Leung Yee vs. Strong Machinery 37 Phil 644, (GR No.
L-11658 February 15, 1918)
FACTS:
Compania Agricola Filipina (CAF) purchased from Strong Machinery Co. rice–cleaning
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. When CAF failed to pay, the registered mortgage was foreclosed and Strong
Machinery Co. purchased the building. This sale was annotated in the Chattel Mortgage
Registry.
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 company’s ownership of the building.
On or about the date to which the chattel mortgage was executed, 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.
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 Yee’s
certificate.
ISSUE:
1) Whether or not the building can be classified as a real property, so as to subject it to a real
estate mortgage
2) Who has better right over the building
HELD:
Property:
1) 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.
2) It appears that Yee 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. He took the risk
and must stand by the consequences; and it is in this sense that 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; 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.
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.
Law on Sales:
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.
