Leung Yee V. Strong Machinery

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.