LEUNG YEE V. F.L STRONG MACHINERY CO.

AND WILLIAMSON37 SCRA 644

Leung Yee vs Strong Machinery Co.

FACTS:
37 PHIL 644
1. First mortgage: Compania Agricola Filipina bought rice- GR No. L-11658
cleaning machinery from the machinerycompany and this was secured by a February 15, 1918
chattel mortgage on the machinery and the building to which it FACTS
was installed. Upon failure to pay, the chattel mortgage was foreclosed, the The Compania Agricola Filipina (CAF) purchased from Strong Machinery Co. rice
building and machinery sold in public auction and bought by the machinery company. cleaning machines which CAF installed in one of its buildings.
As security for the purchase price, CAF executed a chattel mortgage on
2. Days after, the Compania Agricola Filipina executed a deed of sale over the land the machinesand the building on which they had been installed.
to which the building stood in favor of the machinery company. This was done to cure When CEF failed to pay, the registered mortgage was foreclosed and Strong Machinery
any defects that may arise in the Co. purchased the building. This sale was annotated in the Chattel Mortgage Registry.
machinery companys ownership of the building. 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
3. Second mortgage: on or about the date to which the chattel mortgage was Machinery Co. took possession of the building and the lot.
excecuted, Compania executed a real estate mortgage over the building in fav However, the same building had been previously purchased by Leung Yee, a creditor
or of Leung Yee, distinct and of Agricola, at a sheriff's sale despite his knowledge of the prior sale in favor of Strong
separate from the land. This is to secure payment for its indebtedness for the Machinery Co.. The sale to Leung Yee was registered in the Registry of Property.
construction of the building. Upon failure to pay, the mortgage was foreclosed. ISSUES
4. The machinery company then filed a case, demanding that it be 1. Was the property's nature changed by its registration in the Chattel Mortgage
declared the rightful owner of the building. The trial court held that it was Registry?
the machinery company which was the rightful owner 2. Who has a better right to the property?
as it had its title before the building was registered prior to the date of registry HELD
of Leung Yees certificate. 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.
HELD: 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 building in which the machinery was installed was real property, and
The mere fact that the parties decided to deal with the building as personal property
the mere fact that the parties seem to have dealt with it separate and apart
does not change its character as real property.
from the land on which it stood in no wise changed the 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.
It follows that neither the original registry in the chattel mortgage registry of the
instrument purporting to be a chattel mortgage of the building and
the machinery installed therein, nor the annotation in the registry of the 1. Art. 1473 of the New Civil Code provides the following rules on determining
sale of the mortgaged property, had any effect whatever so far as the building ownership of property which has been sold to different vendees:
is concerned. *LANDMARK CASE
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.
STANDARD OIL COMPANY V JARAMILLO
The Power of the Registry of Deeds is Ministerial, and The absolute criterion to
determine between real and personal property is NOT supplied by the civil code.
Parties may agree what to treat as personal property and what to treat as real property.
FACTS
On November 27, 1922, Gervasia de la Rosa was the lessee of a parcel of land situated
in the City of Manila and owner of the house of really tough materials built thereon. She
executed that fine day a document in the form of a chattel mortgage, purporting to
convey to Standard Oil Company of New York (by way of mortgage) both the leasehold
interest in said lot and the building.
After said document had been duly acknowledged and delivered, Standard Oil
presented it to Joaquin Jaramillo, as register of deeds of the City of Manila, for the
purpose of having the same recorded in the book of record of chattel mortgages. Upon
examination of the instrument, Jaramillo opined that it was not chattel mortgage, for the
reason that the interest therein mortgaged did not appear to be personal property,
within the meaning of the Chattel Mortgage Law, and registration was refused on this
ground only.
Later this confusion was brought to the Supreme Court upon demurrer by Joaquin
Jaramillo, register of deeds of the City of Manila, to an original petition of the Standard
Oil Company of New York, demanding a mandamus to compel the respondent to record
in the proper register a document purporting to be a chattel mortgage executed in the
City of Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the Standard Oil
Company of New York.
The Supreme Court overruled the demurrer, and ordered that unless Jaramillo
interposes a sufficient answer to the petition for mandamus by Standard Oil within 5
days of notification, the writ would be issued as prayed, but without costs.
ISSUE:
w/n the Registry of Deeds can determine the nature of property to be registered.
w/n the Registry of Deeds has powers beyond Ministerial discretion.
RESOLUTION:
1.Jaramillo, register of deeds, does not have judicial or quasi-judicial power to
determine nature of document registered as chattel mortgage Section 198 of the
Administrative Code, originally of Section 15 of the Chattel Mortgage Law (Act 1508 as
amended by Act 2496), does not confer upon the register of deeds any authority
whatever in respect to the "qualification," as the term is used in Spanish law, of chattel
mortgages. His duties in respect to such instruments are ministerial only. The efficacy
of the act of recording a chattel mortgage consists in the fact that it operates as
constructive notice of the existence of the contract, and the legal effects of the contract
must be discovered in the instrument itself in relation with the fact of notice.
2.Article 334 and 335 of the Civil Code does not supply absolute criterion on distinction
between real and personal property for purpose of the application of the Chattel
Mortgage Law Article 334 and 335 of the Civil Code supply no absolute criterion for
discriminating between real property and personal property for purposes of the
application of the Chattel Mortgage Law. Those articles state rules which, considered
as a general doctrine, are law in this jurisdiction; but it must not be forgotten that under
given conditions property may have character different from that imputed to it in said
articles. It is undeniable that the parties to a contract may be agreement treat as
personal property that which by nature would be real property; and it is a familiar
phenomenon to see things classed as real property for purposes of taxation which on
general principle might be considered personal property. Other situations are
constantly arising, and from time to time are presented to the Supreme Court, in which
the proper classification of one thing or another as real or personal property may be
said to be doubtful
Manarang vs. Ofilada Case Digest G.R. No. L-8133 May 18, 1956
Facts:
Lucia Manarang obtained a loan of 200 pesos from Ernesto Esteban. She executed a
chattel mortgage over a house of mixed materials to secure its payment. When she
failed to pay the loan, Esteban brought an action for the recovery of the money he
loaned to her. Judgment was rendered in favor of the former. Execution was issued
against the mortgaged property.
Before the property could be sold in a judicial sale, Manarang offered to pay the amount
of 227 pesos representing the amount of judgment, interest, costs, and sheriff
fees. The sheriff refused the tender unless the amount of 260 pesos representing the
payment of the publication of the notice of sale is paid also.
Manarang filed a petition to compel the sheriff to accept the amount of 227 pesos and
to annul the notice of sale. The contention of Manarang is that the house in question
should be considered as personal property and publication of notice of sale is not
necessary. The Court of First Instance held that although sometimes real property
may be considered as personal property, the sheriff is duty bound to cause the
publication of notice of sale to make the sale valid and to prevent it from being declared
void or voidable; and that the sheriff did not err in causing the publication of the
notice. Consequently, the petition was dismissed.
Issue:
Whether the house made of mixed materials and subject of a chattel mortgage is one
of personal or real property.
Held:
The house is a real property.
The general principle of law is that a building permanently fixed to the freehold becomes
part of it; that is, a house is a real estate belonging to the owner of the land on which it
stands, even though it was erected against his will or without his consent. (Accessory
follows the principal.)
However, where improvement is made with the consent of the landowner, it shall
remain as personal property.
In determining whether property remains personal or real, the following must be
considered: its annexation to the soil, either actual or constructive and the intention of
the parties.
The house was made subject of a contract but it does not give the character of one of
personal property to it although it is the intention of the parties when they executed the
chattel mortgage.
This is because the rules on execution does not allow special consideration that the
parties to a contract may have desired to impart to real estate when they are not
ordinarily so. When the rules speak of personal property, it means a property which is
ordinarily considered as such and when it speaks of real property, it means property
which is generally known as real property.The rules were never intended to suit the
consideration that parties may have given to the property levied upon.
The mere fact that a house was the subject of a chattel mortgage and was considered
as personal property by the parties, it does not make the house a personal property for
purposes of the notice to be given for its sale at public auction. This is to prevent
confusion and misunderstanding.
Mindanao Bus Co. v. City Assessor Digest
G.R. No. L-17870 29 September 1962
Facts: Petitioner is a public utility company engaged in the transport of passengers and
cargo by motor vehicles in Mindanao with main offices in Cagayan de Oro (CDO).
Petitioner likewise owned a land where it maintains a garage, a repair shop and
blacksmith or carpentry shops. The machineries are placed thereon in wooden and
cement platforms. The City Assessor of CDO then assessed a P4,400 realty tax on
said machineries and repair equipment. Petitioner appealed to the Board of Tax
Appeals but it sustained the City Assessor's decision, while the Court of Tax Appeals
(CTA) sustained the same.
Note: This is merely a case digest to aid in remembering the important points of a case.
It is still advisable for any student of law to read the full text of assigned cases.
Issue: Whether or not the machineries and equipments are considered
immobilized and thus subject to a realty tax
Held: The Supreme Court decided otherwise and held that said machineries and
equipments are not subject to the assessment of real estate tax.
Said equipments are not considered immobilized as they are merely incidental, not
esential and principal to the business of the petitioner. The transportation business
could be carried on without repair or service shops of its rolling equipment as they can
be repaired or services in another shop belonging to another
 Sec.7 of Rule 27 expressly requires that final orders or judgments be served either
personally or by registered mail.
Pastor D. Ago vs CA, Hon. Montao Ortiz, The Provincial Sheriff of Surigao, and The signed judgment not having been served upon the petitioner, said judgment could
Grace Park Engineering, Inc. not be effective upon him who had not received it. As a consequence, the issuance of
GR No. L-17898 the writ of execution is null and void, having been issued before petitioner was served
October 31, 1962 a copy of the decision, personally or by registered mail.
FACTS
Ago bought sawmill machineries and equipments from Grace Park Engineer 2) The subject sawmill machineries and equipment became real estate properties in
Domineering, Inc. (GPED) A chattel mortgage was executed over the said properties accordance with the provision of Art. 415 (5) of the NCC:
to secure the unpaid balance of P32,000, which Ago agreed to pay in installment basis. ART. 415 The following are immovable property:
Because Ago defaulted in his payment, GPED instituted extra-judicial foreclosure
proceedings of the mortgage. To enjoin the foreclosure, Ago instituted a special civil
case in the CFI of Agusan. The parties then arrived at a compromise agreement. (5) Machinery, receptacles, instruments or implements intended by the owner
However, a year later, Ago still defaulted in his payment. GPED filed a motion for of the tenement for an industry or works which may be carried on in a building
execution with the lower court, which was executed on September 23, 1959. or on a piece of land, and which tend directly to meet the needs of the said
Acting upon the writ of execution, the Provincial Sheriff of Surigao levied upon and industry or works;
ordered the sale of the sawmill machineries and equipment.
Upon being advised that the public auction sale was set on December 4, 1959, Ago
filed a petition for certiorari and prohibition on December 1, 1959 with the CA. He The installation of the sawmill machineries in the building of Gold Pacific Sawmill, Inc.,
alleged that his counsel only received the copy of the judgment on September 25, for use in the sawing of logs carried on in the said building converted them into Real
1959 two days after the execution of the writ; that the order of sale of the levied Properties as they became a necessary & permanent part of the building or real estate
properties was in grave abuse of discretion and in excess of jurisdiction; and that the on which the same was constructed.
Sheriff acted illegally by levying the properties and attempting to sell them without prior And if they are judicially sold on execution without the necessary advertisement of sale
publication of the notice of sale thereof in some newspaper of general circulation as by publication in a newspaper as required in Sec.16 of Rule 39 of the Rules of Court,
required by the Rules of Court. the sale made by the sheriff would be null and void.
The CA issued a writ of preliminary injunction against the Sheriff, but it turned out that
the properties were already sold on December 4, 1959. The CA ordered the Sheriff to
suspend the issuance of the Certificate of Sale until the decision of the case. The CA
then rendered its decision on November 9, 1960.
ISSUES
1. Is the fact that petitioner was present in open court as the judgment was rendered,
sufficient notice of the said judgment?
2. Was the Sheriff's sale of the machineries and equipment at a public auction valid
despite lack of publication of the notice of sale?
HELD
1) No. The mere pronouncement of the judgment in open court does not constitute a
rendition of judgment.
The filing of the judge's signed decision with the Clerk of Court constitutes the rendition
of a valid and binding judgment.
Sec. 1, Rule 35 of the Rules of Court require that all judgments be rendered in
writing, personally and directly prepared by the judge, and signed by him, stating
clearly and distinctly the facts and the law on which it is based, filed with the
clerk of the court.
Prior to the filing, the decision could still be subject to amendment and change and may
not constitute the real judgment of the court.

Moreover, the hearing of the judgment in open court does not constitute valid notice
thereof. No judgment can be notified to the parties unless it has previously been
rendered.
 However, contracting parties may validly stipulate that a real property be considered as
Serg's v. PCI Leasing personal. After agreeing to such stipulation, they are consequently estopped from
Sergs Products, Inc. vs. PCI Leasing G.R. No. 137705. August 22, 2000 claiming otherwise.Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.
FACTS:
Section 12.1 of the Agreement between the parties provides The PROPERTY is, and
PCI Leasing and Finance filed a complaint for sum of money, with an
application for a writ of replevin. shall at all times be and remain, personal property notwithstanding that the PROPERTY
or any part thereof may now be, or hereafter become, in any manner affixed or attached
Judge issued a writ of replevin directing its sheriff to seize and deliver the to or embedded in, or permanently resting upon, real property or any building thereon,
machineries and equipment to PCI Leasing after 5 days and upon the payment of the or attached in any manner to what is permanent.
necessary expenses.
The sheriff proceeded to petitioner's factory, seized one machinery, with word The machines are personal property and they are proper subjects of the Writ of
that he would return for other machineries. Replevin
Petitioner (Sergs Products) filed a motion for special protective order to defer
enforcement of the writ of replevin.
PCI Leasing opposed the motion on the ground that the properties were still
personal and therefore can still be subjected to seizure and writ of replevin.
Petitioner asserted that properties sought to be seized were immovable as
defined in Article 415 of the Civil Code.
Sheriff was still able to take possession of two more machineries
In its decision on the original action for certiorari filed by the Petitioner, the appellate
court, Citing the Agreement of the parties, held that the subject machines were personal
property, and that they had only been leased, not owned, by petitioners; and ruled that
the "words of the contract are clear and leave no doubt upon the true intention of the
contracting parties."

ISSUE: Whether or not the machineries became real property by virtue of

immobilization.

Ruling:
Petitioners contend that the subject machines used in their factory were not proper
subjects of the Writ issued by the RTC, because they were in fact real property.

Writ of Replevin: Rule 60 of the Rules of Court provides that writs of replevin are issued
for the recovery of personal property only.

Article 415 (5) of the Civil Code provides that machinery, receptacles, instruments or
implements intended by the owner of the tenement for an industry or works which may
be carried on in a building or on a piece of land, and which tend directly to meet the
needs of the said industry or works

In the present case, the machines that were the subjects of the Writ of Seizure were
placed by petitioners in the factory built on their own land.They were essential and
principal elements of their chocolate-making industry.Hence, although each of them
was movable or personal property on its own, all of them have become immobilized
by destination because they are essential and principal elements in the industry.
NAVARRO V. PINEDA
9 SCRA 631
FACTS:

Pineda and his mother executed real estate and chattel mortgages in favor of Navarro,
to secure a loan they got from the latter. The REM covered a parcel of land owned by
the mother while the chattel mortgage covered a
residential house. Due to the failure to pay the loan, they asked for
extensions to pay for the loan. On the second extension, Pineda executed a PROMISE
wherein in case of default in payment, he wouldnt ask for any additional extension and
there would be no need for any formal demand. In spite of this, they still failed to pay.

Navarro then filed for the foreclosure of the mortgages. The court decided in his favor.

HELD:
Where a house stands on a rented land belonging to another person, it may be
the subject matter of a chattel mortgage as personal property if so stipulated in the
document of mortgage, and in an action by the mortgagee for the foreclosure, the
validity of the chattel mortgage cannot be assailed
by one of the parties to the contract of mortgage.

Furthermore, although in some instances, a house of mixed materials has been

considered as a chattel between the parties and that the validity of
the contract between them, has been recognized, it has been a constant
criterion that with respect to third persons, who are not parties to the
contract, and specially in execution proceedings, the house is considered
as immovable property.