1. Leung Yee v Strong Machinery Company, GR No. L-11658, Feb.

15, 1918
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 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 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.

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 CEF 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 previously purchased by Leung Yee, a creditor of Agricola, 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
1. Where the interest conveyed is of the nature of real property, the placing of the document on record in
the Chattel Mortgage Registry is a futile act.

Chattel Mortgage refers to the mortgage of Personal Property executed in the manner and form prescribed
in the statute.
Since the building is REAL PROPERTY, 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.
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.
Art. 1473 of the New Civil Code provides the following rules on determining ownership of property which
has been sold to different vendees:
If Personal Property grant ownership to person who 1st possessed it in good faith
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.

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.
The same rule must be applied to one who has knowledge of facts which should have put him upon such
inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.

Good Faith, or the want of it, is a state or condition of mind which can only be judged of by actual or
fancied tokens or signs. (Wilder vs. Gilman, 55Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La.
Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119Mich., 8, 10, 17.)

Honesty Of Intention is the honest lawful intent constituting good faith. It implies a freedom from
knowledge and circumstances which ought to put a person on inquiry.

As such, proof of such knowledge overcomes the presumption of good faith.

Following the rule on possessory rights provided in Art. 1473, Strong Machinery Co. has a better right to
the property since it first purchased the same ahead of Leung Yee, the latter not being a purchaser in good
faith.