Leung Yee vs. Strong Machinery Company (G.R. No.

L-11658, February 15, 1918)

Facts
The Compania Agricola Filipina (CAF) bought from Strong Machinery Co. rice–
cleaning machinery 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 CAF failed to pay, the registered mortgage
was foreclosed and Strong Machinery Co. purchased the building. The mortgage was
registered in the chattel mortgage registry, and the sale of the property to the
machinery company in satisfaction of the mortgage was annotated in the same
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, CAF
executed another mortgage to the plaintiff, Leung Yee, upon the building, separate
and apart from the land on which it stood, to secure payment of the balance of its
indebtedness to the plaintiff. When CAF failed to pay, the plaintiff bought the same
building 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.
Leung Yee now sues the Strong Machinery Co. in order to recover possession of
building.

Issue
Whether or not plaintiff, Leung Yee, has a better right to the said property

Ruling
No. The Court held that while the property was registered under the Chattel
Mortgage Act, it does not change the nature of the property. Since the building is a
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 separate and apart from the land on which
it stood does not change its character as real property. Thus, neither the original
registry in the chattel mortgage of the building and the machinery installed therein,
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 Co. long prior to the date of the sheriff’s sale to the
plaintiff, and this fact was known to Leung Yee, it follows that the plaintiff was not a
buyer in good faith and should therefore not be entitled to the property.