Evangelista v.

Alto Surety

Facts:
In 1949, Santos Evangelista instituted Civil Case No. 8235 of the CFI Manila (Santos
Evangelista vs. Ricardo Rivera) for a sum of money. On the same date, he obtained a writ of
attachment, which was levied upon a house, built by Rivera on a land situated in Manila and
leased to him, by filing copy of said writ and the corresponding notice of attachment with the
Office of the Register of Deeds of Manila. In due course, judgment was rendered in favor of
Evangelista, who bought the house at public auction held in compliance with the writ of
execution issued in said case on 8 October 1951. The corresponding definite deed of sale
was issued to him on 22 October 1952, upon expiration of the period of redemption. When
Evangelista sought to take possession of the house, Rivera refused to surrender it, upon the
ground that he had leased the property from the Alto Surety & Insurance Co., Inc. and that the
latter is now the true owner of said property. It appears that on 10 May 1952, a definite deed
of sale of the same house had been issued to Alto Surety, as the highest bidder at an auction
sale held, on 29 September 1950, in compliance with a writ of execution issued in Civil Case
6268 of the same court (Alto Surety & Insurance vs. Maximo Quiambao, Rosario Guevara
and Ricardo Rivera)" in which judgment for the sum of money, had been rendered in favor of
Alto Surety. Hence, on 13 June 1953, Evangelista instituted an action against Alto Surety and
Ricardo Rivera, for the purpose of establishing his title over said house, and securing
possession thereof, apart from recovering damages. After due trial, the CFI Manila rendered
judgment for Evangelista, sentencing Rivera and Alto Surety to deliver the house in question
to Evangelista and to pay him, jointly and severally, P40.00 a month from October 1952, until
said delivery. The decision was however reversed by the Court of Appeals, which absolved
Alto Surety from the complaint on account that although the writ of attachment in favor of
Evangelista had been filed with the Register of Deeds of Manila prior to the sale in favor of
Alto Surety, Evangelista did not acquire thereby a preferential lien, the attachment having
been levied as if the house in question were immovable property.

Issue:
Whether or not a house constructed by the lessee of the land on which it is built, should be
dealt with, for purpose of attachment, as immovable property?

Held:
The court ruled that the house is not personal property, much less a debt, credit or other
personal property not capable of manual delivery, but immovable property. As held in Laddera
vs. Hodges (48 OG 5374), "a true building is immovable or real property, whether it is erected
by the owner of the land or by a usufructuary or lessee.” The opinion that the house of Rivera
should have been attached, as "personal property capable of manual delivery, by taking and
safely keeping in his custody", for it declared that "Evangelista could not have validly
purchased Ricardo Rivera's house from the sheriff as the latter was not in possession thereof
at the time he sold it at a public auction” is untenable. Parties to a deed of chattel mortgage
may agree to consider a house as personal property for purposes of said contract. However,
this view is good only insofar as the contracting parties are concerned. It is based, partly,
upon the principle of estoppel. Neither this principle, nor said view, is applicable to strangers
to said contract. The rules on execution do not allow, and should not be interpreted as to
allow, the special consideration that parties to a contract may have desired to impart to real
estate as personal property, when they are not ordinarily so. Sales on execution affect the
public and third persons. The regulation governing sales on execution are for public officials to
follow. The form of proceedings prescribed for each kind of property is suited to its character,
not to the character which the parties have given to it or desire to give it. The regulations were
never intended to suit the consideration that parties, may have privately given to the property
levied upon. The court therefore affirms the decision of the CA with cost against Alto Surety.

37 Phil. 644 – Civil Law – Law on Property – Multiple Sale to Different Vendees – Real
vs Personal Property

In 1913, Compania Agricola Filipina (CAF) was indebted to two personalities: Leung Yee and
Frank L. Strong Machinery Co. CAF purchased some rice cleaning machines from Strong
Machinery. CAF installed the machines in a building. As security for the purchase price, CAF
executed a chattel mortgage on the rice cleaning machines including the building where the
machines were installed. CAF failed to pay Strong Machinery, hence the latter foreclosed the
mortgage – the same was registered in the chattel mortgage registry.
CAF also sold the land (where the building was standing) to Strong Machinery. Strong
Machinery took possession of the building and the land.
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 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 Strong Machinery – evidence is
the chattel mortgage already registered by Strong Machinery (constructive notice).
ISSUE: Who is the owner of the building?
HELD: The SC ruled that Strong Machinery has a better right to the contested property. Yee
cannot be regarded as a buyer in good faith as he was already aware of the fact that there
was a prior sale of the same property to Strong Machinery.
The SC also noted that the Chattel Mortgage Law expressly contemplates provisions for
chattel mortgages which only deal with personal properties. The fact that the parties dealt the
building as if it’s a personal property does not change the nature of the thing. It is still a real
property. Its inscription in the Chattel Mortgage registry does not modify its inscription the
registry of real property.
Leung Yee vs Strong Machinery Co.
37 PHIL 644
GR No. L-11658
February 15, 1918

FACTS

The Compania Agricola Filipina (CAF) purchased from Strong Machinery Co. rice–cleaning
machines 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 CEF failed to pay, the registered mortgage was foreclosed and Strong Machinery
Co. purchased the building. This sale was annotated in the Chattel Mortgage 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, the same building had been previously purchased by Leung Yee, a creditor
ofAgricola, 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.

ISSUES
1. Was the property's nature changed by its registration in the Chattel Mortgage Registry?
2. Who has a better right to the property?

HELD

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.
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 mere fact that the parties decided to deal with the building as personal property does not
change its 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.
1.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
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
afreedom 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.
 LEUNG YEE V. F.L STRONG MACHINERY CO. AND WILLIAMSON

FACTS:
1. First mortgage: Compania Agricola Filipina bought rice-cleaning machinery from the
machinery company and this was secured by a chattel mortgage on the machinery and the
building to which it
was installed. Upon failure to pay, the chattel mortgage was foreclosed, the building
and machinery sold in public auction and bought by the machinery company.
2. Days after, the Compania Agricola Filipina executed a deed of sale over the land to which
the building stood in favor of the machinery company. This was done to cure any defects that
may arise in the
machinery company’s ownership of the building.
3. Second mortgage: on or about the date to which the chattel mortgage was
excecuted, Compania executed a real estate mortgage over the building in favor of
Leung Yee, distinct and
separate from the land. This is to secure payment for its indebtedness for the
construction of the building. Upon failure to pay, the mortgage was foreclosed.
4. The machinery company then filed a case, demanding that it be declared the
rightful owner of the building. The trial court held that it was the machinery company
which was the rightful owner
as it had its title before the building was registered prior to the date of registry of
Leung Yee’s certificate.

HELD:
The building in which the machinery was installed was real property, and the mere fact
that the parties seem to have dealt with it separate and apart from the land on which it
stood in no wise changed the character as real property.

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 sale of the mortgaged property, had any effect
whatever so far as the building is concerned. *LANDMARK CASE
Leung Yee v. Strong Machinery Co., G.R. No. L-11658 (February 15, 1918) Case Digest

Facts:

The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning

machinery company from the machinery company, and executed a chattel mortgage
thereon to secure payment of the purchase price. It included in the mortgage deed the
building of strong materials in which the machinery was installed.
The indebtedness secured by this instrument was not paid when it was due so the
mortgaged property was sold by the sheriff and was bought by the machinery company.
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.

At or about the time when the chattel mortgage was executed in favor of the machinery
company, the "Compañia Agricola Filipina" executed another mortgage to Leung Yee upon
the building to secure payment of the balance of its indebtedness under a contract for the
construction of the building. Upon failure of "Compañia Agricola Filipina" to pay its debt
secured by the mortgage, Leuny Yee levied execution upon the building, bought it and
registered in the land registry.

Issue:

Does the machinery company have better rights than Leung Yee over the building given
the chattel mortgage was executed first.

Held:

No, because it cannot be given any legal effect so far as the building was concerned.

The Chattel Mortgage Law contemplates and makes provision for mortgages of personal
property; and the sole purpose and object of the chattel mortgage registry is to provide for
the registry of "Chattel mortgages".

The building of strong materials in which the rice-cleaning machinery was installed by the
"Compañia Agricola Filipina" was real property.

Hence, the chattel mortgage of the building and the machinery installed therein had no
effect so far as the building was concerned.