G.R. No.

L -11658 (February 15, 1918)

LEUNG YEE vs. FRANK L. STRONG MACHINERY COMPANY and J.G. WILLIAMSON Facts: The Compania Agricola Filipina (CAF) bought rice-cleaning machines from Strong Machinery Company (SMC). These machines were installed in one of the CAF’s buildings, which was made out of strong materials. A chattel mortgage was executed to secure payment of the purchase price. The chattel mortgage included the building and the machines; the land on which it stood was not included. When CAF failed to pay their debt, the property was sold by the sheriff and the same was bought by SMC. The mortgage was registered in the chattel mortgage registry and the sale of the property to SMC was annotated on the same registry on December 29, 1913. On January 14, 1913, CAF executed a deed of sale of the land, where the building stood, to SMC. The sale was in the form of a public instrument, but the same was not registered. SMC went into possession of the building at or about the same time when the sale took place. At or about the same time when the chattel mortgage was executed in favor of SMC, CAF executed another mortgage to herein plaintiff (Leung Yee) upon the building to secure payment of the balance of its indebtedness. Upon CAF’s failure to pay, Leung Yee secured judgment for the amount and levied execution upon the building, bought it at the sheriff’s sale on or about Dec 18, 1914 and had the sheriff’s certificate of sale duly registered in the land registry of Cavite. At the time of the execution, SMC, who was in possession, filed with the sheriff a sworn statement setting up its claim of title and demanding the release of the property from the levy. Accordingly, an action to recover possession of the building was filed by Leung Yee. RTC ruled in favor of SMC on the ground that the company had its title to the building registered prior to the date of the registry of Leung Yee’s certificate. Thus, this appeal. Issue: Who has a better right to the property? Ruling: RTC ruling in favor of SMC is affirmed; ground modified. Ratio Decidendi: The building made out of strong materials is real property. The mere fact that the parties dealt with it as separate and apart from the land (or as personal property) does not change its character as real property. In this case, it follows that neither the original registry in the 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 legal effect. However, since the facts disclose that the purchase by Leung Yee and the inscription on the sheriff’s certificate of sale were not made in good faith, it must be held that SMC is the owner of the property pursuant to the third (3rd) paragraph of Article 1473 of the NCC, “…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.”

Case digest by: Farhanna B. Mapandi | LLB - 2