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MAGDALENA C. DE BARRETTO, ET AL., plaintiffs-appellants, vs. JOSE G.

VILLANUEVA, ET AL., defendants-appellees.


Bausa, Ampil & Suarez for plaintiffs-appellants.
Esteban Ocampo for defendants-appellees.
SYLLABUS
1.PREFERENCES OF CREDITS; VENDOR'S LIEN; PREFERRED CREDIT STATUS OF UNREGISTERED
VENDOR'S LIEN. Article 2242 of the New Civil Code, which enumerates, the preferred claims,
mortgages and liens on immovables, specifically requires that unlike the unpaid price of real
property sold mortgage credits, in order to be given preference, should be recorded in the
registry of property. If the legislative intent was to impose the same requirement in the case of
the vendor's lien, or the unpaid price of real property sold, the lawmakers could have easily
inserted the same qualification which now modifies mortgage credits. The fact that the law
makes no distinction between registered and unregistered vendor's lien, only goes to show that
any lien of that kind enjoys the preferred credit status.
2.ID.; CIVIL CODE; PROVISIONS ON CONCURRENCE AND PREFERENCE OF CREDITS;
APPLICATION NOT LIMITED TO INSOLVENCY CASES. There is nothing in the Civil Code to
show that the articles therein on concurrence and preference of credits are applicable only to the
insolvent debtor. If that portion of the Code were interpreted as intended only for insolvency
cases, then other creditor-debtor relationships where there is concurrence of credits would be
left without any rule to govern them, and it would render purposeless the special laws on
insolvency.
3.PREFERENCE AND PRIORITIES; NATURE AND EFFECT OF PREFERENCES; THE REST ARE PAID
PRO-RATA. Under the system of the Civil Code of the Philippines, only taxes enjoy absolute
preference. All the remaining thirteen classes of preferred creditors under Article 2242 enjoy no
priority among themselves, but must be paid pro-rata, i.e., in proportion to the amount of the
respective credits.
4.ID.; ID.; ID.; NECESSITY OF LIQUIDATION PROCEEDINGS. The full application of Articles
2249 and 2242 demands that there must be first some proceeding where the claims of all the
preferred creditors may be bindingly adjudicated such as insolvency, the settlement of a
decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar
import.
5.ID.; ID.; ID.; ID.; ONE PREFERRED CREDITOR'S THIRD-PARTY CLAIM TO PROCEEDS OF
FORECLOSURE IS NOT THE PROCEEDING CONTEMPLATED BY LAW. One preferred creditor's
third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the
proceeding contemplated by law for the enforcement of preferences under Article 2242, unless
the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of the claims
is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro-
ratadividend corresponding to each, because the rights of the other creditors likewise enjoying
preference under Article 2242 can not be ascertained.
6.ID.; PARTICULAR PREFERENCES AND PRIORITIES; IN ABSENCE OF LIQUIDATION
PROCEEDINGS AN UNPAID VENDOR'S CLAIM SUBORDINATE TO THE MORTGAGEE'S RECORD
ENCUMBRANCE. In the absence of insolvency proceedings (or other equivalent general
liquidation of the debtor's estate), the conflict between the parties must be decided pursuant to
the well-established principle concerning registered lands. That a purchaser in good faith and for
value (as the appellant concededly is) takes registered property free from liens and
encumbrances other than statutory liens and those recorded in the certificates of title. There
being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not acquire
the character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance,
and must remain subordinate to the latter.
7.ID.; ID.; MAKER OF QUITCLAIM DEED IS NOT TRUE VENDOR AS AGAINST VENDEE IN
FORECLOSURE SALE OF THE SAME PROPERTY. When after defaulting in their payments due
under the sale contract with the RFC the Cruzados sold to appellee "their rights, title, interest
and dominion" to the property they merely assigned whatever rights or claim they might still
have thereto; the ownership of the property rested with the RFC. The sale from Cruzado to
appellee, therefore, was not so much a sale of the land and its improvements, as it was a
quitclaim deed in favor of the appellee. In law, the operative sales was that from the RFC to the
latter, and it was the RFC that should be regarded as the true vendor of the property. At the
most the Cruzados transferred to appellee an option to acquire the property, but not the
property itself, and their credit, therefore, can not legally constitute a vendor's lien on
the corpus of the property that should stand in an equal footing with the mortgage credit held by
the appellant Barretto.
D E C I S I O N
GUTIERREZ DAVID, J p:
On May 10, 1948, Rosario Cruzado, for herself and as administratrix of the intestate estate of
her deceased husband Pedro Cruzado in Special Proceedings No. 4959 of the Court of First
Instance of Manila, obtained from the defunct Rehabilitation Finance Corporation (hereinafter
referred to as the RFC) a loan in the amount of P11,000.00. To secure payment thereof, she
mortgaged the land then covered by Transfer Certificate of Title No. 61358 issued in her name
and that of her deceased husband. As she failed to pay certain installments on the loan, the
mortgage was foreclosed and the RFC acquired the property for P11,000.00, subject to her
rights as mortgagor to repurchase the same. On July 26, 1951, upon her application, the land
was sold back to her conditionally for the amount of P14,269.03, payable in seven years.
About two years thereafter, or on February 13, 1953, Rosario Cruzado, as guardian of her minor
children in Special Proceedings No. 14198 of the Court of First Instance of Manila, was
authorized by the court to sell with the previous consent of the RFC the land in question together
with the improvements thereon for a sum not less than P19,000. Pursuant to such authority and
with the consent of the RFC, she sold to Pura L. Villanueva for P19,000.00 "all their rights,
interest, title and dominion on and over the herein described parcel of land together with the
existing improvements thereon, including one house and an annex thereon; free from all
charges and encumbrances, with the exception of the sum of P11,009.52, plus stipulated
interest thereon which the vendor is still presently obligated to the RFC and which the vendee
herein now assumes to pay to the RFC under the same terms and conditions specified in that
deed of sale dated July 26, 1951." Having paid in advance the sum of P1,500.00, Pura L.
Villanueva, the vendee, in consideration of the aforesaid sale, executed in favor of the vendor
Rosario Cruzado a promissory note dated March 9, 1953, undertaking to pay the balance of
P17,500.00 in monthly installments. On April 22, 1953, she made an additional payment of
P5,500.00 on the promissory note. She was, subsequently, able to secure in her name Transfer
Certificate of Title No. 32526 covering the house and lot above referred to, and on July 10, 1953,
she mortgaged the said property to Magdalena C. Barretto as security for a loan in the amount
of P30,000.00.
As said Pura L. Villanueva had failed to pay the remaining installments on the unpaid balance of
P12,000.00 on her promissory note for the sale of the property in question, a complaint for the
recovery of the same from her and her husband was filed on September 21, 1953 by Rosario
Cruzado in her own right and in her capacity as judicial guardian of her minor children. Pending
trial of the case, a lien was constituted upon the property in the nature of a levy in attachment
in favor of the Cruzados, said lien being annotated at the back of Transfer Certificate of Title No.
32526. After trial, decision was rendered ordering Pura Villanueva and her husband, jointly and
severally, to pay Rosario Cruzado the sum of P12,000.00, with legal interest thereon from the
date of the filing of the complaint until fully paid plus the sum of P1,500.00 as attorney's fees.
Pura Villanueva having, likewise, failed to pay her indebtedness of P30,000.00 to Magdalena C.
Barretto, the latter, jointly with her husband, instituted against the Villanueva spouses an action
for foreclosure of mortgage, impleading Rosario Cruzado and her children as parties defendants.
On November 11, 1956, decision was rendered in the case absolving the Cruzados from the
complaint and sentencing the Villanuevas to pay the Barrettos, jointly and severally, the sum of
P30,000.00, with interest thereon at the rate of 12% per annum from January 11, 1954, plus
the sum of P4,000.00 as attorney's fees. Upon the finality of this decision, the Barrettos filed a
motion for the issuance of a writ of execution which was granted by the lower court on July 31,
1958. On August 14, 1953, the Cruzados filed their "Vendor's Lien" in the amount of P12,000.00,
plus legal interest, over the real property subject of the foreclosure suit, the said amount
representing the unpaid balance of the purchase price of the said property. Giving due course to
the lien, the court on August 18, 1958 ordered the same annotated in Transfer Certificate of
Title No. 32526 of the Registry of Deeds of Manila, decreeing that should the realty in question
be sold at public auction in the foreclosure proceedings, the Cruzados shall be credited with their
pro-rata share in the proceeds thereof "pursuant to the provisions of Articles 2248 and 2249 of
the new Civil Code in relation to Article 2242, paragraph 2 of the same Code." The Barrettos filed
a motion for reconsideration on September 12, 1958, but on that same date, the sheriff of the
City of Manila, acting in pursuance of the order of the court granting the writ of execution, sold
at public auction the property in question. As highest bidder, the Barrettos themselves acquired
the properties for the sum of P49,000.00.

On October 4, 1958, the Court of First Instance issued an order confirming the aforesaid sale
and directing the Register of Deeds of the City of Manila to issue to the Barrettos the
corresponding certificate of title, subject, however, to the order of August 18, 1958 concerning
the vendor's lien. On the same date, the motion of the Barrettos seeking reconsideration of the
order of the court giving due course to the said vendor's lien was denied. From this last order,
the Barrettos spouses interposed the present appeal.
The appeal is devoid of merit.
In claiming that the decision of the Court of First Instance of Manila in Civil Case No. 20075
awarding the, amount of P12,000.00 in favor of Rosario Cruzado and her minor children
cannot constitute a basis for the vendor's lien filed by the appellee Rosario Cruzado, appellants
allege that the action in said civil case was merely to recover the balance of a promissory note.
But while, apparently, the action was to recover the remaining obligation of promisor Pura
Villanueva on the note, the fact remains that Rosario P. Cruzado as guardian of her minor
children was an unpaid vendor of the realty in question, and the promissory note was, precisely,
for the unpaid balance of the purchase price of the property bought by said Pura Villanueva.
Article 2242 of the New Civil Code enumerates the claims, mortgages and liens that constitute
an encumbrance on specific immovable property, and among them are:
"(2)For the unpaid price of real property sold, upon the immovable sold"; and
"(5)Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with respect to
the same specific real property or real rights, they shall be satisfied pro-rata, after the
payment of the taxes and assessments upon the immovable property of real rights.
Application of the above-quoted provisions to the case at bar would mean that the herein
appellee Rosario Cruzado as an unpaid vendor of the property in question has the right to share
pro-rata with the appellants the proceeds of the foreclosure sale.
The appellants, however, argue that inasmuch as the unpaid vendor's lien in this case was not
registered, it should not prejudice the said appellants' registered rights over the property. There
is nothing to this argument. Note must be taken of the fact that article 2242 of the new Civil
Code enumerating the preferred claims, mortgages and liens on immovables, specifically
requires that unlike the unpaid price of real property sold mortgage credits, in order to be
given preference, should be recorded in the Registry of Property. If the legislative intent was to
impose the same requirement in the case of the vendors lien, or the unpaid price of real
property sold, the lawmakers could have easily inserted the same qualification which now
modifies the mortgage credits. The law, however, does not make any distinction between
registered and unregistered vendor's lien, which only goes to show that any lien of that kind
enjoys the preferred credit status.
Appellants also argue that to give the unrecorded vendor's lien the same standing as the
registered mortgage credit would be to nullify the principle in land registration system that prior
unrecorded interests cannot prejudice persons who subsequently acquire interests over the
same property. The Land Registration Act itself, however, respects without reserve or
qualification the paramount rights of alien holders on real property. Thus, section 70 of that Act
provides that:
"Registered land, and ownership therein shall in all respects be subject to the
same burdens and incidents attached by law to unregistered land. Nothing
contained in this Act shall in any way be construed to relieve registered land or
the owners thereof from any rights incident to the relation of husband and wife,
or from liability to attachment on mesne process or levy on execution, or from
liability to any lien of any description established by law on land and the
buildings thereon, or the interest of the owners of such land or buildings, or to
change the laws of descent, or the rights of partition between co-owners, joint
tenants and other co-tenants, or the right to take the same by eminent domain,
or to relieve such land from liability to be appropriated in any lawful manner
for the payment of debts, or to change or affect in any other way any other
rights or liabilities created by law and applicable to unregistered land, except
as otherwise expressly provided in this Act or in the amendments thereof."
(Emphasis supplied)
As to the point made that the articles of the Civil Code on concurrence and preference of credits
are applicable only to the insolvent debtor, suffice it to say that nothing in the law shows any
such limitation. If we are to interpret this portion of the Code as intended only for insolvency
cases, then other creditor-debtor relationships where there are concurrence of credits would be
left without any rules to govern them, and it would render purposeless the special laws on
insolvency.
Premises considered, the order appealed from is hereby affirmed. Costs against the appellants.
Bengzon, Padilla, Bautista Angelo, Labrador, Paredes, and Dizon J .J ., concur.
Concepcion, Reyes, J.B.L., and Barrera, JJ ., concur in the result.
RESOLUTION ON MOTION TO RECONSIDER
December 29, 1962
REYES, J.B.L., J p:
Appellants, spouses Barretto, have filed a motion vigorously urging, for reason to be discussed
in the course of this resolution, that our decision of 28 January 1961 be reconsidered and set
aside, and a new one entered declaring that their right as mortgagees remain superior to the
unrecorded claim of herein appellee for the balance of the purchase price of her rights, title, and
interest in the mortgaged property.
It will be recalled that, with Court authority Rosario Cruzado sold all her right, title, and interest
and that of her children in the house and lot herein involved to Pura L. Villanueva for P19,000.00.
The purchaser paid P1,500 in advance, and executed promissory note for the balance of
P17,500.00. However, the buyer could only pay P5,500 on account of the note, for which reason
the vendor obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva
was able to secure a clean certificate of title (No. 32526), and mortgaged the property to
appellant Magdalena C. Barretto, married to Jose G. Barretto, to secure a loan of P30,000.00,
said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the
mortgage in her favor, obtained judgment, and upon its becoming final asked for execution on
31 July 1958. In 14 August 1958, Cruzado filed a motion for recognition of her "vendor's lien" in
the amount of P12,000.00, plus legal interest, involving Articles 2242, 2243 and 2249 of the
new Civil Code. After hearing, the court below ordered the "lien'' annotated on the back of
Certificate of Title No. 32526, with the proviso that in case of sale under the foreclosure decree
the vendor's lien and the mortgage credit of appellant Barretto should be paid pro rata from the
proceeds. Our original decision affirmed this order of the Court of First Instance of Manila.
Appellants insist that:
(1)The vendor's lien under Articles 2242 and 2243 of the New Civil Code of the
Philippines, can only become effective in the event of insolvency of the
vendee, which has not been proved to exist in the instant case; and
(2)That the appellee Cruzado is not a true vendor of the foreclosed property.
We have given protracted and mature consideration to the facts and law of this case, and have
reached the conclusion that our original decision must be reconsidered and set aside, for the
following reasons:
A.The previous decision failed to take fully into account the radical changes introduced by the
Civil Code of the Philippines into the system of priorities among creditors ordained by the Civil
Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real
property under Article 1923 were to be resolved according to an order of priorities established by
Article 1927, whereby one class of creditors could exclude the creditors of lower order until the
claims of the former were fully satisfied out of the proceeds of the sale of the real property
subject of the preference, and could even exhaust such proceeds if necessary.
Under the system of the Civil Code of the Philippines, however, only taxes enjoy a similar
absolute preference. All the remaining thirteen classes of preferred creditors under Article 2242
enjoy no priority among themselves, but must be paid pro rata, i.e., in proportion to the amount
of the respective credits. Thus, Article 2249 provides:
"If there are two or more credits with respect to specific real property or real
rights, they shall be satisfied pro rata, after the payment of the taxes and
assessments upon the immovable property or real rights."
But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2
to 14 of Article 2242 (or such of them as have credits outstanding) must necessarily be
convened, and the import of their claims ascertained. It is thus apparent that the full application
of Articles 2249 and 2242 demands that there must be first some proceeding where the claims
of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of
a decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of
similar import.
This explains the rule of Article 2243 of the New Civil Code that
"The claims or credits enumerated in the two preceding articles 1 shall be
considered as mortgages or pledges of real or personal property, or
liens within the purview of legal provisions governing insolvency . . . (Emphasis
supplied).
And the rule is further clarified in the Report of the Code Commission, as follows:

"The question as to whether the Civil Code and the Insolvency Law can be
harmonized is settled by this Article (2243). The preferences named in Articles
2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with
the insolvency law." (Emphasis supplied)
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a
foreclosure sale (as in the case now before us) is not the proceeding contemplated by law for
the enforcement of preferences under Article 2242, unless the claimant were enforcing a
credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute
between two creditors will not enable the Court to ascertain thepro rata dividend
corresponding to each, because the rights of the other creditors likewise enjoying preference
under Article 2242 can not be ascertained. Wherefore, the order of the Court of First
Instance of Manila now appealed from, decreeing that the proceeds of the foreclosure sale
be apportioned only between appellant and appellee is incorrect, and must be reversed.
In the absence of insolvency proceedings (or other equivalent general liquidation of the debtor's
estate ), the conflict between the parties (now before us) must be decided pursuant to the well
established principle concerning registered lands: that a purchaser in good faith and for value
(as the appellant concededly is) takes registered property free from liens and encumbrances
other than statutory liens and those recorded in the certificate of title. There being no insolvency
or liquidation, the claim of the appellee, as unpaid vendor, did not acquire the character and
rank of a statutory lien co-equal to the mortgagee's recorded encumbrance, and must remain
subordinate to the latter.
We are understandably loathed (absent a clear precept of law so commanding) to adopt a rule
that would undermine the faith and credit to be accorded to registered Torrens titles and nullify
the beneficient objectives sought to be obtained by the Land Registration Act. No argument is
needed to stress that if a person dealing with registered land were to be held to take it in every
instance subject to all the fourteen preferred claims enumerated in Article 2242 of the New Civil
Code, even if the existence and import thereof can not be ascertained from the records, all
confidence in Torrens titles would be destroyed, and credit transactions on the faith of such titles
would be hampered, if not prevented, with incalculable results. Loans on real estate security
would become aleatory and risky transactions, for no prospective lender could accurately
estimate the hidden liens on the property offered as security, unless he indulged in complicated,
tedious investigations. The logical result might well be a contraction of credit to unforeseeable
proportions that could lead to economic disaster.
Upon the other hand, it does not appear excessively burdensome to require the privileged
creditors to cause their claims to be recorded in the books of the Register of Deeds should they
desire to protect their rights even outside of insolvency liquidation proceedings.
B.The close study of the facts disclosed by the records casts strong doubt on the proposition that
appellees Cruzados should be regarded as unpaid vendors of the property (land, buildings and
improvements) involved in the case at bar, so as to be entitled to preference under Article 2242.
The record on appeal, specially the final decision of the Court of First Instance of Manila in the
suit of the Cruzados against Villanueva, clearly establishes that after her husband's death, and
with due court authority, Rosario Cruzado, for herself and as administratrix of her husband's
estate, mortgaged the property to the Rehabilitation Finance Corporation (RFC) to secure
repayment of a loan of P11,000, in installments, but that the debtor failed to pay some of the
installments; wherefore the RFC, on 24 August 1949, foreclosed the mortgage, and acquired the
property, subject to the debtor's right to redeem or repurchase the said property; and that on
25 September 1950, the RFC consolidated its ownership, and the certificate of title of the
Cruzados was cancelled and a new certificate issued in the name of the RFC.
While on 26 July 1951 the RFC did execute a deed selling back the property to the erstwhile
mortgagors and former owners Cruzados in installments, subject to the condition (among
others) that the title to the property and its improvements "shall remain in the name of the
Corporation (RFC) until after said purchase price, advances and interest shall have been fully
paid" as of 27 September 1952, Cruzado had only paid a total of P1,360, and had defaulted on
six monthly amortizations; for which reason the RFC rescinded the sale, and forfeited the
payments made, in accordance with the terms of the contract of 26 July 1951.
It was only on 10 March 1953 that the Cruzados sold to Pura L. Villanueva all "their rights, title,
interest and dominion on and over" the property, lot, house, and improvements for P19,000.00,
the buyer undertaking to assume payment of the obligation to the RFC, and by resolution of 30
April 1953, the RFC approved "the transfer of the rights and interests of Rosario P. Cruzado and
her children in their property herein above-described in favor of Pura L. Villanueva"; and on 7
May 1953 the RFC executed a deed of absolute sale of the property to said party, who had fully
paid the price of P14,269.03. Thereupon, the spouses Villanueva obtained a new Transfer
Certificate of Title No. 32526 in their name.
On 10 July 1953, the Villanuevas mortgaged the property to the spouses Barretto, appellants
herein.
It is clear from the facts above-stated that ownership of the property had passed to the
Rehabilitation Finance Corporation since 1950, when it consolidated its purchase at the
foreclosure sale, and obtained a certificate of title in its corporate name. The subsequent
contract of resale in favor of the Cruzados did not revest ownership in them, since they failed to
comply with its terms and conditions, and the contract itself provided that the title should
remain in the name of the RFC until the price was fully paid.
Therefore, when after defaulting in their payments due under the resale contract with the RFC
the appellants Cruzados sold to Villanueva "their rights, title, interest and dominion" to the
property, they merely assigned whatever rights or claims they might still have thereto; the
ownership of the property rested with the RFC. The sale from Cruzado to Villanueva, therefore,
was not so much a sale of the land and its improvements as it was a quitclaim deed in favor of
Villanueva. In law, the operative sale was that from the RFC to the latter, and it was the RFC
that should be regarded as the true vendor of the property. At the most, the Cruzados
transferred to Villanueva an option to acquire the property, but not the property itself, and their
credit, therefore, can not legally constitute a vendor's lien on the corpus of that property that
should stand on an equal footing with the mortgaged credit held by appellants Barretto.
In view of the foregoing, the previous decision of this Court, promulgated on 28 January 1961, is
hereby reconsidered and set aside, and a new one entered reversing the judgment appealed
from and declaring the appellants Barretto entitled to full satisfaction of their mortgaged credit
out of the proceeds of the foreclosure sale in the hands of the Sheriff of the City of Manila. No
costs.

J.L. BERNARDO CONSTRUCTION, represented by attorneys-in-fact
Santiago R. Sugay, Edwin A. Sugay and Fernando S.A. Erana,
SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S.A.
ERANA, petitioners, vs. COURT OF APPEALS and MAYOR JOSE L.
SALONGA, respondents.
Gonzalez Sinense Jimenez & Associates and Cruz Durian Alday & Cruz-Matters for petitioners.
Bauto & Bauto Law Office for private respondent.
SYNOPSIS
Sometime in 1990, the municipal government of San Antonio, Nueva Ecija approved the
construction of the San Antonio Public Market. The construction of the market was to be funded
by the Economic Support Fund Secretariat (ESFS), a government agency working with the
USAID. Under ESFS' grant-loan-equity financing program, the funding for the market would be
composed of a grant from ESFS and loan extended by ESFS to the municipality of San Antonio,
and equity or counterpart funds from the municipality. On April 20, 1990, petitioner submitted
its bid together with other qualified bidders and after evaluation, respondent Mayor as chairman
of the pre-qualification bids and awards committee, awarded the contract to petitioner. On July
31, 1991, petitioners filed a complaint for breach of contract, specific performance, and
collection of sum of money, with prayer for preliminary attachment and enforcement of
contractor's lien against the municipality of San Antonio, Nueva Ecija, and Mayor Salonga before
the Regional Trial Court of Nueva Ecija. After the respondents filed their answers, the RTC held
hearings on the ancillary remedies prayed for by the petitioners. On September 5, 1991, the
lower court issued the writ of preliminary attachment prayed for by the petitioners and granted
the right to maintain possession of the public market and operate the same. Respondent moved
for reconsideration, but the same was denied. After filing a motion for approval of counterbond
in the lower court, respondent Salonga filed with the Court of Appeals a petition
forcertiorari under Rule 65 with prayer for a writ of preliminary injunction and temporary
restraining order. On February 6, 1992, the Court of Appeals reversed and set aside the trial
court's decision and ruled in favor of Salonga. Aggrieved by the decision, petitioners filed before
the Court the instant petition assailing the appellate court's decision. DTEAHI
The Supreme Court held that the petition for certiorari filed by the respondent with the Court of
Appeals questioning the writ of attachment issued by the trial court should not have been given
due course for they still had recourse to a plain, speedy and adequate remedy the filing of a
motion to fix counter-bond. Moreover, they could have filed a motion to discharge the
attachment for having been improperly or irregularly issued or enforced or that the bond is
insufficient, or that the attachment is excessive. With such remedies still available to the
municipality and Salonga, the filing of a petition for certiorari with the Court of Appeals was
clearly premature. However, with regards to the contractor's lien, the Court upheld the appellate
court's ruling reversing the trial court's grant of a contractor's lien in favor of petitioners. The
trial court's order granting possession and use of the public market to petitioners did not adhere
to the procedure for attachment laid out in the Rules of Court. In issuing such an order, the trial
court gravely abused its discretion and the appellate court's nullification of the same should be
sustained. Accordingly, the Court affirmed the Court of Appeal's decision insofar as it nullified
the contractor's lien, but reversed and set aside the appellate court's decision nullifying the writ
of attachment granted by the trial court.
SYLLABUS
1.REMEDIAL LAW; CIVIL PROCEDURE; SPECIAL CIVIL ACTIONS; CERTIORARI; NOT AN
APPROPRIATE REMEDY TO ASSAIL AN INTERLOCUTORY ORDER. A petition for certiorari may
be filed in case a tribunal, board or officer exercising judicial or quasi-judicial functions has acted
without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess
of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law. The office of a writ of certiorari is restricted to truly extraordinary cases
wherein the act of the lower court or quasi-judicial body is wholly void. We held in a recent case
that certiorari may be issued "only where it is clearly shown that there is a patent and gross
abuse of discretion as to amount to an evasion of positive duty or to virtual refusal to perform a
duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in
an arbitrary and despotic manner by reason of passion or personal hostility." As a general rule,
an interlocutory order is not appealable until after the rendition of the judgment on the merits
for a contrary rule would delay the administration of justice and unduly burden the courts.
However, we have held that certiorari is an appropriate remedy to assail an interlocutory order
(1) when the tribunal issued such order without or in excess of jurisdiction or with grave abuse
of discretion and (2) when the assailed interlocutory order is patently erroneous and the remedy
of appeal would not afford adequate and expeditious relief. CAIHTE
2.CIVIL LAW; CONCURRENCE AND PREFERENCE OF CREDITS; THE CONTRACTOR IS
DISALLOWED FROM ENFORCING HIS LIEN PURSUANT TO ARTICLE 2242 OF THE CIVIL CODE IF
THE ACTION FILED IS FOR SPECIFIC PERFORMANCE AND DAMAGES. Articles 2241 and 2242
of the Civil Code enumerates certain credits which enjoy preference with respect to specific
personal or real property of the debtor. Specifically, the contractor's lien claimed by petitioners
is granted under the third paragraph of Article 2242 which provides that the claims of
contractors engaged in the construction, reconstruction or repair of buildings or other works
shall be preferred with respect to the specific building or other immovable property constructed.
However, Article 2242 only finds application when there is a concurrence of credits, i.e. when the
same specific property of the debtor is subjected to the claims of several creditors and the value
of such property of the debtor is insufficient to pay in full all the creditors. In such a situation,
the question of preference will arise, that is, there will be a need to determine which of the
creditors will be paid ahead of the others. Fundamental tenets of due process will dictate that
this statutory lien should then only be enforced in the context of some kind of a proceeding
where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency
proceedings. This is made explicit by Article 2243 which states that the claims and liens
enumerated in Articles 2241 and 2242 shall be considered as mortgages or pledges of real or
personal property, or liens within the purview of legal provisions governing insolvency. The
action filed by petitioners in the trial court does not partake of the nature of an insolvency
proceeding. It is basically for specific performance and damages. Thus, even if it is finally
adjudicated that petitioners herein actually stand in the position of unpaid contractors and are
entitled to invoke the contractor's lien granted under Article 2242, such lien cannot be enforced
in the present action for there is no way of determining whether or not there exist other
preferred creditors with claims over the San Antonio Public Market. The records do not contain
any allegation that petitioners are the only creditors with respect to such property. The fact that
no third party claims have been filed in the trial court will not bar other creditors from
subsequently bringing actions and claiming that they also have preferred liens against the
property involved. ICAcTa
D E C I S I O N
GONZAGA-REYES, J p:
This petition for certiorari under Rule 65 seeks to annul and set aside the following:
1.Decision dated February 6, 1992 issued by the Eleventh Division of the Court of Appeals in CA-
G.R. No. 26336 which nullified the order of the Regional Trial Court of Cabanatuan City in Civil
Case No. 1016-AF granting plaintiffs (petitioners herein) a writ of attachment and a contractor's
lien upon the San Antonio Public Market; and
2.Resolution dated June 10, 1992 issued by the former Eleventh Division of the Court of Appeals
in CA-G.R. No. 26336 denying the motions for reconsideration filed by both parties.
The factual antecedents of this case, as culled from the pleadings, are as follows:
Sometime in 1990, the municipal government of San Antonio, Nueva Ecija approved the
construction of the San Antonio Public Market. The construction of the market was to be funded
by the Economic Support Fund Secretariat (ESFS), a government agency working with the
USAID. Under ESFS' "grant-loan-equity" financing program, the funding for the market would be
composed of a (a) grant from ESFS, (b) loan extended by ESFS to the Municipality of San
Antonio, and (c) equity or counterpart funds from the Municipality.
It is claimed by petitioners Santiago R. Sugay, Edwin A. Sugay, Fernando S.A. Erana and J.L.
Bernardo Construction, a single proprietorship owned by Juanito L. Bernardo, that they entered
into a business venture for the purpose of participating in the bidding for the public market. It
was agreed by petitioners that Santiago Sugay would take the lead role and be responsible for
the preparation and submission of the bid documents, financing the entire project, providing and
utilizing his own equipment, providing the necessary labor, supplies and materials and making
the necessary representations and doing the liaison work with the concerned government
agencies.
On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay, submitted its bid
together with other qualified bidders. After evaluating the bids, the municipal pre-qualification
bids and awards committee, headed by respondent Jose L. Salonga (then incumbent municipal
mayor of San Antonio) as Chairman, awarded the contract to petitioners. On June 8, 1990, a
Construction Agreement was entered into by the Municipality of San Antonio thru respondent
Salonga and petitioner J.L. Bernardo Construction.

It is claimed by petitioners that under this Construction Agreement, the Municipality agreed to
assume the expenses for the demolition, clearing and site filling of the construction site in the
amount of P1,150,000 and, in addition, to provide cash equity of P767,305.99 to be remitted
directly to petitioners.
Petitioners allege that, although the whole amount of the cash equity became due, the
Municipality refused to pay the same, despite repeated demands and notwithstanding that the
public market was more than ninety-eight percent (98%) complete as of July 20, 1991.
Furthermore, petitioners maintain that Salonga induced them to advance the expenses for the
demolition, clearing and site filling work by making representations that the Municipality had the
financial capability to reimburse them later on. However, petitioners claim that they have not
been reimbursed for their expenses. 1
On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and Fernando Erana,
with the latter three bringing the case in their own personal capacities and also in representation
of J.L. Bernardo Construction, filed a complaint for breach of contract, specific performance, and
collection of a sum of money, with prayer for preliminary attachment and enforcement of
contractor's lien against the Municipality of San Antonio, Nueva Ecija and Salonga, in his
personal and official capacity as municipal mayor. After defendants filed their answer, the
Regional Trial Court held hearings on the ancillary remedies prayed for by plaintiffs. 2
On September 5, 1991, the Regional Trial Court issued the writ of preliminary attachment
prayed for by plaintiffs. It also granted J.L. Bernardo Construction the right to maintain
possession of the public market and to operate the same. The dispositive portion of the decision
provides: LibLex
IN VIEW OF THE FOREGOING DISQUISITION, the Court finds the auxiliary
reliefs of attachment prayed for by the plaintiffs to be well-taken and the same
is hereby GRANTED. Conformably thereto, let a writ of preliminary attachment
be issued upon the filing by the plaintiffs of a bond in the amount of
P2,653,576.84 to answer for costs and damages which the defendants may
suffer should the Court finally adjudged (sic) that the plaintiffs are not entitled
to the said attachment, and thereafter, the Deputy Sheriff of this court is
hereby ordered to attach the properties of the defendants JOSE LAPUZ
SALONGA and the MUNICIPALITY OF SAN ANTONIO, NUEVA ECIJA which are
not exempt from execution.
COROLLARILY, the Court grants the plaintiffs J.L. BERNARDO CONSTRUCTION,
represented by SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S.A.
ERANA, the authority to hold on to the possession of the public market in
question and to open and operate the same based on fair and reasonable
guidelines and other mechanics of operation to be submitted by plaintiffs
within fifteen (15) days from their receipt of this Order which shall be subject
to Court's approval and to deposit the income they may derive therefrom to
the Provincial Treasurer of Nueva Ecija after deducting the necessary expenses
for the operation and management of said market, subject to further orders
from this Court.
SO ORDERED.
The trial court gave credence to plaintiffs' claims that defendants were guilty of fraud in incurring
their contractual obligations as evidenced by the complaint and the affidavits of plaintiffs
Santiago Sugay and Erana. The court ruled that defendants' acts of ". . . obtaining property,
credit or services by false representations as to material facts made by the defendant to the
plaintiff with intent to deceive constitutes fraud warranting attachment" and that ". . . a debt is
considered fraudulently contracted if at the time of contracting it, the debtor entertained an
intention not to pay."
With regards to the contractor's lien, the trial court held that since plaintiffs have not been
reimbursed for the cash equity and for the demolition, clearing and site filling expenses, they
stand in the position of an unpaid contractor and as such are entitled, pursuant to Articles 2242
and 2243 of the Civil Code, to a lien in the amount of P2,653,576.84 (as of August 1, 1991),
excluding the other claimed damages, attorney's fees an litigation expenses, upon the public
market which they constructed. It was explained that, although the usual way of enforcing a lien
is by a decree for the sale of the property and the application of the proceeds to the payment of
the debt secured by it, it is more practical and reasonable to permit plaintiffs to operate the
public market and to apply to their claims the income derived therefrom, in the form of rentals
and goodwill from the prospective stallholders of the market, as prayed for by plaintiffs.
The trial court made short shrift of defendants' argument that the case was not instituted in the
name of the real parties-in-interest. It explained that the plaintiff in the cause of action for
money claims for unpaid cash equity and demolition and site filling expenses is J.L. Bernardo
Construction, while the plaintiffs in the claim for damages for violation of their rights under the
Civil Code provisions on human relations are plaintiffs Santiago Sugay, Edwin Sugay and
Erana. 3
The defendants moved for reconsideration of the trial court's order, to which the plaintiffs filed
an opposition. On October 10, 1991 the motion was denied. The following day, the trial court
approved the guidelines for the operation of the San Antonio Public Market filed by plaintiffs.
Respondent Salonga filed a motion for the approval of his counterbond which was treated by the
trial court in its October 29, 1991 order as a motion to fix counterbond and for which it
scheduled a hearing on November 19, 1991.
On October 21, 1991, during the pendency of his motion, respondent Salonga filed with the
Court of Appeals a petition for certiorari under Rule 65 with prayer for a writ of preliminary
injunction and temporary restraining order which case was docketed as CA-G.R. SP No.
26336. 4 Petitioners opposed the petition, claiming that respondent had in fact a plain, speedy
and adequate remedy as evidenced by the filing of a motion to approve counter-bond with the
trial court. 5
On February 6, 1992, the Court of Appeals reversed the trial court's decision and ruled in favor
of Salonga. The dispositive portion of its decision states
FOR ALL THE FOREGOING, the petition is hereby granted as follows:
1.The respondent judge's ORDER dated September 5, 1991 for the issuance of
a writ of attachment and for the enforcement of a contractor's lien, is hereby
NULLIFIED and SET ASIDE; the writ of attachment issued pursuant thereto and
the proceedings conducted by the Sheriffs assigned to implement the same are,
as a consequence, also hereby NULLIFIED and SET ASIDE;
2.The respondent judge's ORDER dated October 11, 1991 further enforcing the
contractor's lien and approving the guidelines for the operation of the San
Antonio Public Market is also NULLIFIED and SET ASIDE.
Petitioner's prayers for the dismissal of Civil Case No. 1016 (now pending
before respondent judge) and for his deletion from said case as defendant in
his private capacity are, however, DENIED.
The respondent judge may now proceed to hearing of Civil Case No. 1016 on
the merits.
SO ORDERED.
The appellate court reasoned that since the Construction Agreement was only between Juanito
Bernardo and the Municipality of San Antonio, and since there is no sworn statement by Juanito
Bernardo alleging that he had been deceived or misled by Mayor Salonga or the Municipality of
San Antonio, it is apparent that the applicant has not proven that the defendants are guilty of
inceptive fraud in contracting the debt or incurring the obligation, pursuant to Rule 57 of the
Rules of Court, and therefore, the writ of attachment should be struck down for having been
improvidently and irregularly issued.
The filing of a motion for the approval of counter-bond by defendants did not, according to the
Court of Appeals, render the petition for certioraripremature. The appellate court held that such
motion could not cure the defect in the issuance of the writ of attachment and that, moreover,
the defendants' motion was filed by them "without prejudice to the petition for certiorari."
As to the contractor's lien, the appellate court ruled that Article 2242 of the Civil Code finds
application only in the context of insolvency proceedings, as expressly stated in Article 2243.
Even if it is conceded that plaintiffs are entitled to retain possession of the market under its
contractor's lien, the appellate court held that the same right cannot be expanded to include the
right to use the building. Therefore, the trial court's grant of authority to plaintiffs to operate the
San Antonio Public Market amounts to a grave abuse of discretion.
With regard to the allegations of defendants that plaintiffs are not the proper parties, the Court
of Appeals ruled that such issue should be assigned as an error by defendants later on should
the outcome of the case be adverse to the latter. 6
Petitioners are now before this Court assailing the appellate court's decision. In their petition,
they make the following assignment of errors:
1.THE DECISION IS CONTRARY TO LAW IN THAT THE COURT OF APPEALS
OVERLOOKED AND/OR DISREGARDED THE FUNDAMENTAL REQUIREMENT AND
ESTABLISHED SUPREME COURT DECISIONS IN ACTIONS
FOR CERTIORARI CONSIDERING THAT THE FILING OF THE PETITION BY
RESPONDENT SALONGA WITH THE COURT OF APPEALS IS OBVIOUSLY
PREMATURE AND IMPROPER SINCE THERE ADMITTEDLY EXIST A PLAIN,
SPEEDY AND ADEQUATE REMEDY AVAILABLE TO RESPONDENT SALONGA
WHICH IS HIS UNRESOLVED "MOTION TO APPROVE COUNTERBOND"
PENDING WITH THE TRIAL COURT.
2.IN COMPLETE DISREGARD OF ESTABLISHED JURISPRUDENCE, THE COURT
OF APPEALS HAS SKIRTED AND/OR FAILED TO CONSIDER/DISREGARDED THE
EQUALLY CRUCIAL ISSUE THAT THE QUESTIONED ORDERS ARE CLEARLY AND
ADMITTEDLY INTERLOCUTORY IN NATURE AND THEREFORE THEY CANNOT BE
THE PROPER SUBJECT OF AN ACTION FOR CERTIORARI; PROOF THAT THE
ORDERS ASSAILED BY RESPONDENT SALONGA ARE INTERLOCUTORY IN
CHARACTER IS THE DISPOSITIVE PORTION OF THE DECISION WHEN THE
COURT OF APPEALS SAID "THE RESPONDENT JUDGE MAY NOW PROCEED TO
HEARING OF SAID CIVIL CASE NO. 1016 ON THE MERITS;" PETITION FILED
BY RESPONDENT SALONGA WITH THE COURT OF APPEALS SHOULD HAVE
BEEN DISMISSED OUTRIGHTLY AS SOUGHT BY HEREIN PETITIONERS IN
THEIR VARIOUS UNACTED PLEADINGS.

3.THE DECISION IS BASED ON FINDINGS OF FACTS AND CONCLUSIONS
WHICH ARE NOT ONLY GROSSLY ERRONEOUS BUT ARE SQUARELY
CONTRADICTED BY THE EVIDENCE ON RECORD.
4.THE COURT OF APPEALS HAS CLEARLY MISAPPRECIATED, MISREAD AND
DISREGARDED HEREIN PETITIONERS' CAUSES OF ACTION AGAINST
RESPONDENT SALONGA AND HIS CO-RESPONDENT MUNICIPALITY OF SAN
ANTONIO, NUEVA ECIJA.
5.THE COURT OF APPEALS HAS MADE ERRONEOUS AND CONTRADICTORY
CONCLUSIONS AND FINDINGS ON THE ISSUE OF "REAL PARTY IN INTEREST"
IN COMPLETE DISREGARD OF THE POWERS AND AUTHORITY GRANTED BY
JUANITO L. BERNARDO CONSTRUCTION TO HEREIN PETITIONERS.
6.THE COURT OF APPEALS HAS SKIRTED THE IMPORTANT ISSUE OF "AGENCY
COUPLED WITH AN INTEREST."
7.THE COURT OF APPEALS WENT BEYOND THE ISSUES OF
THE CERTIORARI CASE AND ITS FINDINGS AND CONCLUSIONS ON ISSUES
NOT RELATED TO THE CASE FOR CERTIORARI ARE CONTRARY TO THE
PLEADINGS AND DO NOT CONFORM TO THE EVIDENCE ON RECORD.
8.THE COURT OF APPEALS HAS LIKEWISE DISREGARDED THE PRECEPT THAT
CONCLUSIONS AND FINDINGS OF FACT OF THE TRIAL COURT ARE ENTITLED
TO GREAT WEIGHT ON APPEAL AND SHOULD NOT BE DISTURBED SINCE
THERE IS NO STRONG AND COGENT REASON WHATSOEVER TO OVERCOME
THE WELL-WRITTEN AND DETAILED AND ESTABLISHED FACTUAL FINDINGS
OF THE TRIAL COURT. LLpr
9.PETITIONERS HAVE STRONG REASONS TO BELIEVE THAT THE DECISION OF
THE COURT OF APPEALS WAS ISSUED WITH SERIOUS INJUSTICE AND
AGAINST THE TENETS OF FAIR PLAY SINCE THE DECISION HAD BEEN KNOWN
TO AS IT WAS OPENLY AND PUBLICLY ANNOUNCED BY RESPONDENT
SALONGA LONG BEFORE IT WAS "PROMULGATED" BY THE COURT OF APPEALS.
The various issues raised by petitioners may be restated in a more summary manner as
1.Whether or not the Court of Appeals correctly assumed jurisdiction over the petition
for certiorari filed by respondents herein assailing the trial court's interlocutory orders granting
the writ of attachment and the contractor's lien?
2.Whether or not the Court of Appeals committed reversible errors of law in its decision?
A petition for certiorari may be filed in case a tribunal, board or officer exercising judicial or
quasi-judicial functions has acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain,
speedy, and adequate remedy in the ordinary course of law. 7
The office of a writ of certiorari is restricted to truly extraordinary cases wherein the act of the
lower court or quasi-judicial body is wholly void. 8We held in a recent case that certiorari may
be issued "only where it is clearly shown that there is a patent and gross abuse of discretion as
to amount to an evasion of positive duty or to virtual refusal to perform a duty enjoined by law,
or to act at all in contemplation of law, as where the power is exercised in an arbitrary and
despotic manner by reason of passion or personal hostility." 9
As a general rule, an interlocutory order is not appealable until after the rendition of the
judgment on the merits for a contrary rule would delay the administration of justice and unduly
burden the courts. 10 However, we have held that certiorari is an appropriate remedy to assail
an interlocutory order (1) when the tribunal issued such order without or in excess of jurisdiction
or with grave abuse of discretion and (2) when the assailed interlocutory order is patently
erroneous and the remedy of appeal would not afford adequate and expeditious relief. 11
We hold that the petition for certiorari filed by Salonga and the Municipality with the Court of
Appeals questioning the writ of attachment issued by the trial court should not have been given
due course for they still had recourse to a plain, speedy and adequate remedy the filing of a
motion to fix the counter-bond, which they in fact filed with the trial court, the grant of which
would effectively prevent the issuance of the writ of attachment. Moreover, they could also have
filed a motion to discharge the attachment for having been improperly or irregularly issued or
enforced, or that the bond is insufficient, or that the attachment is excessive. 12 With such
remedies still available to the Municipality and Salonga, the filing of a petition for certiorari with
the Court of Appeals insofar as it questions the order of attachment was clearly premature.
However, with regards to the contractor's lien, we uphold the appellate court's ruling reversing
the trial court's grant of a contractor's lien in favor of petitioners.
Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy preference with
respect to specific personal or real property of the debtor. Specifically, the contractor's lien
claimed by petitioners is granted under the third paragraph of Article 2242 which provides that
the claims of contractors engaged in the construction, reconstruction or repair of buildings or
other works shall be preferred with respect to the specific building or other immovable property
constructed. 13
However, Article 2242 only finds application when there is a concurrence of credits, i.e. when the
same specific property of the debtor is subjected to the claims of several creditors and the value
of such property of the debtor is insufficient to pay in full all the creditors. In such a situation,
the question of preference will arise, that is, there will be a need to determine which of the
creditors will be paid ahead of the others. 14Fundamental tenets of due process will dictate that
this statutory lien should then only be enforced in the context of some kind of a proceeding
where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency
proceedings. 15
This is made explicit by Article 2243 which states that the claims and liens enumerated in
Articles 2241 and 2242 shall be considered as mortgages or pledges of real or personal property,
or liens within the purview of legal provisions governing insolvency. 16
The action filed by petitioners in the trial court does not partake of the nature of an insolvency
proceeding. It is basically for specific performance and damages. 17 Thus, even if it is finally
adjudicated that petitioners herein actually stand in the position of unpaid contractors and are
entitled to invoke the contractor's lien granted under Article 2242, such lien cannot be enforced
in the present action for there is no way of determining whether or not there exist other
preferred creditors with claims over the San Antonio Public Market. The records do not contain
any allegation that petitioners are the only creditors with respect to such property. The fact that
no third party claims have been filed in the trial court will not bar other creditors from
subsequently bringing actions and claiming that they also have preferred liens against the
property involved. 18
Our decision herein is consistent with our ruling in Philippine Savings Bank v. Lantin, 19 wherein
we also disallowed the contractor from enforcing his lien pursuant to Article 2242 of the Civil
Code in an action filed by him for the collection of unpaid construction costs.
It not having been alleged in their pleadings that they have any rights as a mortgagee under the
contracts, petitioners may only obtain possession and use of the public market by means of a
preliminary attachment upon such property, in the event that they obtain a favorable judgment
in the trial court. Under our rules of procedure, a writ of attachment over registered real
property is enforced by the sheriff by filing with the registry of deeds a copy of the order of
attachment, together with a description of the property attached, and a notice that it is attached,
and by leaving a copy of such order, description, and notice with the occupant of the property, if
any. 20 If judgment be recovered by the attaching party and execution issue thereon, the sheriff
may cause the judgment to be satisfied by selling so much of the property as may be necessary
to satisfy the judgment. 21 Only in the event that petitioners are able to purchase the property
will they then acquire possession and use of the same.
Clearly, the trial court's order of September 5, 1991 granting possession and use of the public
market to petitioners does not adhere to the procedure for attachment laid out in the Rules of
Court. In issuing such an order, the trial court gravely abused its discretion and the appellate
court's nullification of the same should be sustained.
At this stage of the case, there is no need to pass upon the question of whether or not
petitioners herein are the real parties-in-interest. In the event that judgment is render against
Salonga and the Municipality, this issue may be assigned as an error in their appeal from such
judgment. cdasia
WHEREFORE, we UPHOLD the Court of Appeals' Decision dated February 6, 1992 in CA-G.R. SP
No. 26336 insofar as it nullifies the contractor's lien granted by the trial court in favor of
petitioners in its September 5, 1991 Order. Consequently, we also UPHOLD the appellate court's
nullification of the trial court's October 11, 1991 Order approving the guidelines for the operation
of the San Antonio Public Market. However, we REVERSE the appellate court's order nullifying
the writ of attachment granted by the trial court.
No pronouncement as to costs.
SO ORDERED.

JOSE C. CORDOVA, petitioner, vs. REYES DAWAY LIM BERNARDO LINDO
ROSALES LAW OFFICES, ATTY. WENDELL CORONEL and the
SECURITIES AND EXCHANGE COMMISSION, *** respondents.
D E C I S I O N
CORONA, J p:
This is a petition for review on certiorari 1 of a decision 2 and resolution 3 of the Court of
Appeals (CA) dated July 31, 2000 and December 27, 2000, respectively, in CA-G.R. SP No.
55311.
Sometime in 1977 and 1978, petitioner Jose C. Cordova bought from Philippine Underwriters
Finance Corporation (Philfinance) certificates of stock of Celebrity Sports Plaza Incorporated
(CSPI) and shares of stock of various other corporations. He was issued a confirmation of
sale. 4 The CSPI shares were physically delivered by Philfinance to the former Filmanbank 5 and
Philtrust Bank, as custodian banks, to hold these shares in behalf of and for the benefit of
petitioner. 6
On June 18, 1981, Philfinance was placed under receivership by public respondent Securities and
Exchange Commission (SEC). Thereafter, private respondents Reyes Daway Lim Bernardo Lindo
Rosales Law Offices and Atty. Wendell Coronel (private respondents) were appointed as
liquidators. 7 Sometime in 1991, without the knowledge and consent of petitioner and without
authority from the SEC, private respondents withdrew the CSPI shares from the custodian
banks. 8 On May 27, 1996, they sold the shares to Northeast Corporation and included the
proceeds thereof in the funds of Philfinance. Petitioner learned about the unauthorized sale of his
shares only on September 10, 1996. 9 He lodged a complaint with private respondents but the
latter ignored it 10 prompting him to file, on May 6, 1997, 11 a formal complaint against private
respondents in the receivership proceedings with the SEC, for the return of the shares.
Meanwhile, on April 18, 1997, the SEC approved a 15% rate of recovery for Philfinance's
creditors and investors. 12 On May 13, 1997, the liquidators began the process of settling the
claims against Philfinance, from its assets. 13
On April 14, 1998, the SEC rendered judgment dismissing the petition. However, it reconsidered
this decision in a resolution dated September 24, 1999 and granted the claims of petitioner. It
held that petitioner was the owner of the CSPI shares by virtue of a confirmation of sale (which
was considered as a deed of assignment) issued to him by Philfinance. But since the shares had
already been sold and the proceeds commingled with the other assets of Philfinance, petitioner's
status was converted into that of an ordinary creditor for the value of such shares. Thus, it
ordered private respondents to pay petitioner the amount of P5,062,500 representing 15% of
the monetary value of his CSPI shares plus interest at the legal rate from the time of their
unauthorized sale.
On October 27, 1999, the SEC issued an order clarifying its September 24, 1999 resolution.
While it reiterated its earlier order to pay petitioner the amount of P5,062,500, it deleted the
award of legal interest. It clarified that it never meant to award interest since this would be
unfair to the other claimants. TAECaD
On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed the owner of the CSPI
shares but the recovery of such shares had become impossible. It also declared that the
clarificatory order merely harmonized the dispositive portion with the body of the resolution.
Petitioner's motion for reconsideration was denied.
Hence this petition raising the following issues:
1)whether petitioner should be considered as a preferred (and secured)
creditor of Philfinance;
2)whether petitioner can recover the full value of his CSPI shares or merely
15% thereof like all other ordinary creditors of Philfinance and
3)whether petitioner is entitled to legal interest. 14
To resolve these issues, we first have to determine if petitioner was indeed a creditor of
Philfinance.
There is no dispute that petitioner was the owner of the CSPI shares. However, private
respondents, as liquidators of Philfinance, illegally withdrew said certificates of stock without the
knowledge and consent of petitioner and authority of the SEC. 15 After selling the CSPI shares,
private respondents added the proceeds of the sale to the assets of Philfinance. 16 Under these
circumstances, did the petitioner become a creditor of Philfinance? We rule in the affirmative.
The SEC, after holding that petitioner was the owner of the shares, stated:
Petitioner is seeking the return of his CSPI shares which, for the present, is no
longer possible, considering that the same had already been sold by the
respondents, the proceeds of which are ADMITTEDLY commingled with the
assets of PHILFINANCE.
This being the case, [petitioner] is now but a claimant for the value of those
shares. As a claimant, he shall be treated as an ordinary creditor in so far as
the value of those certificates is concerned. 17
The CA agreed with this and elaborated:
Much as we find both detestable and reprehensible the grossly abusive and
illicit contrivance employed by private respondents against petitioner, we,
nevertheless, concur with public respondent that the return of petitioner's CSPI
shares is well-nigh impossible, if not already an utter impossibility, inasmuch
as the certificates of stocks have already been alienated or transferred in favor
of Northeast Corporation, as early as May 27, 1996, in consequence whereof
the proceeds of the sale have been transmuted into corporate assets of
Philfinance, under custodia legis, ready for distribution to its creditors and/or
investors. Case law holds that the assets of an institution under receivership or
liquidation shall be deemed in custodia legis in the hands of the receiver or
liquidator, and shall from the moment of such receivership or liquidation, be
exempt from any order, garnishment, levy, attachment, or execution.
Concomitantly, petitioner's filing of his claim over the subject CSPI shares
before the SEC in the liquidation proceedings bound him to the terms and
conditions thereof. He cannot demand any special treatment [from] the
liquidator, for this flies in the face of, and will contravene, the Supreme Court
dictum that when a corporation threatened by bankruptcy is taken over by a
receiver, all the creditors shall stand on equal footing. Not one of them should
be given preference by paying one or some [of] them ahead of the others. This
is precisely the philosophy underlying the suspension of all pending claims
against the corporation under receivership. The rule of thumb is equality in
equity. 18
We agree with both the SEC and the CA that petitioner had become an ordinary creditor of
Philfinance.
Certainly, petitioner had the right to demand the return of his CSPI shares. 19 He in fact filed a
complaint in the liquidation proceedings in the SEC to get them back but was confronted by an
impossible situation as they had already been sold. Consequently, he sought instead to recover
their monetary value.
Petitioner's CSPI shares were specific or determinate movable properties. 20 But after they were
sold, the money raised from the sale became generic 21 and were commingled with the cash
and other assets of Philfinance. Unlike shares of stock, money is a generic thing. It is designated
merely by its class or genus without any particular designation or physical segregation from all
others of the same class. 22 This means that once a certain amount is added to the cash
balance, one can no longer pinpoint the specific amount included which then becomes part of a
whole mass of money. HDICSa
It thus became impossible to identify the exact proceeds of the sale of the CSPI shares since
they could no longer be particularly designated nor distinctly segregated from the assets of
Philfinance. Petitioner's only remedy was to file a claim on the whole mass of these assets, to
which unfortunately all of the other creditors and investors of Philfinance also had a claim.
Petitioner's right of action against Philfinance was a "claim" properly to be litigated in the
liquidation proceedings. 23 In Finasia Investments and Finance Corporation v. CA, 24 we
discussed the definition of "claims" in the context of liquidation proceedings:
We agree with the public respondent that the word 'claim' as used in Sec. 6(c)
of P.D. 902-A, 25 as amended, refers to debts or demands of a pecuniary
nature. It means "the assertion of a right to have money paid. It is used in
special proceedings like those before [the administrative court] on insolvency."
The word "claim" is also defined as:
Right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured; or right
to an equitable remedy for breach of performance if such breach gives
rise to a right to payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, unsecured. 26
Undoubtedly, petitioner had a right to the payment of the value of his shares. His demand was
of a pecuniary nature since he was claiming the monetary value of his shares. It was in this
sense (i.e. as a claimant) that he was a creditor of Philfinance.
The Civil Code provisions on concurrence and preference of credits are applicable to the
liquidation proceedings. 27 The next question is, was petitioner a preferred or ordinary creditor
under these provisions?
Petitioner argues that he was a preferred creditor because private respondents illegally withdrew
his CSPI shares from the custodian banks and sold them without his knowledge and consent and
without authority from the SEC. He quotes Article 2241 (2) of the Civil Code:

With reference to specific movable property of the debtor, the following
claims or liens shall be preferred:
xxx xxx xxx
(2)Claims arising from misappropriation, breach of trust, or malfeasance by
public officials committed in the performance of their duties, on the movables,
money or securities obtained by them;
xxx xxx xxx
(Emphasis supplied)
He asserts that, as a preferred creditor, he was entitled to the entire monetary value of his
shares.
Petitioner's argument is incorrect. Article 2241 refers only to specific movable property. His
claim was for the payment of money, which, as already discussed, is generic property and not
specific or determinate.
Considering that petitioner did not fall under any of the provisions applicable to preferred
creditors, he was deemed an ordinary creditor under Article 2245:
Credits of any other kind or class, or by any other right or title not comprised
in the four preceding articles, shall enjoy no preference.
This being so, Article 2251 (2) states that:
Common credits referred to in Article 2245 shall be paid pro rata regardless of
dates.
Like all the other ordinary creditors or claimants against Philfinance, he was entitled to a rate
of recovery of only 15% of his money claim.
One final issue: was petitioner entitled to interest?
The SEC argues that awarding interest to petitioner would have given petitioner an unfair
advantage or preference over the other creditors. 28Petitioner counters that he was entitled to
12% legal interest per annum under Article 2209 of the Civil Code from the time he was
deprived of the shares until fully paid. HTaIAC
The guidelines for awarding interest were laid down in Eastern Shipping Lines, Inc. v. CA: 29
I.When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable damages.
II.With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1.When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2.When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date of the
judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount of finally
adjudged.
3.When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit. 30 (Emphasis supplied)
Under this ruling, petitioner was not entitled to legal interest of 12% per annum (from demand)
because the amount owing to him was not a loan31 or forbearance of money. 32
Neither was he entitled to legal interest of 6% per annum under Article 2209 of the Civil
Code 33 since this provision applies only when there is a delay in the payment of a sum of
money. 34 This was not the case here. In fact, petitioner himself manifested before the CA that
the SEC (as liquidator) had already paid him P5,062,500 representing 15% of P33,750,000. 35
Accordingly, petitioner was not entitled to interest under the law and current jurisprudence.
Considering that petitioner had already received the amount of P5,062,500, the obligation of the
SEC as liquidator of Philfinance was totally extinguished. 36
We note that there is an undisputed finding by the SEC and CA that private respondents sold the
subject shares without authority from the SEC. Petitioner evidently has a cause of action against
private respondents for their bad faith and unauthorized acts, and the resulting damage caused
to him. 37
WHEREFORE, the petition is hereby DENIED.
SO ORDERED.