133. De Barreto v.

Villanueva, 1 SCRA 288 (1961); 6 SCRA 928 (1962)

Facts:
Cruzado sold land (which was foreclosed by RFC but later resold to
Cruzado) to Villanueva with a stipulation that Villanueva will continue
payment to RFC (for the reselling price). Villanueva mortgaged the land to De
Barreto when it obtained a loan from the latter. Villanueva failed to pay both
Cruzado and De Barreto. On the one hand, De Barreto sued for foreclosure
and won. On the other hand, Cruzado filed a motion in that foreclosure
proceeding for the recognition of his vendors lien.
RTC: granted Cruzados motion that his lien be satisfied by the foreclosure
proceeds.
SC: affirmed RTC. But on MFR, reversed RTC ruling.
Held:
The question as to whether the Civil Code and the Insolvency Law can be
harmonized is settled by Article 2243, Civil Code. The preferences named in
Articles 2241 and 2242 are to be enforced in accordance with the Involvency
Law.
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 the pro 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 register 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 coequal to the mortgagee's recorded encumbrance, and must remain
subordinate to the latter.
The close study of the facts disclosed by the records lasts 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 state, mortgaged the property to the
Rehabilitation Finance Corporation (RFC) to secure payment of a loan of
P11,000, 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 Corporation (RFC) until after said
purchase price, advances and interests 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 interest 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 quit-claim 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 appellant
Barretto.
134. Sampaguita Pictures v. Jalwindor, 93 SCRA 420 (1979)
FACTS:
- Sampaguita (P) is the owner of a building which its roofdeck was leased to
Capitol 300 (Capitol), wherein it was agreed that whatever improvements
introduced therein by Capitol will later be owned by P.
- Capitol purchased on credit from Jalwindor (R) glass and wooden jalousies
which were DELIVERED and INSTALLED in the leased premises by R, replacing
the existing windows of P.
- Capitol failed to pay and R filed an action for collection of sum of money
against Capitol.
- R made a levy on the glass and wooden jalousies in question, which P
intervened in the case alleging that it cannot be levied upon since it is already
the owner of the subject jalousies.
ISSUE: WoN R may levy the jalousies
SC: NO!
- When the glass and wooden jalousies were delivered and installed in the
leased premises, P became the owner thereof, due to the contract between P
and Capitol in which it stated that all permanent improvements made by
lessee shall belong to the lessor and that said improvements hav been
considered as part of the monthly rentals.
The fact that Capitol failed to pay R the purchase price of the items levied upon did
not prevent the transfer of ownership to Capitol and then to P.

135. Uy v. Zamora, 13 SCRA 508 (1965)

FACTS:
1) At the instance of plaintiff Uy, the MTC ordered the attachment of a
vehicle belonging to Zamora. The writ was levied on the vehicle on August
11, 1960. Subsequently, the Municipal Court rendered judgment for the
plaintiff Uy and ordered defendant Zamora to pay the sum of P1,740. Zamora
appealed to the CFI.
2) While the case was pending appeal, the Allied Finance, Inc. intervene.
According to it, the vehicle, which was attached by the Sheriff, had previously
been mortgaged to it by Zamora to secure the payment of a loan and that at
the time of the filing of the complaint in intervention, a balance of P2,451.93
remained in its favor. Allied, prayed that Zamora be ordered to pay P2,451.93
as principal.

3) On January 12, 1961, Uy and Zamora, submitted to the court a

compromise agreement wherein Zamora admitted being indebted to Uy.
Since the motor vehicle had already been sold on order of the Court for
P2,500 to prevent depreciation, defendant Zamora agreed to have plaintiff
Uy's credit paid out of the proceeds of the sale.
4) The court found defendant Zamora to be liable to plaintiff Uy in the
amount of P2,500, and to the intervenor in the amount of P2,451.93, plus
interest. Uy claims preference on the basis of a lien arising from the
attachment of the vehicle on August 11, 1960. On the other hand, allied
bases its claim to preference on a Deed of Chattel Mortgage covering the
same motor vehicle.
ISSUE: Which of the two credits is preferred?
HELD:
A) Considering the fact that Allied Finance, Inc. registered its mortgage only
on August 24, 1960, or subsequent to the date of the writ of attachment
obtained by plaintiff Uy on August 11, 1960, the credit of the intervenor
cannot prevail over that of the plaintiff.
B) The SC disagreed with the lower courts decision upheld Allieds credit on
the ground that, being embodied in a public instrument of an earlier date
(June 20, 1960), it should take precedence over plaintiff's lien by attachment
(August 11, 1960), pursuant to Article 2244 of the Civil Code, for the reason
that, as already stated, the credit of the Allied cannot be considered as
preferred until the same has been recorded in the Motor Vehicles Office.
C) A mortgage of motor vehicles, in order to affect third persons, should not
only be registered in the Chattel Mortgage Registry, but the same should also
be recorded in the Motor Vehicles Office The decision of the lower court is
reversed, without pronouncement as to costs.
The lower court upheld intervenor's credit on the ground that, being
embodied in a public instrument of an earlier date (June 20, 1960), it should
take precedence over plaintiff's lien by attachment (August 11, 1960),
pursuant to Article 2244 of the Civil Code. This is untenable, for the reason
that, as already stated, the credit of the intervenor cannot be considered as
preferred until the same has been recorded in the Motor Vehicles Office. Thus,
in Borlough v. Fortune Enterprises, Inc., 53 O.G. 4070, it was held that a
mortgage of motor vehicles, in order to affect third persons, should not only
be registered in the Chattel Mortgage Registry, but the same should also be
recorded in the Motor Vehicles Office (now the Land Transportation
Commission), as required in Section 5 (e) of the then Revised Motor Vehicles
Law. There is no doubt that with respect to defendant Zamora and the
intervenor Allied Finance, Inc., plaintiff Uy is a third person. We, therefore,
hold that plaintiff's credit should first be paid.

136. Phil. Savings Bank v. Lantin, 124 SCRA 476 (1983)

F: c built a duplex apartment house on a registered lot of spouses x and y, using his
own money, P25k to finish the construction. Meanwhile, x and y obtained from psb a
loan secured by a mortgage to complete construction. At the time of the registration
of the mortgage, the transfer certificate of title over the property was free from all
liens and encumbrances. PSB foreclosed the mortgage, and being the highest bidder
a new certificate of title was subsequently issued in its favor
C filed an action against the spouses to collect the unpaid cost of construction. As x
and y did not have any properties to satisfy the judgment rendered in his favor, c
demanded from psb a pro rata share in the value of the duplex apartment in
accordance with article 2242.
Issue: is c entitled to claim pro rata share in the value of the property in question.
Ruling: no. the action filed by c to collect the unpaid cost of the construction of the
duplex apartment is far from being a general liquidation of the estate of x and y.
Although the lower court found that there were no known creditors other than c and
psb, this cannot be conclusive. It will not bar other creditors in the event they show
up and present their claims against psb, claiming they have also preferred claims
against the property. Consequently, the transfer certificate of title issued to psb
which is supposed to be indefeasible would remain constantly unstable and
questionable. Such could not have been the intention of article 2243 of the civil code
although it considers claims and credits under article 2242 as statutory liens. Neither
does the de barreto caes sanction such instability.

Respondent Ramos admitted in the partial stipulation of facts submitted by

both parties that at the time of the loans to the spouses, the petitioners bank
had no actual or constructive knowledge of any lien against the property in
question. The duplex apartment house was built for P32,927.00. The spouses
Tabligan borrowed P35,000.00 for the construction of the apartment house.
The bank could not have known of any contractors lien because, as far as it
was concerned, it financed the entire construction even if the stated purpose
of the loans was only to "complete" the construction.
Since the action filed by the private respondent is not one which can be
considered as "equivalent general liquidation" having the same import as an
insolvency or settlement of the decedents estate proceeding, the well
established principle must be applied that a purchaser in good faith and for
value takes registered land free from liens and encumbrances other than
statutory liens and those recorded in the Certificate of Title. It is an admitted
fact that at the time the deeds of real estate mortgage in favor of the
petitioner bank were constituted, the transfer certificate of title of the
spouses Tabligan was free from any recorded lien and encumbrances, so that
the only registered liens in the title were deeds in favor of the petitioner.
Prescinding from the foregoing, the private respondents claim must remain
subordinate to the petitioner banks title over the property evidenced by TCT
No. 101864.

137. Manabat v. Laguna Federation, 19 SCRA 621 (1967)

Facts:
- Laguna Federation was the creditor of Roxas
- Laguna won over Roxas in a collection case and the sheriff levied 10 lands
of Roxas for
P37,000
- After the sale, the sheriff discovered that the lands sold were subject to
several registered
liens
- Sheriff institutes an interpleader for the different creditors to determine
among
themselves their rights over the P37,000
- RTC: order of the date of registration with Laguna Federation as the first
creditor in line
and Cayco as the 4th
Issue:
- W/N preference in date or pro rata, as suggested by Cayco, is the rule to be
followed
Held:
- Preference in date of registration
- As stated in A2242 paragraph 7, credits annotated in the Registry of
Property in virtue of
a judicial order, attachments or execution, upon the property affected and
ONLY AS TO
LATER CREDITS
- To follow the pro rata rule, absurdities is to happen. The purpose if the
section is easily
defeated by simply obtaining writs of attachments or execution lien over later
credits
It being expressly provided that said credits are preferred "only as to later
credits", it follows that the same limitation applies as to their preference

among themselves; i.e., for purposes of satisfying several credits annotated

by attachments or executions, the rule is still preference according to priority
of the credits in the order of time. For, otherwise, the result would be absurd:
the preference of an attachment or execution lien over later credits, as above
provided for, could easily be defeated by simply obtaining writs of
attachment or execution, and annotating them, no matter how much later.
It not being disputed that appellants' credit is "later" than those of appellees
Laguna Federation of Facomas, Inc., Valeriana Lim-aco de Almeda and
Cosmopolitan Insurance Co., Inc., the appellees' credits must be deemed
preferred to that of appellants. To satisfy them pro rata would erase the
difference between earlier and later credits provided for by subpar. (7) of
Article 2242 aforementioned.
138. PCIB v. National Mines, 115 SCRA 873 (1962)
Facts:
National Mines
decision from the

&

NLRC where Phil. Iron

P4,298,307.77 as

Allied

Workers

Union

(NAMAWU)

obtained

Mines (PIM) was ordered to pay the union

severance pay
Several machinery and equipment of PIM was sold to Atlas Mining in a
foreclosure sale
to satisfy debts of PIM to PCIB. Said sale was in the amount of P30M
Payment of Atlas to PCIB was ordered garnished to the amount of
P4,298,307.77 to
satisfy the judgment of the NLRC. A check was issued for this amount.
PCIB is asking for injunction but proceeds of the check were already
distributed to the
former employees of PIM
PCIBs contention: that they are separate debtors and should therefore not
be liable to pay
the former workers of PIM
Issue:
W/N PCIB is liable to the former employees of PIM
Held:

 PCIB is still liable because under 2244 of the CC, employees enjoy
first preference
regarding wages due prior to the bankruptcy or liquidation as against other
creditors
Although the foreclosure of the properties in favor of PCIB was days before
the NLRC
decision, nonetheless the properties were already encumbered to NAMAWU
by force of
Law.
Petitioners are trying to make much of the circumstance that the foreclosure
sale in their favor antedated by two days the judgment of the NLRC. In this
connection, We hold that the right of the Union members over the properties
or assets of PIM became vested from the date the Minister of Labor approved
PIM's application for clearance on May 7, 1975. In the most legal sense and,
again, consonant with the principles of social justice and protection to labor
under the Constitution of the Philippines above referred to the NLRC decision
was only confirmatory of such right, not unlike the juridical effect of the
issuance of a Torrens title over a piece of land already covered by a legitimate
Spanish title. And so, when petitioners acquired the properties of PIM in the
foreclosure sales, those properties were already encumbered in favor of the
Union members/claimants by force of law. Worse, petitioners were well aware
they were foreclosing on properties of a mortgage debtor who had already
secured from the Ministry of Labor a corresponding clearance for shutdown
due to liquidation, and, needless to say, petitioners are presumed to know the
law on the matter already referred to above.

Indeed, from whatever point of view We try to look at the situation of

petitioners, it always comes out that they cannot cheat the Union
claimants/members of what is due them by law for work actually done by
them and other benefits. They bought the properties in question with open
eyes.t@lF They sold the same knowing they were saddled with the rights
of the laborers of PIM under the clearance of the Ministry of Labor. The deed
of sale included, as it should, a warranty that the properties are free from all
liens and encumbrances. ATLAS had the right to receive the properties free
from any lien and encumbrance, and when the garnishment was served on it,
it was perfectly in the right in slashing the P4,298,307.77 from the P30M it
had to pay petitioners in order to satisfy the long existing and vested right of
the laborers of financially moribund PIM, without any liability to petitioners for
reimbursement thereof.
139. Central Bank v. Morfe, 63 SCRA 114 (1975)
Facts:

The Monetary Board found the Fidelity Savings Bank to be insolvent. The Board
directed the Superintendent of Banks to take charge of its assets, forbade it to do
business and instructed the Central Bank Legal Counsel to take legal actions.
Prior to the institution of the liquidation proceeding but after the declaration of
insolvency, the spouses Elizes filed a complaint in the CFI against the Fidelity
Savings Bank for the recovery of the balance of their time deposits.
In the judgment rendered in that case, the Fidelity Savings Bank was ordered to
pay the Elizes spouses the sum plus accumulated interest.
In another case, the spouses Padilla secured a judgment against the Fidelity
Savings Bank for the sums as the balance of their time deposits, plus interests,
moral and exemplary damages and attorney's fees.
The lower court (having cognizance of the liquidation proceeding), upon motions
of the Elizes and Padilla spouses and over the opposition of the Central Bank,
directed the latter as liquidator, to pay their time deposits as preferred
judgments, evidenced by final judgments, within the meaning of article 2244(14)
(b) of the Civil Code.
Central Bank contends that the final judgments secured by the Elizes and Padilla
spouses do not enjoy any preference because (a) they were rendered after the
Fidelity Savings Bank was declared insolvent and (b) under the charter of the
Central Bank and the General Banking Law, no final judgment can be validly
obtained against an insolvent bank.

Issue: Whether a final judgment for the payment of a time deposit in a savings
bank which judgment was obtained after the bank was declared insolvent, is a
preferred claim against the bank?
Held:
No. It should be noted that fixed, savings, and current deposits of money in banks
and similar institutions are not true deposits. They are considered simple loans and,
as such, are not preferred credits.
The aforequoted section 29 of the Central Bank's charter explicitly provides that
when a bank is found to be insolvent, the Monetary Board shall forbid it to do
business and shall take charge of its assets. Evidently, one purpose in prohibiting the
insolvent bank from doing business is to prevent some depositors from having an
undue or fraudulent preference over other creditors and depositors.
We are of the opinion that such judgments cannot be considered preferred and that
article 2244(14)(b) does not apply to judgments for the payment of the deposits in an
insolvent savings bank which were obtained after the declaration of insolvency.
In the Rohr case, the general principle of equity that the assets of an insolvent are to
be distributed ratably among general creditors applies with full force to the
distribution of the assets of a bank. A general depositor of a bank is merely a general
creditor, and, as such, is not entitled to any preference or priority over other general
creditors.
The assets of a bank in process of liquidation are held in trust for the equal benefit of
all creditors, and one cannot be permitted to obtain an advantage or preference over
another by an attachment, execution or otherwise.

Considering that the deposits in question, in their inception, were not preferred
credits, it does not seem logical and just that they should be raised to the category of
preferred credits simply because the depositors, taking advantage of the long interval
between the declaration of insolvency and the filing of the petition for judicial
assistance and supervision, were able to secure judgments for the payment of their
time deposits.