Case Summary (G.R. No. L-11658)
Factual Background
The Compania Agricola Filipina purchased rice-cleaning machinery from the Frank L. Strong Machinery Company and executed what purported to be a chattel mortgage securing the purchase price. The mortgage deed included a building of strong materials in which the machinery was installed, without reference to the land. The mortgage was registered in the chattel mortgage registry. The mortgaged property was sold under the mortgage instrument and was bought in by the machinery company; that sale was annotated in the chattel mortgage registry on December 29, 1913. Thereafter, on or about January 14, 1914, the mortgagor executed a deed of sale of the land upon which the building stood to the machinery company; that deed was not registered. The machinery company entered into possession about December, 1913, and remained in possession continuously.
Plaintiff's Claim and Sheriff's Sale
At or about the time of the chattel mortgage the mortgagor had executed another mortgage to Leung Yee upon the building alone, to secure payment for constructing the building. After default the plaintiff obtained judgment, levied execution upon the building, and, on or about December 18, 1914, bought it at sheriff's sale. The plaintiff registered the sheriff's certificate of sale in the land registry of Cavite. At the time of levy the machinery company, which was in possession, filed with the sheriff a sworn statement asserting title and demanded release of the property. The sheriff required the plaintiff to execute an indemnity bond in the sum of P12,000; relying on that bond the sheriff sold the property at public auction to the plaintiff as the highest bidder.
Trial Court Proceedings
The plaintiff instituted an action to recover possession of the building from the machinery company. The trial judge adjudged in favor of the machinery company. The trial judge relied upon Article 1473 of the Civil Code, reasoning that the machinery company had its title to the building registered prior to the date of registry of the plaintiff's sheriff's certificate, and therefore prevailed under the rule favoring the party who first recorded title in the registry for real property.
Legal Issue Presented
The primary legal questions were whether the inscription of instruments in the chattel mortgage registry could avail the machinery company as an inscription in the registry of real property, and whether the plaintiff acquired title and registration in good faith so as to prevail under Article 1473 of the Civil Code.
Court's Analysis on Nature of the Building and Effect of Registries
The Court held that the building of strong materials was real property, regardless of the form in which the parties treated it. The Court reasoned that the chattel mortgage registry exists solely for the registration of mortgages of personal property under the Chattel Mortgage Law. Therefore the annotation or inscription of a deed of sale in the chattel mortgage registry could not be equated with an inscription in the registry of real property, and the registration in the chattel mortgage registry had no legal effect as to the building.
Court's Analysis on Good Faith and Priority of Possession
Although the trial court's stated ground could not be sustained, the Court nonetheless affirmed the judgment on another ground disclosed by the agreed statement of facts. The Court found that neither the plaintiff's purchase at the sheriff's sale nor his inscription of the sheriff's certificate in the land registry had been made in good faith. The Court applied the third paragraph of Article 1473 of the Civil Code, holding that the machinery company was the owner because it first took possession in good faith and had acquired the building and the land long prior to the plaintiff's sheriff's sale.
Reasoning on Good Faith and Registrations
The Court rejected the contention that good faith was unnecessary for the effect of an inscription. The Court explained that the preference given by law to an inscription in public records presupposes the good faith of the person making the inscription. The Court cited the decision of the Supreme Court of Spain and commentary construing Article 1473 to the effect that the second paragraph must be understood on the basis of the good faith mentioned in the first paragraph. The agreed facts showed that the plaintiff had been duly notified that the machinery company had bought the building from the judgment debtor and was in possession at the time of the levy. The plaintiff executed an indemnity bond after the machinery company filed a sworn claim of ownership and then bought in the property with full knowledge of the machinery company's prior purchase and possession. On those facts the Court concluded that the plaintiff could not be deemed a purchaser in good faith and that his subsequent registration was tainted.
Discussion of Good Faith as a Question of
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Case Syllabus (G.R. No. L-11658)
Parties and Procedural Posture
- LEUNG YEE, Plaintiff and Appellant sued to recover possession of a factory building that he purchased at a sheriff's sale.
- FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, Defendants and Appellees defended possession and asserted title to the same building.
- The trial court entered judgment in favor of FRANK L. STRONG MACHINERY COMPANY on the ground that it had its title registered prior to the plaintiff's registry under article 1473 of the Civil Code.
- The present appeal followed from the judgment below and was decided by the Court on the agreed statement of facts.
Key Factual Allegations
- The Compania Agricola Filipina purchased rice-cleaning machinery from FRANK L. STRONG MACHINERY COMPANY and executed a chattel mortgage purportedly covering the machinery and the building of strong materials in which the machinery was installed, with no reference to the land.
- The indebtedness secured by that instrument remained unpaid and the mortgaged property was sold by the sheriff, with FRANK L. STRONG MACHINERY COMPANY buying in the property; the sale was annotated in the chattel mortgage registry on December 29, 1913.
- On or about January 14, 1914, Compania Agricola Filipina executed an unregistered public deed conveying the land on which the building stood to FRANK L. STRONG MACHINERY COMPANY, and the company went into possession around December, 1913 and remained in possession thereafter.
- At the same time the chattel mortgage was executed, Compania Agricola Filipina separately mortgaged the building to LEUNG YEE to secure a construction claim, and upon default LEUNG YEE obtained judgment, levied execution, and bought the building at sheriff's sale on or about December 18, 1914.
- At the time of levy FRANK L. STRONG MACHINERY COMPANY filed a sworn statement with the sheriff asserting title and demanding release, and LEUNG YEE executed an indemnity bond in the sum of P12,000 before buying the property at the sheriff's sale.
- LEUNG YEE registered the sheriff's certificate of sale in the land registry of the Province of Cavite.
Procedural History
- The trial court relied on article 1473 of the Civil Code and ruled for FRANK L. STRONG MACHINERY COMPANY on the ground that the company's title had been effectively registered prior to the plaintiff's registration.
- The parties submitted an agreed statement of facts to the trial court which was considered on appeal.
- The appellate Court reviewed the legal effect of registrations and the factual question of good faith and possession and entered the present decision affirming the lower court's dispositional outcome on alternate grounds.
Statutory Framework
- Article 1473 of the Civil Code provided the controlling rule for conflicts of title between different vendees and distinguished the rules applicable to personal property and real property.
- The Chattel Mortgage Law and the chattel mortgage registry were statutes and institutions expressly designed for mortgages of personal property and for the registration of chattel mortgages.
- The registry referred to in the secon