“Registering a Property in Bad Faith”
G.R. No. L-11658, Feb. 15, 1918
LEUNG YEE, plaintiff-appellant, vs. FRANK L. STRONG MACHINERY COMPANY (machinery) and J. G. WILLIAMSON, defendants-appellees. 3rd party: CAF = Compania Agricola Filipina (seller of building to Strong, owns the land)
Leung Yee (the buyer of mortgaged property) FILED a petition against Strong Machinery on the grounds that he has the better right as the owner of a mortgaged property because he inscribed a title in the land registry.Thesis Statement
- A company called CAF mortgaged its property building to Strong Machinery company and defaulted. Sherriff sold the property and recorded it in the Chattel Mortgage Registry (Dec 1913). Machinery possessed the building.
- Around Dec 1913, CAF mortgaged the building to (pet) Leung Yee and also defaulted. Sherif sold the building and registered to Land Registry in Dec 1914.
- Mortgaged the building to Machinery, registered to Chattel Registry
- Mortgaged the building to Leung Yee, registered to Land Registry
- Land sold to another person
- During execution, the Machinery Co. opposed, claimed title to the building, and asked to release it from levy.
Who filed to RTC: Leung Yee
RTC: Favored Strong Machinery
RTC judged relied on the second paragraph of Article 1473 of CC. “if the same thing is sold to different vendee… (par 2) it shall belong to the one who first recorded it in the registry.”
Machinery Co. registered first, Dec 1913 in Chattel Mortgage Registry.
SC: The word “registry” there does not refer to Chattel Mortgage Registry.
For the purpose of the Chattel Mortgage Registry, the building is personal property. Even if the building was dealt with separately from the land, it did not change its character as real property.
Where should it be properly registered? Land Registry because the building is immovable under Article 415.
However, who has a better right to the proceeds of the building? Strong Machinery who registered it under Chattel Mortgage, or Leung Yee who registered it under Real Estate Mortgage?
Leung Yee – Bought later, but first to register property in Land Registry after buying from Sheriff.
Strong Machinery – First to buy, first to possess, but ‘wrongly’ registered under Chattel Mortgage Registry.
Article 1473 of the Civil Code:
If the same property is solved to different vendees:
(First possessor): “If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be personal property.
(First recorder to the [Land] registry): “Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry.” (Old Civil Code)
(Possessor in good faith, presenter of oldest title in good faith): “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.”
Who filed to SC: Leung Yee
Does Leung Yee have a better right because he was the first who registered in Land Registry? No.
First and 3rd paragraph of Article 1473 (rules if there is double sale) requires “good faith”, it does not mean that the 2nd paragraph will omit good faith for recordings/inscriptions.
SC does not agree with this -> “Whoever registers first in Land Registry, even in bad faith, shall have the better title.”
Public records cannot be converted as instruments of fraud and oppression by those who inscribe in bad faith.
Inscription presupposes good faith.
What is “Bad faith” buyers? Purchased a property with the knowledge of the defects of previous sale, and recorded it in Land Registry.
Bad faith buyers cannot acquire title
Leung Yee was a bad faith buyer. He knew it was sold to Frank Strong Machinery Co. He did hope that the title of the Machinery Co would not stand the test of the courts of law.
Sheriff was in bad faith too.
SUPREME COURT RULING: Affirmed Lower Court. Favored Machinery Co.