THE EMPLOYEES’ CLUB, INC., PETITIONER AND APPELLEE, VS. CHINA BANKING CORPORATION, OPPOSITOR AND APPELLANT.

This is an appeal taken by the
oppositor-appellant China Banking Corporation, as mortgage creditor of
the Intestate Estate of Jose Javier Go Chioco, from the order entered
by the trial court on May 16, 1933, requiring it to surrender to the
register of deeds of the City of Manila the duplicate of transfer
certificate of title No. 21192 of the said registry, which it has in
its possession, in order that the contract of lease evidenced by
Exhibit A which was executed under judicial authorization on November
29, 1932, by the administrator of the intestate estate of said deceased
Jose Javier Go Chioco might be noted thereon and entered in the
corresponding records.

The oppositor-appellant contends that the order appealed from is
not enforceable because the contract of lease to which it refers was
not, and is not, by its nature, registerable in the registry of deeds.
Its grounds are: that said contract does not create a real right and
that, under the provisions of the Civil Code and the Mortgage Law, only
real rights are susceptible of registration in the registry of deeds,
with no other exception than those cases in which the lease is for a
period exceeding six years, or the rent corresponding to three years is
paid in advance, or there is an express covenant requiring the lease to
be inscribed in the registry of deeds.

The only pertinent clauses of the contract of lease in question are
the second and the fourteenth, which translated read as follows:

“2. That the term of this contract is three years from December 10, 1932, to November 30, 1935.

* * * * * * *

“14. In case of sale of the property where the
subject matter of this lease is situated, the lessor is bound to impose
upon the purchaser the obligation to respect the present contract of
lease.”

In passing, it should be stated that there is no dispute between
the parties with respect to the following facts: that during the
lifetime of Jose Javier Go Chioco, of whose intestate estate Francisco
Gumila is the judicial administrator, the appellant granted him a loan
of some two hundred fifty thousand pesos; that to secure the payment of
said loan, said debtor mortgaged, among other properties belonging to
him, his property at No. 419 Dasmarinas Street, Binondo, Manila, which
is covered by the above-mentioned transfer certificate of title; that
inasmuch as the obligation of said Jose Javier Go Chioco or his
intestate estate, which was secured by the aforesaid mortgage, became
due, the appellant instituted civil case No. 42578 of the Court of
First Instance of Manila for the recovery of the debt; and that while
said case was pending, the administrator of the intestate estate of
said deceased mortgagor leased to the appellee, in the manner above
stated, the third floor of the property referred to in said contract of
lease Exhibit A.

The appellant, in support of its contention that said contract of
lease was and is not, registerable, because its term is only for three
years and the rent corresponding to said term of three years has not
been paid in advance, nor was there any covenant between the lessor and
the lessee, requiring the contract to be inscribed in the registry of
deeds. invokes and quotes Manresa’s commentary on article 1571 of the
Civil Code, which reads as follows:

“In Chapter I of this title, we have amply
discussed the question whether or not a lease creates a real right in
favor of the lessee. From our study of the preceding and the actual
state of legislation, we are led to the conclusion that, in our law,
the right created in favor of the lessee by reason of the contract is,
as a general rule, personal in nature, and, by exception, real, when it
is among the cases provided for in article 2, No. 5, of the Mortgage
Law, that is, when the lease is for a period exceeding six years; the
rent for three years is paid in advance, or there is an express
covenant for its inscription in the registry of deeds, which are the
only three cases in which the lease is registerable.” (10 Manresa, page
637.)

The article commented on partly provides as follows:

“ART. 1571. The purchaser of a leased estate shall
be entitled to terminate any lease in force at the time of making the
sale, unless the contrary is stipulated, and subject to the provisions
of the Mortgage Law.”

The appellant forgets, or rather ignores, the fact that the
property in question is registered, not under the old Mortgage Law but
under Act No. 496, in accordance with the Torrens system; and it
forgets furthermore that the latter Act expressly provides that all
interests—and this word includes the interest arising from a contract
of lease, like that which the petitioner-appellee has in its favor—in
land registered in the registry under said Act are not only susceptible
of registration therein but must necessarily be registered in order to
affect third persons. Sections 51 and 52 of the said Act provide as
follows:

“SEC. 51. Every conveyance, mortgage, lease, lien,
attachment, order, decree, instrument, or entry affecting registered
land which would under existing laws, if recorded, filed, or entered in
the office of the register of deeds, affect the real estate to which it
relates shall, if registered, filed, or entered in the office of the
register of deeds in the province or city where the real estate to
which such instrument relates lies, be notice to all persons from the
time of such registering, filing, or entering.

“SEC. 52. No
new certificate shall be entered or issued upon any transfer of
registered land which does not divest the land in fee simple from the
owner or from some one of the registered owners. All interests in
registered land less than an estate in fee simple shall be registered
by filing with the register of deeds the instrument creating or
transferring or claiming such interest and by a brief memorandum
thereof made by the register of deeds upon the certificate of title,
signed by him. A similar memorandum shall also be made on the owner’s
duplicate. The cancellation or extinguishment of such interest shall be
registered in the same manner.”

The appellant contends that the provisions of section 52 are not
applicable in this case because, according to it, the section in
question refers exclusively to real rights or interests in land
registered in the registry of deeds. This is emoneous, on the ground
that the Spanish text of the law is relied upon by the appellant
whereas Act No. 496 was originally enacted by the Legislature in
English. (Act No. 63.) The rule that governs in this jurisdiction is
that the English text of a law should prevail over the Spanish text
when the same had been promulgated in that language. (Section 15 of the
Revised Administrative Code of 1917.)

The Spanish translation of the phrase: “All interests in registered
land” used in the said section 52, which reads: “La inscripcion o
registro de todo derecho real”, is inaccurate because it restricts the
meaning expressed by the phrase in question, which is, that all
interests in registered land less than an estate in fee simple are
registerable, without the necessity, however, of issuing a new
certificate of title therefor.

What is stated herein is not in conflict with the provisions of
section 51 which reads: “Every * * * lease * * * affecting registered
land which would under existing laws, if recorded, filed, or entered in
the office of the register of deeds, etc.”, because the phrase “which
would under existing laws” used therein does not necessarily mean the
Mortgage Law or the Civil Code. It also includes Act No. 496 of which
said section is a part because, as already stated, said Act requires,
rather than permits, the inscription in the registry of all rights or
interests in registered land, whether the same arises from a mortgage,
from an attachment, or from a lease or any other lien.

We should not be understood as giving no force to the provisions of
article 1571 of the Civil Code with respect to the right of the
purchaser of a leased estate to terminate the lease existing at the
time of the sale. It would be too premature to decide said question at
this time, for the reason that neither have the parties raised it nor
do the alleged and proven facts call for the same. Perhaps said
provisions will be of value especially in the appellant’s case if, at
the proper time, it becomes the purchaser of the property in question
in the proceedings instituted by it against the intestate estate of the
deceased Jose Javier Go Chioco for the recovery of the debt, on the
ground that the case involves a lease executed after the constitution
of the mortgage in its favor. However, this does not, for the reasons
already stated, prevent the lease granted to the appellee from being
inscribed in the registry of deeds in order to protect it, at least,
from other liens that may be constituted on the property which is the
subject matter of the lease.

Wherefore, this court considers it necessary for the appellant to
surrender to the register of deeds of the City of Manila the duplicate
of transfer certificate of title No. 21192, which it has in its
possession, in order that said official may make a notation on the said
document as well as on the original thereof and in the corresponding
records of his office, of the contract of lease contained in Exhibit A.

The order appealed from is affirmed, with the costs against the appellant. So ordered.

Street, Malcolm, Villa-Real, Hull, Vickers, Imperial, and Butte, JJ., concur.

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AVANCENA, C. J.,

I agree with the dissenting opinion of Justice Abad Santos. My
point of view, however, goes farther. Even granting that the lease of
the property in favor of the plaintiff is registerable, it cannot be
registered in so far as it affects the mortgage rights of the defendant
previously registered. The purpose of the mortgage is to secure with
the value thereof the payment of the debt. In this sense, it may be
said that it affects the value of the property more than the property
itself. It is for this essential reason in the mortgage that the debtor
cannot diminish the value of the mortgaged property and, therefore,
cannot execute any act which might in one way or another tend to cause
its depreciation.

If the lease in favor of the plaintiff is registered, it would
affect third persons and would have to be respected by the purchaser in
case the property is sold. This would be the legal effect of the
registration thereof. It can easily be understood that a lease for a
period which must be respected, necessarily causes depreciation in the
value of the property in case the same is sold, or, what is more, it
may not be sold because of this circumstance. In this way, if in the
proceedings already instituted by the defendant for the recovery of the
debt, the property is sold, it will not obtain the price which it
should otherwise obtain in the absence of the registered lease, and
perhaps the amount due the defendant may not be recovered for lack of a
purchaser of the property with said lien.

Inasmuch as the registration of the lease affects the mortgage
rights of the defendant in the manner above stated, such registration
cannot be made.

The circumstance that the defendant may perhaps be entitled to
terminate the lease, although the same be registered if it becomes the
purchaser of the property, is of no moment, for the reason that such
may not be the case and the defendant is entitled in all cases to be
protected in its mortgage credit.

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ABAD SANTOS, J.,

I dissent.

I am of the opinion that a contract of lease of real property for a
period not exceeding six years is not entitled to be recorded, unless
the stipulated rent has been paid in advance for three or more years,
or the parties thereto have expressly agreed that the same be recorded.
(Mortgage Law, article 2 [5].)

Section 52 of Act No. 496 does not require or authorize mere
persona] covenants to be recorded. The term “all interests in
registered land less than an estate in fee simple”, means exactly what
it says; it denotes estates in the land or real rights. It does not
include personal contracts relating to real property, which can convey
no interest in the land. (Storz vs. Kirsch, 78 Ind. A., 431; 138 N. E., 36.)

In this jurisdiction, the nature and effect of a contract of lease
are governed by the provisions of the Civil Code. While by the common
law a lease conveys an interest in land, under our law it does not; it
is a mere personal contract. (Civil Code, arts. 1542 and 1543; 10
Manresa, p. 637; Berwind-White Coal Mining Company vs. Borinquen Sugar Company, 6 Porto Rico Fed., 252.) It creates no estate or interest in land.

“While the common law regards a lease for years as
the grant of an estate, the civil law on the other hand regards a lease
for years as a mere transfer of the use and enjoyment of the property.
Hence, in the various civil-law jurisdictions, there are statutes
defining a lease as a contract by which one party gives to the other
the enjoyment of a thing at a fixed price, and as a contract in which
one party undertakes to give to the other the use of a thing for a
definite or indefinite period in consideration of a price certain. A
lease has also been defined as a contract by which one of the parties
agrees to give to the other for a fixed time and price the use or
profit of a thing, or of his services. A lease is a commutative and a
personal contract.” (35 C. J., 1141.)

It is not necessary to the validity of a lease that it be recorded,
but leases of real property which are not duly recorded have no effect
as against third persons. (Civil Code, article 1549.) Under the
Mortgage Law a lease of real property may be recorded (1) if it is for
a period exceeding six years, (2) if rent has been paid thereon in
advance for three or more years, and (3) if it contains a special
covenant by which record thereof is required. (Art. 2 [5].)