G.R. No. L-11658 LEUNG YEE vs.

February 15, 1918

37 Phil. 644

FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON FACTS: Compania Agricola Filipina (CAF) was indebted to two personalities: Leung Yee, t he plaintiff, and Strong Machinery Company (SMCo.), the defendant. CAF purchased some rice cleaning machines from SMCo. CAF installed the machines in a building . As security for the purchase price, CAF executed a chattel mortgage on the ric e cleaning machines, including the building where the machines were installed, i n favor of SMCo. CAF failed to pay , thus the latter foreclosed the mortgage and registered the same in the registry. Later on, CAF also sold the land (where the building was standing) to SMCo. Alth ough executed in a public document, but it was not registered. Nevertheless, SMC o took possession of the building and the land. On the other hand, Leung Yee, another creditor of CAF who was engaged in the con struction of the building, purchased the same building where the machines were i nstalled. In other words, CAF also executed a chattel mortgage in favor Yee to s ecure payment of the balance of its indebtedness to the plaintiff in view of the ir contract for the construction of the said building. Yee then registered the s ale in the registry of land. Yee was however aware that prior to his purchase, t he property has already been sold to SMCo. ISSUE: Who owns the property? RULING: The Supreme Court ruled that Strong Machinery Co. (SMCo.) has a better right to the contested property. Yee cannot be regarded as a buyer in good faith as he wa s already aware of the fact that there was a prior sale of the same property to SMCo. The SC added that "good faith, or the want of it, is not a visible, tangib le fact that can be seen or touched, but rather a state or condition of mind whi ch can only be judged of by actual or fancied tokens or signs." RATIO: Article 1473 of the Civil Code provides: If the same thing should have been sold to different vendees, the ownership shal l be transfer to the person who may have the first taken possession thereof in g ood faith, if it should be personal property. Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry. Should there be no entry, the property shall belong to the person who first took possession of it in good faith, and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

The SC held that the lower court s judgment must be sustained on the ground that the agreed statement of facts in the court discloses that neither the purchase of t he building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was made in good faith. The SC also added that the machinery company must be held to be the owner of the property under the third paragraph o f the above cited article of the code, it appearing that the company first took possession of the property; and further, that the building and the land were sol d to the machinery company long prior to the date of the sheriff's sale to the p laintiff. PRINCIPLE OR DOCTRINE APPLIED: "Good faith, or the want of it, is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged of by actual or fancied tokens or signs." 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. In this case, having bought in the building at the sheriff's sale with f ull knowledge that at the time of the levy and sale the building had already bee n sold to the machinery company, the plaintiff cannot be said to have been a pur chaser in good faith.