LEUNG YEE V. F.L STRONG MACHINERY CO.
AND WILLIAMSON When CEF failed to pay, the registered mortgage was foreclosed and Strong
37 SCRA 644
FACTS:1. First mortgage: Compania Agricola Filipina bought rice-cleaning
machinery from the machinery company and this was secured by a chattel mortgage
on the machinery and the building to which it was installed. Upon failure to pay,
the chattel mortgage was foreclosed, the building and machinery sold in public
auction and bought by the machinery company.
2. Days after, the Compania Agricola Filipina executed a deed of sale over the land
to which the building stood in favor of the machinery company. This was done to cure
any defects that may arise in the machinery companys ownership of the building.
3. Second mortgage: on or about the date to which the chattel mortgage was
excecuted, Compania executed a real estate mortgage over the building in favor
of Leung Yee, distinct and separate from the land. This is to secure payment
for its indebtedness for the construction of the building. Upon failure to pay, the
mortgage was foreclosed.
4. The machinery company then filed a case, demanding that it be declared
the rightful owner of the building. The trial court held that it was the machinery
company which was the rightful owner as it had its title before the building was
registered prior to the date of registry of Leung Yees certificate.
HELD:
The building in which the machinery was installed 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 the character as real property.
It follows that neither the original registry in the chattel mortgage registry of the
instrument purporting to be a chattel mortgage of the building and the machinery
installed therein, nor the annotation in the registry of the sale of the mortgaged
property, had any effect whatever so far as the building is concerned.
*LANDMARK CASE
37 Phil. 644 Civil Law Law on Property Multiple Sale to Different
Vendees Real vs Personal Property
In 1913, Compania Agricola Filipina (CAF) was indebted to two personalities:
Leung Yee and Frank L. Strong Machinery Co. CAF purchased some rice
cleaning machines from Strong Machinery. CAF installed the machines in a
building. As security for the purchase price, CAF executed a chattel
mortgage on the rice cleaning machines including the building where the
machines were installed. CAF failed to pay Strong Machinery, hence the
latter foreclosed the mortgage the same was registered in the chattel
mortgage registry.
CAF also sold the land (where the building was standing) to Strong
Machinery. Strong Machinery took possession of the building and the land.
On the other hand, Yee, another creditor of CAF who engaged in the
construction of the building, being the highest bidder in an auction conducted
by the sheriff, purchased the same building where the machines were
installed. Apparently CAF also executed a chattel mortgage in favor Yee. Yee
registered the sale in the registry of land. Yee was however aware that prior
to his buying, the property has been sold in favor of Strong Machinery
evidence is the chattel mortgage already registered by Strong Machinery
(constructive notice).
ISSUE: Who is the owner of the building?
HELD: The SC ruled that Strong Machinery has a better right to the
contested property. Yee cannot be regarded as a buyer in good faith as he
was already aware of the fact that there was a prior sale of the same
property to Strong Machinery.
The SC also noted that the Chattel Mortgage Law expressly contemplates
provisions for chattel mortgages which only deal with personal properties.
The fact that the parties dealt the building as if its a personal property does
not change the nature of the thing. It is still a real property. Its inscription in
the Chattel Mortgage registry does not modify its inscription the registry of
real property.
Leung Yee vs Strong Machinery Co. 37 PHIL 644 GR No. L-11658
February 15, 1918
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.
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.
ISSUES
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.
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.