LEUNG YEE vs.

STRONG MACHINERY

FACTS:

The “Compania Agricola Filipna” (Agricola), purchased from “Strong Machinery Co.”, (Strong
Machinery), rice-cleaning materials which the former installed in one of its building. As a security for
the purchase price, Agricola executed a Chattel Mortgage on the machines and the building on which
they had been installed. Upon buyer’s failure to pay, the registered mortgage was foreclosed and the
building was purchased by Strong Machinery Co. This sale was annotated in the Chattel Mortgage
Registry. Lather the Agricola also sold to Strong Machinery the lot on which the building had been
constructed. This sale was not registered in the Registry of Property but Strong Machinery took
possession of the building and lot. Previously, however, the same building had been purchased at a
Sheriff’s sale by Leung Yee, a creditor of Agricola, although Leung Yee knew all the time of the prior
sale in favor of Strong Machinery. The sale in favor of Leung Yee was recorded in the Registry of
Property. Leung Yee now sues to recover the property from Strong Machinery.

ISSUE:

Will the sale of a building separate and apart from the land which it stands change its character as a
real property?

Who has a better right to the property?

HELD:

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.
As a real property, therefore, its sale as annotated in the Chattel Mortgage Registry cannot be given
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. Thus,
neither the original registry in the Chattel Mortgage registry, nor the annotation in said registry sale of
the mortgaged property had any effect on the building.

The sole purpose and object of the chattel mortgage registry is to provide for the registry of "chattel
mortgages," and transfers thereof, that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. Neither the original registry in a chattel mortgage registry
of an instrument purporting to be a chattel mortgage of a building and the machinery installed therein,
nor the annotation in that registry of the sale of the mortgaged property, had any effect whatever so
far as the building is concerned.

However, since the land and the building had first been purchased by Strong Machinery and this fact
is known to Leung Yee, 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.
Leung Yees’ purchase despite knowledge of the first sale made him a purchaser in bad faith and
should therefore not be entitled to the property. Strong Machinery thus has a better right to the
property.