec. 4, 1928.
○ Based on these facts, the execution holder would have a better or prior right over the
unrecorded mortgage.
○ HOWEVER, as found by the lower court, there was an explanation for the delay in the
recording; and there is nothing in the records to prove the contrary. The mortgage was belatedly
recorded by the Collector of Customs because of his doubts as to the relative applicability of Act
No. 3324 on the mortgage.
■ This uncontradicted fact cured PNB’s defective title. The failure of the Collector to
perform his duty was through no fault of the bank.
■ HENCE, constructive registration of the mortgage must be accepted.
○ SC then held that PNB has a superior claim in the amount of P20,000, amount of Pauco’s
mortgage, which was transferred to PNB.
Ruling: Judgment appealed from is party affirmed. [Only partly affirmed because SC questioned the propriety
of the foreclosure order by the TC since the procedure provided by law for foreclosure was not substantially
carried out.]

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