Leung Yee vs Strong Machinery Co.

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. 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.
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 mortgaged in favor of Leung Yee, CAF was unable to pay. LY purchased said
building 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:

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.

1. Art. 1473 of the New Civil Code provides the following rules on determining ownership of property which has
been sold to different vendees:
o If Personal Property grant ownership to person who 1st possessed it in good faith
o 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.