Leung Yee v. Strong Machinery Co.

37 Phil. 644

FACTS: The "Compania Agricola Filipina" purchased from "Strong Machinery Co." rice-cleaning machines which the former installed in one of its buildings. As security for the purchase price, the buyer 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 the seller, the "Strong Machinery Co." This sale was annotated in the Chattel Mortgage Registry. Later, 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 the Machinery Co. took possession of the building and the lot.

Previously however, the same building has been purchases 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. Leung Yee now sues to recover the property from "Strong Machinery."

ISSUE: Who has a better right to the property?

HELD:  The building is real property, therefore, 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. Thus, 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. However, since the land and the building had first been purchased by "Strong Machinery" (ahead of Leung Yee), and this fact was known to Leung Yee, it follows that Leung Yee was not a purchaser in good faith, and should therefore not be entitled to the property. "Strong Machinery" thus has a better right to the property.