G.R. No. L-11583; February 8, 1918
JOSE SISON and EMILIO SISON, plaintiffs-appellants, vs. F. M. YAP TICO and AMANDO AVANCEÑA, provincial sheriff of Iloilo, defendants-appellees.

FACTS:
On April 11, 1912, plaintiffs Jose and Emilio Sison borrowed money from Eugenio Kilayko and executed a chattel mortgage covering machinery, crops, and carabaos, due on May 30, 1913. In May 1912, Kilayko assigned the mortgage to defendant F. M. Yap Tico, but the assignment was only registered on April 14, 1913. The plaintiffs had no actual notice of this assignment. They delivered sugar to Yap Tico’s warehouse as partial payments, believing Kilayko remained the mortgagee. After liquidation, a balance of P650 remained, which the plaintiffs’ representative paid directly to Kilayko on May 14, 1914. Kilayko then executed a cancellation of the mortgage. Subsequently, Yap Tico, as assignee, foreclosed the mortgage, and the provincial sheriff attached the mortgaged property. The plaintiffs protested, stating the mortgage had been paid and cancelled, but the sheriff proceeded, forcing the plaintiffs to post a bond to release the property. They then filed this action to recover the property and damages.

ISSUE:
Whether the mortgagors (plaintiffs) are relieved from liability by paying the original mortgagee (Kilayko) after the mortgage had been assigned to a third party (Yap Tico), without actual notice of the assignment.

RULING:
Yes. The Supreme Court reversed the lower court’s decision and held that the plaintiffs were relieved from liability. The Court ruled that:
1. Under Article 1527 of the Civil Code, a debtor who, before having knowledge of the assignment, pays the creditor, is released from the obligation.
2. The registration of the assignment of the chattel mortgage did not constitute constructive notice to the mortgagors. The Chattel Mortgage Law ( Act No. 1508 ) does not require such assignments to be recorded; recording is permissive, not mandatory. Thus, registration alone does not operate as notice to prior parties like the mortgagors.
3. The principle is prospective: registration imparts notice only to subsequent purchasers or encumbrancers, not to prior debtors. Since the plaintiffs had no actual notice of the assignment, their payment to Kilayko extinguished the debt.
4. Consequently, Yap Tico, as assignee, had no right to foreclose the mortgage, and the attachment by the sheriff was illegal. The plaintiffs were entitled to recover the property and damages.

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