G.R. No. L-11658 Case Digest

G.R. No. L-11658, February 15, 1918

Leung Yee

vs Frank L. Strong Machinery Company and J.G/ Williamson

Ponente: Carson

Facts:

"Compania Agricola Filipina" bought a quantity of rice-cleaning machinery company from Strong Machinery and executed a chattel mortgage thereon to secure payment of the purchase price. It include the building of strong materials in which the mahinery is installed without reference to the land it stood. The debt was not paid, and the mortgage property was sold by the sheriff.

Few weeks after, Compania executed a deed of slae of the land upon which the building stood but it was not registered. 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 was 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 SMCo – evidence is the chattel mortgage already registered by SMCo.

Issue: To whom the ownership of the building belongs to?

Held:

But it appearing that Yee had full knowledge of the machinery company's claim of ownership when he executed the indemnity bond and bought in the property at the sheriff's sale, and it appearing further that the machinery company's claim of ownership was well founded, he cannot be said to have been an innocent purchaser for value.

He took the risk and must stand by the consequences; and it is in this sense that we find that he 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; and 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.

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