Civil Law

Leung Yee vs Frank Strong Machinery Co.

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G.R. No. L-11658 – 37 Phil. 644 – Civil Law – Law on Property – Multiple Sale to Different Vendees – Real vs Personal Property

In 1913, Compania Agricola Filipina (CAF) was indebted to two personalities: Leung Yee and Frank L. Strong Machinery Co. CAF purchased some rice cleaning machines from Strong Machinery. CAF installed the machines in a building. As security for the purchase price, CAF executed a chattel mortgage on the rice cleaning machines including the building where the machines were installed. CAF failed to pay Strong Machinery, hence the latter foreclosed the mortgage – the same was registered in the chattel mortgage registry.

CAF also sold the land (where the building was standing) to Strong Machinery. Strong Machinery took possession of the building and the land.

On the other hand, Yee, another creditor of CAF who engaged in the construction of the building, being the highest bidder in an auction conducted by the sheriff, purchased the same building where the machines were installed. Apparently CAF also executed a chattel mortgage in favor of Yee. Yee registered the sale in the registry of land. Yee was however aware that prior to his buying, the property has been sold in favor of Strong Machinery – evidence is the chattel mortgage already registered by Strong Machinery (constructive notice).

ISSUE: Who is the owner of the building?

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 it’s 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.

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