G.R. No.

L-36821 June 22, 1978

JOSE P. DIZON, petitioner,

vs.
ALFREDO G. GABORRO (Substituted by PACITA DE GUZMAN GABORRO as Judicial Administratrix of the Estate of Alfredo G.
Gaborro) and the DEVELOPMENT BANK OF THE PHILIPPINES, respondents.

Leonardo Abola for petitioner.

Carlos J. Antiporda for respondents.

GUERRERO, J.:

Petition for review on certiorari of the decision of the Court Appeals 1 in CA-G.R. No. 46975-R entitled "Jose P. Dizon, Plaintiff-Appellant, vs.
Alfredo G. Gaborro (substituted by Pacita de Guzman Gaborro as Judicial Administratrix of the Estate of Alfredo G, Gaborro) trial the
Development Bank of the Philippines, Defendants-Appellees," affirming with modification the decision of the Court of First Instance of Pampanga,
Branch II in Civil Case No. 2184.

The dispositive portion of the decision sought to be reviewed reads:

IN VIEW OF THE FOREGOING, the judgment appealed therefrom is hereby affirmed with modification that the plaintiff-
appellant has the right to refund or reimburse the defendant- appellees he sum of P131,831.91 with interest at 8% per
annum from October 6, 1959 until full payment, said right to be exercised within one year from the date this judgment
becomes final, with the understanding that, if he fails to do so within the said period, then he is deemed to have lost his
right over the lands forever. With costs against the appellant. 2 MODIFIED.

The basic issue to be resolved in this case is whether the 'Deed of Sale with Assumption of Mortgage', trial Option to Purchase Real Estate". two
instruments executed by trial between Petitioner Jose P. Dizon trial Alfredo G. Gaborro (defendant below) on the same day, October 6, 1959
constitute in truth trial in fact an absolute sale of the three parcels of land therein described or merely an equitable mortgage or conveyance
thereof by way of security for reimbursement, refund or repayment by petitioner Jose P. Dizon of any trial all sums which may have been paid
to the Development Bank of the Philippines trial the Philippine National Bank by Alfredo G. Gaborro (later substituted herein by his wife Pacita
de Guzman Gaborro as administratrix of the estate of Alfredo G. Gaborro) who had died during the pendency of the case.

A supplementary issue raised is whether or not Gaborro or the respondent administratrix of the estate should account for all the fruits produced
trial income received by them from the lands mentioned trial described in the aforesaid "Deed of Sale with Assumption of Mortgage."

The antecedent facts established in the record are not disputed. Petitioner Jose P. Dizon was the owner of the three (3) parcels of land, subject
matter of this litigation, situated in Mabalacat, Pampanga with an aggregate area of 130.58 hectares, as evidenced by Transfer Certificate of
Title No. 15679. He constituted a first mortgage lien in favor of the Develop. ment Bank of the Philippines in order to secure a loan in the sum
of P38,000.00 trial a second mortgage lien in favor of the Philippine National Bank to cure his indebtedness to said bank in the amount of
P93,831.91.

Petitioner Dizon having defaulted in the payment of his debt, the Development Bank of the Philippines foreclosed the mortgage extrajudicially
pursuant to the provisions of Act No. 3135. On May 26, 1959, the hinds were sold to the DBP for- P31,459.21, which amount covered the loan,
interest trial expenses, trial the corresponding "Certificate of Sale," (Exhibit A-2, Exhibit 1b was executed in favor of the said On November 12,
1959, Dizon himself executed the deed of sale (Exhibit Al over the properties in favor of the DBP which deed was recorded in the Office of the
Register of Deeds on October 6, 1960.

Sometime prior to October 6, 1959 Alfredo G. Gaborro trial Jose P. Dizon met. Gaborro became interested in the lands of Dizon. Dizon originally
intended to lease to Gaborro the property which had been lying idle for some time. But as the mortgage was already foreclosed by the DPB trial
the bank in fact purchased the lands at the foreclosure sale on May 26, 1959, they abandoned the projected lease. They then entered into the
following contract on October 6, 1959 captioned trial quoted, to wit:

DEED OF SALE WITH ASSUMPTION

OF MORTGAGE

KNOW ALL MEN BY THESE PRESENTS:

This DEED OF SALE WITH ASSUMPTION OF MORTGAGE, made trial executed at the City of Manila, Philippines, on this 6th
day of October, 1959 by trial between —

JOSE P. DIZON, of legal age, Filipino, married to Norberta Torres, with residence trial postal address at Mabalacat, Pampanga,
hereinafter referred to as the VENDOR.

ALFREDO G. GABORRO, likewise of legal age, Filipino, married to Pacita de Guzman, with residence trial postal address at
46, 7th St., Gilmore Avenue, Quezon City, hereinafter referred to as the VENDEE,

W I T N E S S E T H: That —

WHEREAS, the VENDOR is the registered owner of three (3) parcels of land covered by Transfer Certificate of Title No. 15679
of the land records of Pampanga. situated in the Municipality of Mabalacat, Province of Pampanga, trial more particularly
described trial bounded as follows:

1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the
Municipality of Mabalacat, Bounded on the NE by Lot No 187: on the SE., by Lots Nos. 183, 189, 191 trial 192; on the SW
by Lot No. 192 trial on the NW by the unimproved provincial road to Magalang. Containing an area of TWO HUNDRED AND
TWENTY ONE THOUSAND ONE HUNDRED SEVENTY TWO SQUARE METERS (221,172), more or less.

2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the
Municipality of Mabalacat. Bounded on the NE., by a road trial Lots Nos. 569,570 trial 571; on the SE., by Lot No. 571 trial
the unimproved road to Magalang, on the SW by a road; trial on the NE., by a road trial the Sapang Pritil Containing an area
of NINE HUNDRED SEVENTY EIGHT THOUSAND SEVEN HUNDRED AND SEVENTEEN SQUARE METERS (978,717), more or
less.
 3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the
Municipality of Mabalacat. Bounded on the NE., by Lot No. 570, on the SE SW trial NW by roads. Containing an area of ONE
HUNDRED FIVE THOUSAND NINE HUNDRED AND TWENTY ONE SQUARE METERS (105,921), more or less,

WHEREAS, the above-described properties are presently mortgaged (first mortgage) to the Development Bank of the
Philippines (,formerly Rehabilitation Finance Corporation) to secure the payment of a loan, plus interest, of THIRTY EIGHT
THOUSAND PESOS ONLY (P38,000.00), Philippine currency, as evidenced by a deed of mortgage for- P... dated ... which
deed was ratified trial acknowledged before Notary Public of Manila, Mr. ... as Doc. No. Page No. Reg. No. Series of 196 ... ;

WHEREAS, the aforesaid properties are likewise mortgage (second mortgage) to the Philippine National Bank to secure the
payment of a loan of NINETY THREE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (P93,831.91), Philippine
Currency, plus interest up to August 13, 1957, as evidenced by deed of Mortgage for P............. dated................... which
deed was ratified trial acknowledged before Notary Public of Manila, Mr, I . I as Doc. No............ Page No.......... Reg. No.
Series of 196........... ; WHEREAS, the VENDOR, has offered to sell trial the VENDEE is willing to purchase the above-described
properties for ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91 /100 (P131,831.91),
Philippine Currency, under the terms trial conditions herein below set forth;

NOW, THEREFORE, for- trial in consideration of the above premises trial the amount of ONE HUNDRED THIRTY ONE
THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (P131,831.91), Philippine Currency, in hand paid in cash by the
VENDEE unto the VENDOR, receipt whereof is hereby acknowledged by the VENDOR to his entire trial full satisfaction, trial
the assumption by the VENDEE of the entire mortgage indebtedness, both with the Development Bank of the Philippines trial
the Philippine National Bank above mentioned, the VENDOR does by these presents, sell, transfer trial convey, as he had
sold, transferred, trial conveyed, by way of absolute sale, perpetually trial forever, unto the VENDEE, his heirs, successors
trial assigns. above-described properties, with all the improvements thereon, free from all liens trial encumbrances of
whatever nature. except the pre- existing mortgage obligations with the Development Bank of the Philippines trial the
Philippine National Bank aforementioned. The VENDOR does hereby warrant title, ownership trial possession over the
properties herein sold trial conveyed, trial binds himself to defend the same from any trial all claimants.

That the VENDEE, does by these presents, assume as he has assumed, under the same terms trial conditions of the mortgage
contracts dated ... and ... of the mortgage indebtedness of the VENDOR in favor of the Development Bank of the Philippines
trial the Philippine National Bank, respectively, as if the aforesaid documents were personally executed by the VENDEE trial
states trial reiterates all the terms trial conditions stipulated in said both documents, making them to all intent trial purposes,
parts hereof by reference.

IN WITNESS WHEREOF, the VENDOR and the VENDEE together with their instrumental witnesses, have signed this deed of
the place, date, month trial year first above written.

(Sgd.) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO

Vendor Vendee

Signed in the Presence of:

(Sgd.) (Illegible) (Sgd.) (Illegible)

(Acknowledgment Omitted)

The second contract executed the same day, October 6, 1959 is called Option to Purchase Real Estate, trial is in the following wise trial manner:

OPTION TO PURCHASE REAL ESTATE

KNOW ALL MEN BY THESE PRESENTS:

That 1, ALFREDO G. GABORRO, of legal age, Filipino, married to Pacita de Guzman, with residence trial postal address at 46,
7th St., Gilmore Ave., Quezon City, for- valuable consideration, do hereby give to JOSE P. DIZON, of legal age, Filipino,
married to Norberta Torres, resident of Mabalacat, Pampanga, his heirs, successors and assigns, the option of repurchasing
the following described properties:

TRANSFER CERTIFICATE OF TITLE

NO. 15679, PROVINCE OF PAMPANGA

1. A parcel of land (Lot No. 188 of Cadastral Survey of Mabalacat, Pampanga containing an area of (211,172) more or less.

2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat, Pampanga), containing an area of (978,172) more or
less.

3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat, Pampanga containing an area of (105,921), more or
less. which I acquired from the said Jose P. Dizon by purchase by virtue of that document entitled "Deed of Sale with
Assumption of Mortgage" dated October 6, 1959, acknowledged by both of us before Notary Public of Manila GREGORIO
SUMBILIO as DOC. No. 342, Page No. 70, Reg. No. VII Series of 1959.

Said option shall be valid trial effective within the period comprises from January, 1965 to December 31, 1970, inclusive,
upon payment of the amount of ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100
(?131,831.91), Philippine Currency, plus an interest of eight per centum (8%) thereof, per annum. This is without prejudice
at any time to the payment by Mr. Dizon of any partial amount to be applied to the principal obligation, without any way
disturbing the possession and/or ownership of the above properties since only full payment can effect the necessary change.

In the event that Mr. Jose P. Dizon may be able to find a purchaser for- the foregoing properties on or the fifth year from
the date the execution of this document, the GRANTEE, Mr. JOSE P. DIZON, may do so provided that the aggregate amount
which was Paid to Development Bank of the Philippines trial to the Philippine National Bank together with the interests
thereon at the rate of 8% shall be refunded to the undersigned.
 Furthermore, in case Mr. Jose P. Dizon shall be able to find a purchaser for- the said properties, it shall be his duty to first
notify the undersigned of the contemplated sale, naming the price trial the purchaser therefor, trial awarding the first
preference in the sale hereof to the undersigned.

IN WITNESS WHEREOF, I have hereunto signed these presents at the City of Manila, on this 6th day of October, 1959.

(Sgd.) ALFREDO G. GABORRO

CONFORME:

(Sgd.) JOSE P. DIZON

SIGNED IN THE PRESENCE OF:

(Acknowledgment Omit)

The sum of P131,813.91 which purports to be the consideration of the sale was not actually paid by Alfredo G. Gaborro to the petitioner. The
said amount represents the aggregate debts of the petitioner with the Development Bank of the Philippines trial the Philippine National Bank.

After the execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of land in question.

On October 7, 1959, Gaborro wrote the Development Bank of the Philippines a letter (Exh. J), as follows:

Sir:

This is with reference to your mortgage lien of P38,000.00 more or less over the properties more particularly described in
TCT No. 15679 of the land records of Pampanga in the name of Jose P. Dizon. In this connection, we have the honor to
inform you that pursuant to a Deed of Sale with Assumption of Mortgage executed on October 6, 1959 by Jose P. Dizon in
my favor, copy of which is hereto attached, the ownership of the same has been transferred to me subject of course to your
conformity to the assumption of mortgage. As a consequence of the foregoing document, the obligation therefore of paying
your goodselves the total amount of indebtedness has shifted to me

Considering that these agricultural properties have not been under cultivation for- quite a long time, I would therefore
request that, on the premise that the assumption of mortgage would be agreeable to you, that I be allowed to pay the
outstanding obligation, under the same terms trial conditions as embodied in the original contract of mortgage within ten
(10) years to be divided in 10 equal annual amortizations. I am enclosing herewith a check in the amount of P3,609.95
representing 10% of the indebtedness of Jose P. Dizon to show my honest intention in assuming the mortgage obligation to
you ...

The Board of Governors of the DBP, in its Resolution No. 7066 dated October 21, 1959 approved the offer of Gaborro but said Board required
him to pay 20% of the purchase price as initial payment, (Exh. D) Accordingly, on July 11, 1960, the DBP trial Gaborro executed a conditional
sale of the properties in consideration of the sum of P36,090.95 (Exh. C) payable 20% down trial the balance in 10 years in the yearly
amortization plan at 8% per annum.

On January 7, 1960, Dizon assigned his right of redemption Lo Gaborro in an instrument (Exh. 9) entitled:

ASSIGNMENT OF RIGHT OF REDEMPTION

AND ASSUMPTION OF OBLIGATION

KNOW ALL MEN BY THESE PRESENTS:

This instrument, made trial executed by trial between JOSE P. DIZON, married to Norberta P. Torres, Filipino, of legal age,
with residence trial postal address at Mabalacat, Pampanga. hereinafter referred to as the ASSIGNOR trial ALFREDO G.
GABORRO, married to Pacita de Guzman, likewise of legal age, Filipino, with residence trial postal address at 46, 7th Street,
Gilmore Ave., Quezon City, hereinafter referred to as the ASSIGNEE,

WITNESSETH:

WHEREAS, the Assignor is the owner trial mortgagor of three (3) parcels agricultural land together with all the improvements
existing thereon trial more particularly described trial bounded as follows:

TRANSFER CERTIFICATE OF TITLE NO. 1567

PROVINCE OF PAMPANGA

1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the improvements thereon,
situated in the Municipality of Mabalacat. Bounded on the NE by Lot No. 187: on the SE. by Lots Nos.
183, 189, 191 trial 192; on the SW. by Lot No. 192; trial on the NW by the unimproved provincial road
to Magalan. Containing an area of two hundred twenty-one thousand one hundred trial seventy two square
meters (221,172), more or less.

2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the improvements thereon,
situated in the Municipality of Mabalacat. Bounded on the NE. by a road trial Lots Nos. 569, 570 trial 571;
on the SE. by Lot No. 571 trial the unimproved road to Magalan-, on the SW. by a road; trial on the NW
by a road trial the Sapang Pritil Containing an area of nine hundred seventy eight thousand seven hundred
and seven hundred square meters (978,717), more or less.

3. A parcel of Land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the improvements thereon,
situated in the Municipality of Mabalacat, Bounded on the NE. by Lot No. 570; and on the SE., SW. and
NW. by roads. Containing an area of one hundred five thousand nine hundred and twenty-one square
meters (105,921), more or less.
 WHEREAS, the above described properties were mortgaged with the Rehabilitation Finance Corporation, now Development
Bank of the Philippines, which mortgage has been foreclosed on May 26, 1959;

AND WHEREAS, the herein Assignor has still the right to redeem the said properties from the said Development Bank of the
Philippines within a period of one (1) year counted from the date of foreclosure of the said mortgage.

NOW, THEREFORE, for ......................................... trial other valuable considerations, receipt whereof is hereby
acknowledged by the Assignor from the Assignee, The herein Assignor does hereby transfer trial assign to the herein
Assignee, his heirs, successors trial assigns the aforesaid right to redeem the aforementioned properties above described.

That with this document the herein Assignor relinquishes any and all rights to the said properties including the improvements
existing thereon.

That the Assignee, by these presents, hereby assumes the obligation in favor of the d Development Bank of the Philippines,
as Paying whatever legal indebtedness the Assignor has with the d B in connection with the transaction regarding the hove
mentioned Properties subject to the file and conditions that the said Bank may require and further recognizes the second
mortgage in favor Of the Philippine National Bank.

IN WITNESS WHEREOF, the parties have hereunto set their hands in the City of Manila, Philippines this --------- day of - - -
- - -1959.

(Sgd-) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO Assignor (Assignee) (Acknowledgment Omitted)

After the execution of the conditional e to him Gaborro made several payments to the DBP and PNB. He introduced improvements, cultivated
the kinds raised sugarcane and other crops and appropriated the produce to himself. He will paid the land taxes thereon.

On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo Abola, wrote a letter to Gaborro informing him that he is formally offering
reimburse Gaborro Of what he paid to the banks but without, however, tendering any cash, and demanding an accounting of the income and
of the pro contending that the transaction they entered into was one of antichresis. Gaborro did not accede to the demands of the petitioner,
whereupon, on JULY 30, 1962, Jose P. Dizon instituted a complaint in the Court of First Instance of Pampanga, Gaborro, alleging that the
documents Deed of Sale With Assumption of Mortgage and the Option to Purchase Real Estate did not express the true intention and agreement
bet. between the parties. Petitioner Dizon, as Plaintiff below, contended that the two deeds constitute in fact a single transaction that their real
agreement was not an absolute e of the d of land but merely an equitable mortgage or conveyance by way of security for the reimbursement
or refund by Dizon to Gaborro of any and all sums which the latter may have paid on account of the mortgage debts in favor of the DBP and
the PNB. Plaintiff prayed that defendant Gaborro be ordered to accept plaintiff's offer to reimburse him of what he paid to the banks; to surrender
the possession of the lands to plaintiff; to make an accounting of all the fruits, produce, harvest and other income which he had received from
the three (3) parcels of land; and to pay the plaintiff for the loss of two barns and for damages.

In its answer, the DBP specifically denied the material averments of the complaint and stated that on October 6, 1959, the plaintiff Dizon was
no longer the owner of the land in question because the DBP acquired them at the extrajudicial foreclosure sale held on May 26, 1959, and that
the only right which plaintiff possessed was a mere right to redeem the lands under Act 3135 as amended.

Defendant Alfredo G. Gaborro also answer, denying the material averments of the complaint, stating that the "Deed of Sale with Assumption of
Mortgage" expresses the true agreement of the parties "fully, truthfully and religiously" but the Option to Purchase Real Estate" does not express
the true intention of the parties because it was made only to protect the reputation of the plaintiff among his townmates, and even in the
supposition that said option is valid, the action is premature. He also filed a counterclaim for damages, which plaintiff denied.

The issues having been joined, a pre-trial was held and the following stipulation of facts admitted by the parties was approved by the Court in
the following order dated February 22, 1963:

ORDER

At today's initial trial the following were present: Mr. Leonardo Abola, for the plaintiff; Mr. Carlos Antiporda, for the defendant
Alfredo Gaborro; and Mr. Virgillo Fugoso, for the Development Bank of the Philippines:

The parties brave stipulated on the following facts:

1. That Annex A attached to the complaint is marked Exhibit

A- Stipulation. The parties have admitted the due execution, authenticity and genuineness of said Exhibit A-Stipulation. This
fact has been admitted by all the three parties.

2. That the defendant Gaborro executed Annex B, which is marked Exhibit B-Stipulation. This fact has been admitted only
between plaintiff and defendant Gaborro.

3. That the three parcels of land referred to in paragraph 3 of the complaint, on or before October 6, 1959, were subject to
a first mortgage lien in favor of the Development Bank of the Philippines, formerly Rehabilitation Finance Corporation, to
secure payment of a loan obtained by the plaintiff Jose P. Dizon in the original sum of P38,000.00 plus interest, which has
been assumed by defendant Gaborro by virtue of a document, Exhibit A-Stipulation, and also subject to a second mortgage
lien in favor of the Philippine National Bank to secure the payment of a loan in the sum of P93,831.91 plus interest up to
August 30, 1951, which mortgage liens were duly annotated on TCT 15679. This fact has been admitted by the plaintiff and
defendant Gaborro.

4. In respect to the foreclosure of the first mortgage referred to above, it was admit that the same was foreclosed on May
26, 1959, the second mortgage has not been admitted nor foreclosed.

5. That the Development Bank of the Philippines admits that the first mortgage referred to above was foreclosed on May 26,
1959 under the provision,,; of Public Act No- 3135, as amended.

6. That subsequently the Development Bank and the defendant Gaborro executed a document entitled Conditional Sale over
the same parcels of land referred to in paragraph 3 of the complaint, and copy thereof will be furnished by the Development
Bank of the Philippines and marked Exhibit C-Stipulation.

7. That on or before October 6, 1960, TCT No. 15679 of the Register of D of Pampanga in the name of Jose P. Dizon covering
the three parcels of land referred to in the complaint was cancelled and in lieu thereof TCT NO. 24292 of the Register of
 Deeds of Pampanga was issued in the name of the Development Bank of the Philippines. This fact has been admitted by all
the parties.

8. That after the execution of the deed of conditional sale, certain payments were made by the defendant Gaborro to the
Development Bank, the exact amount to be determined later and receipts of payments to be also exhibited later. This fact
has been admitted by all the three parties.

9. That since October 6, 1959, the defendant Gaborro has made several payments to the PNB in the amounts appearing on
the receipts which will be shown later, such payments being made on account of the sum of P38,831.91. The payment was
assumed by said - defendant Gaborro. This fact has been admitted by plaintiff and defendant Gaborro only.

10. That since the execution of Exhibits A and B-Stipulation, it,, defendant Gaborro has been and still is in the actual
possession f the three parcels of land in question and he is actually cultivating the same and that the land taxes thereon
have been paid by said defendant Gaborro, the amounts of said taxes appearing on the official receipts to be shown later.
This fact has been admitted by plaintiff and defendant Gaborro only.

11. That since defendant Gaborro took possession of the lands in question, he has been appropriating all the fruits produced
and income of said lands without giving to the plaintiff any share hereof. This fact has been admitted by plaintiff and
defendant Gaborro only.

Let a copy of this order be served upon the plaintiff, defendant Gaborro and the Development Bank of the Philippines with
the understanding that, if, within fifteen (15) days, none of the parties questions the correctness of The facts set forth above.
this stipulation of facts shall be conclusive upon the parties interested in this case.

Set the trial on the controversial facts on April 18, 1963 at 13:00 clock in the morning.

Paragraphs 3 and 10 of the above quoted order were deleted in an order dated July 26, 1963.

The records disclose that during the pendency of the case in the trial court, motions were filed by the plaintiff for the appointment of a receiver
of the properties but all were denied. plaintiff also reiterated the same motion before the appellate court which, however, dismissed the same,
reserving to him the right to file in the trial court. Plaintiff did file but with the same result. certiorari proceedings were resorted to in the Court
of Appeals in CA-G.R. No. SP-01403 entitled "Jose P. Dizon vs. Hon. Felipe Buencamino, et al." which the respondent court denied.

After trial the court held that the true agreement between Jose P. Dizon, the plaintiff therein, and the defendant Alfredo G. Gaborro is that the
defendant would assume and pay the indebtedness of the plaintiff to the Development Bank of the Philippines and the Philippine National Bank,
and in consideration therefor, the defendant was given the possession and enjoyment of the properties in question until the plaintiff shall have
reimbursed to defendant fully the amount of P131,831.91 plus 8% interest per annum.

Accordingly, on March 14, 1970, the lower court rendered judgment, the dispositive part of which reads:

IN VIEW OF THE FOREGOING, the documents entitled 'Deed of Sale with Assumption of Mortgage'(Exhibit A-Stipulation) and
'Option to Purchase Real Estate' (Exhibit B-Stipulation) are hereby reformed to the extent indicated above. However, since
this action was filed before the period allowed the plaintiff to redeem his property, the prematurity of this action aside from
not being principally alleged in the complaint, deters this Court from ordering further reliefs and remedies. The counterclaim
of the defendant is dismissed.

The plaintiff's motion for new trial and for reconsideration and motion for admission of supplemental complaint having been denied for lack of
merit, on June 6, 1970, plaintiff appealed to the Court of Appeals, which. however, affirmed the decision with the modification that the plaintiff-
appellant has the right to refund or reimburse the defendant-appellee the sum of P131,831.91 with interest at 8% per annum from October 6,
1959 until full payment, said right to be exercised within one (1) year from the date the judgment becomes final, with the understanding that,
if he fails to do so within the said period, then he is deemed to have lost his right over the lands forever.

Petitioner's motion for reconsideration and/or rehearing having been denied by the Court of Appeals, hence the present petition for review on
certiorari. The petitioner assigns the following errors, to wit:

I. The Court of Appeals, like the lower court, erred in not holding that upon established facts and undisputed documentary
evidence, the deed of sale with assumption of mortgage (Exhibit A-Stipulation) constitutes an equitable mortgage or
conveyance to secure petitioner's obligation to reimburse or refund to defendant Alfredo Gaborro any and all sums to the
extent of P131,831.91, paid by said defendant in total or partial satisfaction of petitioner's mortgage debts to the DBP and
the PNB. In this connection, the Court of Appeals erred:

(A) In not finding that the petitioner was the lawful owner of the lands in question:

(B) In not finding that the deed of sale in question is not a real and unconditional sale; and

(C) In not holding that the option to purchase real estate (Exhibit B-Stipulation is conclusive evidence
that the transaction in question is in fact an equitable mortgage.

II. The Court of Appeals also erred in finding that the instrument entitled 'Assignment of Right of Redemption and Assumption
of Obligation' is conclusive evidence that the real transaction Evidenced by the 'Deed of Sale with Assumption of Mortgage'
is not an equitable mortgage. In this connection the said court also erred or at least committed a grave abuse of discretion:

(A) In not finding that the said deed of assignment is in fact a mere reiteration of the terms and condition
of the deed of sale;

(B) In finding that the price or consideration of The aforesaid assignment. of right of redemption consisted
of 300 cavans of palay delivered by Mrs. Gaborro to the petitioner; and

(C) In finding that defendant Gaborro purchased the lands in question by virtue of the aforementioned
deed of assignment.

III. The, Court of Appeals, like the trial court, also erred in not finding that the estate of Alfredo G. Gaborro is under obligation
to render an accounting of all the produce, fruits and other income of the lands in question from October 6, 1959, and to
reconvey the said lands to the herein petitioner. In to connection, the said court also erred:
 (A) In not holding that as a mortgagee in possession the Gaborro estate has the obligation to either
render an accounting of the produce or fruits of the lands, or to pay rentals for the occupation of said
lands;

(B) In not finding that the Gaborro estate has the obligations to reconvey the lands in controversy to the
herein petitioner, upon payment of the balance due from him after deducting either the net value of the
produce or fruits of the Said lands or the rentals thereof,

(C) In not finding that further reliefs or remedies may be granted the herein petitioner; and

(D) In not ordering the admission of herein petitioners 'Supplemental Complaint' dated April 30, 1970.

IV. The Court of Appeals finally erred in not reversing the decision of the trial court, and in not rendering judgment declaring
that the deed of sale with assumption of mortgage (Exhibit A Stipulation) is in fact an equitable mortgage; and in not ordering
the Gaborro estate either to render an accounting of all the produce or fruits of the lands in question or to pay rentals for
the occupation thereof, from October 6, 1959; and in not ordering the estate of Alfredo G. Gaborro to reconvey, transfer and
assign unto the petitioner the aforementioned lands.

The two instruments sought to be reformed in this case ap pear to stipulate rights and obligations between the parties thereto Pertaining to
and involving parcels of land that had already beer foreclosed and sold extrajudicially, and purchased by the mortgage creditor, a degree party.
It becomes, therefore, necessary to determine the legality of said rights and obligation arising from the foreclosure and e pro. proceedings only
between the two contracting parties to the instruments executed between them but also in the so far a agreement affects the rights of the
degree panty, the purchase Bank.

Act 3135, Section 6 as amended by Act 4118, under which the Properties were extrajudicially foreclosed and sold, provides that:

Sec. 6. In all cases in which an extrajudicial rule is made under the special power hereinbefore referred to, the debtor, his
successors in interest or any judicial creditor or judgment creditor of e debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the
term or one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections
four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not
consistent with the provisions of this Act.

Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains in possession of the property foreclosed and sold, during
the period of redemption. If the judgment debtor is in possession of the property sold, he is entitled to retain it and receive the fruits, the
purchaser not being entitled to such possession. (Riosa v. Verzosa, 26 Phil. 86; Velasco v. Rosenberg's Inc., 32 Phil. 72; Pabico v. Pauco 43
Phil. 572; Power v. PNB, 54 Phil. 54; Gorospe v. Gochangco L-12735, Oct. 30, 1959).

A judgment debtor, whose property is levied on execution, may transfer his right of redemption to any one whom he may desire. The right to
redeem land sold under execution within 12 months is a property right and may be sold voluntarily by its owner and may also be attached and
sold under execution (Magno v. Viola and Sotto, 61 Phil. 80).

Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff. (Section 27, Revised Rules of Court) After
the termination of the period of redemption and no redemption having been made, the purchaser is entitled to a deed of conveyance and to the
possession of the properties. (Section 35, Revised Rules of Court). The weight of authority is to the effect that the purchaser of land sold at
public auction under a writ of execution only has an inchoate right in the property, subject to be defeated and terminated within the period of
12 months from the date of sale, by a redemption on the part of the owner. Therefore, the judgment debtor in possession of the property is
entitled to remain therein during the period allowed for redemption. (Riosa v. Verzosa. 26 Phil, 86; 89; Gonzales v. Calimbas, 51 Phil. 355.)

In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon retained the right to redeem the lands, the
possession, use and enjoyment of the same during the period of redemption. And these are the only rights that Dizon could legally transfer,
cede and convey unto respondent Gaborro under the instrument captioned Deed of Sale with Assumption of Mortgage (Exh. A-Stipulation),
likewise the same rights that said respondent could acquire in consideration of the latter's promise to pay and assume the loan of petitioner
Dizon with DBP and PNB.

Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land, firstly, because there was absolutely no
money consideration therefor, as admittedly stipulated the sum of P131,831.91 mentioned in the document as the consideration "receipt of
which was acknowledged" was not actually paid; and secondly, because the properties had already been previously sold by the sheriff at the
foreclosure sale, thereby divesting the petitioner of his full right as owner thereof to dispose and sell the lands.

In legal consequence thereby, respondent Gaborro as transferee of these certain limited rights or interests under Exh. A-Stipulation, cannot
grant to petitioner Dizon more that said rights, such ac the option Co purchase the lands as stipulated in the document called Option to Purchase
Real Estate (Exhibit B-Stipulation), This is necessarily so for the reason that respondent Gaborro did not purchase or acquire the full title and
ownership of the properties by virtue of the Deed of Sale With Assumption of Mortgage (Exh. A Stipulation), earlier executed between them
which We have ruled out as an absolute sale. The only legal effect of this Option Deed is the grant to petitioner the right to recover the properties
upon reimbursing respondent Gaborro of the total sums of money that the latter may have paid to DBP and PNB on account of the mortgage
debts, the said right to be exercised within the stipulated 5 years period.

In the light of the foreclosure proceedings and sale of the properties, a legal point of primary importance here, as well as other relevant facts
and circumstances, We agree with the findings of the trial and appellate courts that the true intention of the parties is that respondent Gaborro
would assume and pay the indebtedness of petitioner Dizon to DBP and PNB, and in consideration therefor, respondent Gaborro was given the
possession, the enjoyment and use of the lands until petitioner can reimburse fully the respondent the amounts paid by the latter to DBP and
PNB, to accomplish the following ends: (a) payment of the bank obligations; (b) make the lands productive for the benefit of the possessor,
respondent Gaborro, (c) assure the return of the land to the original owner, petitioner Dizon, thus rendering equity and fairness to all parties
concerned.

In view of all these considerations, the law and Jurisprudence, and the facts established. We find that the agreement between petitioner Dizon
and respondent Gaborro is one of those inanimate contracts under Art. 1307 of the New Civil Code whereby petitioner and respondent agreed
"to give and to do" certain rights and obligations respecting the lands and the mortgage debts of petitioner which would be acceptable to the
bank. but partaking of the nature of the antichresis insofar as the principal parties, petitioner Dizon and respondent Gaborro, are concerned.

Mistake is a ground for the reformation of an instrument which there having been a meeting of the minds of The parties o a contract, their true
intention is not expressed in the instrument purporting to embody the agreement, and one of the parries may ask for such reformation to the
end that such true intention may be expressed. (Art. 1359, New Civil code). When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed. (Art. 1361, New Civil Code.) It was a mistake for the parties to
execute the Deed of Sale With Assumption of Mortgage and the Option to Purchase Real Estate and stand on the literal meaning of the file and
stipulations used therein.
The instruments must, therefore, be reformed in accordance with the intention and legal rights and obligations of the parties — the petitioner,
the respondent and the Banks. We agree with the reformation decreed by the trial and appellate courts, but in the sense that petitioner Jose P.
Dizon has the right to reacquire the three parcels of land within the one-year period indicated below by refunding or reimbursing to respondent
Alfredo G. Gaborro or the Judicial Administratrix of his Estate whatever amount the latter has actually paid on account of the principal only, of
the loans of Dizon with the DBP and PNB, excluding the interests and land taxes that may have been paid or may have accrued, on duly certified
financial statements issued by the said banks.

On the issue of the accounting of the fruits, harvests and other income received from the three parcels of land from October 6, 1959 up to the
present, prayed and demanded by Dizon of Gaborro or the Judicial Administratrix of the latter's estate, We hold that in fairness and equity and
in the interests of justice that since We have ruled out the obligation of petitioner Dizon to reimburse respondent Gaborro of any interests and
land taxes that have accrued or been paid by the latter on the loans of Dizon with DBP and PNB, petitioner Dizon in turn is not entitled to an
accounting of the fruits, harvests and other income received by respondent Gaborro from the lands, for certainly, petitioner cannot have both
benefits and the two may be said to offset each other.

By virtue of the Option to Purchase Real Estate (Exh. B Stipulation) which on its face granted Dizon the option to purchase the properties which
must be exercise within the period from January, 1960 to December 31, 1965 but which We held to be simply the grant of the right to petitioner
Dizon to recover his properties within the said period, although already expired by reasons and circumstances beyond his control, petitioner is
entitled to a reconveyance of the properties within a reasonable period The period of one year from the date of the finality of this judgment as
laid down by the Court of Appeals for the exercise of such right by petitioner Dizon appears fair and reasonable and We approve the same.

Since We are not informed of the status of Dizon's loan of P93,831.91 with the Philippine National Bank which appears to be on a subsisting
basis, it is proper to indicate here how petitioner Dizon may exercise the right to a reconveyance of the properties as herein affirmed, as follows:

(a) Dizon is granted the right to a reconveyance of the properties by reimbursing Gaborro (or his estate) whatever amounts)
the latter has actually paid on account of the principal only, of Dizon's loans of P38,000.00 and P93,831.91 which the DBP
and PNB, respectively, exclusive of the interests that may have accrued thereon or may have been paid by Gaborro, on the
basis of duly certified statements issued by said banks;

(b) Any outstanding balance due on Dizon's original principal loan of P38,000.00 with the Development Bank of the Philippines
assumed by Gaborro and on Dizon's original principal loan of 93,831.91 with the PNB shag be deducted from the above-fixed
reconveyance price payable to Gaborro, in order to enable Dizon to pay off the said mortgage loans directly to the said
banks, in accordance with file mutually agreed upon with them by Dizon;

(c) In other words, the maximum reconveyance price that Dizon is obligated to pay is the total sum of ?131,831.91 (the
sum total of the principals of his two original loans with the DBP and PNB), and should the amounts due to the said banks
exceed this total of P131,831.91 (because of delinquent interests and other charges), nothing shall be due Gaborro by way
of reimbursement and Dizon will thereupon step into the shoes of Gaborro as owner-mortgagor of the properties and directly
arrange with the banks for the settlement of the amounts still due and payable to them, subject to the right of Dizon to
recover such amounts in excess of P131,831.91 from Gaborro by writ of execution in this case; and

(d) As already stated, Dizon is not entitled to an accounting of the fruits, harvests and other income received by Gaborro
from the land while Gaborro in turn is not entitled to the payment of any interests on any amounts paid by him on account
of the principal loans to the banks nor reimbursement of any interests paid by him to the banks.

WHEREFORE, the judgment appealed from is hereby affirmed with the modification that petitioner Dizon is granted the right within one year
from finality of this decision to a reconveyance of the properties in litigation upon payment and reimbursement to respondent estate of o G.
Gaborro of the amounts actually paid by Gaborro or his estate on account of the principal only of Dizon's original loans with the Development
Bank of the Philippines and Philippine National Bank in and up to the total amount of P131,831.91, under the terms and conditions set forth in
the preceding paragraph with subparagraphs (a) to (d), which are hereby incorporated by reference as an integral part of this judgment, and
upon the exercise of such right, respondent estate shall forthwith execute the corresponding deed of reconveyance in favor of petitioner Dizon
and deliver possession of the properties to him. Without pronouncement as to costs.
G.R. No. L-38185 September 24, 1986

HILARIO RAMIREZ and VALENTINA BONIFACIO, petitioners,

vs.
HONORABLE COURT OF APPEALS, FRANCISCA MEDINA, MATILDE MARTIN, EMILIO MARTIN, DELFIN GUINTO, TEOFILO GUINTO,
PRUDENCIO GUINTO and MARGARITA GUINTO, respondents.

Castro, Makalintal, Mendoza & Associates for petitioner.

Flores, Ocampo, Dizon & Domingo Law Office for respondents.

GUTIERREZ, JR., J.:

This is an appeal from the decision of the Court of Appeals which affirmed in toto the decision of the then Court of First instance of Rizal rendered
in the petition for review of the decree of registration issued in Land Registration Case No. N-2597, L.R.C. Record No. N-17939.

On September 15,1959, petitioners-spouses Hilario Ramirez and Valentina Bonifacio filed an application for registration of a parcel of riceland
in Pamplona, Las Pinas Rizal. After notice and publication nobody appeared to oppose the application. An order of general default was issued
and the court allowed the petitioners to present evidence in support of their claim. Thereafter, the petitioners presented parol evidence that
they acquired the land in question by purchase from Gregorio Pascual during the early part of the American regime but the corresponding
contract of sale was lost and no copy or record of the same was available.

On January 30, 1960, the court ordered the issuance of the decree of registration and consequently: Original Certificate of Title No. 2273 of the
Registry of Deeds of Rizal was issued in the petitioners names.

On March 30, 1960, the private respondents Francisca Medina, Basilio Martin, Matilde Martin, Delfin Guinto, Teofilo Guinto, Prudencio Guinto
and Margarita Guinto, petitioners' nephews and nieces, filed a petition to review the decree of registration on the ground of fraud. The private
respondents based their claim to the land on the following allegations: that they are the legal heirs of the deceased Agapita Bonifacio who died
intestate on March 11, 1936; that Valentina Bonifacio is a sister of the deceased Agapita Bonifacio, they being the children of one Gregoria
Pascual; that Gregoria Pascual previously owned the land in question as evidenced by Tax Declaration No. 6611 of Las Pinas Rizal issued on
December 8, 1920; that Agapita Bonifacio acquired the property in question by purchase from Gregoria Pascual for which reason Tax Declaration
No. 8777 was issued in her name on May 21, 1928; that Gregoria Pascual during her lifetime, from 1916, possessed the said property in the
concept of owner, publicly and uninterruptedly, which possession was continued by Agapita Bonifacio in 1928; that in 1938 respondents obtained
a loan of P400.00 from the petitioners which they secured with a mortgage on the land in question by way of antichresis; that for this reason,
Tax Declaration No. 8777 was cancelled and substituted by Tax Declaration Nos. 9522 and 2385 issued in the names of the petitioners; that,
thereafter, the petitioners began paying taxes on the land; that after several attempts to redeem the land were refused by the petitioners, the
respondents filed a complaint in the Court of First Instance of Pasay City docketed as Civil Case No. 272-R for the recovery of the possession
and ownership of the said property; that when they learned of the issuance of the certificate of title to the land in the petitioners' names, they
also filed the instant petition for review. The previous complaint, Civil Case No. 272-R, was subsequently dismissed on a joint petition filed by
the parties after they agreed to have the determination of the question of ownership resolved in the registration proceedings.

In their answer, the spouses Ramirez denied the material allegations of the petition, they based their claim to the land on two deeds of sale
allegedly executed on April 15, 1937 and April 23, 1937 which they allegedly found accidentally in March 1960.

After trial, the court found that deeds of sale spurious. It further found that the respondents took possession of the land as owners after the
death of Agapita Bonifacio and in 1938, mortgaged it to the spouses Ramirez to secure the payment of a loan in the amount of P400.00. It was
agreed that the respondents could not redeem the property within a period of five years and that the petitioners would take possession of the
land, enjoy its fruits, and pay the land taxes thereon. The written agreement was kept by the petitioners as creditors. The trial court appreciated
the fact of the petitioners' failure, despite formal request, to produce the document in court in favor of the respondents. Finding the claims of
the herein respondents sustained by the evidence, it ordered the reconveyance of the property in the following manner:

WHEREFORE, judgment is hereby rendered in favor of petitioners and against applicants as follows:

1) Setting aside its decision dated December 28, 1959 insofar as it found and declared applicants to be the owners of the
parcel of land described in Exhibits A, B and C and insofar as it ordered the registration thereof in their names;

2) Declaring the petitioners, all Filipinos, all of legal age, and all residents of Ligas Bacoor, Cavite, to be the true and absolute
owners pro indiviso of the said parcel of land described in Exhibits A, B and C in the following proportions:

a. Francisca Medina, married to Tomas de Leon, one-third (1/3) thereof;

b. Emilio Martin, married to Dolores Antonio, and Matilde Martin, married to Federico Torres, one-third (1/3) thereof-,

c. Teofilo Guinto, married to Rocila de la Cruz, Delfin Guinto, married to Gregoria Pamaran, Prudencio Guinto, married to
Ana Guinto, and Margarita Guinto, married to Felix Calacala one- third (1/3) thereof;

3) Ordering the registration of the said parcel of land described in Exhibits A, B and C in the names of petitioners;

4) Setting aside its order for the issuance of the decree of registration in favor of applicants dated January 30, 1959, and
ordering the issuance of the decree of registration in the names of petitioners;

5) Cancelling Original Certificate of Title No. 2273 of the Register of Deeds of Rizal in the names of applicants and the
issuance in lieu thereof of another original certificate of title in the names of petitioners in the proportion of their ownership
of the property as stated in paragraph 2 above;

6) Ordering applicants to pay P3,000.00 to petitioners as and for attorney's fees;

7) Ordering applicants to pay the costs of this suit.

The decision was affirmed by the Court of Appeals. On a motion for reconsideration filed by the petitioners, the same appellate court, but with
a new member, promulgated a resolution setting aside the original decision. On a motion for reconsideration filed by the private respondents,
this resolution was set aside and the original decision was reinstated.

The petitioners went to this Court in a petition for review on certiorari with the following questions:
 ONE-HAS THE COURT OF FIRST INSTANCE, ACTING AS A LAND REGISTRATION COURT, THE JURISDICTION TO GIVE DUE
COURSE TO A PETITION FOR REVIEW OF DECREE UNDER SEC. 38 OF ACT 496 AND TO RE-OPEN THE ORIGINAL
PROCEEDINGS WHEN THE PETITION IS ACTUALLY ONE OF RECONVEYANCE AND NOT BASED ON ACTUAL OR EXTRINSIC
FRAUD?

TWO-DOES SEC. 38 OF ACT NO. 496 APPLY ON ALL FORES (SIC) TO ORIGINAL LAND REGISTRATION PROCEEDINGS HAD
UNDER PARAGRAPH B, SECTION 48 OF COM. ACT NO. 141 AS AMENDED BY REP. ACT NO. 1942 WHEREIN THE LAND
INVOLVED IS PUBLIC AGRICULTURAL LAND?

THREE-HAS THE COURT OF FIRST INSTANCE, ACTING AS A LAND REGISTRATION COURT, THE POWER AND AUTHORITY TO
VEST TITLE ON THE LAND INVOLVED TO HEREIN PRIVATE RESPONDENTS AND ORDER EVEN ITS PARTITION AMONGST
THEM IN THE FACE OF THE ADMITTED FACT THAT THE LAND IS IN ACTUAL POSSESSION OF PETITIONERS WHILE PRIVATE
RESPONDENTS HAD NOT POSSESSED THE SAME AT ALL?

FOUR-DO THE PRIVATE RESPONDENTS HAVE THE LEGAL CAPACITY AND QUALIFICATION TO ACQUIRE AND BE VESTED BY
THE COURT WITH TITLE TO THE LAND IN QUESTION?

We find the petition without merit.

The first question does not warrant favorable consideration. The issue was submitted to the appellate court and in our opinion, correctly resolved
therein. The Court of Appeals stated:

... The petition alleged that 'the applicants Hilario Ramirez and Valentina Bonifacio willfully and fraudulently suppressed the
facts that the petitioners are the legal and rightful owners of the ricefield in question and that they possess the said ricefield
merely as antichretic creditors as security for the loan of P400.00; that the applicants are guilty of fraudulent
misrepresentation and concealment when they declared in their application, in the case at bar, that no other person had any
claim or interest in the said land.' These we believe are sufficient allegations of extrinsic fraud.

In the applicant's application for registration, which followed the form required by the Land Registration Act, the applicants
alleged that 'to the best of our knowledge and belief, there is no mortgage or incumbrance of any kind whatsoever affecting
said land, nor any other person having any estate or interest therein, legal or equitable, in possession, remainder, reversion
or expectancy.' This allegation is false and made in bad faith, for, as We have found, the applicants are not the owners of
the land sought to be registered and they are in possession thereof only as antichretic creditors.

The averments in the petition for review of the decree of registration constitute specific and not mere general allegations of actual and extrinsic
fraud. Competent proof to support these allegations was adduced. We find no compelling reason to disturb the findings of the two courts below.

The petitioners in this case did not merely omit a statement of the respondents' interest in the land. They positively attested to the absence of
any adverse claim therein. This is clear misrepresentation. The omission and concealment, knowingly and intentionally made, of an act or of a
fact which the law requires to be performed or recorded is fraud, when such omission or concealment secures a benefit to the prejudice of a
third person (Estiva v. Alvero, 37 Phil. 497).

In the case of Libundan v. Palma Gil (45 SCRA 17), this Court held:

The purpose of the law in giving aggrieved parties, deprived of land or any interest therein, through fraud in the registration
proceedings, the opportunity to review the decree is to insure fair and honest dealing in the registration of land. But the
action to annul a judgment, upon the ground of fraud, would be unavailing unless the fraud be extrinsic or collateral and the
facts upon which it is based have not been controverted or resolved in the case where the judgment sought to be annulled
was rendered. Extrinsic or collateral fraud, as distinguished from intrinsic fraud, connotes any fraudulent scheme executed
by a prevailing litigant 'outside the trial of a case against the defeated party, or his agents, attorneys or witnesses, whereby
said defeated party is prevented from presenting fully and fairly his side of the case.' But intrinsic fraud takes the form of
'acts of a party in a litigation during the trial, such as the use of forged instruments or perjured testimony, which did not
affect the presentation of the case, but did prevent a fair and just determination of the case.

Thus, relief is granted to a party deprived of his interest in land where the fraud consists in a deliberate misrepresentation
that the lots are not contested when in fact they are, or in applying for and obtaining adjudication and registration in the
name of a co-owner of land which he knows had not been alloted to him in the partition, or in intentionally concealing facts,
and conniving with the land inspector to include in the survey plan the bed of a navigable stream, or in willfully
misrepresenting that there are no other claims, or in deliberately failing to notify the party entitled to notice, or in inducing
him not to oppose an application, or in misrepresenting about the indentity of the lot to the true owner by the applicant
causing the former to withdraw his opposition. In all these examples the overriding consideration is that the fraudulent
scheme of the prevailing litigant prevented a party from having his day in court or from presenting his case, The fraud,
therefore, is one that affects and goes into the jurisdiction of the court.

The second question assigned as an error must also be resolved against the petitioners.

Section 122 of Act No. 496 otherwise known as the Land Registration Act provides:

SEC. 122. Whenever public lands in the Philippine Islands belonging to the Government of the United States or to the
Government of the Philippine Islands are alienated, granted, or conveyed to persons or the public or private corporations,
the same shall be brought forthwith under the operation of this Act and shall become registered lands. It shall be the duty
of the official issuing the instrument of alienation, grant, or conveyance in behalf of the Government to cause such instrument
before its delivery to the grantee, to be filed with the register of deeds for the province where the land lies and to be there
registered like other deeds and conveyances, whereupon a certificate shall be entered as in other cases of registered land,
and an owner's duplicate certificate issued to the grantee. The deed, grant, or instrument of conveyance from the
Government to the grantee shall not take effect as a conveyance or bind the land, but shall operate only as contract between
the Government and the grantee and as evidence of authority to the clerk or register of deeds to make registration. The act
of registration shall be the operative act to convey and affect the land, and in all cases under this Act, registration shall be
made in the office of the register of deeds for the province where the land lies. The fees for registration shall be paid by the
grantee. After due registration and issue of the certificate and owner's duplicate, such land shall be registered land for all
purposes under this Act.

The law is clear. We can apply it to the facts without need for judicial interpretation. Once the deed, grant, or instrument of conveyance of
public land is registered with the Register of Deeds and the corresponding certificate and owner's duplicate title is issued, such land is deemed
registered land. It is brought within the scope and operation of the Land Registration Law. This is the doctrine laid down by this Court in a long
line of cases. (See Heirs of Deogracias Ramos v. Court of Appeals, 139 SCRA 293; Lahora v. Dayanghirang 37 SCRA 346; Ramirez v. Court of
Appeals, 30 SCRA 297; Director of Lands v. Jugado 2 SCRA 32; Nelayan v. Nelayan, 109 Phil. 183; Republic v. Heirs of Carle 105 Phil. 1227;
El Hogar Filipino v. Olviga, 60 Phil. 17; Manolo v. Lukban, 48 Phil. 973). The land in this case having been registered and covered by an original
certificate of title issued by the Register of Deeds of Rizal, it is within the provisions of the Land Registration Act. Thus, the decree of registration
granted by the lower court in favor of the petitioners may be reviewed on the ground of actual and extrinsic fraud pursuant to Section 38 of the
same Act.

There is likewise no merit in the third assigned error. While there was an admission that the petitioners have been in actual possession of the
disputed land since 1938, it was made to show and prove the fact that the petitioners are only antichretic creditors. The respondents never
admitted that they have not possessed the land at all. On the contrary, they alleged that they and their predecessors-in-interest namely Gregoria
Pascual and Agapita Bonifacio have been in possession of the land since time immemorial and that the petitioners were placed in possession of
the land pursuant to a contract of antichresis.

The court below found that the petitioners are merely antichretic creditors. This finding and its factual bases were affirmed by the Court of
Appeals. On the basis of the evidence supporting this conclusion, this finding is binding on us as it is not our duty to weigh evidence on this
point all over again. This court has on several occasions held that the antichretic creditor cannot ordinarily acquire by prescription the land
surrendered to him by the debtor (Trillana v. Manansala, et al., 96 Phil. 865; Valencia v. Acala, 42 Phil. 177; Barreto v. Barreto, 3 Phil. 234).
The petitioners are not possessors in the concept of owner but mere holders placed in possession of the land by its owners. Thus, their possession
cannot serve as a title for acquiring dominion (See Art. 540, Civil Code).

The fourth issue raised by the petitioners is answered by a referral to the detailed factual findings and conclusions of the trial court. Ten pages
of the record on appeal (Record on Appeal, CA-G.R. No. 40425-R, pp. 56-66) state in convincing detail the portion of the trial court's decision
which support its conclusion that Hilario Ramirez and Valentina Bonifacio are not the owners of the disputed land and have no registrable right
over it and that the respondents herein have established their ownership by a strong preponderance of evidence. The respondents were declared
the true and real owners and entitled to registration in their names. The final resolution of the Court of Appeals affirmed the trial court's
decision in toto. We see no reversible error in this finding.

The argument of laches is explained and countered by the close relationship of the parties and the nature of a contract of antichresis. The
private respondents are nephews and nieces, with their spouses, of the petitioners. Moreover, there is evidence to show that long before the
filing of the cases, there had been attempts to recover the property.

In view of the foregoing, we are constrained to affirm the appellate court's decision. We note, however, that in spite of the finding of an existing
contract of antichresis between the parties, the two courts below did not order the payment of the principal amount of mortgage. Under Article
2136 of the Civil Code, the debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor.

WHEREFORE, the decision appealed from is hereby AFFIRMED with a modification that the respondents are ordered to pay the petitioners the
amount of P 400.00 as principal for the contract of antichresis, the fruits obtained from the possession of the land having been applied to the
interests on the loan. SO ORDERED.
G.R. No. L-4135 November 29, 1951

SEVERINA ROSALES AND PUREZA CONGZON, plaintiffs-appellants,

vs.
LOECADIO S. TANSECO, ET AL., defendants-appellees.

Jacinto C. Bohol and Jorge C. Cascayan for plaintiffs-appellants.

Vicente C. Santos for defendants-appellees.

BENGZON, J.:

This is an appeal from the order of the Court of First Instance of Samar, dismissing the plaintiffs' complaint mainly on the ground of prescription.
The order was issued upon motion of the defendants, who pointed out that the action sought the annulment of certain documents, the latest of
which had been executed in 1936, i.e. more than ten years before the institution of the proceedings.

The complaint, filed in May 1947, is divided into three causes of action and makes the following material averments.

Plaintiffs are the widow and daughter, respectively, of Eustaquio Congzon, who owned with his wife a piece of land with improvements in
Catbalogan, Samar. On August 15, 1927, defendant Loecadio S. Tanseco prepared fictitious mortgage of the land in favor of Tan Tay San, which
he made Eustaquio Congson sign without consideration. That document was subsequently cancelled to be substituted in May 30, 1930 by
another "mortgage"1 for P26,000 in favor of defendant Tan Sun, which Eustaquio Congzon again signed thru fraud and without consideration.
On March 30, 1932 Tan Sun transferred all his rights to defendant Tan Tay San, who in turn assigned his interests to defendant Leocadio
Tanseco in April, 1936.

For second cause of action the complaint incorporates the pertinent allegations of the first, and asserts that the buildings on the lot were totally
burned in June 1942; that said buildings have always been occupied by the mortgagees, and never by Eustaquio Congzon; but that the plaintiffs,
who never enjoyed the possession and fruits of their land, did satisfy taxes thereon amounting to P39,480.75.

In their third cause of action, the plaintiffs stated that from and after the destruction of the buildings on June 8, 1942, they were in actual and
quiet possession of the lot until June 1, 1946, when defendant Leocadio Tanseco, thru force, intimidation and strategy, and without their
consent, occupied the property and constructed thereon a house, all to their damage prejudice.

Plaintiffs prayed that they be declared owners of the lot, that the "mortgage" documents and assignments be annulled, and that Leocadio
Tanseco be ordered to vacate and pay damages and costs.

After some unimportant procedural incidents, the defendants submitted a motion to dismiss, arguing that it was too late for plaintiff to question
the validity of the "mortgage" and the assignments (more than ten years had elapsed) and as the said mortgage had not been paid, the
sustained the defendants' position. Hence this appeal.

His honor was right in holding that, due to prescription, plaintiffs are precluded from seeking avoidance of the "mortgage" and its assignments
on the ground of fraud or lack of consideration.

But the second cause of action, although incompletely stated, makes out a good case if construed in relation to the applicable legal provisions.

As submitted to the court the "mortgage" in favor of Tan Sun contained, in addition to ordinary stipulations, the following agreement:

"Que el deudor hipotecario no pagara intereses por la cantidad adeudada, cediendo sin embargo su uso al acreedor hipotecario sin ninguin
alquieler, y teniendo diccho acreedor hipotecario derecho a percibir todos los alquileres de la finca, mientras el deudor hipotecario no pagare o
hiciere pagar a Tan Sun totalmente su deuda."

Therefore the contract although entitled "Escritura de Hipoteca" was in reality a contract of antichresis. 2

In a contract of antichresis the creditor is obliged to pay the taxes on the property, unless the contract says otherwise (Art. 1882 Civil Code).
The contract between Eustaquio Congzon and Tan Sun said nothing about taxes. Hence it was the obligation of the creditor or creditors to pay
the taxes on the property at issue herein.

Now, the second cause of action states that the debtor has paid for taxes on the property the amount of P39,480.75.

Bearing in mind that the credit was only P26,000 it is plain to see that under the second cause of action the plaintiffs affirmed in effect that
they had already discharged their debt (by advancing the taxes which the creditor should have paid) and are entitled to the return of their
property free from all encumbrance. At least there was good ground for accounting. Consequently, it was error to dismiss upon a mere motion
filed before the answer.

Furthermore the third cause of action, posed the question: Where the antichretic debtor peacefully in possession of the premises given as
guaranty is ejected thru force or strategy by the antichretic creditor does he have a right of action?

Under the Civil Code every possessor is entitled to be respected in his possession: and should he be disturbed therein he shall be protected, or
possession shall be restored to him, by the means established by the laws of procedure (Art. 446). And a possessor, however he may acquired
thereof without legal proceedings.3Nevertheless we shall not further pursue this line of inquiry, being sufficiently convinced that plaintiffs have
a valid claim under their second cause of action, the allegations of which were provisionally admitted by the motion to dismiss. Wherefore the
appealed order will be reversed and the record remanded to the court a quo for further proceedings. Costs against appellees.
G.R. No. 18574 September 20, 1922

JOSE C. MACAPINLAC, plaintiff-appellant,

vs.
FRANCISCO GUTIERREZ REPIDE, ET AL., defendants
FRANCISCO GUTIERREZ REPIDE, defendant-appellee.
J. F. BOOMER, defendant-appellant.

J. F. Boomer in his own behalf.

Ramon Diokno and Jose Varela Calderon for appellant.
Eduardo Gutierrez Repide for appellee.

STREET, J.:

This action was instituted on June 27, 1921, in the Court of First Instance of the Province of Pampanga by Jose C. Macapinlac, for the purpose
of securing a decree declaratory of the rights of the plaintiff as owner of a valuable estate located in the municipality of Porac, Pampanga,
known as the Hacienda Dolores; to nullify a transfer of the Torrens certificate now appearing in the name of the Torrens certificate now appearing
in the name of the defendant Francisco Gutierrez Repide, with certain remedial measure incident to said to said relief; and to recover said estate
from the possession of said defendant, with damages; and to secure general relief. In addition to Francisco Gutierrez Repide several other
parties are named as defendants in the complaint, for the alleged reason that they have been at one time or another holders of liens , now
cancelled, upon said property, and it was deemed proper to join them as defendants in order to give them an opportunity to show cause, if any
they have, whey their respective liens should not be cancelled in the registry. Soon after the action was instituted Francisco Gutierrez Repide
died; and his executrix, Da. Maria Sanz, was admitted as defendant in his stead.

To the original complaint the attorneys for the executrix in due time demurred, while the defendant J. F. Boomer interposed an answer and a
cross-complaint directed mainly against Jose C. Macapinlac and his codefendant Repide. To this cross-complaint Jose C. Macapinlac answered
with a general denial, while the representation of Repide merely demurred. By this means the case, as it reaches this court, presents itself in
two branches, namely, first, that which has relation to the controversy between the plaintiff and Francisco Gutierrez Repide and, secondly, that
which has relation to the controversy between the defendant Boomer and the two principal litigants. For convenience of treatment in this
opinion, we first give attention to the controversy between the plaintiff and the defendant Repide, a course which is the more proper for the
reason that cause of action stated in Boomer's cross-bill in great measure depends upon the questions arising upon the other controversy.

By an order of October 29, 1921, entered in the lower court the demurrer interposed to the complaint in behalf of the defendant Repide was
sustained, and at the same time the complaint was dismissed with costs against the plaintiff. From this order the plaintiff appealed.

A preliminary point arises with respect to the conditions under which the appeal has been prosecuted, which must be disposed of before we
enter into a consideration of the legal questions involved in the allowance of the demurrer; and in this connection it is suggested by the attorneys
for the appellee that the appeal is premature.

The point is clearly not well taken. While it is of course undeniable that an order merely sustaining a demurrer is not forthwith appealable, and
an appeal in such case is premature (Serrano vs. Serrano, 9 Phil., 142), the same cannot be said of an order sustaining a demurrer and at the
same time actually dismissing the complaint. Such an order is definitive and "final" in the sense necessary to justify the taking of an appeal,
and if an appeal had not in fact been prosecuted from the order in this case, the plaintiff would have been completely and forever out of court.
This is self-evident.

On the other hand, the trial court committed manifest error when it entered the order dismissing the complaint at the same time that it sustained
the demurer, without allowing the plaintiff an opportunity to amend his complaint, if he had elected to amend. Section 101 of the Code of Civil
Procedure expressly provides that the plaintiff shall have this election; and it has been repeatedly held to be reversible error on the part of a
Court of First Instance to dismiss a cause immediately upon sustaining a demurrer, without giving the plaintiff an opportunity to amend, it he
so desires. (Molina vs. La electricista, 6 Phil., 519; Ibañez de Aldecoa vs. Fortis, 17 Phil., 82.) To the action thus taken by the trial court the
plaintiff has duly assigned error, and said error (No. VIII, in the appellant's assignment of errors) is without doubt well taken.

As to the extent of the review which may be had at the instance of the appellant in this court, it should be noted that by the express terms of
section 143 of the Code of Civil Procedure a party appealing by bill of exceptions to this court is entitled to a review of all rulings, orders, and
judgments made in the action to which he has duly excepted; and this means, as applied to the present case, that the appellant is entitled to
a review of the decision of the lower court not only upon the error committed in peremptorily dismissing the cause demurrer, without giving
the appellant opportunity to amend, but upon any error that may have been committed by said court in sustaining the demurrer. (Cancino vs.
Valdez, 3 Phil., 429; Balderrama vs. Compañia General de Tabacos, 13 Phil., 609.) Of course if the only point subject to exception had been
that which relates to the right to amend, and the plaintiff had not here insisted upon the sufficiency of his complaint in point of law, the appealed
judgment would merely be reversed and the cause would be remanded by us with direction that the plaintiff be allowed to amend, as was done
in Molina vs. La Electricista, supra. But such is not the situation now before us; and we accordingly proceed to consider the question whether
the trial judge erred in sustaining the demurrer.

Turning then to the complaint and assuming, for the purposes of this decision only, that all material facts stated therein, and well pleaded, are
true, we find that the case made in the complaint is substantially this:

On and prior to August 22, 1916, the plaintiff was the owner of the Hacienda Dolores, a property located in the municipality of Porac, Pampanga,
and assessed upon the tax books at P288,000, but having an actual value of no less than P800,00, encumbered, however, with certain debts
and charges which need not be here enumerated. This property had been registered under Act No. 496, as amended, and upon May 13, 1916,
a Torrens certificate of title covering the same had been issued to the plaintiff.

On the date above stated, or August 22, 1916, the said plaintiff was indebted to the Bachrach Garage & Taxicab Company, of Manila, later
organized under the name of Bacharch Motor Company, for the price of an automobile, previously purchased upon credit, and certain automobile
accessories; and as evidence of this indebtedness the plaintiff executed on said dated a series of fourteen promissory notes payable to the
Bachrach Garage & Taxicab Company, and amounting in all to the sum of P12,960, falling due respectively upon the second of each month
beginning on September 2, 1916, and ending on October 2, 1917. Each of these notes was drawn in the amount of P1,000, except the last two
which together amounted to P960. On September 1, 1916, eleven of these notes were discounted by the Bachrach Garage & Taxicab Company,
through its manager E. M. Bachrach, at the Philippine National Bank. The other three votes, amounting to P2,277.70, remained in the hands of
the payee corporation and were subsequently paid in full by the plaintiff.

Contemporaneously with the delivery of said notes, or on August 16, 1916, and as a security or guaranty for the payment of said notes, the
plaintiff executed what on its face purports to be a deed of sale, with privilege of repurchase, to be exercised on or before October 2, 1917.
This transfer comprises all the property covered by Torrens certificate No. 427 (which includes the Hacienda Dolores), subjects to the
encumbrances noted thereon; and the conveyance to which reference is now made was itself extended on the back of said certificate. In this
conveyance E. M. Bachrach is named as transferee, instead of the alleged real creditor, the Bachrach Garage & Taxicab Company. Upon the
circumstance of the nonconformity of the promissory notes and the deed of sale as regards creditor and beneficiary, the complaint alleges that
the deed of sale is void for lack of consideration as between the plaintiff and E. M. Bachrach, the nominal beneficiary; but to this suggestion,
for obvious reasons, we attach little importance.
On November 8, 1917, Francisco Gutierrez Repide acquired, for the sum of P5,000, all the rights of E. M. Bachrach in the property which had
been thus conveyed to the later; and at this time Francisco Gutierrez Repide, so that complaint alleges, was well aware that the transfer to
Bachrach had been made by the plaintiff for the purpose of securing a debt owing to the Bachrach Company, and he was furthermore aware
that part of said debt has been paid and that the balance really due from the plaintiff to said company was less than one-half of the sum of
P12,960, expressed in the fourteen promissory notes.

After Francisco Gutierrez Repide had acquired the interest above described in the hacienda in question, he addressed himself to the problem of
procuring the certificate of title to be transferred to this own name. To accomplish this is was necessary to make it appear that the contract of
sale with pacto de retro noted in the original Torrens certificate was really and truly what it appeared to be, that is, a contract of sale, not a
mere mortgage, and that the ownership had consolidated in the purchaser by reason of the failure of the seller to repurchase the property
before the expiration of the time allowed for redemption. When this question was raised, it was referred for decision to the judge of the Court
of First Instance of Pampanga, who was of the opinion that the conveyance to Bachrach was a straight contract of sale with pacto de retro; and
inasmuch as it appeared that the ownership had then consolidated in the purchaser, he directed the register of deeds of Pampanga to register
the property in the name of Francisco Gutierrez Repide and to issue to him a new certificate of transfer, which was accordingly done. The order
here referred to was in fact entered in case No. 104 of the Court of First Instance of Pampanga, this being the same land registration proceedings
in which the title had been registered in the name of the plaintiff, and in which judicial proceedings had already been terminated.

Though not plainly so stated in the complaint, it is to be inferred that one of the decisive considerations that operated upon the mind of the
judge of the Court of First Instance in making the order above alluded to was the fact that the plaintiff himself had made an affidavit which
directly sustained the contention of Repide, and this affidavit was submitted to the court in support of Repide's contention. Certain it is that the
inscription of the property in the name of Francisco Gutierrez Repide was accomplished with the external approval of the plaintiff and by means
of his assistance or collusion.

In the complaint now before us the plaintiff alleges that his apparent acquiescence in the transfer of title to Francisco Gutierrez Repide, under
the circumstances above set forth, was due to fraudulent practices on the part of said Repide and to the undue influence exerted over the
plaintiff by that person. In this respect the complaint contains a very full and complete narrative of facts, which, if true — as they must here be
taken to be — would undoubtedly justify any court in relieving a party from the effects of fraudulent practices, duress, or undue influence; and
it seems unnecessary for us here to recount these charges in detail, more especially for the reason that the sufficiency of these allegations,
considered as stating a case of fraud, has not bee questioned, the defense at this point being rested on the ground that the Torrens certificate
is unimpeachable in the hands of Repide and that the plaintiff's remedy to obtain relief, supposing the transfer of title to have been procured
by fraud, has prescribed.

It appears from the complaint that, at the time of the filing of this complaint, the defendant Repide was in actual possession of the property in
question, and that he had in effect been enjoying possession since august 24, 1917, to the alleged prejudice of the plaintiff in the sum of no
less than P200,000 per annum.

The sketch above given contains, we believe, the substance of the essential allegations of the lengthy complaint in this cause, and it will at
least serve as the necessary basis for a discussion of the legal problems here requiring solution. In taking up these problems we begin with the
situation created by the execution of the contract of sale with pacto de retro between the plaintiff, Jose C. Macapinlac, and E. M. Bachrach
Company, assuming, as we do, that the personality of the second party to that contract is a matter of indifference. In this connection the first
and most obvious proposition to be laid down is that inasmuch as said conveyance is alleged to have been executed as security for a debt owing
by the plaintiff to the Bachrach Company, it follows that in equity said conveyance must be treated as a mere security or substantially as a
mortgage, that is, as creating a mere equitable charge in favor of the creditor or person named as the purchaser therein. This conclusion is fully
supported by the decision in Cuyugan vs. Santos (34 Phil., 100), where this court held that a conveyance in the form of a contract of sale
with pacto de retro will be treated as a ere mortgage, if really executed as security for a debt, and that this fact can be shown by oral evidence
apart from the instrument of conveyance, a doctrine which has been followed in the later cases of Villa vs. Santiago (38 Phil., 157), and Cuyugan
vs. Santos (39 Phil., 970).

In view of the lengthy discussion contained in the first decision of Cuyugan vs. Santos, supra, it might seem superfluous to add to what is there
said, but the importance of the subject and the paucity of our own jurisprudence on this topic — apart from that case and its two successors,
— must serve as our justification for here collating a few additional passages relative to the same subject, taken from Mr. Pomeroy's treatise
on Equity Jurisprudence, recognized as the leading work on this subject in all jurisdiction where the common law prevails.

Speaking then with referrence to the conditions under which a conveyance absolute on its face may be treated as a mortgage, this distinguished
writer says:

Any conveyance of land absolute on its face, without anything in its terms to indicate that it is otherwise than an absolute conveyance,
and without any accompanying written defeasance, contract of repurchase, or other agreement, may, in equity, by means of extrinsic
and parol evidence, be shown to be in a reality a mortgage as between the original parties, and as against all those deriving title from
or under the grantee, who are not bona fide purchasers for value and without notice. The principle which underlies this doctrine is the
fruitful source of any other equitable rules; that it would be a virtual fraud for the grantee to insist upon the deed as an absolute
conveyance of the title, which had been intentionally given to him, and which he had knowingly accepted, merely as a security, and
therefore in reality as a mortgage. The general doctrine is fully established, and certainly prevails in a great majority of the states,
that the granter and his representatives are always allowed in equity to show, by parol evidence, that a deed absolute on its face was
only intended to be a security for the payment of a debt, and thus to be a mortgage, although the parties deliberately and knowingly
executed the instrument in its existing form, and without any allegations of fraud, mistake, or accident in its mode of execution. As in
the last preceding case, the sure test and the essential requisite are the continued existence of a debt. (3 Pom. Eq. Jur., sec. 1196.)

And, Speaking particularly of the contract of sale with pacto de retro, he adds:

Whether any particular transaction does thus amount to a mortgage or to a sale with a contract of repurchase must, to a large extent,
depend upon its own special circumstances; for the question finally turns, in all cases, upon the real intention of the parties as shown
upon the face of the writings, or as disclosed by extrinsic evidence. A general criterion, however, has been established by an
overwhelming consensus of authorities, which furnishes a sufficient test in the great majority of cases; and whenever the application
of this test still leaves a doubt, the American courts, from obvious motives of policy, have generally leaned in favor of the mortgage.
This criterion is the continued existence of a debt or liability between the parties, so that the conveyance is in reality intended as a
security for the debt or indemnity against the liability. If there is an indebtedness or liability between the parties, either a debt existing
prior to the conveyance, or a debt arising from a loan made at the time of the conveyance, or from any other cause, and this debt is
still left subsisting, not being discharged or satisfied by the conveyance, but the granter is regarded as still owing and bound to pay it
at some future time, so that the payment stipulated for in the agreement to reconvey is in reality the payment of this existing debt,
then the whole transaction amount to a mortgage, whatever language the parties may have used, and whatever stipulations they may
have inserted in the instruments. (3 Pom. Eq. Jur., sec. 1195.)

Again says he:

. . . The doctrine has been firmly established from an early day that when the character of a mortgage has attached at the
commencement of the transaction, so that the instrument, whatever be its form, is regarded in equity as a mortgage, that character
of mortgage must and will always continue. If the instrument is in its essence a mortgage, the parties cannot by any stipulations,
however express and positive, render it anything but a mortgage, or deprive it of the essential attributes belonging to a mortgage in
 equity. The debtor or mortgagor cannot, in the inception of the instrument, as a part of or collateral to its execution, in any manner
deprive himself of his equitable right to come in after a default in paying the money at the stipulated time, and to pay the debt and
interest, and thereby to redeem the land from the lien and encumbrance of the mortgage; the equitable right of redemption, after a
default is preserved, remains in full force, and will be protected and enforced by a court of equity, no matter what stipulations the
parties may have made in the original transaction purporting to cut off this right. (3 Pom. Eq. Jur., sec. 1193.)

And finally, concerning the legal effects of such contracts, the same author observes:

. . . Whenever a deed absolute on its face is thus treated as a mortgage, the parties are clothed with all the rights, are subject to all
the liabilities, and are entitled to all the remedies of ordinary mortgagors and mortgagees. The grantee may maintain an action for
the foreclosure of the grantor's equity of redemption; the grantor may maintain an action to redeem and to compel a reconveyance
upon his payment of the debt secured. If the grantee goes into possession, he is in reality a mortgagee in possession, and as such is
liable to account for the rents and profits. (3 Pom. Eq. Jur., sec. 1196.)

In Cuyugan vs. Santos, supra, the action to enforce the right of redemption was brought was brought directly against the immediate grantee
in the conveyance there held to be a mortgage, and no account had to be there taken of the situation resulting from a transfer of the property
to a stranger. In the present case the rights of the immediate grantee (E. M. Bachrach) passed by transfer for a valuable consideration to
Francisco Gutierrez Repide and this transfer had been effected before the action in this case was began. But is obvious that this circumstance
cannot be any obstacle to the enforcement of any rights that the plaintiff my have had as against Bachrach (or the Bachrach Company) since
it is alleged that at the time Repide acquired the interest of Bachrach, he was fully aware of the nature of the transaction between Bachrach
and the plaintiff and knew that part of the debt secured by the conveyance of August 22, 1916, had been paid.

In this connection the cardinal rule is that a party who acquires any interest in property with notice of an existing equity takes subject to that
equity. "The full meaning of this most just rule," says Mr. Pomeroy, "is, that the purchaser of an estate or interest, legal or equitable, even for
a valuable consideration, wit notice of any existing equitable estate, interest, claim, or right, in or to the same subject-mater, held by a third
person, is liable in equity to the same extend and in the same manner as the person from whom he made the purchase; his conscience is
equally bound with that of his vendor, and he acquires only what his vendor can honestly transfer." (2 Pom. Eq. Jur., sec. 688.)

In other words, having acquired the interest of Bachrach in the Hacienda Dolores, with knowledge that the contract of August 22, 1916, has
been executed as security for a debt, Francisco Gutierrez Repide — or his estate, now that Repide is a dead — must be understood to stand
towards the present plaintiff in exactly the same position that would have been occupied by Bachrach, if the transfer to Repide had never been
effected.

But it is insisted that the title of Repide has become indefeasible, owing to the fact that the conveyance of the land to him has been followed
by the issuance of a transfer certificate of title in his name, and the original certificate in the name of the plaintiff has been cancelled, — all of
which had been accomplished more than one year before the present action was begun. The unsoundness of this contention can be easily
demonstrated from several different points of view.

In the first place, it must be borne in mind that the equitable doctrine which has been so fully stated above, to the effect that any conveyance
intended as security for a debt will be held in effect to be a mortgage, whether so actually expressed in the instrument or not, operates
regardless of the form of the agreement chosen by the contracting parties as the repository of their will. Equity looks through the form and
considers the substance; and no kind of engagement can be adopted which will enable the parties to escape from the equitable doctrine to
which reference is made. In other words, a conveyance of land, accompanied by registration in the name of the transferee and the issuance of
a new certificate, is no more secured from the operation of this equitable doctrine than the most informal conveyance that could be devised.

In the second place, the circumstance that the land has been judicially registered under the Torrens system does not change or affect civil
rights and liabilities with respect thereto except as expressly provided in the Land Registration Act (see sec. 70); and as between the immediate
parties to any contract affecting such lands their rights will generally be determined by the same rules of law that are applicable to unregistered
land. A judicial decree of registration admittedly has the effect of binding the land and quieting the title thereto, to the extent and with the
exceptions stated in section 38 of the Land Registration Act. But an ordinary transfer of land, effected in any of the ways allowed by law, even
when followed by registration and that issuance of a new certificate, as contemplated in sections 50 to 55, inclusive, of the Land Registration
Act, has a different character.

One of the differences between an original decree of registration and the subsequent registration by transfer of the certificate of title, pertinent
to the present controversy, is that which may be noted in regard to the period within which relief may be obtained from fraud. Thus, under
section 38 of Act No. 496, any person deprived of land by a decree of registration procured by fraud is limited to the period of one year after
the entry of the decree within which to file a petition for review, and even this remedy is unavailable if any innocent purchaser for value has
acquired the property; while under section 55, if a subsequent transfer is infected with fraud or the title is procured by any fraudulent means
to be registered in the name of the transferee, the injured party may pursue all his legal and equitable remedies against the party, or parties,
to such fraud, saving the rights of any innocent holder of the tittle for value. This means of course that the person thus defrauded may bring
any appropriate action to be relieved within the ordinary period of limitation applicable in other cases of fraud, or within the four-year period
prescribed in subsection 4, of section 43 of the Code of Civil Procedure.

Applying said provision to the facts of the present case it must follow that the cause of action of the present plaintiff to annul the registration
of this property in the name of Francisco Gutierrez Repide did not prescribe at one year, as the trial judge erroneously supposed, and the
plaintiff's cause of action upon this branch of the case had not in fact been barred at all when the present action was begun.

Before leaving the topic of this alleged fraud committed by Repide in procuring a Torrens certificate to be issued in his own name, thereby
making it appear that the absolute and indefeasible title had become vested in himself, it will be well to point out that the complaint reflect a
mistaken point of view as to the consequences of that act. Upon perusal of the compliant it will be noted that it proceeds upon the assumption
that, if the alleged fraud should be proved, the plaintiff will be entitled to have the premises at once restored to himself, with an accounting for
profits, and an award of damages adequate to compensate the plaintiff for the wrong supposed to have been done. But the circumstance must
not be overlooked that the supposed fraud relates only to the registration of the title in the name of Repide, and even supposing that this act
had never been accomplished, the Repide estate would merely be in the position occupied by Repide after he had acquired the interest of
Bachrach in the property, without prejudice to the rights acquired by that purchase. But of course in the case supposed the plaintiff would be
entitled to have the certificate of title cancelled and other issued in such form as to show the correct state of facts with respect to the ownership
and incumbrance of the property.

The preceding discussion conducts us to the conclusion that, so far as this case is concerned, the estate of Francisco Gutierrez Repide occupies
substantially the position of a mortgagee in possession. The question then arises as to what are the legal rights of the plaintiff as against the
Repide estate, judged by the facts alleged and relief sought in the complaint as at present framed, and in this connection the circumstances is
not to be ignored that the complaint contains in usual form the prayer for general.

The solution of this problem is to be found in the application of the doctrine formulated by this court in Barretto vs. Barretto (37 Phil., 234). In
that case the heirs of a mortgagee of an estate were found in possession of mortgaged property more than thirty years after the mortgage had
been executed; and it was shown that the mortgage had never been foreclosed. Upon this state of facts it was in effect held that the rights of
the parties, heirs respectively of the mortgagor and mortgagee, were essentially the same as under the contract of antichresis.
By reference to the appropriate provisions of the Civil Code (arts. 1881-1884), in the chapter dealing with antichresis, it will be at once seen
that while non-payment of the debt does not vest the ownership of the property in the creditor, nevertheless the debtor cannot recover the
enjoyment of the property without first paying in full what he owes to his creditor. At the same time, however, the creditor is under obligation
to apply the fruits derived from the estate in satisfaction, first, of the interest on the debt, if any, and, secondly, to the payment of the principal.
From this is necessarily deduced the obligation of the creditor to account to the debtor for said fruits and the corresponding right of the debtor
to have the same applied in satisfaction of the mortgage debt, as recognized in Barretto vs. Barretto, supra.

The respective rights and obligations of the parties to a contract of antichresis, under the Civil Code, appear to be similar and in many respects
identical with those recognized in the equity jurisprudence of England and American as incident to the position of a mortgagee in possession,
in reference to which the following propositions may be taken to be established, namely, that if the mortgagee acquires possession in any lawful
manner, he is entitled to retain such possession until the indebtedness is satisfied and the property redeemed; that the non-payment of the
debt within the term agreed does not vest the ownership of the property in the creditor; that the general duty of the mortgagee in possession
towards the premises is that of the ordinary prudent owner' that the mortgagee must account for the rents and profits of the land, or its value
for purposes of use and occupation, any amount thus realized going towards the discharge of the mortgage debt; that if the mortgagee remains
in possession after the mortgage debt has been satisfied, he becomes a trustee for the mortgagor as to the excess of the rents and profits over
such debt; and, lastly, that the mortgagor can only enforce his rights to the land by an equitable action for an account and to redeem. (3 Pom.
Eq. Jur., sex. 1215-1218.)

From the complaint it appears that, even before acquiring the interest of Bachrach in the Hacienda Dolores, the defendant Francisco Gutierrez
Repide had taken over from the Archbishop of Manila a mortgage on the property in favor of said Archbishop, paying therefor the sum of
P35,000; and we infer from the complaint that Repide had probably discharged other liens on the property either before or after he acquired
the interest of Bachrach. If so, his executrix will be entitled to charge the plaintiff with the amount paid to free the property from such liens,
and to retain possession until all valid claims against the estate are satisfied, in obedience to the maxim that he who seeks equity must do
equity.

A question has been made as to whether, in an action like this, it is necessary for the plaintiff to tender the amount necessary to effect the
redemption of the property; and we note that in paragraph XII of the complaint it is alleged that the plaintiff had made a written offer to the
defendant Repide to pay all debts and charges held by Repide against the property, which offer said defendant had refused to accept. this
paragraph of the complaint was doubtless inserted in view of section 347 of the Code of Civil Procedure which declares that a written offer to
pay a particular sum of money is, if rejected, equivalent to the actual tender of the money. The allegation contained in paragraph XII of the
complaint is not sufficient to comply with the provisions of the section cited, for the reason that it does not appear that the written offer
mentioned a particular sum as the amount to be paid. There was therefore no valid tender.

But the case is not one where a tender is necessary, because the amount actually due cannot be known until an accounting is had and the
extent of the plaintiff's indebtedness reduced to certainty. When this had been accomplished, it will become the duty of the court, upon such
amendment of the complaint as may appear desirable, to make the proper decree, allowing the plaintiff to redeem and requiring the executrix
of Francisco Gutierrez Repide to surrender the property in question to the plaintiff.

In what has preceded we have demonstrated the error of the trial judge in sustaining the demurrer interposed to the original complaint on
behalf of the Repide estate, and we have at the same time indicated the character of the relief to which the plaintiff appears to be entitled on
the showing made in the complaint. It is hardly necessary to add that we must not be understood as defining the rights of the parties further
than is necessary to dispose of the case as presented to us upon demurrer; and it is obvious that if the litigation proceeds further, many
questions will be presented which cannot and should not here be anticipated.

Directing our attention now to the appeal of the defendant Boomer, we not that this litigant by way of cross-complaint a right to the Hacienda
Dolores hostile to both Jose C. Macapinlac and Francisco Gutierrez Repide, basing his claim upon a contract (Exhibit 1) between Macapinlac and
Boomer, of a date anterior to the contract of sale with pacto de retro of August 22, 1916. It is unnecessary her to enter into the details of
Boomers contention. Suffice it to say that, if the allegations of the cross-complaint are true, as is to be assumed upon demurrer, it shows a
cause of action proper to be ventilated in this suit. The trial judge, however, sustained the demurrer to the cross-complaint, apparently for the
reason that this Honor believed that the transfer of certificate of title to the name of Repide constituted an insuperable obstacle to the cross-
action. This point has been fully discussed by us in connection with the controversy between the two principal litigants, and for the rest it may
be said that the action of the trial judge in sustaining the demurrer to Boomer's cross-complaint involves the same errors that were committed
in the other branch of the case.

From what has been said it follows that the action of the trial judge in sustaining the two demurrers interposes in behalf of Francisco Gutierrez
Repide to the original complaint and to Boomer's cross-complaint must be reversed and said demurrers are hereby overruled, with costs; and
the cause will be returned to the lower court with directions to require the appellee to answer within the time allowed by the rules. So ordered.
G.R. No. L-66826 August 19, 1988

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents.

Pacis & Reyes Law Office for petitioner.

Ernesto T. Zshornack, Jr. for private respondent.

CORTES, J.:

The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank and Trust Company of the Philippines [hereafter referred
to as "COMTRUST."] In 1980, the Bank of the Philippine Islands (hereafter referred to as BPI absorbed COMTRUST through a corporate merger,
and was substituted as party to the case.

Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First Instance of Rizal — Caloocan City a complaint against
COMTRUST alleging four causes of action. Except for the third cause of action, the CFI ruled in favor of Zshornack. The bank appealed to the
Intermediate Appellate Court which modified the CFI decision absolving the bank from liability on the fourth cause of action. The pertinent
portions of the judgment, as modified, read:

IN VIEW OF THE FOREGOING, the Court renders judgment as follows:

1. Ordering the defendant COMTRUST to restore to the dollar savings account of plaintiff (No. 25-4109) the amount of U.S
$1,000.00 as of October 27, 1975 to earn interest together with the remaining balance of the said account at the rate fixed
by the bank for dollar deposits under Central Bank Circular 343;

2. Ordering defendant COMTRUST to return to the plaintiff the amount of U.S. $3,000.00 immediately upon the finality of
this decision, without interest for the reason that the said amount was merely held in custody for safekeeping, but was not
actually deposited with the defendant COMTRUST because being cash currency, it cannot by law be deposited with plaintiffs
dollar account and defendant's only obligation is to return the same to plaintiff upon demand;

xxx xxx xxx

5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.00 as damages in the concept of litigation expenses
and attorney's fees suffered by plaintiff as a result of the failure of the defendant bank to restore to his (plaintiffs) account
the amount of U.S. $1,000.00 and to return to him (plaintiff) the U.S. $3,000.00 cash left for safekeeping.

Costs against defendant COMTRUST.

SO ORDERED. [Rollo, pp. 47-48.]

Undaunted, the bank comes to this Court praying that it be totally absolved from any liability to Zshornack. The latter not having appealed the
Court of Appeals decision, the issues facing this Court are limited to the bank's liability with regard to the first and second causes of action and
its liability for damages.

1. We first consider the first cause of action, On the dates material to this case, Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in
COMTRUST, Quezon City Branch, a dollar savings account and a peso current account.

On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V. Garcia, Assistant Branch Manager of COMTRUST Quezon
City, payable to a certain Leovigilda D. Dizon in the amount of $1,000.00. In the application, Garcia indicated that the amount was to be charged
to Dollar Savings Acct. No. 25-4109, the savings account of the Zshornacks; the charges for commission, documentary stamp tax and others
totalling P17.46 were to be charged to Current Acct. No. 210465-29, again, the current account of the Zshornacks. There was no indication of
the name of the purchaser of the dollar draft.

On the same date, October 27,1975, COMTRUST, under the signature of Virgilio V. Garcia, issued a check payable to the order of Leovigilda D.
Dizon in the sum of US $1,000 drawn on the Chase Manhattan Bank, New York, with an indication that it was to be charged to Dollar Savings
Acct. No. 25-4109.

When Zshornack noticed the withdrawal of US$1,000.00 from his account, he demanded an explanation from the bank. In answer, COMTRUST
claimed that the peso value of the withdrawal was given to Atty. Ernesto Zshornack, Jr., brother of Rizaldy, on October 27, 1975 when he
(Ernesto) encashed with COMTRUST a cashier's check for P8,450.00 issued by the Manila Banking Corporation payable to Ernesto.

Upon consideration of the foregoing facts, this Court finds no reason to disturb the ruling of both the trial court and the Appellate Court on the
first cause of action. Petitioner must be held liable for the unauthorized withdrawal of US$1,000.00 from private respondent's dollar account.

In its desperate attempt to justify its act of withdrawing from its depositor's savings account, the bank has adopted inconsistent theories. First,
it still maintains that the peso value of the amount withdrawn was given to Atty. Ernesto Zshornack, Jr. when the latter encashed the Manilabank
Cashier's Check. At the same time, the bank claims that the withdrawal was made pursuant to an agreement where Zshornack allegedly
authorized the bank to withdraw from his dollar savings account such amount which, when converted to pesos, would be needed to fund his
peso current account. If indeed the peso equivalent of the amount withdrawn from the dollar account was credited to the peso current account,
why did the bank still have to pay Ernesto?

At any rate, both explanations are unavailing. With regard to the first explanation, petitioner bank has not shown how the transaction involving
the cashier's check is related to the transaction involving the dollar draft in favor of Dizon financed by the withdrawal from Rizaldy's dollar
account. The two transactions appear entirely independent of each other. Moreover, Ernesto Zshornack, Jr., possesses a personality distinct
and separate from Rizaldy Zshornack. Payment made to Ernesto cannot be considered payment to Rizaldy.

As to the second explanation, even if we assume that there was such an agreement, the evidence do not show that the withdrawal was made
pursuant to it. Instead, the record reveals that the amount withdrawn was used to finance a dollar draft in favor of Leovigilda D. Dizon, and not
to fund the current account of the Zshornacks. There is no proof whatsoever that peso Current Account No. 210-465-29 was ever credited with
the peso equivalent of the US$1,000.00 withdrawn on October 27, 1975 from Dollar Savings Account No. 25-4109.
2. As for the second cause of action, the complaint filed with the trial court alleged that on December 8, 1975, Zshornack entrusted to
COMTRUST, thru Garcia, US $3,000.00 cash (popularly known as greenbacks) for safekeeping, and that the agreement was embodied in a
document, a copy of which was attached to and made part of the complaint. The document reads:

Makati Cable Address:

Philippines "COMTRUST"

COMMERCIAL BANK AND TRUST COMPANY

of the Philippines

Quezon City Branch

Decembe
r 8, 1975

MR. RIZALDY T. ZSHORNACK

&/OR MRS SHIRLEY E. ZSHORNACK

Sir/Madam:

We acknowledged (sic) having received from you today the sum of US DOLLARS: THREE THOUSAND
ONLY (US$3,000.00) for safekeeping.

Received by:

(Sgd.) VIRGILIO V. GARCIA

It was also alleged in the complaint that despite demands, the bank refused to return the money.

In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's peso current account at prevailing conversion rates.

It must be emphasized that COMTRUST did not deny specifically under oath the authenticity and due execution of the above instrument.

During trial, it was established that on December 8, 1975 Zshornack indeed delivered to the bank US $3,000 for safekeeping. When he requested
the return of the money on May 10, 1976, COMTRUST explained that the sum was disposed of in this manner: US$2,000.00 was sold on
December 29, 1975 and the peso proceeds amounting to P14,920.00 were deposited to Zshornack's current account per deposit slip
accomplished by Garcia; the remaining US$1,000.00 was sold on February 3, 1976 and the peso proceeds amounting to P8,350.00 were
deposited to his current account per deposit slip also accomplished by Garcia.

Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current account at prevailing conversion rates, BPI now posits
another ground to defeat private respondent's claim. It now argues that the contract embodied in the document is the contract of depositum
(as defined in Article 1962, New Civil Code), which banks do not enter into. The bank alleges that Garcia exceeded his powers when he entered
into the transaction. Hence, it is claimed, the bank cannot be liable under the contract, and the obligation is purely personal to Garcia.

Before we go into the nature of the contract entered into, an important point which arises on the pleadings, must be considered.

The second cause of action is based on a document purporting to be signed by COMTRUST, a copy of which document was attached to the
complaint. In short, the second cause of action was based on an actionable document. It was therefore incumbent upon the bank to specifically
deny under oath the due execution of the document, as prescribed under Rule 8, Section 8, if it desired: (1) to question the authority of Garcia
to bind the corporation; and (2) to deny its capacity to enter into such contract. [See, E.B. Merchant v. International Banking Corporation, 6
Phil. 314 (1906).] No sworn answer denying the due execution of the document in question, or questioning the authority of Garcia to bind the
bank, or denying the bank's capacity to enter into the contract, was ever filed. Hence, the bank is deemed to have admitted not only Garcia's
authority, but also the bank's power, to enter into the contract in question.

In the past, this Court had occasion to explain the reason behind this procedural requirement.

The reason for the rule enunciated in the foregoing authorities will, we think, be readily appreciated. In dealing with
corporations the public at large is bound to rely to a large extent upon outward appearances. If a man is found acting for a
corporation with the external indicia of authority, any person, not having notice of want of authority, may usually rely upon
those appearances; and if it be found that the directors had permitted the agent to exercise that authority and thereby held
him out as a person competent to bind the corporation, or had acquiesced in a contract and retained the benefit supposed
to have been conferred by it, the corporation will be bound, notwithstanding the actual authority may never have been
granted

... Whether a particular officer actually possesses the authority which he assumes to exercise is frequently known to very
few, and the proof of it usually is not readily accessible to the stranger who deals with the corporation on the faith of the
ostensible authority exercised by some of the corporate officers. It is therefore reasonable, in a case where an officer of a
corporation has made a contract in its name, that the corporation should be required, if it denies his authority, to state such
defense in its answer. By this means the plaintiff is apprised of the fact that the agent's authority is contested; and he is
given an opportunity to adduce evidence showing either that the authority existed or that the contract was ratified and
approved. [Ramirez v. Orientalist Co. and Fernandez, 38 Phil. 634, 645- 646 (1918).]

Petitioner's argument must also be rejected for another reason. The practical effect of absolving a corporation from liability every time an officer
enters into a contract which is beyond corporate powers, even without the proper allegation or proof that the corporation has not authorized
nor ratified the officer's act, is to cast corporations in so perfect a mold that transgressions and wrongs by such artificial beings become
impossible [Bissell v. Michigan Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To say that a corporation has no right to do unauthorized acts is
only to put forth a very plain truism but to say that such bodies have no power or capacity to err is to impute to them an excellence which does
not belong to any created existence with which we are acquainted. The distinction between power and right is no more to be lost sight of in
respect to artificial than in respect to natural persons." [Ibid.]
Having determined that Garcia's act of entering into the contract binds the corporation, we now determine the correct nature of the contract,
and its legal consequences, including its enforceability.

The document which embodies the contract states that the US$3,000.00 was received by the bank for safekeeping. The subsequent acts of the
parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time,
Thus, Zshornack demanded the return of the money on May 10, 1976, or over five months later.

The above arrangement is that contract defined under Article 1962, New Civil Code, which reads:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of
safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.

Note that the object of the contract between Zshornack and COMTRUST was foreign exchange. Hence, the transaction was covered by Central
Bank Circular No. 20, Restrictions on Gold and Foreign Exchange Transactions, promulgated on December 9, 1949, which was in force at the
time the parties entered into the transaction involved in this case. The circular provides:

xxx xxx xxx

2. Transactions in the assets described below and all dealings in them of whatever nature, including, where applicable their
exportation and importation, shall NOT be effected, except with respect to deposit accounts included in sub-paragraphs (b)
and (c) of this paragraph, when such deposit accounts are owned by and in the name of, banks.

(a) Any and all assets, provided they are held through, in, or with banks or banking institutions located
in the Philippines, including money, checks, drafts, bullions bank drafts, deposit accounts (demand, time
and savings), all debts, indebtedness or obligations, financial brokers and investment houses, notes,
debentures, stocks, bonds, coupons, bank acceptances, mortgages, pledges, liens or other rights in the
nature of security, expressed in foreign currencies, or if payable abroad, irrespective of the currency in
which they are expressed, and belonging to any person, firm, partnership, association, branch office,
agency, company or other unincorporated body or corporation residing or located within the Philippines;

(b) Any and all assets of the kinds included and/or described in subparagraph (a) above, whether or not
held through, in, or with banks or banking institutions, and existent within the Philippines, which belong
to any person, firm, partnership, association, branch office, agency, company or other unincorporated
body or corporation not residing or located within the Philippines;

(c) Any and all assets existent within the Philippines including money, checks, drafts, bullions, bank drafts,
all debts, indebtedness or obligations, financial securities commonly dealt in by bankers, brokers and
investment houses, notes, debentures, stock, bonds, coupons, bank acceptances, mortgages, pledges,
liens or other rights in the nature of security expressed in foreign currencies, or if payable abroad,
irrespective of the currency in which they are expressed, and belonging to any person, firm, partnership,
association, branch office, agency, company or other unincorporated body or corporation residing or
located within the Philippines.

xxx xxx xxx

4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those authorized to deal in foreign exchange.
All receipts of foreign exchange by any person, firm, partnership, association, branch office, agency, company or other
unincorporated body or corporation shall be sold to the authorized agents of the Central Bank by the recipients within one
business day following the receipt of such foreign exchange. Any person, firm, partnership, association, branch office, agency,
company or other unincorporated body or corporation, residing or located within the Philippines, who acquires on and after
the date of this Circular foreign exchange shall not, unless licensed by the Central Bank, dispose of such foreign exchange
in whole or in part, nor receive less than its full value, nor delay taking ownership thereof except as such delay is customary;
Provided, further, That within one day upon taking ownership, or receiving payment, of foreign exchange the aforementioned
persons and entities shall sell such foreign exchange to designated agents of the Central Bank.

xxx xxx xxx

8. Strict observance of the provisions of this Circular is enjoined; and any person, firm or corporation, foreign or domestic,
who being bound to the observance thereof, or of such other rules, regulations or directives as may hereafter be issued in
implementation of this Circular, shall fail or refuse to comply with, or abide by, or shall violate the same, shall be subject to
the penal sanctions provided in the Central Bank Act.

xxx xxx xxx

Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281, Regulations on Foreign Exchange, promulgated on November
26, 1969 by limiting its coverage to Philippine residents only. Section 6 provides:

SEC. 6. All receipts of foreign exchange by any resident person, firm, company or corporation shall be sold to authorized
agents of the Central Bank by the recipients within one business day following the receipt of such foreign exchange.
Any resident person, firm, company or corporation residing or located within the Philippines, who acquires foreign exchange
shall not, unless authorized by the Central Bank, dispose of such foreign exchange in whole or in part, nor receive less than
its full value, nor delay taking ownership thereof except as such delay is customary; Provided, That, within one business day
upon taking ownership or receiving payment of foreign exchange the aforementioned persons and entities shall sell such
foreign exchange to the authorized agents of the Central Bank.

As earlier stated, the document and the subsequent acts of the parties show that they intended the bank to safekeep the foreign exchange,
and return it later to Zshornack, who alleged in his complaint that he is a Philippine resident. The parties did not intended to sell the US dollars
to the Central Bank within one business day from receipt. Otherwise, the contract of depositum would never have been entered into at all.

Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one business day from receipt, is a transaction
which is not authorized by CB Circular No. 20, it must be considered as one which falls under the general class of prohibited transactions. Hence,
pursuant to Article 5 of the Civil Code, it is void, having been executed against the provisions of a mandatory/prohibitory law. More importantly,
it affords neither of the parties a cause of action against the other. "When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no cause of action against each other. .
." [Art. 1411, New Civil Code.] The only remedy is one on behalf of the State to prosecute the parties for violating the law.
We thus rule that Zshornack cannot recover under the second cause of action.

3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in the concept of litigation expenses and attorney's fees to be
reasonable. The award is sustained.

WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to restore to the dollar savings account of private respondent
the amount of US$1,000.00 as of October 27, 1975 to earn interest at the rate fixed by the bank for dollar savings deposits. Petitioner is further
ordered to pay private respondent the amount of P8,000.00 as damages. The other causes of action of private respondent are ordered dismissed.
SO ORDERED.
G.R. No. L-7308 January 9, 1913

RAFAEL MOLINA y SALVADOR, plaintiff-appellant,

vs.
ENRIQUE F. SOMES, ET AL., defendants-appellants.

Bruce, Lawrence, Ross and Block, for plaintiff and appellant.

A.D. Gibbs, for defendants and appellants.

MORELAND, J.:

In 1903 Rafael Molina, the plaintiff herein, sold his business in the Island of Catanduanes to Antonio de la Riva for $135,000 Mexican currency,
to be paid by de la Riva in four equal installments, the first to be made at the time of the execution of the document, the second year from the
date thereof, the third at the end of two years from that date, with interest at the rate of 5 per cent per annum to be paid at the end of each
year. No payment was made by De la Riva under said contract except the first payment, which was that made at the date of the execution of
the contract. Upon the second installment from Molina brought suit in the Court of First Instance of Manila (No. 3402) and was given a judgment.
An appeal was taken from said judgment by De la Riva and the Supreme Court affirmed it on the 22nd of March, 1906. 1 Pending the appeal
execution was stayed upon the filing of a supersedeas bond, with Enrique F. Somes, the defendant herein, as one of the sureties. While the suit
for this installment was pending, the succeeding installment, amounting to P38,000, fell due. Default in its payment having been made, suit
was brought in the Court of First Instance of the city of Manila (No. 3829). In this case, at the instance of Molina, a receiver was appointed to
take possession of the property of De la Riva. Molina succeeded in this action. De la Riva again appealed to the Supreme Court, where the
judgement was affirmed,2while the receivership granted in that action was declared void. When the first case (No. 3402) was returned to the
Court of First Instance after affirmance, De la Riva's property was still in the hands of the receiver; and, as execution against property thus
in custodia legis could not be had, the Court of First Instance, on motion, entered judgment against the sureties on the supersedeas bond,
including Somes, defendant herein. The sureties appealed from this judgment, their appeal being docketed as 3412,3 and the order of the Court
of First Instance was affirmed. The judgment in case No. 3402, which was the judgment on the first unpaid installment, was then satisfied out
of the property of Somes. On the 19th of February, 1907, said Molina obtained another judgment against De la Riva in the Court of First Instance
on the last installment due under the contract. Therefore, early in 1907 the situation was this: Somes had paid the judgment in case 3402 and
was, therefore, a creditor of De la Riva for about P34,000. Molina had two judgments against De la Riva, in cases 3829 and 4766, aggregating
about P18,000. The property of the debtor was released from the receivership and the question of priority arose between the creditors Somes
and Molina. Gibbs, Gale and Carr, who had served De la Riva as attorneys, had taken judgment by default against De la Riva for P4,500 and
had levied upon practically all his real estate. The levy had been suspended by the receivership, but was revive when the receivership was
terminated by the judgment of the Supreme Court and said levy was terminated by a sale in the month of January, 1907. Molina obtained writs
of execution on his two judgments, and levied on the property of De la Riva, including the equity of redemption of the real estate sold under
the execution in favor of Gibbs, Gale and Carr. On the 26th of April, 1907, the defendant Somes filed a complaint against Molina and others in
the Court of First Instance of Manila (No. 5448), alleging that by his payment of the judgment he had become subrogated to the rights of the
judgment creditor in case No. 3402, and that , because this judgment was senior to Molina's judgments in cases Nos. 3829 and 4766, he was
entitled to a postponement of Molina's executions above mentioned until he, Somes, should have reimbursed himself out of De la Riva's property.
Molina entered a demurrer to this complaint, which was sustained. Somes appealed, the case becoming in this court R.G. No. 4149.4 On this
appeal Somes asked for and obtained from the Supreme Court a preliminary injunction in said action dated August 3, 1907, restraining further
proceedings in the execution of Molina's judgments in cases Nos. 3829 and 4766. A bond for the injunction in the sum of P10,000 was given,
signed by Gabriel Schmid, Cristina Gaskell and Fridolin Wiget as sureties. It was not signed by Somes.

The Supreme Court reversed the judgment of the Court of First Instance entered on the order sustaining the demurrer and returned the case
for further proceedings, leaving the injunction above referred to in full force and effect. (9 Phil. Rep., 653.) The Court of First Instance found in
favor of Somes, holding that he was entitled to satisfy his judgment of P34,000 out of the specific property levied upon by Molina and belonging
to De la Riva in preference to and ahead of Molina. Molina appealed but was unable to furnish a supersedeas bond; and Somes secured a writ
of execution in case No. 3402, levied on all the property of De la Riva, sold it at public sale in due form of law, and bought it himself for P10,000.
The legality and validity of the sale are not in question. On that appeal this court reversed the Court of First Instance, holding that, as to the
specific property levied upon and then in the hands of the sheriff, Molina's judgment were entitled to preference over that of Somes (15 Phil.
Rep., 133) in the distribution of the proceeds.

Molina thereupon in July, 1910, began the present action against Somes and the sureties on the bond given to obtain the injunction of August
3, 1907, praying for judgment against the sureties for the amount of the bond, P10,000, and against Somes for the value of the property of De
la Riva out of which Molina might have satisfied his executions in 1907, except for what he terms Somes' unjustifiable interference. The Court
of First Instance after trial, gave judgment against the sureties for P10,000 upon the bond, and against Somes for P11,000 on some other
theory. No appeal has been taken from the judgment against the sureties. Both Molina and Somes have appealed from the judgment of P11,000
against the latter.

The argument on this appeal discloses that there is a contest between the parties as to the nature of the action brought by the plaintiff and as
to the theory upon which it was tried in the court below. In that connection the plaintiff says in his brief in this court:

Plaintiff in 1907 held final judgments against Antonio de la Riva aggregating P81,000, and was engaged in the execution of those
judgments against the property of the debtor then available for the purpose. The defendant Somes interfered with plaintiff's execution,
and successfully maintained his position until all the property of the debtor De la Riva had disappeared and De la Riva had become
absolutely execution-proof. This interference on the part of Somes was unlawful, as this court decided in R.G. No. 5160 (15 Phil. Rep.,
133). It follows that plaintiff has been damaged by defendant's conduct in the amount of the value of De la Riva's property subjected
to plaintiff's levy in 1907, if that amount was within the figure of plaintiff's judgments. The only question is the determination of this
value, which the trial court found to be P11,000.

He also says: "The complaint in this case, directed as it is against the sureties on the injunction bond as well as against their principal, is based
principally upon the improvident granting of the injunction, but it also contains the statement of a cause of action, fully proven by the evidence,
against the defendant Somes independently on the injunction proceedings. The Court of First Instance, in case No. 5448, entered a judgment
in favor of Somes declaring that he was entitled to execute his judgment in case No. 3402 in preference to the execution of plaintiff's judgment
in cases 3829 and 4766. This decision of the Court was subsequently reversed by the Supreme Court in R.G. No. 5160 (15 Phil. Rep., 133). If
plaintiff had been able to furnish a supersedeas bond in case No. 5448, he would have enjoyed the fruits of his successful appeal in that case.
As he was not able to effect the supersedeas, Somes proceeded to execute his judgment by obtaining a writ of execution in No. 3402 and
enforcing it, taking the risk of a reversal upon plaintiff's appeal. It can hardly be doubted that if Somes had retained the property of De la Riva
which he bought on his execution sale in case No. 3402, Molina, upon securing the reversal in R.G. No. 5160, could have levied in execution of
his judgments upon the property in Somes' possession. It necessarily follows that as Somes had conveyed that property to a third person, Jose
Fortis, so that plaintiff could no longer follow it, Somes had damaged plaintiff to the extent of the value of the property on which Somes levied
in consequence of the erroneous judgment of the Court of First Instance in Case No. 5448. It is submitted that when an appeal is taken
without supersedeas, and the judgment appealed from is executed, and subsequently reversed, the appellee is bound to restore the status
quo ante or respond in damages for his failure or inability so to do. Regardless of the injunction proceedings, therefore, Sr. Somes is bound to
give effect to the decision of this court that the judgments of Molina were entitled to preference over that of Somes and to undo the consequences
of the erroneous judgment of the Court of First Instance."

We cannot agree with the appellant Molina that the action is not only one for the recovery of damages by reason of the issuance of an injunction
but also one to recover damages sustained by reason of the execution of a judgment which was afterwards reversed on appeal. It appears to
us from the complaint and the opinion of the court below and the general attitude of the parties, both in the court below and here, that the
complaint presents, from every possible legal aspect, simply an action to recover damages alleged to have been occasioned by the defendant
Somes suing out a temporary injunction which was subsequently vacated by a final judgment of the Supreme Court. It seems to have been
tried altogether on that theory. The judgment of the Court of First Instance seems also to rest entirely upon that theory. The results of that
theory, as well as the theory itself, have been accepted by the plaintiff not only as against the sureties on the bond, who have not appealed
from the judgment rendered against them on that undertaking, but also as against Somes, the judgment against whom in the Court of First
Instance based on the injunction theory has been accepted by him (the plaintiff) in that court, as in this, he appealing from such judgment only
by reason of the amount.

Paragraph II of the complaint sets out the ownership of certain judgments upon which he (plaintiff) had issued executions. Paragraph III alleges
the obtaining by Somes of the preliminary injunction from the Supreme Court, restraining Molina from proceeding further in the execution of
those two judgments. Paragraph IV alleges the making of the bond preliminary to the injunction and states who were the persons signing the
same. Paragraph V alleges the ownership by Somes of a judgment against De la Riva, against whom the plaintiff also held the two judgments
theretofore referred to in the complaint and alleges that "on the 10th day of May, 1909, he executed said judgment, and upon said execution
had sold, and himself bought, all the property, real and personal, of the aforesaid Antonio de la Riva, while this plaintiff was still under the
restraint of the aforesaid preliminary injunction, and thereafter sold and transferred to a third party all of the property by him acquired as
aforesaid on the execution sale." The last paragraph of the complaint alleges the value of the property and the fact that De la Riva is insolvent
and has no property out of which the plaintiff's judgments may be paid. It also alleges "that the aforesaid preliminary injunction, notwithstanding
diligent effort on the part of this plaintiff to have the same vacated, remained continuously in force until after the aforesaid execution sale of
the defendant Enrique F. Somes, and until after the disposition by said Somes of the property by him acquired as aforesaid at said sale. That
said injunction was improperly issued, and that the defendant Enrique F. Somes was not entitled to said injunction nor to restrain the execution
by this plaintiff of the latter's judgments against Antonio de la Riva, and that said execution was issued solely upon the affidavit of the defendant
Enrique F. Somes, and that the allegations of said affidavit had been conclusively adjudged to be untrue by the Supreme Court of the Philippine
Islands in cause No. 5448 of the docket of this court." Then follows the prayer for relief, as follows:

Wherefore plaintiff prays that judgment be rendered against defendant Enrique F. Somes for the sum of P80,818.06 Philippine
currency, with interest thereon at 5 per cent per annum from July 27, 1903, and against the defendants Gabriel Schmid, Cristina
Gaskell de Schmid, and Fridolin Wiget, jointly and severally, for the sum of P10,000 Philippine currency, and that plaintiff recover his
costs in this action, and for such other and further relief as the court may deem just and proper.

In its opinion the Court of First Instance says:

This case is before the court for trial upon a complaint by the plaintiff to recover from the defendant Enrique F. Somes the sum of
P80,818.06 and from the other defendants the sum of P10,000, alleged to be damages suffered by the plaintiff on account of an
injunction issued at the request of the defendant Somes, and a bond given upon which the other defendants were sureties and by
which the plaintiff was restrained from levying an execution to satisfy judgments obtained by him.

The defendant Somes answered admitting practically all the allegations of the complaint, except those which alleged that he was the
owner of a judgment against one Antonio de la Riva and had levied execution issued on it, and had sold all of De la Riva's property,
and that the property sold was sufficient to satisfy all of plaintiff's judgments: That De la Riva was insolvent, and alleged as a special
defense that he had obtained an injunction against the plaintiff and several other persons which after being set aside was finally left
in full effect, and that prior to all proceedings Gibbs, Gale & Carr had obtained judgment against Antonio de la Riva, levied execution
under it, and sold all of the real estate of De la Riva in the Island of Catanduanes, and also alleged that he, the defendant Somes, had
never levied upon or sold such real estate; but that having obtained judgment against De la Riva execution issued, and was levied
upon the property of De la Riva, and the property sold for P10,000.

The court further says:

The defendants insist that the plaintiff cannot recover in this action because the damages suffered on account of conditions which
appear from the pleadings must be assessed in the action or proceeding and in the court trying the action; that is, the action in which
the injunction was issued, which was the basis of the damages.

The court then takes up the questions of procedure relative to the recovery of damages sustained by reason of the issuance of an injunction,
and discusses whether or not the proceedings instituted for that purpose should be brought in the same action in which the injunction was
issued as an incident thereof, or whether they should be carried on in a separate action. After thorough consideration it was held that such
proceedings must be brought and carried on in the same action as an incident thereof. The decision concludes as follows:

The defendant Somes having stopped the plaintiff from recovering upon his judgments, for reasons which were afterwards found to
be not valid, is liable for any damages which the plaintiff may have suffered on account thereof, and the other defendants, as his
sureties, are also liable to the extent of their bond.

The defendant Somes, while the injunction was in force, having levied upon and sold the property which the plaintiff was restrained
from selling, under his execution, having left the plaintiff without other property of his judgment debtor against which to proceed, has
damaged the plaintiff to the extent of the value of the property which plaintiff has levied upon, at the time he was restrained from
proceeding with the sale.

On his appeal to this court, the plaintiff presented the following assignment of errors:

1. That the said Court of First Instance found as a fact that the damages suffered by plaintiff amounted only to P11,000.

2. That the said Court of First Instance of Manila rendered judgment against the defendant Enrique F. Somes in the sum of P11,000
instead of in accordance with the prayer of plaintiff's complaint.

The opening paragraph of plaintiff's brief on appeal is as follows:

Plaintiff in 1907 held final judgments against Antonio de la Riva aggregating P81,000, and was engaged in the execution of those
judgments against the property of the debtor then available for the purpose. The defendant Somes interfered with plaintiff's execution,
and successfully maintained his position until all the property of the debtor De la Riva had disappeared and De la Riva had become
absolutely execution proof. This interference on the part of Somes was unlawful, as this court decided in R.G. No. 5160 (15 Phil. Rep.,
133). It follows that plaintiff has been damaged by defendant's conduct in the amount of the value of De la Riva's property subjected
to plaintiff's levy in 1907, if that amount was within the figure of plaintiff's judgments. The only question is the determination of this
value, which the trial court found to be P11,000.

The first intimation that the defendant had, so far as shown by the record, that plaintiff based his right to recover upon the theory of restitution
appears in that portion of plaintiff's brief devoted to answering defendant's brief on appeal. Although one of the special defenses interposed by
the defendant Somes to plaintiff's complaint in the court below was that the property of De la Riva was not lost to plaintiff by reason of the
injunction, which was the basis of his compliant, but, rather, by reason of the execution of the judgment of the Court of First Instance in case
No. 5448 which determined that Somes' judgment was entitled to preference over the two judgments of Molina, in spite of this plain contention
of the defendant that the cause of all the damages, if any, was the execution of said judgment, nevertheless, the plaintiff did not amend his
complaint to meet the suggestion, but, instead, elected to proceed and did proceed and tried his case upon the theory upon which he had
already placed himself.

We conclude, then, that the plaintiff cannot, under these circumstances, be allowed, at this time, to change the theory and nature of his cause
of action and recover upon grounds never heretofore set forth.

This conclusion is necessary for several reasons, in addition to the surprise of the defendant which would naturally follow such a change:

First. Because the findings and judgment of the court of first instance, based upon the improvident issuance of an injunction, have been accepted
by the plaintiff in every particular except that relating to the amount of damages.

Second. Because of the theory of an action based upon the improvident issuance of an injunction is incompatible with a cause of action based
upon the theory of restitution, for, if the damages were actually caused by the execution of the judgment in cause No. 5448, then they could
not have been caused by the issuance of the injunction. The injunction did no more than tell Molina to hold on. It did not order him to turn the
property over to Somes or anybody else. It was restraining, not mandatory. But even if Molina had been under the restraint alleged, he suffered
no injury thereby, as the judgment in case No. 5448 was in force against Molina and he could not, in the face of it, have applied such property
to the payment of his own debt. Under the judgment, Somes had the sole right to do that. Molina was powerless to benefit himself with De la
Riva's property if there had been no injunction whatever. Somes took and Molina lost the property not because of any restraint imposed on the
latter, but by reason of judgment rights of the former.

Third. The plaintiff already has a judgment against the sureties upon the bond given to secure the injunction and also a judgment against Somes
based expressly upon the improvident issuance of that injunction. To permit the plaintiff now to recover upon the theory of restitution would
be permit him to obtain two final judgments in the same cause, each of which is based upon the theory that the other is wrong. If the damages
were caused by the execution of the judgment of the Court of First Instance in case No. 5448, then the final judgment against the original co-
defendants of Somes on the theory that the damages were caused by the injunction is entirely without foundation. We do not believe that the
plaintiff ought to be permitted to retain the benefits of the final judgment against the bondsmen and also to recover and take the benefits of a
judgment against the principal upon a cause of action which proceeds on the theory that said bondsmen are not liable.

The plaintiff, then, must recover, if he recover at all, upon the allegations of his complaint which presents a cause of action solely of damages
sustained by the obtaining of an injunction, and upon which theory the cause was presented, tried, decided, and judgment accepted.

We are unable to see how the plaintiff can recover on the theory presented. It is conceded that Somes did not sign or otherwise agree to the
bond upon which the injunction was obtained. He cannot, therefore, be held upon it. The statute which provides for the issuance of injunctions
and for the undertakings which are the basis of their issuance nowhere lays down a different rule of liability than that established by the general
principles of the law. The statute prescribed the method by which a party may make himself liable for the damages resulting from an injunction.
It nowhere makes him responsible in any way apart from the bond itself. As a necessary consequence, in determining whether or not Somes,
in this view of the case, is liable in the action at bar, we must revert to the general principles of the law. In doing this we observe at the outset
that the complaint does not allege any facts upon which the defendant can be held liable; nor does the evidence, as disclosed by the opinion of
the court below, contain a particle of proof which would tend to establish his liability. In an action for improperly suing out an injunction, the
same principles apply as in cases where it is sought to make a plaintiff liable for bringing an action. The two essential requisites are malicious
prosecution and lack of probable cause. These are neither alleged nor proved in the case before us.

It may be true that Molina would have gone and collected his executions if Somes had not begun his action, and that he probably would have
been the gainer by so much as he received from such collection, but it in nowise follows that because Somes brought the action he is liable for
anything that Molina may have failed to collect by reason thereof. In every case where one brings an action against another and fails to recover,
the one against whom the action was brought has in a real sense been injured and damaged by the action. He has been troubled. He has hired
lawyers. He has procured witnesses. He has paid out money. He may have been obliged to neglect his business and his profits may have
materially decreased. He may have been injured in his credit and standing. That does not mean, however, that he can recover from the plaintiff
the damages which he suffered by reason of the action having been brought. If that were the case, there would be an end of actions in court.
It is to prevent such a condition that the law has laid down a rule relative to the liability incurred in bringing an action different from that
applicable in cases where damages are sustained by reason of a direct act. Before one can recover damages from another by reason of an
action having been brought against him, he must show not only that there was a lack of probable cause but that the action was maliciously
brought. In the case at bar, nothing happened to Molina by reason of any act of Somes except that which naturally followed from the bringing
of the action, assisted by the voluntary acts of Molina, for which latter the bringing of the action was in no way responsible.

What we have said relative to the bringing of an action will apply to the issuing of an injunction. In many actions the obtaining of an injunction
is the essence of the recovery, and without it a judgment would be worthless. One who brings an action has a right to all of the incidents and
aids which the law joins to that action. Therefore, in the absence of a statute to the contrary, there is no more liability incurred in securing an
injunction that there is in bringing an action; and damages for the improper suing out of an injunction will lie only upon the same basis and for
the same reasons as actions for damages for bringing an action.

This proposition is founded upon reason as well as authority. It is apparent that in many cases actions are entirely futile unless the plaintiff can
take advantage of some preliminary remedy. To that end, legislatures have provided, in various states and countries, that in certain kinds of
action the plaintiff may, upon meeting expressed conditions do certain things as preliminary remedies, which will insure the efficacy of his
judgment, if he secures one. A familiar example of such a preliminary remedy is the injunction. It is clear, and is demonstrated every day in
actual practice, that many actions would be fruitless if the plaintiff could not obtain an injunction to maintain the status quo until the final
determination of the rights of the parties. It having been ascertained by the settled experienced of society that an injunction is, in many cases,
a necessary prerequisite to an action, reason as well as logic would, so far as the liability of the person suing out the injunction is concerned,
require that the same principles apply as govern in an action brought to recover damages for the wrongful bringing of an action. In other words,
the principles of liability which control where a plaintiff is suit for wrongfully bringing an action should be the same principles which govern in
an action brought for the wrongful suing out of an injunction. The injunction is a necessary incident or part of the action. It is absolutely essential
to the action. The action is worthless without it. It would be surprising to see the act relating to the main thing, namely, the action, governed
by one principle, while the act relating to that which is the essential incident or part of the action, namely, the injunction, governed by another
and different principle.

The attempt to secure that which the law gives for the purpose of making the action worth bringing, and without which it would be entirely
barren, should not entail a greater responsibility than would the bringing of the action itself, to which it is appurtenant, and to which it necessarily
and really belongs.

The assertion by some text writers and courts that the one who sues out an injunction without legal cause is liable on the theory that he
wrongfully induced or moved the court to take the action which it did, is in our judgment, without stable foundation. He who obtains a thing by
permission of the law, and by strict compliance with the law, ought not to be held liable in any manner except that specified in the law under
which he operates. He ought not to be held for a trespass or other wrong, as they assert he may be in replevin, etc. How it can be logically said
that one who, acting in good faith, obtains an injunction or property under a replevin in precisely the manner required by law has committed
a legal wrong against the person as to whom the law authorizes him to obtain the injunction? The law itself, by virtue of the conditions which
it imposes, fully protects the defendant against the evil effects of the injunction; and that if the party securing the injunction has performed all
that the law requires of him as a condition precedent to obtaining it, what more can be asked? In return for the restrictions of the injunction,
the defendant has been given certain legal rights against the plaintiff by way of an undertaking which, by virtue of the law itself, fully
compensates him for the change of position. The bond is full compensation for the privileges which the plaintiff receives and for those which
the defendant loses. The law says so. The statute asserts that the doing of certain things by the plaintiff shall be a complete compensation to
the defendant for that which the law requires him to give up. If it is not complete compensation, then the law is unjust, in that it requires the
defendant to give up something for which he receives no compensation. It is not to be presumed or believed that the legislature intended to do
such a thing, and it is not to be presumed or believed that it did do it. But, even if the law be unjust, an injustice of the law cannot be cured by
an injustice to a party. The giving of the undertaking legally equalizes the status of the two. To put upon the plaintiff the additional burden of
a trespass or other wrong would destroy the legal equilibrium and produce an injustice.

The assertion of text writers that the party in cases of replevin or injunction, wrongfully put the court in operation, and that, therefore, he is
liable as in tort or otherwise apart from his bond to the defendant therefore, is, in our judgment, also unfounded. Such a theory is bad not only
for the reasons already given but also for the further reason that it makes the plaintiff an insurer of the judgment of the court. In other words,
upon that theory, the plaintiff, before he can safely obtain an injunction or a replevin, must be certain that the court will decide in his favor;
that is, the plaintiff must insure a judgment of the court in his favor, on the pain of being sued in tort or other legal wrong, in addition to his
liability resulting from the responsibility of his sureties on the bond. Such a theory nullifies the symmetry of the law and destroys the equality
between the parties which the law establishes. As we have said, the statute asserts conclusively that the giving of a bond to the defendant is
an exact equivalent for the loss which he sustains by reason of his change of position. In other words, the plaintiff has paid the defendant in
full for whatever benefits he has obtained from him. If, now, we add to that payment the obligation to respond to a defense in damage for the
commission of a tort or other wrong, we at once destroy that equality which the law has established, and lay a burden upon the plaintiff which,
in equity, he ought not to bear and which, under the law, he is not required to bear. The law expressly states what shall be his punishment if
he is wrong. Courts cannot by their own fiat add anything more. The injury is caused by operation of the law, not by the act of plaintiff.

It is for these reasons, among others, that we have arrived at the conclusion that an action for damages for the improper suing out of an
injunction must be maintained upon the same principles which govern an action for the wrongful bringing of an action.

In the case of Meyers vs. Block (120 U.S., 206, 211), the court, having under review this very question, said, in speaking of the principles upon
which an action may proceed which is brought for the purpose of obtaining damages by reason of the wrongful suing out of an injunction:

Recover, how? By the law of Louisiana damages may be recovered for suing out an injunction without just cause, independently of a
bond. (3 La., 291.) But this cannot be done in the United States courts. Without a bond no damage can be recovered at all. Without
a bond for the payment of damages or other obligation of like effect, a party against whom an injunction wrongfully issues can recover
nothing but costs, unless he can make out a case of malicious prosecution. It is only by reason of the bond, and upon the bond, that
he can recover anything.

In the case of Russell vs. Farley (105 U.S., 433, 438), Mr. Justice Bradley, in alluding to the practice of courts of chancery in granting injunction,
says relative to the fundamental reason why damages cannot be obtained against a person wrongfully suing out an injunction:

And if the legal right is doubtful, either in point of law or of fact, the court is always reluctant to take a course which may result in
material injury to either party, for the damage arising from the act of the court itself is a damnum absque injuria, for which there is
no redress except a decree for the costs of the suit, or in a particular [proper] case, an action for malicious prosecution. To remedy
this defect [difficulty], the court, in the exercise of its discretion, frequently resorts to the expedient of imposing terms and conditions
upon the party at whose instance it proposes to act.

The case of the City of St. Louis vs. the St. Louis Gaslight Company (82 Mo., 349-357), says:

Thus it will be seen that the liability of the plaintiff in an injunction suit to respond to the defendant for damages after dissolution
depended upon his voluntary undertaking contained in the conditions of the decree, or in his separate agreement and bond given to
the court or defendant for that purpose. Of course, when the process has been sued out maliciously there may be a right of action in
favor of the defendant. But this right depends upon the law governing malicious prosecutions, and has no relation to the claim for
damages urged by defendant in this case. . . .

Such exemption of the plaintiff from damages, in the absence of any terms or conditions accepted by him to pay them, rests upon the
broad policy of the law which regards the courts open at all times to all persons for the enforcement of their rights by civil action.
Suitors are presumably acting in accordance with law when they obtain in the courts what the courts award them, and should not be
punished for accepting what they could not obtain except by such orders and judgments. When a suitor procures a writ or order of
injunction upon a fair presentation of facts to the court in good faith he has never been regarded as responsible in damages therefor,
either in law or equity, unless he has made himself so by some voluntary undertaking. In such case he stands before the law like a
suitor in any other process or proceeding. This I understand to be the rule, as universally recognized and approved. (Sturgis vs. Knapp,
33 Vt., 486; Gorton vs. Brown, 27 Ill., 489; Lawton vs. Green, 5 Hun, 157; L. & O.R.R. Co. vs. Applegate, 8 Dana, 289;
Palmer vs. Foley, 71 N.Y., 106; Russell vs. Farley, 105 U.S., 433; Iron Mountain Bank vs. Mercantile Bank, 4 Mo. App., 505.)

In the case of Palmer vs. Foley (71 N.Y., 106, 108), Judge Folger expresses this condition of the law:

It seems that, without some security given before the granting of an injunction order, or without some order of the court or a judge,
requiring some act on the part of the plaintiff, which is equivalent to the giving of security — such as a deposit of money in court — the
defendant has no remedy for any damages which he may sustain from the issuing of the injunction, unless the conduct of the plaintiff
has been such as to give ground for an action for malicious prosecution.

To the same effect are the following cases: Lawton vs. Green (64 N.Y., 326), McLaren vs. Bradfrod (26 Ala., 616), Robinson vs. Kellum (6 Cal.,
399), Asevado vs. Orr (100 Cal., 293, 34 Pac., 777), Harless vs. Consumers' Gas Trust Co. (14 Ind. App., 545, 43 N.E., 456), Cox vs. Taylor's
Admr. (49 Ky., 17), Hayden vs. Keith (32 Minn., 277, 20 N.W., 195), Manlove vs. Vick (55 Miss., 567), Keber vs. Mercantile Bank (4 Mo. App.,
195), Iron Mountain Bank vs. same (id., 505), Campbell vs. Carrol (35 Mo. App., 640), Ill., 489, 81 Am. dec., 245), Hutchins vs. Rogers (22
Wkly. Notes Cas., 79).

Here we have a case in which the action, in a sense, was improperly brought and the injunction was, in the same sense, improperly obtained.
That does not mean, as we have seen, that the plaintiff is, for that reason, liable for the damages which the defendant may have suffered.
Before that liability can attach, it must appear that the action was brought and the injunction obtained maliciously and without probable cause.
Of course, if the injunction bond were relied upon, as it was as to part of the defendants, we would have a case in which the lack of probable
cause and the malice would be immaterial; but it is conceded that Somes did not sign the bond and that he cannot, therefore, be held responsible
thereon.
Having found that, conceding that the injunction remained in force until after the levy and sale by Somes, the plaintiff cannot recover, it becomes
unnecessary to determine whether the injunction was really existent at that time or whether it was merged in the final judgment of the Supreme
Court of January 20, 1908, or in the judgment of the Supreme Court of First Instance of December 7, 1908, the judgment determining the
relative rights of Molina and Somes in the proceeds of the property here in suit.

The judgment as to Somes is hereby reversed and the complaint as to him is dismissed upon the merits, without special finding as to costs.
G.R. No. L-10105 March 31, 1915

RAFAEL MOLINA SALVADOR, plaintiff-appellant,

vs.
ENRIQUE F. SOMES, defendant-appellee.

Lawrence, Ross and Block for appellant.

Gibbs, McDonough and Blanco for appellee.

PER CURIAM:

This is an appeal from a judgment of the Court of First Instance of the city of Manila dismissing the complaint on the merits with costs.

With the expectation of later being able to set out fully the grounds of our decision we now, for the prompt dispatch of pending litigation,
decide the case without opinion.

The judgment is affirmed, with costs against the appellant. So ordered.

Torres, Carson, and Trent, JJ., concur.

Separate Opinions

MORELAND, J., concurring:

In the former case between the same parties (24 Phil. Rep., 49) plaintiff sought to change the nature of his cause of action on appeal and to
recover on what he termed the theory of restitution. This attempt was frustrated and the cause was disposed of on the theory on which it had
been tried and decided in the Court of First Instance. That action having been on a bond given by defendant to obtain a preliminary injunction
against the plaintiff, and the right to recover against the defendant having been denied in that action on the ground that he had not signed the
bond or become responsible in any way thereon, plaintiff now seeks to recover against the same defendant on the theory under which it was
presented to the Supreme Court in the previous action, that of restitution.

Strictly speaking, the question of restitution cannot arise in this case. Molina and Somes each had a judgment against De la Riva (Somes by
subrogation) and the controversy between the two arose when it became necessary to determine whose judgment was entitled to preference
with respect to the proceeds of the sale of certain specific property of the judgment debtor then in the hands of the sheriff by virtue of an
execution levied under Molina's judgment. Somes was awarded judgment declaring that he was entitled to preference. Molina appealed and, at
that time, or some time prior thereto, released the levy under his judgment and the property, which was the subject of the levy, was, so far as
appears, returned to De la Riva. Thereupon, and during the pendency of the appeal from the judgment in his favor, Somes levied an execution
on De la Riva's property issued on the judgment which he held against De la Riva and duly sold the same in accordance with law. The proceeds
thereof, after deducting expenses and fees, were turned over to him by the sheriff in accordance with the provisions of the Code of Civil
Procedure. Molina made no attempt to intervene in the proceedings to sell or to present to the sheriff a claim of preference with respect to the
proceeds of the sale. He secured a reversal of the judgment from which he had taken an appeal; but, when he sought to levy on the property
of De la Riva for the payment of his judgment, he was confronted with the fact that that property had already been sold under Somes' judgment
and the proceeds turned over to him. This action was commenced after plaintiff's defeat in the previous action (24 Phil. Rep., 49) to compel
Somes to restore to Molina the property of De la Riva which had seized and sold, or its equivalent.

I do not believe that the action will lie. Strictly speaking, as already intimated, it is very doubtful if the purpose of plaintiff's action is really
restitution. At common law restitution was a remedy whose object was to restore to the appellant a specific thing or its equivalent of which he
had been deprived by the enforcement of the judgment against him during the pendency of his appeal. In this action, the thing sought to be
obtained by Molina was never his. It belonged always to De la Riva. Moreover, the injury sustained by Molina, if any, was not caused by the
levy and sale under Somes' judgment. Instead of maintaining his levy Molina released it and returned the property to De la Riva, its owner.
This act was purely voluntary. It was not sought for or asked by Somes nor was it ordered by the court. Somes never asked that Molina give
up the property or even release his levy. He merely asked that he be paid his judgment out of the proceeds of the property before Molina was
paid his. Neither Somes nor the court was responsible in any way for Molina's releasing the levy and giving up the property.

The moment that De la Riva received his property from the sheriff he had absolute control of it. He could sell it to whom he pleased. He could
apply it to the payment of any debt he chose. He could have conveyed it to another and turned the money received therefrom over to Somes
in payment of his judgment; or he could have turned the property over to Somes as payment or part payment of the judgment. There is no law
which could have prevented any of these things from being done. Is any of these things different in substance or effect from what actually
happened? Does not the same legal condition exist in the case at bar? Did De la Riva commit a wrong in turning the property over to Somes?
If De la Riva committed no wrong in permitting Somes to take the property, did Somes commit a wrong in taking it? There was a real legal
relation between De la Riva and Molina, but there was none between Molina and Somes. If De la Riva cannot be held responsible to Molina, hoe
can Somes be? What was legal for De la Riva to give was legal for Somes to accept. The turning of the property back to De la Riva by Molina
terminated Molina's connection with it until he, at some subsequent time, should renew his levy or make some effort to obtain part of the
proceeds of the sale. Indeed the release by Molina of his levy on De la Riva's property so completely destroyed the foundation on which the
action in which his appeal was taken was based, that the appeal would have been dismissed on proper motion on the ground that there existed
no controversy between the parties. I fail to see any basis of legal liability in favor of the plaintiff in this action. Somes committed no wrong
against Molina. He took no property from Molina in which Molina, at the time, had the slightest interest. It was De la Riva's property,
unincumbered and free. The suit pending between Somes and Molina at the time could not give Molina an interest in the property. Its only
possible result would be to declare, as between Somes and Molina, who would be entitled to be paid first out of the proceeds of the sale of the
property which was then in the process of being sold under Molina's execution. The court, in that action, could not declare that Molina had any
interest in the property itself, although the specific property levied on might have been before the court at the time. Nor could it declare a
preference over the general property of De la Riva. An action could not have been maintained for either purpose. An action cannot be maintained
to declare a preference either in the general or specific property of a debtor. It must relate to the proceeds of the sale of specific property of
the debtor which has been seized by one creditor to satisfy his debt and as to which another creditor is urging his rights of priority of payment. In
other words, the action must relate to the distribution of the proceeds of property already in the hands of one creditor whose rights therein are
disputed by another. Preference consists merely in the right to be paid first. The necessary prerequisites to an action to obtain preference are:
first, the debtor's property shall not be sufficient to pay the claims of the rival creditors; second, the property shall have been sold or shall have
been levied upon and be in the process of sale; third, a claim of preference in the distribution of the proceeds of that property shall have been
made by one creditor and denied by another; and fourth, the claim and denial must be maintained. If one of these requisites is lacking, the
action cannot be maintained. All of these elements existed at the time Somes began his action, but, from about the 3rd day of August, 1907,
forward, only one of these essentials was present, namely, that De la Riva did not have property sufficient to pay the judgments of both Molina
and Somes. When the necessary conditions precedent to the maintenance of the action had ceased to exist, there was in law no real contest
between them. There was no rival claim. The action would have been dismissed at any time on a showing of the facts as they were. The question
left for the court was a moot one. Its resolution would have been useless. Its judgment would have been impossible of execution. It is idle for
a court to decree preferential rights of parties in the proceeds of specific property when such proceeds have already ceased to exist as to them.
It is nonsense to declare a preference in Molina in the proceeds resulting from the sale of specific property when he is making no claim with
respect to such proceeds.
The principles which govern preference between creditors under the Civil Code must be kept in mind. Preference does not create an interest in
property. It creates simply a right of one creditor to be paid the proceeds of the sale of property as against another creditor. It creates no lien
on property and, therefore, gives no interest in property, specific or general, to the preferred creditor.

In the case of Peterson vs. Newberry (6 Phil. Rep., 260), this court said:

The learned judge was of opinion that "there is no law in the Philippine Islands ... fixing the lien of judgments or executions until the
levy," but our attention has not been directed to any provision of law which provides that a levy under execution creates or fixes a
lien, general or specific, in favor of a judgment creditor, nor does it appear that a creditor acquires a lien upon the property of the
debtor by virtue of the filing of his complaint, the judgment, the issue of execution, or the levy thereunder, other than the mere right,
as prescribed in article 1924 of the Civil Code, to a preference in the distribution of the funds of the estate of the judgment debtor in
those cases wherein by intervention or otherwise the judgment creditor is a property party to the distribution proceedings and duly
asserts his right as a preferred creditor.

It has been the frequent action of trial courts to order the property sold under an execution issued by a person whose rights in the application
of the proceeds were admittedly inferior to those of another, the essential character of the preferential rights being that of application of
proceeds rather than interest in or lien on the property itself.

In the case of Rubert & Guamis vs. Luengo & Martinez (8 Phil. Rep., 554), the court said:

It is important to determine the exact nature of the right declared by this article 1922, paragraph 1. We do not think that it gives any
lien to the creditor upon the property itself. It simply provides that, when the proceeds of the property are distributed, the preferred
creditor shall be paid first. Not having any lien upon the property, the plaintiffs in this case had no right to the possession of these
films. They had no right to prevent a seizure of the films upon an attachment or execution issued at the suit of another creditor, but
they did have a right to secure from the proceeds of the sale made under such seizure the payment of their claim before the claims
of another creditors were paid. It is apparent that in this case, and in other cases, there must necessarily be a sale of the property
before the rights of the creditors can be adjusted. In this case it was necessary that the films be sold before it could be determined
how much of the proceeds Luengo & Martinez were entitled to receive after the plaintiffs had been paid. If the films sold for less than
the claim of the plaintiffs, the plaintiffs would be entitled to all the proceeds; if for more, Luengo & Martinez would be entitled to the
surplus after the plaintiffs were paid.

The right of the plaintiff is not one in the corpus of the property. He got no lien or other right by his levy, for, after sale, any other creditor
would have had the right to contest with him before the sheriff the application of the proceeds. His right was simply to have the proceeds
applied in a certain way. It was not a lien on property but a preference in application. The law does not give the creditor who has a preference
a right to take the property or sell it as against another creditor. It is not a question of who takes or sells; it is one of the application of the
proceeds after the sale — of payment of the debt.

So that the taking and the sale by the sheriff under Somes' execution, even admitting that Somes' rights were inferior to those of Molina, so
far as the law of preference goes, were not wrongful acts as to Molina. No one was injured when the sheriff sold under Somes' execution and
collected the proceeds. Molina's remedy, and his only remedy, even if he himself had sold, was to fight out with Somes the application of the
proceeds obtained by the sale. The rights which the plaintiff asserts in this case must be based, if they have basis at all, not on his levy, whether
maintained or not, on an interest in property, but on the application of the proceeds by the sheriff after sale.

Was the application of the proceeds legally made by the sheriff? There can be no doubt about that. Nobody denies his right or or duty to apply
them as he did. Molina did not object or protest in any way. That being the case, did Somes incur responsibility to Molina by reason of such
application? Compliance with the law discharges obligations and responsibilities; it does not create them. The sheriff obeyed the law in
distributing the proceeds. There was no contest before him as to whom the money should be paid. Molina failed to take steps necessary to
protect his judgment. There was only one claimant to the proceeds before the sheriff and he was the one whose execution the sheriff was
collecting. The sheriff, then, committed no wrong in delivering the proceeds of the sale of De la Riva's property to Somes. All things else being
equal, what one man has a right to give another has a right to receive. The sheriff having the clear right to apply the proceeds to the payment
of Somes' execution, the very execution under which those proceeds were obtained, did not Somes have an equal right to receive them, and in
receiving them did he lay himself to attack by Molina?

Molina voluntarily abandoned his levy on the property of De la Riva. Somes took advantage of this and procured a levy of his own, and the
sheriff sold and turned the proceeds over to Somes. Molina made no objection to the levy or sale and none to the act of the sheriff in turning
the proceeds over to Somes to apply on his execution. He saw all of these things taking place and stood passive. Did he not, thereby, lose his
right of preference over Somes? The contention of the plaintiff would be undoubtedly be, in reply, that although he did not actually go to the
sheriff at the time of the levy or sale or while the sheriff still held the proceeds in his hands, and assert his claim to preference in the distribution
of the funds, nevertheless, so far as Somes is concerned, he, Molina, at all times asserted his right of preference just as effectually; that, at
the very time of the levy, sale and distribution, there was pending in court an action begun by Somes against him for the very purpose of
determining the question of preference; that, in that action, Somes was asserting his right of preference in the very property so sold and that
he was denying such right; that that right was the whole subject-matter of the litigation. To this there is an obvious answer. In the first place,
the declaration by the Supreme Court of the preference of Molina's claims over Somes' (15 Phil. Rep., 133) 1 was based on the finding, a fact
undisputed at the time, that the property concerning which the rival claims were being made was then in the hands of the sheriff under Molina's
levy awaiting the resolution of the appeal. The court in that case said: "Said executions were placed in the hands of the sheriff under Molina's
awaiting the resolution of the appeal. The court in that said case: "Said executions, which levies still remain in force, the property not having
been sold pursuant thereto." That fact, coupled with the further fact that the property of De la Riva was not sufficient t pay the claims of both,
furnished the fundamental basis of the action. If there was property enough to pay both, then the fight over preference was vain. A litigation
to determine a preference when there is no specific property or proceeds in the hands of the sheriff upon which that preference is to operate is
almost equally vain. In fact, until the sheriff has actually sold the property and has marshalled the net proceeds of the sale, it is at least
uncertain, in many case, whether a declaration of preference will be necessary. As we said in the case of Rubert & Guamis vs. Luengo &
Martinez (8 Phil. Rep., 554):

It is apparent that in this case, and in other cases, there must necessarily be a sale of the property before the rights of the creditors
can be adjusted. In this case it was necessary that the films be sold before it could be determined how much of the proceeds Luengo
& Martinez were entitled to receive after the plaintiffs had been paid. If the films sold for less than the claim of the plaintiffs, the
plaintiffs would be entitled to all the proceeds; if for more, Luengo & Martinez would be entitled to the surplus after the plaintiffs were
paid.

Strictly speaking, the action is premature if brought before the sale, as the only time when it can be determined absolutely whether the
preference is necessary is after the sale is made. The property may bring enough to pay all debts. Practically, however, it is many times so
clear, even before the sale, that the property in question will not yield sufficient money on sale to satisfy the contending creditors, that an
action for a declaration of preference will be entertained before the sale takes place. But in such case the fact that the property, when sold, will
not be sufficient to satisfy the contending creditors must be clearly and explicitly alleged in the complaint and proved on the trial. Failing in
such allegation, the complaint is insufficient. Failing in that proof, the plaintiff cannot succeed. Moreover, it must appear that the property in
question is in process of being sold when the action is commenced. That is to say, the property must have been seized by the sheriff at the
instance of one of the creditors and must be in the process of sale under such seizure. Unless one of the creditors is engaged in the act of
satisfying his claim at the expense of the other creditors, the action of which we are speaking cannot be maintained. An action will not be
entertained to declare a preference over the general property of the debtor or over property concerning which creditors are not disputing. The
property must be specific property which has been seized and is actually present dispute between creditors as to who shall take preference is
one which can be made effective only by being asserted and maintained. If the right claimed is not asserted and maintained , it is lost. In the
case at bar the plaintiff levied on the property of De la Riva. After the levy Somes asserted a right of preference over Molina in the distribution
of the proceeds of the sale as against the plaintiff. Thereafter Molina released the levy, leaving the property in possession of the debtor, De la
Riva, as free before the levy. This was in effect an abandonment, at least at that moment, of any claim of preference, if one had ever been
asserted. Let us repeat that, unless the property has actually been seized by one creditor and a right of preference in application of the proceeds
of the sale thereof has been asserted by another, an action to obtain a declaration of preference will not lie. The claim of preference necessarily
assumes the existence and presence of two persons. If the property has not been seized by one creditor it is open to seizure by another. If
there are not two parties at least, the question of preference cannot, of course, arise. Therefore, when Molina abandoned his levy and
consequently the possession of the property, indicating thereby that, at that moment, he did not intend to press his claim further as to that
specific property, the right of preference, if one had been asserted by or against him, could not be a subject of dispute until some subsequent
and timely act of his revived his claim. After that act his claim of preference could not exist because he had ceased to contest. He did
not maintain. As a necessary result, when Somes thereafter levied on the property and took it from the possession of De la Riva, there was no
one disputing his right to the proceeds thereof. Molina could have made his claim; but he did not, No subsequent act of his renewed or revived
his abandoned claim. He sat quiet while the sheriff levied, sold and distributed, and made no claim.

Not only was there no preference being asserted to the proceeds of that specific property, but, still more, at the time of the decision of this
court in the case above cited (Somes vs. Molina, 15 Phil. Rep., 133) the property no longer belonged to the debtor, De la Riva. It had been
seized and sold by Somes without protest by Molina and its proceeds had gone from the hands of the sheriff and had been dissipated. True, it
was Somes who caused the property to be sold and took the proceeds. But it was without objection or protest from Molina. The pendency of
the action could not be held to be an objection or protest on the part of Molina.

In the second place, at the time the action was begun by Somes, Molina held the property under his executions. Somes was the protestant. He
objected to Molina holding the property and opposed his taking the proceeds after a sale should be made. Somes was the objector and insistent
claimant and was the plaintiff in the action. Molina was passive. He was simply holding fast at the time. Now, Somes being the objector, the
mover, the positive and insistent claimant, and the plaintiff in the action to enforce his claims, how would be construed, normally, the act of
Molina releasing his levies on the property, abandoning his possession thereof and turning it back to De la Riva? Was this not an abandonment
of the levy and the rights which he had acquired thereunder? Was it not, for the moment at least, an abandonment of his right of preference,
which right cannot be effectively asserted so long as the property concerning which it is claimed is in possession of and under the control of the
debtor? The very essence of the right is that the property of the debtor shall have been seized by one of the creditors. So long as the debtor
has undisputed possession the claim of preference cannot be made. There can, at such time, be no basis for it. What can be said, then, of the
voluntary return of the property by Molina to the debtor? The instant that was done the claim of preference, if any, kept alive, if it was, by the
pendency of the action, was abandoned; and that action would have been dismissed on proper motion, as the purpose for which it had been
begun disappeared. This is particularly so after the sale of the property and the distribution of the proceeds. When two acts of an individual are
inconsistent with each other, the last act will prevail, as it is the last expression of his will and purpose. If Molina's defense of Somes' action can
be said to be an assertion of his right of preference over Somes, then his subsequent act of abandonment and return of the property to De la
Riva must be held to prevail over it. One cannot hold fast and let loose at the same time.

It is true that the question in this case is one of preference under article 1213 of the Civil Code; but I do not believe that the preference under
that article is, compared with article 1924, such as to require, so far as this case is concerned, different treatment. Articles 1210, 1211, 1212
and 1213 read as follows:

ART. 1210. Subrogation shall be presumed:

1. When a creditor pays another preferred creditor.

2. When a third person, who is not interested in the obligation, pays with the express or implied approval of the debtor.

3. When the person who is interested in the fulfillment of the obligation pays, without prejudice to the effects of the confusion
with regard to the share pertaining to him.

ART. 1211. A debtor may make the subrogation without the consent of the creditor when, in order to pay the debt, he may have
borrowed money in a public instrument, stating his purpose and setting forth in the receipt the origin of the sum paid.

ART. 1212. Subrogation transfers to the party subrogated the credit, with the corresponding rights, either against the debtor or against
third persons, be they sureties or holders of mortgages.

ART. 1213. A creditor to whom a partial payment has been made may exercise his right with regard to the balance, with preference
to the person subrogated in his place by virtue of the partial payment of the said credit.

There can be no claim in this action that the judgment held by Somes had preference over those held by Molina, or that the judgments held by
Molina had any preference over that held by Somes, by virtue of anything inherent in the judgments themselves. This is necessarily so because,
in the case of Somes vs. Molina (15 Phil. Rep., 133), this court held "that there exists no preference among the judgments in actions Nos. 3402,
3829 and 4766 referred to in this action. They all stand on an equal footing." The preference of Molina over Somes exists, as intimated, not by
virtue of article 1924 but, rather, by virtue of article 1213 of the Civil Code above quoted. While, as we have said, there is no preference under
article 1924 and the following articles, nevertheless, the preference provided for in article 1213 is sufficiently like the preference provided for
in article 1924 as, under the theory of judgments and the credits which they exemplify laid down in the Civil Code, to make them the same for
the purposes of this action. Somes, having been subrogated to the rights of Molina in judgment No. 3402, was entitled to exercise all of the
rights which Molina could have exercised if he had continued to hold the judgment uncollected, except that Somes could not take from Molina
any of the property of De la Riva then in the sheriff's hands by virtue of the levies under Molina's judgments. After they had been fully satisfied,
then Somes was entitled to any surplus which might remain for the payment of the judgment which he held in cause No. 3402. It must be
noted that the case above cited (15 Phil. Rep., 133) proceeded in this court and was decided by it on the theory that all of the property of De
la Riva had been levied upon by Molina and was then in his hands or the hands of the sheriff for the purposes of sale and the application of the
proceeds thereof to the payment of his judgments. In that property Somes could have no interest until the payment of Molina's two judgments
in full. This was so by virtue of the fact that the payment by Somes of judgment No. 3402 was but a part payment of the debt of P130,000
which De la Riva owed to Molina. This being a partial payment of the debt, Molina was entitled to collect the balance of that debt out of the
property of De la Riva, which he then held under executions, before Somes could take any portion of it for the payment of his claim against De
la Riva arising out of his payment of the judgment in cause No. 3402, notwithstanding the fact that, by such payment, he became subrogated
to the rights which Molina had therein. (Article 1213 of the Civil Code above quoted.) The right of Molina over Somes was simply a right to be
paid first out of specific property , not a right to be paid first out of the general property of the judgment debtor. If the judgment debtor had
paid Somes' judgment out of his general assets Molina would have been helpless to prevent it. In the same way, if Somes collected his judgment
out of property of De la Riva which was in his possession and under his control at the time, with no attempt on the part of Molina to intervene,
the latter is without remedy after the termination of the proceedings on execution and the payment of the fund to Somes.

I am of the opinion, therefore, that Molina, having failed to present his claim to the sheriff, or having neglected to take some other appropriate
proceeding to establish, as against Somes, his right to be preferred in the distribution of the proceeds of the sale of De la Riva's property, and
having permitted distribution without objection, protest or intervention, lost his right of preference and is not entitled to assert it in this action.
As I have already stated, at the time the judgment was granted by the Supreme Court in favor of Molina against Somes as to their rights under
their respective judgments, it was assumed by the court that Molina had maintained his levy on De la Riva's property and that the real question
in litigation was the right of Molina to share ahead of Somes in the distribution of the proceeds of the sale of that property. It is very doubtful
if the court would have permitted the action to go forward if it had appeared that no property had been seized and held under levy and that
none was before the court. The question presented by the pleadings would probably have been academic.

For these reasons I am of the opinion that the action cannot be maintained and that the complaint must be dismissed on the merits.
G.R. Nos. 82763-64 March 19, 1990

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER ISABEL P. ORTIGUERRA, and LABOR ALLIANCE FOR NATIONAL
DEVELOPMENT, respondents.

The Legal Counsel for petitioner.

Piorello E. Azura, Errol Ismael, B. Palaci and Maria Lourdes C. Legaspi for APT.

Pablo B. Castillon for respondent LAND.

MELENCIO-HERRERA, J.:

This Petition for Certiorari addresses itself to the 12 February 1986 Order of the National Labor Relations Commission directing petitioner
Development Bank of the Philippines (DBP) to remit the sum of P6,292,380.00 "out of proceeds of the foreclosed properties of Lirag Textile
Mills Inc., sold at public auction in order to satisfy the judgment" in NLRC Cases Nos. NCR-3-2581-82 and 2-2090-82.

The background facts of these two cases may be summarized as follows:

The complainants in the two cases filed below were former employees of Lirag Textile Mills, Inc. (LIRAG, for short). LIRAG was a mortgage
debtor of DBP. Private respondent Labor Alliance for National Development (LAND, for brevity) was the bargaining representative of the more
or less 800 former rank and file employees of LIRAG. Around September 1981, LIRAG started terminating the services of its employees on the
ground of retrenchment. By December of the said year there were already 180 regular employees separated from the service. LIRAG has since
ceased operations presumably due to financial reverses.

In February 1982, Joselito Albay, one of the employees dismissed in September 1981, filed a complaint before the National Labor Relations
Commission (NLRC) against LIRAG for illegal dismissal (Case No. 2-2090-82). On 1 March 1982, LAND, on behalf of 180 dismissed members,
also filed a Complaint against LIRAG seeking separation pay, 13th month pay, gratuity pay, sick leave and vacation leave pay and emergency
allowance (Case No. 3-2581-82). These two cases were consolidated and jointly heard by the NLRC. Said complainants have since been joined
by supervisors and managers.

In a Decision, dated 30 July 1982, Labor Arbiter Apolinar L. Sevilla ordered LIRAG to pay the individual complainants. The NLRC (Third Division)
affirmed the same on 28 March 1982. That judgment became final and executory.

On 15 April 1983, a Writ of Execution was issued. On the same day, DBP extrajudicially foreclosed the mortgaged properties for failure of LIRAG
to pay its mortgage obligation. As the only bidder at the foreclosure sale, DBP acquired said mortgaged properties for P31,346,462.90. Since
DBP was the sole mortgagee, no actual payment was made, the amount of the bid having been merely credited in partial satisfaction of LIRAG's
indebtedness.

By reason of said foreclosure, the Writ of Execution issued in favor of the complainants remained unsatisfied. A Notice of Levy on Execution on
the properties of LIRAG was then entered.

On 7 December 1984, LAND filed a "Motion for Writ of Execution and Garnishment" of the proceeds of the foreclosure sale.

On 30 May 1985, upon motion of LAND, Labor Arbiter Apolinar L. Sevilla ordered the DBP impleaded "in the interest of justice and due process,"
and required it to intervene.

On 12 February 1986, and over the opposition of DBP, Labor Arbiter Sevilla granted the Writ of Garnishment and directed DBP to remit to the
NLRC the sum of P6,292,380.00 out of the proceeds of the foreclosed properties of LIRAG sold at public auction in order to satisfy the judgment
previously rendered.

DBP sought reconsideration of the above Order on the grounds of NLRC's lack of jurisdiction over it since it was not a party to the case, and
that it was deprived of its property without due process of law. Public respondent, Labor Arbiter Isabel P. Ortiguerra denied reconsideration on
25 May 1987. DBP appealed that denial to the NLRC.

In the meantime, on 3 February 1987, by virtue of Proclamation Nos. 50 and 50-A, the Asset Privatization Trust (APT) became the transferee
of the DBP foreclosed assets of LIRAG. On 12 July 1989, by virtue of that transfer, we deemed APT impleaded as a party-petitioner and gave it
time within which to file its pleading. It submitted a Memorandum on 22 November 1989.

It appears that on 21 December 1987, a partial Compromise Agreement was entered into between APT and LAND (Litex Chapter) whereby APT
paid the complainants-employees, ex gratia, the sum of P750,000.00 "in full settlement of their claims, past and present, with respect to all
assets of LITEX transferred by DBP to APT." That amount was received by LAND's local President. Apparently, however, on 25 January 1988,
LAND, through its national President, filed its opposition to the Compromise Agreement for being contrary to law, morals and public policy.

On 25 March 1988, the NLRC (First Division) affirmed the appealed Order and dismissed the DBP appeal.

DBP is now before us seeking a review and reversal. On 30 January 1989, the Court resolved to give due course to the petition and to require
the parties to submit simultaneous memoranda. On 1 February 1990, the Court's Second Division referred the case to the Court en banc, which
the latter accepted on the same date.

It is true that DBP was not an original party and that it was ordered impleaded only after the Writs of Execution were not satisfied because the
properties levied upon on execution had been foreclosed extrajudicially by it. DBP had to be impleaded, however, for the proper satisfaction of
a final judgment. Being an incident in the execution of the final judgment award, NLRC retained jurisdiction and control over the case and could
issue such orders as were necessary for the implementation of that award. Its inclusion as a party could not have been accomplished at the
earlier stages of the proceedings because at the time of the filing of the Complaint, private respondents' cause of action was only against LIRAG.

DBP cannot rightfully contend that it was deprived of due process. It was given the opportunity to be heard and to present its evidence. It had
actually filed its Opposition to the Motion for Execution and Garnishment filed by LAND on 7 January 1985, and the Order granting the Motion
was issued only after hearing. DBP had also addressed an appeal to the NLRC. It had submitted, therefore, to the jurisdiction of the NLRC.

Now, for the core issue — whether or not the NLRC gravely abused its discretion in affirming the Order of the Labor Arbiter granting the Writ of
Garnishment out of the proceeds of LIRAG's properties foreclosed by DBP to satisfy the judgment in these cases.
We are constrained to rule in the affirmative.

Article 110 of the Labor Code provides:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business,
his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision to the contrary notwithstanding. Unpaid wages shall be paid in full before other
creditors may establish any claim to a share in the assets of the employer.

In implementation of the foregoing, Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code, as
amended, provides:

Sec. 10. Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the declaration of
bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before
other creditors may establish any claim to a share in the assets of the employer. (Emphasis supplied).

In interpreting the foregoing provisions, the Court, in Development Bank of the Philippines vs. Santos (G.R. Nos. 78261-62, 8 March 1989),
categorically stated:

It is quite clear from the provision that a declaration of bankruptcy or a judicial liquidation must be present before the
workers preference may be enforced. Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by
the respondents in this case absent a formal declaration of bankruptcy or a liquidation order. . . .

Since then, however, Article 110 has been amended by Republic Act No. 6715 and now reads as follows:

Sec. 1. Article 110 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is
hereby further amended to read as follows:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business,
his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to
the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before the claims of the
Government and other creditors may be paid. (Amendments emphasized).

The amendment expands worker preference to cover not only unpaid wages but also other monetary claims to which even claims of the
Government must be deemed subordinate.

Section 10, Rule III, Book III of the Omnibus Rules Implementing the Labor Code has also been amended by Section 1 of the Rules and
Regulations Implementing RA 6715 as approved by the then Secretary of Labor and Employment on 24 May 1989, and now provides:

Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. — In case of bankruptcy or liquidation of the
employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall
be paid in full before the claims of government and other creditors may be paid.

Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have been eliminated. Does this mean then that liquidation proceedings
have been done away with?

We opine in the negative, upon the following considerations:

1. Because of its impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation
to the Civil Code scheme on classification and preference of credits.

Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather, Article 110 must
be read in relation to the provisions of the Civil Code concerning the classification, concurrence and preference of credits,
which provisions find particular application in insolvency proceedings where the claims of all creditors, preferred or non-
preferred, may be adjudicated in a binding manner. . . . Republic vs. Peralta (G.R. No. L-56568, May 20, 1987, 150 SCRA
37).

2. In the same way that the Civil Code provisions on classification of credits and the Insolvency Law have been brought into harmony, so also
must the kindred provisions of the Labor Law be made to harmonize with those laws.

3. In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvent's property among his creditors.
To accomplish this there must first be some proceeding where notice to all of the insolvents's creditors may be given and where the claims of
preferred creditors may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). The rationale
therefore has been expressed in the recent case of DBP vs. Secretary of Labor (G.R. No. 79351, 28 November 1989), which we quote:

A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other
claims which may be established against the debtor. Logically, it becomes material only when the properties and assets of
the debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay his various creditors in full, how can
the necessity exist to determine which of his creditors shall be paid first or whether they shall be paid out of the proceeds of
the sale the debtor's specific property? Indubitably, the preferential right of credit attains significance only after the properties
of the debtor have been inventoried and liquidated, and the claims held by his various creditors have been established
(Kuenzle & Streiff (Ltd.) vs. Villanueva, 41 Phil 611 (1916); Barretto vs. Villanueva, G.R. No. 14938, 29 December 1962, 6
SCRA 928; Philippine Savings Bank vs. Lantin, G.R. 33929, 2 September 1983, 124 SCRA 476).

4. A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not attach to specific
properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110
does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference
in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds
of the insolvent's assets. It is a right to a first preference in the discharge of the funds of the judgment debtor.

In the words of Republic vs. Peralta, supra:

Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either
upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore
 fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except
to the extent that such complaints for unpaid wages are already covered by Article 2241, number 6: "claims for laborers
wages, on the goods manufactured or the work done;" or by Article 2242, number 3: "claims of laborers and other workers
engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals and
other works, upon said buildings, canals and other works." To the extent that claims for unpaid wages fall outside the scope
of Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary preferred
credits under Article 2244.

5. The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Article 2176, Civil Code). It creates a
real right which is enforceable against the whole world. It is a lien on an identified immovable property, which a preference is not. A recorded
mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code on classification of credits. The preference given by Article
110, when not falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an ordinary
preferred credit although its impact is to move it from second priority to first priority in the order of preference established by Article 2244 of
the Civil Code (Republic vs. Peralta, supra).

In fact, under the Insolvency Law (Section 29) a creditor holding a mortgage or lien of any kind as security is not permitted to vote in the
election of the assignee in insolvency proceedings unless the value of his security is first fixed or he surrenders all such property to the receiver
of the insolvent's estate.

6. Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean "absolute preference," the same should be given
only prospective effect in line with the cardinal rule that laws shall have no retroactive effect, unless the contrary is provided (Article 4, Civil
Code). Thereby, any infringement on the constitutional guarantee on non-impairment of the obligation of contracts (Section 10, Article III, 1987
Constitution) is also avoided. In point of fact, DBP's mortgage credit antedated by several years the amendatory law, RA No. 6715. To give
Article 110 retroactive effect would be to wipe out the mortgage in DBP's favor and expose it to a risk which it sought to protect itself against
by requiring a collateral in the form of real property.

In fine, the right to preference given to workers under Article 110 of the Labor Code cannot exist in any effective way prior to the time of its
presentation in distribution proceedings. It will find application when, in proceedings such as insolvency, such unpaid wages shall be paid in full
before the "claims of the Government and other creditors" may be paid. But, for an orderly settlement of a debtor's assets, all creditors must
be convened, their claims ascertained and inventoried, and thereafter the preferences determined in the course of judicial proceedings which
have for their object the subjection of the property of the debtor to the payment of his debts or other lawful obligations. Thereby, an orderly
determination of preference of creditors' claims is assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA
476); the adjudication made will be binding on all parties-in-interest, since those proceedings are proceedings in rem; and the legal scheme of
classification, concurrence and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony.

WHEREFORE, Certiorari is GRANTED, and the assailed Decision of public respondent, the National Labor Relations Commission (NLRC), dated
25 March 1988, is hereby SET ASIDE.

The Development Bank of the Philippines, the Asset Privatization Trust, the Labor Alliance for National Development (LAND), and other creditors
who may be so minded, are hereby directed, within sixty (60) days from notice, to institute involuntary insolvency proceedings before the
proper Court where all the assets of Lirag Textile Mills, Inc., may be inventoried, the preferences of all its creditors determined, and their claims
discharged in a binding and conclusive manner. No costs. SO ORDERED.
G.R. No. L-24950 March 25, 1926

VIUDA DE TAN TOCO, plaintiff-appellant,

vs.
THE MUNICIPAL COUNCIL OF ILOILO, defendant-appellee.

Arroyo & Evangelista for appellant.

Provincial Fiscal Borromeo Veloso for appelle.

VILLAMOR, J.:

It appears from the record that the widow of Tan Toco had sued the municipal council of Iloilo for the amount of P42,966.40, being the purchase
price of two strips of land, one on Calle J. M. Basa consisting of 592 square meters, and the other on Calle Aldiguer consisting of 59 square
meters, which the municipality of Iloilo had appropriated for widening said street. The Court of First Instance of Iloilo sentenced the said
municipality to pay the plaintiff the amount so claimed, plus the interest, and the said judgment was on appeal affirmed by this court.1

On account of lack of funds the municipality of Iloilo was unable to pay the said judgment, wherefore plaintiff had a writ of execution issue
against the property of the said municipality, by virtue of which the sheriff attached two auto trucks used for street sprinkling, one police patrol
automobile, the police stations on Mabini street, and in Molo and Mandurriao and the concrete structures, with the corresponding lots, used as
markets by Iloilo, Molo, and Mandurriao.

After notice of the sale of said property had been made, and a few days before the sale, the provincial fiscal of Iloilo filed a motion which the
Court of First Instance praying that the attachment on the said property be dissolved, that the said attachment be declared null and void as
being illegal and violative of the rights of the defendant municipality.

Plaintiffs counsel objected o the fiscal's motion but the court, by order of August 12, 1925, declared the attachment levied upon the
aforementioned property of the defendant municipality null and void, thereby dissolving the said attachment.

From this order the plaintiff has appealed by bill of exceptions. The fundamental question raised by appellant in her four assignments of error
is whether or not the property levied upon is exempt from execution.

The municipal law, section 2165 of the Administrative Code, provides that:

Municipalities are political bodies corporate, and as such are endowed with the faculties of municipal corporations, to be exercised by
and through their respective municipal government in conformity with law.

It shall be competent for them, in their proper corporate name, to sue and be sued, to contract and be contracted with, to acquire
and hold real and personal property for municipal purposes, and generally to exercise the powers hereinafter specified or otherwise
conferred upon them by law.

For the purposes of the matter here in question, the Administrative Code does not specify the kind of property that a municipality may acquire.
However, article 343 of the Civil Code divides the property of provinces and towns (municipalities) into property for public use and patrimonial
property. According to article 344 of the same Code, provincial roads and foot-path, squares, streets, fountains and public waters, drives and
public improvements of general benefit built at the expense of the said towns or provinces, are property for public use.

All other property possessed by the said towns and provinces is patrimonial and shall be subject to the provisions of the Civil Code except as
provided by special laws.

Commenting upon article 344, Mr. Manresa says that "In accordance with administrative legislation" (Spanish) we must distinguish, as to the
patrimonial property of the towns, "between that a common benefit and that which is private property of the town. The first differs from property
for public use in that generally its enjoyment is less, as it is limited to neighbors or to a group or class thereof; and, furthermore, such use,
more or less general, is not intrinsic with this kind of property, for by its very nature it may be enjoyed as though it were private property. The
third group, that is, private property, is used in the name of the town or province by the entities representing it and, like and private property,
giving a source of revenue."

Such distinction, however, is of little practical importance in this jurisdiction in view of the different principles underlying the functions of a
municipality under the American rule. Notwithstanding this, we believe that the principle governing property of the public domain of the State
is applicable to property for public use of the municipalities as said municipal is similar in character. The principle is that the property for public
use of the State is not within the commerce of man and, consequently, is inalienable and not subject to prescription. Likewise, property for
public of the municipality is not within the commerce of man so long as it is used by the public and, consequently, said property is also
inalienable.

The American Law is more explicit about this matter as expounded by Mcquilin in Municipal Corporations, volume 3, paragraph 1160, where he
says that:

States statutes often provide the court houses, jails and other buildings owned by municipalities and the lots on which they stand shall
be exempt from attachment and execution. But independent of express statutory exemption, as a general proposition, property, real
and personal, held by municipal corporations, in trust for the benefit of their inhabitants, and used for public purposes, is exempt.

For example, public buildings, school houses, streets, squares, parks, wharves, engines and engine houses, and the like, are not
subject to execution. So city waterworks, and a stock of liquors carried in a town dispensary, are exempt. The reason for the exemption
is obvious. Municipal corporations are created for public purposes and for the good of the citizens in their aggregate or public capacity.
That they may properly discharge such public functions corporate property and revenues are essential, and to deny them these means
the very purpose of their creation would be materially impeded, and in some instances practically destroy it. Respecting this subject
the Supreme Court of Louisiana remarked: "On the first view of this question there is something very repugnant to the moral sense
in the idea that a municipal corporation should contract debts, and that, having no resources but the taxes which are due to it, these
should not be subjected by legal process to the satisfaction of its creditors. This consideration, deduced from the principles of moral
equity has only given way to the more enlarged contemplation of the great and paramount interests of public order and the principles
of government."

It is generally held that property owned by a municipality, where not used for a public purpose but for quasi private purposes, is
subject to execution on a judgment against the municipality, and may be sold. This rule applies to shares of stock owned by a municipal
corporation, and the like. But the mere fact that corporate property held for public uses is being temporarily used for private purposes
does not make it subject execution.
 If municipal property exempt from execution is destroyed, the insurance money stands in lieu thereof and is also exempt.

The members or inhabitants of a municipal corporation proper are not personally liable for the debts of the municipality, except that
in the New England States the individual liability of the inhabitant is generally maintained.

In Corpus Juris, vol 23, page 355, the following is found:

Where property of a municipal or other public corporation is sough to be subjected to execution to satisfy judgments recovered against
such corporation, the question as to whether such property is leviable or not is to be determined by the usage and purposes for which
it is held. The rule is that property held for public uses, such as public buildings, streets, squares parks, promenades, wharves, landing
places fire engines, hose and hose carriages, engine houses, public markets, hospitals, cemeteries, and generally everything held for
governmental purposes, is not subject to levy and sale under execution against such corporation. The rule also applies to funds in the
hands of a public officer. Likewise it has been held that taxes due to a municipal corporation or country cannot be seized under
execution by a creditor of such corporation. But where a municipal corporation or country owns in its proprietary, as distinguished
from its public or governmental capacity, property not useful or used for a public purpose but for quasi private purposes, the general
rule is that such property may be seized and sold under execution against the corporation, precisely as similar property of individuals
is seized and sold. But property held for public purposes is not subject to execution merely because it is temporarily used for private
purposes, although if the public use is wholly abandoned it becomes subject to execution. Whether or not property held as public
property is necessary for the public use is a political, rather than a judicial question.

In the case of City of New Orleans vs. Louisiana Construction Co., Ltd. (140 U. S., 654; 35 Law. ed., 556), it was held that a wharf for unloading
sugar and molasses, open to the public, was property for the public use of the City of New Orleans and was not subject to attachment for the
payment of the debts of the said city.

In that case it was proven that the said wharf was a parcel of land adjacent to the Mississippi River where all shipments of sugar and molasses
taken to New Orleans were unloaded.

That city leased the said wharf to the Louisiana Construction Company, Ltd., in order that it might erect warehouses so that the merchandise
upon discharge might not be spoiled by the elements. The said company was given the privilege of charging certain fees for storing merchandise
in the said warehouses and the public in general had the right to unload sugar and molasses there by paying the required fees, 10 per cent of
which was turned over to the city treasury.

The United States Supreme Court on an appeal held that the wharf was public property, that it never ceased to be such in order to become
private property of the city; wherefore the company could not levy execution upon the wharf in order to collect the amount of the judgment
rendered in favor thereof.

In the case of Klein vs. City of New Orleans (98 U. S., 149; 25 Law. ed., 430), the Supreme Court of the United States that a public wharf on
the banks of the Mississippi River was public property and not subject to execution for the payment of a debt of the City of New Orleans where
said wharf was located.

In this case a parcel of land adjacent to the Mississippi River, which formerly was the shore of the river and which later enlarged itself by
accession, was converted into a wharf by the city for public use, who charged a certain fee for its use.

It was held that the land was public property as necessary as a public street and was not subject to execution on account of the debts of the
city. It was further held that the fees collected where also exempt from execution because they were a part of the income of the city.

In the case of Tufexis vs. Olaguera and Municipal Council of Guinobatan (32 Phil., 654), the question raised was whether for the payment of a
debt to a third person by the concessionaire of a public market, the said public market could be attached and sold at public auction. The Supreme
Court held that:

Even though a creditor is unquestionably entitled to recover out of his debtor's property, yet when among such property there is
included the special right granted by the Government of usufruct in a building intended for a public service, and when this privilege is
closely related to a service of a public character, such right of the creditor to the collection of a debt owed him by the debtor who
enjoys the said special privilege of usufruct in a public market is not absolute and may be exercised only through the action of court
of justice with respect to the profits or revenue obtained under the special right of usufruct enjoyed by debtor.

The special concession of the right of usufruct in a public market cannot be attached like any ordinary right, because that would be to
permit a person who has contracted with the state or with the administrative officials thereof to conduct and manage a service of a
public character, to be substituted, without the knowledge and consent of the administrative authorities, by one who took no part in
the contract, thus giving rise to the possibility of the regular course of a public service being disturbed by the more or less legal action
of a grantee, to the prejudice of the state and the public interests.

The privilege or franchise granted to a private person to enjoy the usufruct of a public market cannot lawfully be attached and sold,
and a creditor of such person can recover his debt only out of the income or revenue obtained by the debtor from the enjoyment or
usufruct of the said privilege, in the same manner that the rights of such creditors of a railroad company can be exercised and their
credit collected only out of the gross receipts remaining after deduction has been made therefrom of the operating expenses of the
road. (Law of November 12, 1896, extended to the overseas provinces by the royal order of August 3, 1886.)

For the reasons contained in the authorities above quoted we believe that this court would have reached the same conclusion if the debtor had
been municipality of Guinobatan and the public market had been levied upon by virtue of the execution.

It is evident that the movable and immovable property of a municipality, necessary for governmental purpose, may not be attached and sold
for the payment of a judgment against the municipality. The supreme reason for this rule is the character of the public use to which such kind
of property is devoted. The necessity for government service justifies that the property of public of the municipality be exempt from execution
just as it is necessary to exempt certain property of private individuals in accordance with section 452 of the Code of Civil Procedure.

Even the municipal income, according to the above quoted authorities, is exempt from levy and execution. In volume 1, page 467, Municipal
Corporations by Dillon we find that:

Municipal corporations are instituted by the supreme authority of a state for the public good. They exercise, by delegation from the
legislature, a portion of the sovereign power. The main object of their creation is to act as administrative agencies for the state, and
to provide for the police and local government of certain designated civil divisions of its territory. To this end they are invested with
certain governmental powers and charged with civil, political, and municipal duties. To enable them beneficially to exercise these
powers and discharge these duties, they are clothed with the authority to raise revenues, chiefly by taxation, and subordinately by
other modes as by licenses, fines, and penalties. The revenue of the public corporation is the essential means by which it is enabled
to perform its appointed work. Deprived of its regular and adequate supply of revenue, such a corporation is practically destroyed and
 the ends of its erection thwarted. Based upon considerations of this character, it is the settled doctrine of the law that only the public
property but also the taxes and public revenues of such corporations cannot be seized under execution against them, either in the
treasury or when in transit to it. Judgments rendered for taxes, and the proceeds of such judgments in the hands of officers of the
law, are not subject to execution unless so declared by statute. The doctrine of the inviolability of the public revenues by the creditor
is maintained, although the corporation is in debt, and has no means of payment but the taxes which it is authorized to collect.

Another error assigned by counsel for appellant is the holding of the court a quo that the proper remedy for collecting the judgment in favor of
the plaintiff was by way or mandamus.

While this question is not necessarily included in the one which is the subject of this appeal, yet we believe that the holding of the court,
assigned as error by appellant's counsel, is true when, after a judgment is rendered against a municipality, it has no property subject to
execution. This doctrine is maintained by Dillon (Municipal Corporations, vol. 4, par. 1507, 5th ed.) based upon the decisions of several States
of the Union upholding the same principle and which are cited on page 2679 of the aforesaid work. In this sense this assignment of error, we
believe, is groundless.

By virtue of all the foregoing, the judgment appealed from should be and is hereby affirmed with costs against the appellant. So ordered.
G.R. No. L-19482 March 31, 1965

ZOSIMO D. UY, plaintiff-appellant,

vs.
JOSE R. ZAMORA, defendant,
THE ALLIED FINANCE, INC., intervenor-appellee.

Gatchalian and Sison for plaintiff-appellant.

Antonio Navarrete for intervenor-appellee.

REGALA, J.:

This is an appeal from the Court of First Instance of Manila. It originated from a complaint filed in the Municipal Court of Manila by Zosimo D.
Uy against Jose R. Zamora for the recovery of a sum of money.

It appears that, at the instance of plaintiff Uy, the Municipal Court ordered the attachment of a motor vehicle belonging to defendant Zamora.
The writ of attachment 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, plus interest at the rate of 12 per cent per annum, attorney's fees in the amount of
P435 and the costs of the suit. From this judgment, the defendant Zamora appealed to the Court of First Instance of Manila.

While the case was thus pending appeal, the Allied Finance, Inc. sought and was allowed to intervene. According to the intervenor, the motor
vehicle, which was attached by the Sheriff, had previously been mortgaged to it by defendant Zamora to secure the payment of a loan of P3,060
and that at the time of the filing of the complaint in intervention on December 19, 1960 there remained a balance of P2,451.93 in its favor.
Intervenor, therefore, prayed that defendant Zamora be ordered to pay P2,451.93 as principal, P250 as attorney's fees and the cost.

Meanwhile, on January 12, 1961, plaintiff Uy and defendant Zamora, who had earlier been declared in default, submitted to the court a
compromise agreement wherein Zamora admitted being indebted to Uy in the sum of P1,740 plus P760, representing sheriff, guard and
attorney's fees, bond premiums and expenses of litigation or in the total sum of P2,500. 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.

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 at 12 per cent per annum and attorney's fees for P200. But since there was not enough money with which to pay both claims, the
question was: Which of the two credits is preferred?

Plaintiff Uy claims preference on the basis of a lien arising from the attachment of the motor vehicle on August 11, 1960. On the other hand,
the intervenor bases its claim to preference on a Deed of Chattel Mortgage covering the same motor vehicle. This deed was executed on January
14, 1960 and acknowledged before a notary public on June 20, 1960. As the lower court noted, it is not shown whether the mortgage was
recorded in the Chattel Mortgage Register and noted in the records of the Motor Vehicles Office, although both plaintiff Uy and the intervenor
affirm in their briefs that the mortgage was registered on August 24, 1960.

In resolving the issue, the lower court held that intervenor's claim could not be considered specially preferred credit under Article 2241(4) of
the Civil Code because an unregistered chattel mortgage is void. However, the court held that the same could be considered a credit appearing
in a public instrument under Article 2244 (14) so that it could be considered preferred over plaintiff's attachment lien because of priority of its
date.1äwphï1.ñët

Plaintiff moved for a reconsideration but the same was denied. Hence this appeal, plaintiff contending that —

1. The intervenor's chattel mortgage is void for lack of registration, citing Article 2140 of the Civil Code;

2. Since it was void, it could not affect plaintiff's attachment lien;

3. The intervenor's credit could not be considered a credit appearing in a public instrument under Article 2244 (14) because the credit
was not yet due at the time of the levy of attachment;

4. Even if it is considered a credit in a public instrument, still plaintiff's lien by attachment is superior to the intervenor's credit because
plaintiff's lien is specially preferred.

Considering the fact that the intervenor 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.

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.

WHEREFORE, the decision of the lower court is reversed, without pronouncement as to costs.
G.R. No. L-21836 April 22, 1975

CARRIED LUMBER COMPANY, plaintiff-appellee,

vs.
AGRICULTURAL CREDIT AND COOPERATIVE FINANCING ADMINISTRATION (ACCFA), defendant-appellant.

Primicias, Del Castillo and Macaraeg for plaintiff-appellee.

Deogracias E. Lerma and Domingo D. Panis for defendant-appellant.

AQUINO, J.:ñé+.£ªwph!1

This is a case regarding concurrence and preference of credits.

The Agricultural Credit and Cooperative Financing Administration (ACCFA) * appealed on pure questions of law from the decision of the Court
of First Instance of Pangasinan, holding that the Carried Lumber Company has a lien over the warehouse and ricemill building of the Sta.
Barbara Facoma in the amount of P5,610.50 plus P45 as sheriff's fee (Civil Case No. D-1174).

In that decision it was further held that the lien was superior to the ACCFA's mortgage credit and that the company was entitled to the material
possession of the warehouse and ricemill building if the ACCFA did not satisfy its claim. Moreover, the ACCFA was ordered to pay the company
the sum of P2,000 as expenses, damages and attorney's fees plus costs (99-100 Record on Appeal).

The documentary evidence and the parties' stipulation disclose the following facts:

Lumber company's materialman's lien. — From October 11 to November 8, 1954 the Sta. Barbara Farmer's Cooperative Marketing Association,
Inc. (Facoma) purchased on credit from the Carried Lumber Company lumber and materials which were used in the construction of the Facoma's
warehouse (Exh. H and H-1). The company extended credit to the Facoma after having been informed by the ACCFA's General Manager in a
telegram dated October 23, 1954 that a loan of P27,200 had been approved for the construction of the Facoma's warehouse (Exh. G and G-1).

On October 27, 1954, after the company had supplied the Facoma with lumber and construction materials worth P4,999.40, they executed a
contract whereby it was agreed that the company would sell lumber and construction materials to the Facoma with a value not exceeding
P27,200 (Exh. F-1).

For the construction of the warehouse, the company actually delivered to the Facoma Lumber and construction materials valued at P8,233.55.
The Facoma made partial payments. As of January 1, 1955 it had not paid to the company the balance of its account amounting to P4,733.55.
On May 18, 1959 the company sued the Facoma for the recovery of that amount (Exh. F). In a decision dated September 26, 1960, based on
a compromise, the lower court ordered the Facoma to pay the company the sum of P5,500 in monthly installments from October 31, 1960 to
March 31, 1961, subject to the acceleration proviso that failure on the part of the Facoma to pay any installment would render the whole unpaid
balance due and demandable (Exh. A, Civil Case No. D-899; 24-25 Record on Appeal).

In view of the Facoma's failure to pay the stipulated installments, the Carried Lumber Company secured a writ of execution to enforce the
judgment. The sheriff levied upon the Facoma's lease rights, warehouse and ricemill building. On January, 3, 1961 he issued a notice scheduling
the sale of the attached properties on January 31, 1961 (Exh. C; 28-30 Record on Appeal).

On January 25, 1961 the ACCFA filed a third-party claim with the sheriff. Its provincial director informed the sheriff that the properties levied
upon had already been sold to the ACCFA on November 5, 1960. For that reason, it contended that the same could not again be sold at public
auction. It formally objected to the proposed auction sale (Exh. 7; 79-81 Record on Appeal).

As scheduled, the sheriff on January 31, 1961 sold for P5,610.50 the Facoma's lease rights, warehouse and ricemill building to the Carried
Lumber Company, as the highest bidder. On that same date, he issued a certificate of sale to the company (Exh. D; 31-32 Record on Appeal).

There being no redemption within the one-year period, the sheriff on June 29, 1962 issued a final deed of sale in favor of the Carried Lumber
Company for the said lease rights, warehouse and ricemill building (Exh. E).

ACCFA's mortgage lien. — As already stated, the Facoma obtained from the ACCFA a loan of P27,200 for the construction of its warehouse. As
security for that loan, the Facoma on November 10, 1954 mortgaged to the ACCFA its lease rights over a parcel of land located at Barrio
Maningding Sta. Barbara, Pangasinan and the warehouse to be constructed on the said land together with the other improvements existing
thereon (Exh. 1). The mortgage was recorded on November 13, 1954 in the registration book provided for in Act No. 3344 (53 Record on
Appeal).

Two supplementary mortgages dated February 19 and October 19, 1955 were executed by the Facoma in favor of the ACCFA as security for
other loans amounting to P11,600 and P15,408.80, respectively. The other loans were used by the Facoma for the construction of a ricemill
building and for the purchase of a ricemill which were also mortgaged to the ACCFA (Exh. 2 and 3). The two instruments were recorded in the
chattel mortgage register on February 22 and November 17, 1955, respectively (59, 66 Record on Appeal).

The Facoma also defaulted in the payment of its mortgage obligations. The ACCFA in a letter dated September 19, 1960 requested the Provincial
Sheriff of Pangasinan to foreclose the mortgages extrajudicially (Exh. 4). The sheriff issued a notice of auction sale dated October 13, 1960. He
scheduled the sale on November 5, 1960 (Exh. 5).

In a letter dated October 20, 1960 the Carried Lumber Company notified the sheriff and the Facoma that pursuant to article 2242(4) of the Civil
Code, it had a preferential lien over the warehouse of the Facoma for having furnished the lumber and materials used in its construction and
the cost of which had not been fully paid for. The company specified that its unpaid claim amounted to P5,500 and that it was evidenced by a
judgment dated September 26, 1960 (Exh. B; 26-28 Record on Appeal).

The sheriff proceeded with the foreclosure sale. On November 5, 1960 he sold the mortgaged properties to the ACCFA, as the highest bidder
for the sum of P68,067.35. On that date, he issued a certificate of sale covering the Facoma's lease rights, warehouse, ricemill, ricemill building
and a diesel engine (Exh. 6). Upon application with the Court of First Instance, the ACCFA was placed in possession of the mortgaged properties
by virtue of a writ of possession dated January 27, 1961 (Exh. 8, 9 and 10) or four days before the auction sale which the sheriff conducted at
the instance of the Carried Lumber Company (Exh. D). The certificate of sale was registered on March 23, 1961.

Proceedings in this case. — On March 1, 1961 or after the execution of the Carried Lumber Company's judgment against the Facoma and the
issuance of the certificate of sale in its favor, the company sued the ACCFA for the purpose of asserting its preferential lien over the Facoma's
warehouse and ricemill building and in order to obtain possession thereof. One of ACCFA's defenses was that the company waived its lien when
it filed an ordinary action to recover its claim instead of enforcing its lien.
After trial, the lower court held that the lumber company's materialman's lien was superior to the ACCFA's mortgage lien because the company's
lien is sanctioned by paragraph 4 of article 2242 of the Civil Code, whereas the ACCFA's mortgage lien is covered by paragraph 5 of the same
article. The lower court reasoned out that the company's lien "existed ahead" of the ACCFA's mortgage lien. It noted that the ACCFA was aware
of the company's claim because the company sent to the ACCFA on October 23, 1954 a telegraphic inquiry as to the loan which the ACCFA
would extend to the Facoma for the construction of its warehouse and the ACCFA confirmed in a telegraph answer that the loan would be
granted to the Facoma (Exh. G).

The ACCFA contends in this appeal that the lumber company's unregistered judgment credit was not preferred; that while its materialman's lien
might have enjoyed preference under article 2242 of the Civil Code, that preferential status was lost when it secured a judgment for its credit
as an ordinary claim, and that, in the alternative, the company's credit, if preferred, and the ACCFA's mortgage credit should be paid pro
rata pursuant to article 2249, of the Civil Code.

Ruling. — As this is a clear case of concurrence of credits with respect to an immovable property, the Facoma warehouse, it has to be resolved
under the following provisions of the Civil Code:têñ.£îhqwâ£

ART. 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and
liens shall be preferred, and shall constitute an encumbrance on the immovable or real right:

xxx xxx xxx

(4) Claims of furnishers of materials used in the construction, reconstruction, or repair of buildings, canals or other works,
upon said buildings, canals or other works:

(5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged;

xxx xxx xxx (1923a)

ART. 2243. The claims or credits enumerated in the preceding 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. Taxes mentioned
in No. 1, article 2241, and No. 1 article 2242, shall first be satisfied. (n)

ART. 2249. 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 properties or real right. (1927a)

The term pro rata in article 2249 means in proportion or ratably or a division according to share, interest or liability of each (72 C.J.S. 967-8).

The trial court erred in holding that the lumber company's lien over the warehouse is superior to the ACCFA's mortgage lien. It was mistaken
in assuming that the enumeration of ten claims, mortgages and liens in article 2242 creates an order of preference. It is not correct to say that
the materialman's (mechanic's) lien or refectionary credit of the lumber company, being listed as No. 4 in article 2242, is superior to the ACCFA's
mortgage credit which is listed as No. 5. The enumeration in article 2242 is not an order of preference. That article lists the credits which may
concur with respect to specific real properties and which would be satisfied pro rata according to article 2249.

There is no dispute that the Facoma warehouse was constructed by means of the materials supplied by Carried Lumber Company and that the
construction was financed by the ACCFA which had loaned P27,200 to the Facoma (Exh. 1). Therefore, it is just and proper that the two creditors
should have pro rata shares in that warehouse.

The lower court's solution of awarding the warehouse to the lumber company was an unwarranted disregard of the ACCFA's claim. On the other
hand, the sheriff's adjudication of the whole warehouse to the ACCFA nullifies the lumber company's claim. Neither solution is just because it
results in unjust enrichment by one party at the expense of the other.

The instant case is different from Luzon Lumber & Hardware Co. vs. Quiambao, 94 Phil, 663, where the defendant spouses mortgaged their
three lots and the two buildings to be constructed thereon to the Rehabilitation Finance Corporation (RFC) to secure a loan. The mortgage was
registered on September 13, 1948. The materials used in the construction of the two buildings were bought on credit by the defendant spouses
from plaintiff lumber company during the period from October, 1948 to March, 1949 or after the registration of the mortgage. To cover the
unpaid balance of the price of the materials, plaintiff lumber company sued defendant spouses. The RFC was impleaded as a defendant after it
had foreclosed the mortgage and bought the lots and building as the highest bidder at the auction sale.

It was held that the mortgage credit of the RFC was superior to the refectionary credit (credito refacionario) held by the lumber company. The
RFC loan was used to defray the cost of constructing the two buildings. By express stipulation, the mortgage included all the improvements
which would be constructed on the lots. The mortgage lien over the buildings attached thereto as of the recording of the mortgage and not as
of the time of their construction. (Under article 1923 of the old Code a refectionary credit should be registered and, if not recorded, it is inferior
to a registered mortgage credit).

Also inapplicable to this case is the ruling that in order to implement the pro rata sharing among the creditors mentioned in article 2242, as
directed in article 2249, the said creditors "must necessarily be convened and the import of their claims ascertained" and that, to do so, "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 (now 86) of the Rules of Court, or other liquidation proceedings of similar import" (Resolution of the motion
for reconsideration in De Barretto vs. Villanueva, 110 Phil. 896, 904, 906).

The Barretto ruling was predicated on the assumption that such an insolvency proceeding is necessary in order "to enable the court to ascertain
the pro rata dividend corresponding to each" of the two creditors as well as the "other creditors" entitled to preference under article 2242.

Where, as in this case, it appears that there are no other creditors aside from the Carried Lumber Company and the ACCFA, the requirement
that the pro rata dividend should be ascertained in an insolvency or similar proceeding should not be enforced.

Moreover, the instant case has features that easily distinguish it from the Barretto case. Here, the lumber company, before the registration of
the mortgage, inquired from the ACCFA whether it would extend a loan to the Facoma. The lumber company continued to supply lumber to the
Facoma after the ACCFA had made the telegraphic assurance that it would extend a loan of P27,200 to the Facoma. In effect, the ACCFA had
prior notice of the lumber company materialman's lien.

Furthermore, in the Barretto case, the controversy was between the supposed unpaid vendor and the mortgage who had acted in good faith
and was unaware of the vendor's lien for the unpaid price (No. 2 in article 2242). This Court found that the vendor's lien was questionable and
could not stand on equal footing with the mortgage lien.
As already noted, the ACCFA has been in possession of the warehouse since January 27, 1961 (Exh. 10). The trial court should ascertain whether
the warehouse has yielded any income during the time that the ACCFA has been in possession thereof. In any event, the rental value of the
warehouse should be determined. The ACCFA is entitled to deduct from the earnings of the warehouse or its rental value the taxes and necessary
and useful expenses which it had incurred for the said warehouse. By reason of its lien, the Carried Lumber Company has a pro rata share in
the net earnings or rental value of the warehouse.

There is another aspect of this case which has eluded the attention of the parties. The lumber company in its original complaint asserted a lien
not only over the Facoma's warehouse but also over its ricemill building. The trial court sustained the lumber company's lien over the Facoma's
ricemill building. That is an error.

The evidence for the lumber company shows that it supplied materials only for the construction of the warehouse (Exh. F, F-1). The company
in its letter to the sheriff specified that it was asserting a lien only over the warehouse (Exh. B). It did not mention the ricemill building. It has
no materialman's lien on the ricemill building. On the other hand, the ACCFA had a mortgage lien on the ricemill building (Exh. 2). It foreclosed
its mortgage and bought the ricemill building at the auction sale held on November 5, 1960 (Exh. 5, 6).

WHEREFORE, the trial court's judgment is reversed. It is hereby adjudged that the Carried Lumber Company and the ACCFA have concurrent
liens on the Sta. Barbara Facoma warehouse in the proportion of their credits amounting to P5,655.50 (including the sheriff's fee of P45) and
P41,370.11 (Exh. 4), respectively.

Should the parties within a period of thirty (30) days from the finality of this judgment be unable to agree as to how their liens over the Facoma
warehouse should be satisfied, then the Warehouse may be sold at public auction by the sheriff to the highest bidder, and the net proceeds of
the sale should be allocated pro rata to the lumber company and the ACCFA.

The trial court should ascertain the net earnings or net rental value of the warehouse from January 27, 1961, when the ACCFA was placed in
possession thereof, up to the time the carried Lumber Company's lien is satisfied. Such net earnings or net rental value should also be allocated
pro rata to the lumber company and the ACCFA. No pronouncement as to costs.
 [G.R. No. 105827. January 31, 2000]

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.

DECISION

GONZAGA-REYES, J.:

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
contractors 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 contractors 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:

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.

CORROLARILY, 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 Courts 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
the complaint and the affidavits of plaintiffs Santiago Sugay and Erana. The
services by false representations as to material facts made by the defendant
attachment" and that " a debt is considered fradulently contracted if at the
pay."
of fraud in incurring their contractual obligations as evidenced by
court ruled that defendants acts of "obtaining property, credit or
to the plaintiff with intent to deceive constitutes fraud warranting
time of contracting it, the debtor entertained an intention not to

With regards to the contractors 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, attorneys fees
and 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 courts 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, claming 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 courts 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 judges ORDER dated September 5, 1991 for the issuance of a writ of attachment and
for the enforcement of a contractors 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 judges ORDER dated October 11, 1991 further enforcing the contractors lien and
approving the guidelines for the operation of the San Antonio Public Market is also NULLIFIED and SET
ASIDE.

Petitioners 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 certiorari premature. 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 contractors lien, the appellate court ruled that Articles 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
contractors lien, the appellate court held that the same right cannot be expanded to include the right to use the building. Therefore, the trial
courts 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 courts 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
EXISTS 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
WHATSOVER TO OVERCOME THE WELL-WRITTEN AND DETAILED AND ESTABLISHED FACTUAL FINDINGS OF THE TRIAL COURT.

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 courts interlocutory orders granting the writ of attachment and the contractors 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.[8] 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." [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 contractors lien, we uphold the appellate courts ruling reversing the trial courts grant of a contractors 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 contractors 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.[14] 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.[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 contractors 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 courts 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
courts 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 rendered against Salonga and the Municipality, this issue may be assigned as an error in their appeal from such judgment.
WHEREFORE, we UPHOLD the Court of Appeals Decision dated February 6, 1992 in CA-G.R. SP No. 26336 insofar as it nullifies the contractors
lien granted by the trial court in favor of petitioners in its September 5, 1991 Order. Consequently, we also UPHOLD the appellate courts
nullification of the trial courts October 11, 1991 Order approving the guidelines for the operation of the San Antonio Public Market. However,
we REVERSE the appellate courts order nullifying the writ of attachment granted by the trial court. No pronouncement as to costs. SO ORDERED.
 [G.R. No. L-33929. September 2, 1983.]

PHILIPPINE SAVINGS BANK, Petitioner, v. HON. GREGORIO T. LANTIN, Presiding Judge, Court of First Instance of Manila,
Branch VII, and CANDIDO RAMOS, Respondents.

Jose Diokno for Petitioner.

Romeo C . Carlos for Private Respondent.

SYLLABUS

1. CIVIL LAW; CREDIT TRANSACTION; CONCURRENCE AND PREFERENCE OF CREDITS; INSUFFICIENT ASSETS OF DEBTOR RAISES QUESTION
OF PREFERENCE AS WELL AS QUESTION OF CONSEQUENCE IN CONCURRENCE OF CREDITS. — Concurrence of credits occurs when the same
specific property of the debtor or all of his property is subjected to the claims of several creditors. The concurrence of credits raises no questions
of consequence were the value of the property or the value of all assets of the debtor is sufficient to pay in fall all the creditors. However, it
becomes material when said assets are insufficient for then some creditors of necessity will not be paid or some creditors will not obtain the full
satisfaction of their claims. In this situation, the question of preference will then arise, that is to say who of the creditors will be paid the all of
the others (Caguioa, Comments and Cases on Civil Law, 1970 ed., Vol. VI, p. 472).

2. ID.; ID.; PREFERENCE OF CREDITS; ARTICLES 2249 AND 2242 OF THE NEW CIVIL CODE OF THE PHILIPPINES; CONSTRUED. — Under the
system established by Article 2249 of the civil Code of the Philippines, only taxes and assessments upon immovable property enjoy absolute
preference. All the remaining specified classes of preferred creditors under Article 2242 enjoy no priority among themselves. Their credits shall
be satisfied pro-rata, i.e., in proportion to the amount of the respective credits.

3. ID.; ID.; ARTICLE 2249 AND 2242 OF THE NEW CIVIL CODE; PAIL REQUISITE TO THEIR FULL APPLICATION UNDER THE DE BARRETO CASE.
— Under the De Barreto decision, the full application of Articles 2242 and 2249 demands that there must first be some proceeding where the
class 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.

4. REMEDIAL LAW; INSOLVENCY PROCEEDINGS AND SETTLEMENT OF A DECEDENT’S ESTATE; BOTH PROCEEDINGS IN REM, OTHER
EQUIVALENT GENERAL LIQUIDATION OF SIMILAR NATURE. — Insolvency proceedings end settlement of a decedent’s estate are both
proceedings in rem which are binding the whole world. All persons having interest in the subject matter involved, whether they were notified
or not, are equally bound. Consequently, a liquidation of similar import or other equivalent general liquidation must also necessarily be a
proceeding in rem so that all interested persons whether known to the parties or not may be bound by such proceeding.

3. ID.; ACTION FOR COLLECTION OF UNPAID CONTRACTOR’S FEE; NOT AN ACTION IN REM. — The proceedings in the court below do not
partake of the insure of insolvency proceedings or settlement of a decedent’s estate. The action filed by Ramos was only to collect the unpaid
cost of the construction of the duplex apartment. It is far from being a general liquidation of the estate of the Tabligan spouses.

6. CIVIL LAW; CREDIT TRANSACTION; ANNOTATION OF CLAIMS AND CREDITS AS STATUTORY LIENS; RELEVANCE TO THE STABILITY OF THE
TORRENS SYSTEM. — In the case at bar, although the lower court found that "there were no known creditors other than the plaintiff and the
defendant herein," this cannot be conclusive. It will not bar other creditors in the event they show up and present their claims State petitioner
bank, claiming that they also have preferred liens against the property involved. Consequently, Transfer Certificate of Title No. 101864 issued
in favor of the bank 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 case sanction such instability. In fact, an annotation, as suggested above, would insure to the benefit of the public, particularly those
who may subsequently wish to buy the property in question or who have a business transaction in connection therewith. It would facilitate the
enforcement of a legal statutory right which cannot be barred by laches (See Manila Railroad Co. v. Luzon Stevedoring Co., 100 Phil. 135).

7. ID.; SALE; BUYER IN GOOD FAITH OF REALTY; TAKES IT FEE FROM LIENS AND ENCUMBRANCES OTHER THAN STATUTORY LIENS AND
THOSE ANNOTATED IN THE TITLE; CASE AT BAR. — 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 decedent’s estate proceeding, the well established
principle must be applied that a purchaser in good faith and for value takes register land free from liens and encumbrances other than statutory
liens and those recorded in the Certificate of Title. It Is an limited 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.

DECISION

GUTIERREZ, JR., J.:

This is a petition for review of the decision of the Court of First Instance of Manila, Branch VII, presided over by respondent Judge Gregorio T.
Lantin, in Civil Case No. 79914 entitled Candido Ramos v. Philippine Savings Bank and of the order denying a motion for its reconsideration.
The dispositive portion of the decision reads:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the defendant to pay the plaintiff the
sum of P15,000.00 as his pro-rata share in the value of the duplex-apartment house which was built by the plaintiff for the spouses likewise
Filomeno Tabligan and Socorro Espiritu, which is now registered in the name of the defendant under Transfer Certificate of Title No. 101864
issued by the Register of Deeds of the City of Manila, on August 6, 1970, with legal interest from the date of the filing of the complaint until
fully paid; to pay the sum of P500.00 as attorney’s fees; and to pay the costs.

"The counterclaim interposed by the defendant is hereby dismissed."

Involved in this case is a duplex-apartment house on a lot covered by TCT No. 86195 situated at San Diego Street, Sampaloc, Manila, and
owned by the spouses Filomeno and Socorro Tabligan.

The duplex-apartment house was built for the spouses by private respondent Candido Ramos, a duly licensed architect and building contractor,
at a total cost of P32,927.00. The spouses paid private respondent the sum of P7,139.00 only. Hence, the latter used his own money, P25,788.50
in all, to finish the construction of the duplex-apartment.

Meanwhile, on December 16, 1966, February 1, 1967, and February 28, 1967, the spouses Tabligan obtained from petitioner Philippine Savings
Bank three (3) loans in the total amount of P35,000.00, the purpose of which was to complete the construction of the duplex-apartment. To
secure payment of the l2oans, the spouses executed in favor of the petitioner three (3) promissory notes and three (3) deeds of real estate
mortgages over the property subject matter of this litigation.
On December 19, 1966, the petitioner registered the December 16, 1966 deed of real estate mortgage with the Register of Deeds of Manila.
The subsequent mortgages of February 1, 1967, and February 28, 1967, were registered with the Register of Deeds of Manila on February 2,
1967 and March 1, 1967, respectively. At the time of the registration of these mortgages, Transfer Certificate of Title No. 86195 was free from
all liens and encumbrances.

The spouses failed to pay their monthly amortizations. As a result thereof, the petitioner bank foreclosed the mortgages, and at the public
auction held on July 23, 1969, was the highest bidder.

On August 5, 1969, the petitioner bank registered the certificate of sale issued in its favor. On August 9, 1970, the bank consolidated its
ownership over the property in question, and Transfer Certificate of Title No. 101864 was issued by the Register of Deeds of Manila in the name
of the petitioner bank.

Upon the other hand, the private respondent filed an action against the spouses to collect the unpaid cost of the construction of the duplex-
apartment before the Court of First Instance of Manila, Branch I, which case was docketed therein as Civil Case No. 69228. During its pendency,
the private respondent succeeded in obtaining the issuance of a writ of preliminary attachment, and pursuant thereto, had the property in
question attached. Consequently, a notice of adverse claim was annotated at the back of Transfer Certificate of Title No. 86195.

On August 26, 1968, a decision was rendered in Civil Case No. 69228 in favor of the private respondent and against the spouses. A writ of
execution was accordingly issued but was returned unsatisfied.

As the spouses did not have any properties to satisfy the judgment in Civil Case No. 69228, the private respondent addressed a letter to the
petitioner for the delivery to him (private respondent) of his pro-rata share in the value of the duplex-apartment in accordance with Article
2242 of the Civil Code. The petitioner refused to pay the pro-rata value prompting the private respondent to file the instant action. As earlier
stated, a decision was rendered in favor of the private Respondent.

The parties are agreed that the only issue is whether or not the private respondent is entitled to claim a pro-rata share in the value of the
property in question. The applicable provision, Article 2242 of the Civil Code, reads as follows:jgc:

"ART. 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be
preferred, and shall constitute an encumbrance on the immovable or real right:jgc:

"(1) Taxes due upon the land or building;

"(2) For the unpaid price of real property sold, upon the immovable sold;

"(3) Claims of laborers, masons, mechanics and other workmen, as well as of architects, engineers and contractors, engaged in the construction,
reconstruction or repair of buildings, canals or other works, upon said buildings, canals or other works;

"(4) Claims of furnishers of materials used in the construction reconstruction, or repair of buildings, canals or other works upon said buildings,
canals or other works;

"(5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged;

"(6) Expenses for the preservation or improvement of real property when the law authorizes reimbursement, upon the immovable preserved or
improved;

"(7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the property affected, and
only as to later credits;

"(8) Claims of co-heirs for warranty in the partition of an immovable among them, upon the real property thus divided;

"(9) Claims of donors of real property for pecuniary charges or other conditions imposed upon the donee, upon the immovable donated;

"(10) Credits of insurers upon the property insured, for the insurance premium for two years."

Both the petitioner bank and private respondent Ramos rely on the case of De Barreto v. Villanueva (6 SCRA 928).

The petitioner bank would impress upon this Court that the proceedings had before the court below is not one of the proceedings contemplated
in the De Barreto case that will sustain the authority of the respondent court to adjudicate the claims of all preferred creditors under Article
2242 of the Civil Code. Petitioner argues that for Article 2242 of the Civil Code to apply, there must have been an insolvency proceeding or
other liquidation proceedings of similar import. And under the facts then obtaining, there could have been no insolvency proceeding as there
were only two known creditors. ** Consequently, it is argued that private respondent’s unpaid contractor’s claim did not acquire the character
of a statutory lien equal to the petitioner’s registered mortgage.

Upon the other hand, private respondent Ramos maintains that the proceedings had before the court below can qualify as a general liquidation
of the estate of the spouses Tabligan because the only existing property of said spouses is the property subject matter of this litigation.

Concurrence of credits occurs when the same specific property of the debtor or all of his property is subjected to the claims of several creditors.
The concurrence of credits raises no questions of consequence where the value of the property or the value of all assets of the debtor is sufficient
to pay in full all the creditors. However, it becomes material when said assets are insufficient for then some creditors of necessity will not be
paid or some creditors will not obtain the full satisfaction of their claims. In this situation, the question of preference will then arise, that is to
say who of the creditors will be paid ahead of the others. (Caguioa, Comments and Cases on Civil Law, 1970 ed., Vol. VI, p. 472.)

Under the system established by Article 2249 of the Civil Code of the Philippines, only taxes and assessments upon immovable property enjoy
absolute preference. All the remaining specified classes of preferred creditors under Article 2242 enjoy no priority among themselves. Their
credits shall be satisfied pro-rata, i.e., in proportion to the amount of the respective credits.

Under the De Barreto decision, the full application of Articles 2242 and 2249 demands that there must first be 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.

The pertinent ruling reads:

"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 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 then 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."

The resolution of this petition, therefore, hinges on the determination of whether an insolvency proceeding or other liquidation proceeding of
similar import may be considered to have been conducted in the court below.

The respondent court ruled in the affirmative holding that:

"There were no known creditors, other than the plaintiff and defendant herein, and the proceedings in the present case may ascertain and
bindingly adjudicate the respective claims of the plaintiff and the defendant, serving as a substantial compliance with what the Supreme Court
stated:

"‘. . . it is thus apparent that the full application of Articles 2242 and 2249 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. (de Barretto v. Villanueva, Et Al., G.R. No. L-14938, December 29, 1962).’"

A careful considering of this petition leads us to agree with the petitioner. The conclusions of the lower court are not supported by the law and
the facts.

The proceedings in the court below do not partake of the nature of the insolvency proceedings or settlement of a decedent’s estate. The action
filed by Ramos was only to collect the unpaid cost of the construction of the duplex apartment. It is far from being a general liquidation of the
estate of the Tabligan spouses.

Insolvency proceedings and settlement of a decedent’s estate are both proceedings in rem which are binding against the whole world. All
persons having interest in the subject matter involved, whether they were notified or not, are equally bound. Consequently, a liquidation of
similar import or "other equivalent general liquidation’ must also necessarily be a proceeding in rem so that all interested persons whether
known to the parties or not may be bound by such proceeding.

In the case at bar, although the lower court found that "there were no known creditors other than the plaintiff and the defendant herein", this
can not be conclusive. It will not bar other creditors in the event they show up and present their claims against the petitioner bank, claiming
that they also have preferred liens against the property involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of the
bank 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 Barretto case sanction
such instability. It emphasized the following:

"We are understandably loath (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 unforeseable 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 or liquidation proceedings.

In fact, an annotation, as suggested above, would inure to the benefit of the public, particularly those who may subsequently wish to buy the
property in question or who have a business transaction in connection therewith. It would facilitate the enforcement of a legal statutory right
which cannot be barred by laches. (See Manila Railroad Co. v. Luzon Stevedoring Co., 100 Phil. 135).

Respondent Ramos admitted in the partial stipulation of facts submitted by both parties that at the time of the loans to the spouses, the
petitioner’s 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 contractor’s 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 decedent’s 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 respondent’s claim must remain subordinate to the petitioner bank’s title over the property evidenced
by TCT No. 101864.
WHEREFORE, the petition is granted. The decision of the Court of First Instance of Manila, Branch VII is, hereby, reversed and set aside. The
complaint and the counterclaim are dismissed. SO ORDERED.
G.R. Nos. 100264-81 January 29, 1993

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION, ONG PENG, ET. AL., respondents.

The Chief Legal Counsel for Development Bank of the Philippines.

Muñoz Law Office for private respondents.

GUTIERREZ, JR., J.:

In this petition for certiorari, petitioner Development Bank of the Philippines (DBP) asserts its preferential right as a foreclosing creditor over
private respondents' claims for separation pay against Republic Hardwood, Inc. (RHI).

On November 14, 1986, the private respondents filed with the Provincial Extension Office of the Department of Labor and Employment (DOLE)
in Daet, Camarines Norte seventeen individual complaints against RHI for unpaid wages and separation pay. These complaints were thereafter
endorsed to the Regional Arbitration Branch (Branch V of Legaspi City) of the National Labor Relations Commission (NLRC) since the petitioners
had already been terminated from employment.

In its position paper dated March 1987, RHI alleged that it had ceased to operate in 1983 due to the government ban against tree-cutting. It
further alleged that in May 24, 1981, its sawmill was totally burned resulting in enormous losses and that due to its financial setbacks, RHI
failed to pay its loan with the DBP. RHI contended that since DBP foreclosed its mortgaged assets on September 24, l985, then any adjudication
of monetary claims in favor of its former employees must be satisfied against DBP.

On April 29, 1987, the private respondents filed a motion to implead DBP. On July 13, 1987, DBP filed its opposition to said motion.

On October 28, 1988, Executive Labor Arbiter Gelacio Rivera rendered a joint decision on the complaints, the relevant and dispositive portions
of which read:

To say that workers of bankrupt or insolvent employers must first file an insolvency or bankruptcy proceeding against the
latter before their unpaid workers may be satisfied will cause additional burden, unnecessary expenses, unwanted hardship
which are conditions not so intended under the Social Justice policy of the State. . . . .

. . . To require petitioners to file insolvency proceedings against RHI and later file against DBP their claims is to prolong the
agony of petitioners. To give a technical and legal meaning to the words of Art. 110 is to subvert the rights of the petitioners.
We hold therefore that as against the contention of respondent DBP, Art. 4 of the Labor Code is the answer. The social justice
clause of the Constitution is our guide.

xxx xxx xxx

WHEREFORE, premises considered, judgment is hereby rendered in favor of petitioners and adversely against respondent
Republic Hardwood, Inc. and Development Bank of the Philippines, ordering the latter to jointly and severally pay petitioners
the amount of P59,610.00 as separation pay within ten (10) days upon receipt of this Decision through this Regional
Arbitration Branch. Further, respondents are ordered to pay the amount of P308.00 as deposit fee pursuant to PD 1177
under Budget Circular No. 304 and Secs. 4 and 8 of Batas Pambansa Blg. 230. (Rollo, pp. 38, 40-41)

DBP appealed to the NLRC which rendered a decision on April 15, 1991 affirming the labor arbiter's judgment. DBP filed a motion for
reconsideration which was likewise dismissed by the NLRC on May 17, 1991.

Hence, this petition for certiorari.

The petitioner alleges that the NLRC committed grave abuse of discretion in issuing the assailed decision dated April 15, 1991 and its resolution
of May 17, 1991 and raises the following issues:

1. Whether or not the Joint Decision of Executive Labor Arbiter Gelacio L. Rivera is violative of procedural due process on
the part of DBP;

2. Whether or not the complainant-private respondents are entitled to separation pay;

3. Whether or not there was retroactive application of Executive Order No. 81 in this case;

4. Whether or not Executive Labor Arbiter Gelacio L. Rivera and the NLRC correctly applied Article 110 of the Labor Code in
this case; and

5. Whether or not there is a basis for the NLRC (Labor Arbiter Rivera) to order the payment of deposit fee. (Rollo, pp. 17-
18)

DBP asserts that it was deprived of due process since there was no formal order impleading it in the complaints against RHI. Moreover, DBP
points out, the cases were never set for hearing thus depriving it of the opportunity to peruse the documentary evidence of the complainants
and to confront the complainants' witnesses. Additionally, DBP was not given an opportunity to present its own evidence.

There is no merit to this contention of DBP. Denial of due process means the total lack of opportunity to be heard. There is no denial of due
process where a party is given an opportunity to be heard and to present his case. The petitioner in this case filed an opposition to the motion
to implead it as a party defendant. It likewise filed a motion for reconsideration of the labor arbiter's decision. Thereafter, DBP filed an appeal
with the NLRC and, later on, a motion for reconsideration of the NLRC decision. The petitioner, thus, was given ample opportunity to present
its case. It was not denied due process.

There is no merit to DBP's contention that the workers are not entitled to separation pay. Despite the enormous losses incurred by RHI due to
the fire that gutted the sawmill in 1981 and despite the logging ban in 1983, the uncontroverted claims for separation pay show that most of
the private respondents still worked up to the end of 1985 (See Rollo, p. 39). RHI would still have continued its business had not the petitioner
foreclosed all of its assets and properties on September 24, 1985. Thus, the closure of RHI's business was not primarily brought about by
serious business losses. Such closure was a consequence of DBP's foreclosure of RHI's assets. We therefore apply Article 283 which provides:
. . . in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the
separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. . .
.

However, because of the petitioner's assertion that the labor arbiter and respondent NLRC incorrectly applied the provisions of Article 110 of
the Labor Code, we are constrained to grant the petition for certiorari.

Article 110, prior to its amendment by Republic Act No. 6715, reads:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business,
his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before
other creditors may establish any claim to a share in the assets of the employer.

Section 10, Rule VIII, Book III of the Implementing Rules and Regulations of the Labor Code states:

Sec. 10. Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the declaration of
bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before
other creditors may establish any claim to a share in the assets of the employer.

In Republic v. Peralta, 150 SCRA 37 (1987), the Court held that the term "wages" includes separation pay. But the Court declared:

Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather, Article 110 must
be read in relation to the provisions of the Civil Code concerning the classification, concurrence and preference of credits,
which provisions find particular application in insolvency proceedings where the claims of all creditors, preferred or non-
preferred, may be adjudicated in a binding manner.

We have repeatedly stressed that before the workers' preference provided by Article 110 may be invoked, there must first be a declaration of
bankruptcy or a judicial liquidation of the employer's business. (See DBP v. Minister of Labor, 195 SCRA 463 [1991]; DBP v. NLRC, 186 SCRA
841 [1990]; DBP v. NLRC, 183 SCRA 328 [1990]; DBP v. Secretary of Labor, 179 SCRA 630 [1989]; DBP v. Santos, 171 SCRA 138 [1989];
Republic v. Peralta, supra).

In DBP v. Santos, supra, the Court discussed the import of Article 110 and Section 10 of Rule VIII, Book III and stated:

It is quite clear from the provisions that a declaration of bankruptcy or a judicial liquidation must be present before the
worker's preference may be enforced. Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by
the respondents in this case absent a formal declaration of bankruptcy or a liquidation order.

xxx xxx xxx

Moreover, the reason behind the necessity for a judicial proceeding or a proceeding in rem before the concurrence and
preference of credits may be applied was explained by this Court in the case of Philippines Savings Bank v. Lantin (124 SCRA
476 [1983]). We said:

The proceedings in the court below do not partake of the nature of the insolvency proceedings or
settlement of a decedent's estate. The action filed by Ramos was only to collect the unpaid cost of the
construction of the duplex apartment. It is far from being a general liquidation of the estate of the Tabligan
spouses.

Insolvency proceedings and settlement of a decedent's estate are both proceedings in rem which are
binding against the whole world. All persons having interest in the subject matter involved, whether they
were notified or not, are equally bound. Consequently, a liquidation of similar import or other equivalent
general liquidation must also necessarily be a proceeding in rem so that all interested persons whether
known to the parties or not may be bound by such proceeding.

In the case at bar, although the lower court found that "there were no known creditors other than the
plaintiff and the defendant herein", this can not be conclusive. It will not bar other creditors in the event
they show up and present their claims against the petitioner bank, claiming that they also have preferred
liens against the property involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor
of the bank 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 case . . . .

The claims of all creditors whether preferred or non-preferred, the identification of the preferred ones and the totality of the
employer's asset should be brought into the picture. There can then be an authoritative, fair, and binding adjudication instead
of the piece meal settlement which would result from the questioned decision in this case. (At pp. 144-145).

The NLRC, therefore, committed grave abuse of discretion when it affirmed the labor arbiter's ruling that the workers' preference espoused in
Article 110 may be applied even in the absence of a declaration of bankruptcy or a liquidation order.

We must also emphasize that DBP's lien on RHI's mortgaged assets, being a mortgage credit, is a special preferred credit under Article 2242 of
the Civil Code while the workers' preference is an ordinary preferred credit under Article 2244.

Thus, in DBP v. NLRC, (supra) it was held:

4. A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not
attach to specific properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid
wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is
but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the
order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first
preference in the discharge of the funds of the judgment debtor.

In the words of Republic v. Peralta, supra.

 Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid
wages either upon all of the properties or upon any particular property owned by their employer. Claims
for unpaid wages do not therefore fall at all within the category of specially preferred claims established
under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages
are already covered Article 2241, number 6: "claims for laborers" wages, on the goods manufactured or
the work done; or by Article 2242, number 3: "claims of laborers and other workers engaged in the
construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals
and other works. To the extent that claims for unpaid wages fall outside the scope of Article 2241, number
6 and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits
under Article 2244.

5. The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property upon which
it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Article
2176, Civil Code). It creates a real right which is enforceable against the whole world. It is a lien on an identified immovable
property, which a preference is not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the
Civil Code on classification of credits. The preference given by Article 110, when not falling within Article 2241 (6) and Article
2242 (3) of the Civil Code and not attached to any specific property, is an ordinary preferred credit although its impact is to
move it from second priority to first priority in the order of preference established by Article 2244 of the Civil Code (Republic
v. Peralta, supra).

Clearly, even if DBP and the private respondents assert their preferred credits in a judicial proceeding, the former's claim must first be satisfied.

Article 110 of the Labor Code has been amended by R.A. No. 6715 and now reads:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business,
his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to
the contrary notwithstanding. Such unpaid wages, and monetary claims shall be paid in full before the claims of the
Government and other creditors may be paid. (Emphasis ours.)

We ruled in DBP v. NLRC, supra, that the amendment "expands worker preference to cover not only unpaid wages but also other monetary
claims to which even claims of the Government must be deemed subordinate." Hence, under the new law, even mortgage credits are subordinate
to workers' claims.

In this connection, respondent NLRC ruled:

Lastly, while we are cognizant of the pronouncement of the Supreme Court with respect to Art. 110 and while we hold in
respect said pronouncements, we are of the earnest view that considering that Art. 110 has been amended by RA 6715,
complainants' preference over government claims and other creditors be adhered to. (Rollo, p. 65)

R.A. No. 6715, however, took effect only on March 21, 1989. The amendment cannot therefore be retroactively applied to, nor can it affect, the
mortgage credit which was secured by the petitioner several years prior to its effectivity.

This was our pronouncement in DBP v. NLRC, supra:

6. Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean "absolute preference," the
same should be given only prospective effect in line with the cardinal rule that laws shall have no retroactive effect, unless
the contrary is provided (Article 4, Civil Code). Thereby, any infringement on the constitutional guarantee on
non-impairment of the obligation of contracts (Section 10, Article III, 1987 Constitution) is also avoided. In point of fact,
DBP's mortgage credit antedated by several years the amendatory law, RA No. 6715. To give Article 110 retroactive effect
would be to wipe out the mortgage in DBP's favor and expose it to a risk which it sought to protect itself against by requiring
a collateral in the form of real property.

The public respondent, therefore, committed grave abuse of discretion when it retroactively applied the amendment introduced by R.A. No.
6715 to the case at bar.

With the foregoing discussion, we no longer find it necessary to discuss the two other issues raised by the petitioner.

WHEREFORE, the petition is hereby GRANTED. The assailed decision of public respondent National Labor Relations Commission dated April 15,
1991 and its resolution dated May 17, 1991 are SET ASIDE. The temporary restraining order issued by the Court on July 29, 1991 is made
PERMANENT.
G.R. No. 108031 March 1, 1995

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and LEONOR A ANG, respondents.

BELLOSILLO, J.:

Is declaration of bankruptcy or judicial liquidation required before the worker's preference may be invoked under Art. 110 of the Labor Code?

On 21 March 1977 private respondent Leonor A. Ang started employment as Executive Secretary with Tropical Philippines Wood Industries, Inc.
(TPWII), a corporation engaged in the manufacture and sale of veneer, plywood and sawdust panel boards. In 1982 she was promoted to the
position of Personnel Officer.

In September 1983 petitioner Development Bank of the Philippines, as mortgagee of TPWII, foreclosed its plant facilities and equipment.
Nevertheless TPWII continued its business operations interrupted only by brief shutdowns for the purpose of servicing its plant facilities and
equipment. In January 1986 petitioner took possession of the foreclosed properties. From then on the company ceased its operations. As a
consequence private respondent was on 15 April 1986 verbally terminated from the service.

On 14 December 1987 aggrieved by the termination of her employment, private respondent filed with the Labor Arbiter a complaint for
separation pay, 13th month pay, vacation and sick leave pay, salaries and allowances against TPWII, its General Manager, and petitioner.

After hearing the Labor Arbiter found TPWII primarily liable to private respondent but only for her separation pay and vacation and sick leave
pay because her claims for unpaid wages and 13th month pay were later paid after the complaint was filed. 1 The General Manager was absolved
of any liability. But with respect to petitioner, it was held subsidiarily liable in the event the company failed to satisfy the judgment. The Labor
Arbiter rationalized that the right of an employee to be paid benefits due him from the properties of his employer is superior to the right of the
latter's mortgage, citing this Court's resolution in PNB v. Delta Motor Workers Union. 2

On 16 November 1992 public respondent National Labor Relations Commission affirmed the ruling of the Labor Arbiter. 3

The issue now before us is whether public respondent committed grave abuse of discretion in holding that Art. 110 of the Labor Code, as
amended, which refers to worker preference in case of bankruptcy or liquidation of an employer's business is applicable to the present case
notwithstanding the absence of any formal declaration of bankruptcy or judicial liquidation of TPWII.

Petitioner argues that the decision of public respondent runs counter to the consistent rulings of this Court in a long line of cases emphasizing
that the application of Art. 110 of the Labor Code is contingent upon the institution of bankruptcy or judicial liquidation proceedings against the
employer.

We hold that public respondent gravely abused its discretion in affirming the decision of the Labor Arbiter. Art. 110 should not be treated apart
from other laws but applied in conjunction with the pertinent provisions of the Civil Code and the Insolvency Law to the extent that piece-meal
distribution of the assets of the debtor is avoided. Art. 110, then prevailing, provides:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business,
his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision to the contrary notwithstanding. Unpaid wages shall be paid in full before other
creditors may establish any claim to a share in the assets of the employer.

Complementing Art. 110, Sec. 10, Rule VIII, Book III, of the Revised Rules and Regulations Implementing the Labor Code provides:

Sec. 10. Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the declaration of
bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before
other creditors may establish any claim to a share in the assets of the employer.

We interpreted this provision in Development Bank of the Philippines v. Santos 4 to mean that —

. . . a declaration of bankruptcy or a judicial liquidation must be present before the worker's preference may be enforced.
Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by the respondents in this case absent a
formal declaration of bankruptcy or a liquidation order . . . . (Emphasis supplied).

The rationale is that to hold Art. 110 to be applicable also to extrajudicial proceedings would be putting the worker in a better position
than the State which could only assert its own prior preference in case of a judicial proceeding. 5 Art. 110, which was amended by
R.A. 6715 effective 21 March 1989, now reads:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business,
his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to
the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before the claims of the
Government and other creditors may be paid.
Obviously, the amendment expanded the concept of "worker preference" to cover not only unpaid wages but also other monetary claims to
which even claims of the Government must be deemed subordinate. The Rules and Regulations Implementing R.A. 6715, approved 24 May
1989, also amended the corresponding implementing rule, and now reads:

Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. — In case of bankruptcy or liquidation of the
employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall
be paid in full before the claims of government and other creditors may be paid.

Although the terms "declaration" (of bankruptcy) or "judicial" (liquidation) have been notably eliminated, still in Development Bank of the
Philippines v. NLRC, 6 this Court did not alter its original position that the right to preference given to workers under Art. 110 cannot exist in
any effective way prior to the time of its presentation in distribution proceedings. In effect, we reiterated our previous interpretation
in Development Bank of the Philippines v. Santos where we said:

It (worker preference) will find application when, in proceedings such as insolvency, such unpaid wages shall be paid in full
before the "claims of the Government and other creditors" may be paid. But, for an orderly settlement of a debtor's assets,
all creditors must be convened, their claims ascertained and inventoried, and thereafter the preferences determined. In the
course of judicial proceedings which have for their object the subjection of the property of the debtor to the payment of his
debts or other lawful obligations. Thereby, an orderly determination of preference of creditors' claims is assured (Philippine
Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the adjudication made will be binding on all
parties-in-interest since those proceedings are proceedings in rem; and the legal scheme of classification, concurrence and
preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony. 7

In ruling, as we did, in Development Bank of the Philippines v. Santos, we took into account the following pronouncements:

In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvents property among
his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvent's creditors may be
given and where the claims of preferred creditors may be bindingly adjudicated. (De Barreto v. Villanueva, No.
L-14938, December 29, 1962, 6 SCRA 928). The rationale therefore has been expressed in the recent case of DBP
v. Secretary of Labor (G.R. No. 79351, 28 November 1989), which we quote:

A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first
ahead of other claims which may be established against the debtor. Logically, it becomes material only
when the properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is
amply able to pay his various creditors in full, how can the necessity exist to determine which of his
creditors shall be paid first or whether they shall be paid out of the proceeds of the sale (of) the debtor's
specific property. Indubitably, the preferential right of credit attains significance only after the properties
of the debtor have been inventoried and liquidated, and the claims held by his various creditors have
been established (Kuenzle & Sheriff (Ltd.) v. Villanueva, 41 Phil. 611 [1916]; Barretto v. Villanueva, G.R.
No. 14938, 29 December 1962, 6 SCRA 928; Philippine Savings Bank v. Lantin, G.R. No. 33929, 2
September 1983, 124 SCRA 476).

In the present case, there is as yet no declaration of bankruptcy nor judicial liquidation of TPWII. Hence, it would be premature to enforce the
worker's preference.

The additional ratiocination of public respondent that "under Article 110 of the Labor Code complainant enjoys a preference of credit over the
properties of TPWII being held in possession by DBP," is a dismal misconception of the nature of preference of credit, a subject matter which
we have already discussed in clear and simple terms and even distinguished from a lien in Development Bank of the Philippines v. NLRC 8 —

. . . A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular
property. The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the
property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application.
It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the
proceeds of the insolvent's assets. It is a right to a first preference in the discharge of the funds of the judgment debtor . .
. In the words of Republic v. Peralta, supra: Article 110 of the Labor Code does not purport to create a lien in favor of workers
or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer.
Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles
2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241,
number 6: "claims for laborers: wages, on the goods manufactured or the work done;" or by Article 2242, number 3, "claims
of laborers and other workers engaged in the construction reconstruction or repair of buildings, canals and other works, upon
said buildings, canals and other works . . . . To the extent that claims for unpaid wages fall outside the scope of Article 2241,
number 6, and 22421 number 3, they would come within the ambit of the category of ordinary preferred credits under Article
2244.

The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Article
2176, Civil Code). It creates a real right which is enforceable against the whole world. It is a lien on an identified immovable
property, which a preference is not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the
Civil Code on classification of credits. The preference given by Article 1l0, when not falling within Article 2241 (6) and Article
2242 (3), of the Civil Code and not attached to any specific property, is all ordinary preferred credit although its impact is to
move it from second priority to first priority in the order of preference established by Article 2244 of the Civil Code.

The present controversy could have been easily settled by public respondent had it referred to ample jurisprudence which already provides the
solution. Stare decisions et non quiet movere. Once a case is decided by this Court as the final arbiter of any justifiable controversy one way,
then another case involving exactly the same point at issue should be decided in the same manner. Public respondent had no choice on the
matter. It could not have ruled any other way. This Court having spoken in a string of cases against public respondent, its duty is simply to
obey judicial precedents. 9 Any further disregard, if not defiance, of our rulings will be considered a ground to hold public respondent in contempt.
WHEREFORE, the petition is GRANTED. The decision of public respondent National Labor Relations Commission affirming the decision of the
Labor Arbiter insofar as it held petitioner Development Bank of the Philippines liable for the monetary claims of private respondent Leonor A.
Ang is SET ASIDE. The temporary restraining order we issued on 8 February 1993 10 enjoining the execution of the decision of public respondent
against petitioner is made PERMANENT. SO ORDERED.
G.R. No. 74965 November 9, 1994

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, DEPUTY CITY SHERIFF CARMELO V. CACHERO, MARITIME COMPANY OF THE
PHILIPPINES, DOMINGO C. NIANGAR, DANIEL C. SABINO, FERNANDO S. TULIAO and TULMAR TRADING
CORPORATION, respondents.

Reynaldo L. Libanan for respondent deputy sheriff.

Joaquin G. Chung, Jr. Law Office for respondent Tulmar Trading Corp.

Eliodoro C. Cruz & Arsenio P. Dizon for Maritime Co. of the Philippines.

MENDOZA, J.:

This is a petition for certiorari to set aside the resolution dated April 4, 1986 1 of the National Labor Relations Commission in NLRC Case No.
NCR-12-4233-84 (Domingo C. Niangar v. Maritime Company of the Philippines), affirming the denial by the Labor Arbiter 2 of petitioner's motion
to annul the sheriff's sale of four barges or, in the alternative, to order him to remit the proceeds of his sale to the Bureau of the Internal
Revenue for the satisfaction of the tax liabilities of private respondent Maritime Company of the Philippines.

The facts are as follows:

On January 12, 1984 the Commissioner of the Internal Revenue sent two letters 3 of demand to the respondent Maritime Company of the
Philippines for deficiency common carrier's tax, fixed tax, 6% Commercial Broker's tax, documentary stamp tax, income tax and withholding
taxes in the total amount of P17,284,882.45.

The assessment became final and executory as private respondent did not contest it. But as private respondent did not pay its tax liability
either, the Commissioner of Internal Revenue issued warrants of distraint of personal property and levy of real property of private respondent.
Copies of the warrants, both dated January 23, 1985, were served on January 28, 1985 on Yoly T. Petrache, private respondent's accountant. 4

On April 16, 1985 a "Receipt for Goods, Articles, and Things Seized 5 under Authority of the National Internal Revenue Code" was executed,
covering, among other things, six barges identified as MCP-1,2,3,4,5 and 6. This receipt is required by § 303 (now § 206) of the NIRC as proof
of the constructive distraint of property. It is an undertaking by the taxpayer or person in possession of the property covered that he will
preserve the property and deliver it upon order of the court or the Internal Revenue Commissioner.

The receipt was prepared by the BIR for the signature of a representative of respondent Maritime Company of the Philippines, but it was not in
fact signed. Petitioner later explained that the individuals who had possession of the barges had refused to sign the receipt.

This circumstance has given rise to the question in this case as it appears that four of the barges placed under constructive distraint were levied
upon execution by respondent deputy sheriff of Manila on July 20, 1985 to satisfy a judgment for unpaid wages and other benefits of employees
of respondent Maritime Company of the Philippines. More specifically, the question in this case is the validity of the warrant of distraint served
by the Revenue Seizure Officer against the writ of execution subsequently levied upon the same property by the deputy sheriff of Manila to
satisfy the claims of employees in NLRC Case No. NCR-12-4233-84 (Domingo C. Niangar, et al. v. Maritime Company of the Philippines) for
P490,749.21.

The four barges were sold by respondent deputy sheriff at a public auction on August 12, 1985. The highest bidder, Daniel C. Sabino,
subsequently sold them to private respondents Fernando S. Tuliao and Tulmar Trading Corporation.

On September 4, 1985, petitioner asked the Labor Arbiter to annul the sale and to enjoin the sheriff from disposing of the proceeds of the sale
or, in the alternative, to remit them to the Bureau of Internal Revenue so that the amount could be applied to the payment of private respondent
Maritime Company's tax liabilities.

In an order dated September 30, 1985, Labor Arbiter Ceferina Diosana denied the motion on the ground that petitioner Commissioner of Internal
Revenue failed to show that the barges which were levied upon in execution and sold at public auction had been validly placed under constructive
distraint. 6 The Labor Arbiter likewise rejected petitioner's contention that the government's claim for taxes was preferred under Art. 2247, in
relation to Art. 2241(1) of the Civil Code, on the ground that under this provisions only taxes and fees which are due on specific movables enjoy
preference, whereas the taxes claimed by petitioner were not due on the four barges in question.

The order was appealed to the NLRC, which in resolution dated April 4, 1986, affirmed the denial of the Internal Revenue Commissioner's
motion. Hence this petition for certiorari.

For reasons to be presently stated, the petition is granted.

The National Internal Revenue Code provides for the collection of delinquent taxes by any of the following remedies: (a) distraint of personal
property or levy of real property of the delinquent taxpayer and (b) civil or criminal action.

With respect to the four barges in question, petitioner resorted to constructive distraint pursuant to § 303 (now § 206) of the NLRC. This
provisions states:

Constructive distraint of the property of a taxpayer. — To safeguard the interest of the Government, the Commissioner of
Internal Revenue may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his
opinion, is retiring from any business subject to tax, or intends to leave the Philippines, or remove his property therefrom,
or hide or conceal his property, or perform any act tending to obstruct the proceedings, for collecting the tax due or which
may be due from him.

The constructive distraint of personal property shall be effected by requiring the taxpayer or any person having possession
or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact
and unaltered and not to dispose of the same in any manner whatever without the express authority of the Commissioner
of Internal Revenue.

In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive
distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the constructive distraint shall
proceed to prepare a list of such property and in the presence of two witnesses leave a copy thereof in the premises where
 the property distrained is located, after which the said property shall be deemed to have been placed under constructive
distraint..

Although the warrant of distraint in this case had been issued earlier (January 23,1985) than the levy on execution in the labor case on July
20, 1985, the Labor Arbiter nevertheless held that there was no valid distraint of personal property on the ground that the receipt of property
distrained had not been signed by the taxpayer as required above. In her order, which the NLRC affirmed in toto, the Labor Arbiter said:

It is claimed by the Commissioner of the Internal Revenue that on January 23, 1984, he issued a warrant of distraint of
personal property on respondent to satisfy the collection of the deficiency taxes in the aggregate sum of P17,284,882.45
and a copy of said warrant was served upon Maritime Company on January 28, 1985 and pursuant to the warrant, the
Commissioner, through Revenue Seizure Agent Roland L. Bombay, issued on April 16, 1985, to Maritime Company a receipt
for goods, articles and things seized pursuant to authority granted to him under the National Internal Revenue Code. Such
personal properties seized includes, among others, "Six (6) units of barges MCI-6 . . . " However, his own receipts for goods
attached to his motions does not show that it was received by Maritime; neither does it show any signature of any of
Maritime's Officers.

Apart from the foregoing, in his affidavit of 11 September 1985, Sheriff Cachero stated that before he sold the subject four
barges at public auction, he conducted an investigation on the ownership of the said four barges. In brief, he found out that
the said four barges were purchased by respondent through Makati Leasing and that the whole purchase price has been paid
by respondent. In fact, the corresponding deed of sale has already been signed. He did not find any lien or encumbrance on
any of the said four barges. Thus it cannot be true that the Commissioner effected a valid warrant of distraint of personal
property on the four barges in question. 7

However, this case arose out of the same facts involved in Republic v. Enriquez, 8 in which we sustained the validity of the distraint of the six
barges, which included the four involved in this case, against the levy on execution made by another deputy sheriff of Manila in another case
filed against Maritime Company. Two barges (MCP-1 and MCP-4) were the subject of a levy in the case. There we found that the "Receipt for
Goods, Articles and Things Seized under Authority of the National Internal Revenue Code" covering the six barges had been duly executed, with
the Headquarters, First Coast Guard District, Farola Compound Binondo, Manila acknowledging receipt of several barges, vehicles and two (2)
bodegas of spare parts belonging to Maritime Company of the Philippines.

Apparently, what had been attached to the petitioner's motion filed by the government with the Labor Arbiter in this case was a copy, not the
original one showing the rubber stamp of the Coast Guard and duly signed by its representative. A xerox copy of this signed receipt was
submitted in the prior case. 9 This could be due to the fact that, except for Solicitor Erlinda B. Masakayan, the government lawyers who prepared
the petition in the prior case were different from those who filed the present petition. They admitted that the receipt of property distrained had
not been signed by the taxpayer or person in possession of the taxpayer's property allegedly because they had refused to do so. What apparently
they did not know is that the receipt had been acknowledged by the Coast Guard which obviously had the barges in its possession.

In addition to the receipt duly acknowledged by the Coast Guard, the record of the prior case also shows that on October 4, 1985, the
Commissioner of the Internal Revenue issued a "Notice of Seizure of Personal Property" stating that the goods and chattels listed on its reverse
side, among which were the four barges (MCP-2, MCP-3, MCP-5, and MCP-6), had been distrained by the Commissioner of Internal Revenue. 10

The "Notice of Seizure of Personal Property," a copy of which was received by Atty. Redentor R. Melo in behalf of Maritime Company of the
Philippines, together with the receipt of the Coast Guard, belies the claim of respondent deputy sheriff that when he levied upon the four barges
there was no indication that the barges had previously been placed under distraint by the Commissioner of Internal Revenue.

Accordingly, what we said in the prior case 11 in upholding the validity of distraint of two of the six barges (MCP Nos. 1 and 4), fully applies in
this case:

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated
on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the
time the tax became due and payable. Besides, the distraint on the subject properties of the Maritime Company of the
Philippines as well as the notice of their seizure were made by petitioner, through the Commissioner of the Internal Revenue,
long before the writ of the execution was issued by the Regional Trial Court of Manila, Branch 31. There is no question then
that at the time the writ of execution was issued, the two (2) barges, MPC-1 and MCP-4, were no longer properties of the
Maritime Company of the Philippines. The power of the court in execution of judgments extends only to properties
unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the
purchaser in an auction sale acquires only such right as the judgment debtor had at the time of sale. It is also well-settled
that the sheriff is not authorized to attach or levy on property not belonging to the judgment debtor.

Nor is there any merit in the contention of the NLRC that taxes are absolutely preferred claims only with respect to movable or immovable
properties on which they are due and that since the taxes sought to be collected in this case are not due on the barges in question the
government's claim cannot prevail over the claims of employees of the Maritime Company of the Philippines which, pursuant to Art. 110 of the
Labor Code, "enjoy first preference."

In Republic v. Peralta 12 this Court rejected a similar contention. Through Mr. Justice Feliciano we held:

. . . [T]he claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees constitutes a claim for unpaid internal
revenue taxes which gives rise to a tax lien upon all the properties and assets, movable or immovable, of the insolvent as
taxpayer. Clearly, under Articles 2241 No. 1, 2242 No. 1, and 2246-2249 of the Civil Code, this tax claim must be given
preference over any other claim of any other creditor, in respect of any and all properties of the insolvent.

xxx xxx xxx

Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either
upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore
fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except
to the extent that such claims for unpaid wages are already covered by Article 2241, number 6: "claims for laborer's wages,
on the goods manufactured or the work done," or by Article 2242, number 3: "claims of laborers and other workers engaged
in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals or other works."
To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would
come with the ambit of the category of ordinary preferred credits under Article 2244.

Applying Article 2241, number 6 to the instant case, the claims of the Unions for separation pay of their members constitute
liens attaching to the processed leaf tobacco, cigars and cigarettes and other products produced or manufactured by the
Insolvent, but not to other assets owned by the Insolvent. And even in respect of such tobacco and tobacco products produced
by the Insolvent, the claims of the Unions may be given effect only after the Bureau of Internal Revenue's claim for unpaid
tobacco inspection fees shall have been satisfied out of the products so manufactured by the Insolvent.
 Article 2242, number 3, also creates a lien or encumbrance upon a building or other real property of the Insolvent in favor
of workmen who constructed or repaired such building or other real property. Article 2242, number 3, does not however
appear relevant in the instant case, since the members of the Unions to whom separation pay is due rendered services to
the Insolvent not (so far as the record of this case would show) in the construction or repair of buildings or other real
property, but rather, in the regular course of the manufacturing operations of the Insolvent. The Unions' claims do not
therefore constitute a lien or encumbrance upon any immovable property owned by the insolvent, but rather, as already
indicated, upon the Insolvent's existing inventory (if any) of processed tobacco and tobacco products.

In addition, we have held 13 that Art. 110 of the Labor Code applies only in case of bankruptcy or judicial liquidation of the employer. This is
clear from the text of the law.

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business,
his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before
other creditors may establish any claims to a share in the assets of the employer.

This case does not involve the liquidation of the employer's business.

WHEREFORE, the petition for certiorari is GRANTED and the resolution dated April 4, 1986 of respondent NLRC in NLRC Case No. NCR-12-4233-
84 is SET ASIDE insofar as it denies the government's claim for taxes, and respondent deputy sheriff Carmelo V. Cachero or his successor is
ORDERED to remit the proceeds of the auction sale to the Bureau of Internal Revenue to be applied as part payment of respondent Maritime
Company's tax liabilities. SO ORDERED.
G.R. No. L-37859 July 26, 1988

CENTRAL BANK OF THE PHILIPPINES, CARLOTA P. VALENZUELA, and ISLAND SAVINGS BANK, petitioners,
vs.
COURT OF APPEALS and GREGORIO M. FLORES, respondents.

F. E. Evangelista, Alfredo L. Bautista and Restituto P. Ventura for petitioners.

Antero L. Pagunsan for private respondent Gregorio M. Flores.

NARVASA, J.:

The question presented in the instant appeal by certiorari is not new. It is whether or not an ordinary action for the recovery of a time deposit
may be maintained against a savings bank, independently of the proceedings instituted in another court by the Central Bank for judicial
assistance an supervision in the liquidation of said bank in accordance with Section 29 of its Charter. 1 To the question, this Court has already
thrice given a negative answer. 2

The bank involved was the Island Savings Bank, hereafter simply, Island; and the time deposit in question was made at its branch office at
Bustillos, Sampaloc, Manila by Gregorio M. Flores, in the sum of P200,000.00. 3

It appears that the Monetary Board, by its Resolution No. 967 dated June 14, 1968, prohibited Island Bank from doing business in the Philippines
and instructed the Acting Superintendent of Banks to take charge of said bank's assets. The asserted reason was the alleged discovery that
Island had been found to have engaged in unsound banking practices and was in a state of insolvency. 4 The Bank Superintendent thus took
over Island's assets on June 14, 1968.

It appears further that by a later resolution (No. 1187 dated July 18, 1968), the Monetary Board permitted Island to resume business under
certain conditions. 5 The latter however failed to meet those conditions. As a result, the Solicitor General, at the Central Bank's instance, filed
with the Court of First Instance of Rizal on June 23, 1971 a petition for assistance and supervision in the liquidation of Island Bank pursuant to
Section 29 of the Central Bank Act. 6 The case was docketed as Civil Case No. 3676-P. 7

Earlier, at about the end of January, 1969, Gregorio Flores had tried to withdraw from Island his aforementioned time deposit of P200,000.00,
with interest, but the bank refused to allow such withdrawal precisely because its assets had already been taken over by the Central Bank.

What Flores did was to apply for relief with the Philippine Deposit and Insurance Corporation, which paid him the sum of P10,000.00 pursuant
to Republic Act 5517. 8 Thereafter, or more particularly on March 23, 1971, he brought suit against Island Bank in the Court of First Instance
of Antique praying that the bank be sentenced to pay him P190,000.00 with interest at 6% p.a. from January 9, 1968 until fully paid, P50,000.00
as moral damages, and P500.00 as attorney's fees. In this action, docketed as Case No. 853, Island Bank was declared in default by Order
dated July 1, 1971, for failure to file its answer within the reglementary period from service of summons. The Central Bank however filed on
August 19, 1971 an "Urgent Motion to Intervene and to Set Aside the Order of Default." The Court allowed intervention but declined to lift the
order of default. The Central Bank's answer in intervention was filed on November 25, 1971. In its answer the Central Bank adverted to its
having forbidden Island Bank to do business, its having taken over its assets, and its having instituted judicial proceedings for liquidation of
Island in consequence of which the liquidation court acquired exclusive jurisdiction over all claims against Island, inclusive of Flores' application
to withdraw his time deposit.

After due proceedings, including the submission by the parties of a stipulation of facts, the Court rendered judgment in Case No. 853 dismissing
the complaint without prejudice to the plaintiffs filing his claim with the liquidation court. It ruled: 9

That the pendency of the liquidation proceedings in court vests in the same exclusive jurisdiction, to the exclusion of other
courts, over all matters pertaining to the liquidation of the Island Savings Bank, and that in the liquidation proceedings, the
intervenors Central Bank of the Philippines and the Superintendent of Banks, with the assistance and supervision of the
court, will undertake to gather all the assets of the bank, convert them into cash and distribute the net assets to depositors
and other creditors their proportionate share after payment of reasonable costs of the proceedings including reasonable
expenses and fees of the Central Bank ...

That the plaintiff herein should file his claim for recovery of deposit in said liquidation court and that the court has no
jurisdiction to entertain the action.

xxx xxx xxx

WHEREFORE, judgment is hereby rendered dismissing the plaintiffs complaint without prejudice to plaintift's filing his claim
of his time deposit with the liquidation court, the Court of First Instance of Rizal, without any pronouncement as to costs.

On a petition for mandamus by Flores, the Court of Appeals overturned the Trial Court's judgment. The Appellate Court's decision 10 disposed
of the case as follows:

WHEREFORE, the instant petition is hereby GRANTED, and the questioned decision of the respondent Court dated December
4, 1972 is hereby SET ASIDE, ordering the respondent Court to proceed with the proceedings of Civil Case No. 853 and
thereafter to render judgment in accordance with the evidence adduced during the trial.

Reversal in turn of this decision of the Court of Appeals is what petitioner Central Bank seeks of this Court in the appellate proceeding at bar.
It postulates that it is the liquidation court which has jurisdiction over all matters affecting an insolvent banking institution, that under the
circumstances the liquidation director (of the CB Department of Commercial & Savings Bank [formerly the Superintendent of Banks)) had no
authority to pay Flores out of the funds of the insolvent bank, and failure of service of summons on Island rendered impossible rendition of a
valid judgment against Island Bank. The crucial issue, of course, is whether or not original jurisdiction over claims such as that of Flores is
vested exclusively in the liquidation court, to the exclusion of all others. As already remarked in the opening paragraph of this opinion, the issue
has been previously passed upon and resolved by this Court in the affirmative. In Central Bank of the Philippines v. Morfe, 11 this Court rejected
the argument that "fixed, savings, and current deposits of money in banks and similar institutions'; are preferred credits, characterizing them
merely as "simple loans;" and declared that evidently, "one purpose in prohibiting ...(an) insolvent bank from doing business (under Sec. 29 of
the Central Bank Act) is to prevent some depositors from having an undue or fraudulent preference over creditors and depositors," a purpose
which "would be nullified if, ... after the bank is declared insolvent, suits by some depositors could be maintained and judgments would be
rendered for the payment of their deposits and then such judgments would be considered preferred credits under article 2244 (14) (b) of the
Civil Code." The Court then proceeded to explain why.

A contrary rule would be productive of injustice" mischief and confusion. To recognize such judgments as entitled to priority
would mean that depositors in insolvent banks, after learning that the bank is insolvent as shown by the fact that it can no
 longer pay withdrawals or that it has closed its doors or has been enjoined by the Monetary Board from doing business,
would rush to the courts to secure judgments for the payment of their deposits.

In such an eventuality, the courts would be swamped with suits of that character. Some of the judgments would be default
judgments. Depositors armed with such judgments would pester the liquidation court with claims for preference on the basis
of article 2244 (14) (b). Less alert depositors would be prejudiced. That inequitable situation could not have been
contemplated by the framers of section 29.

So, too, in Hernandez v. Rural Bank of Lucena, Inc., 12 involving "the claim of the Hernandez spouses that their mortgage obligation had
already been extinguished by means of their tender (to the Lucena Rural Bank, then subject to liquidation proceedings in the Manila Court of
First Instance) of the checks issued by the San Pablo Colleges," this Court categorically held "that the liquidation court or the Manila court ha(d)
exclusive jurisdiction to entertain the claim." The holding in Morfe supra, was adverted to that "after a savings bank was declared insolvent by
the Monetary Board, a depositor could not bring a separate action against it for the recovery of his time deposit ... (his remedy being) to
intervene in the liquidation proceeding" — fter which this Court further said:

The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the Superintendent of Banks,
as a receiver, for conversion into cash, and that its liquidation is undertaken with judicial intervention means that, as far as
lawful and practicable, all claims against the insolvent bank should be filed in the liquidation proceeding.

The judicial liquidation is intended to prevent multiplicity of actions against the insolvent bank. The lawmaking body
contemplated that for convenience only one court, if possible, should pass upon the claims against the insolvent bank and
that the liquidation court should assist the Superintendent of Banks and control his operations.

xxx xxx xxx

The judicial liquidation is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of
the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness."

Again, in Spouses Lipana v. Development Bank of Rizal, decided on September 24, 1 987, 13 this Court, citing Central Bank v. Morfe
supra, upheld the stay of execution of a final judgment in favor of plaintiffs-depositors who were claiming their time and savings deposits from
an insolvent bank, it appearing that such bank had been placed under receivership, and to enforce the judgment would cause the bank's assets
to be unduly depleted to the obvious prejudice of other depositors and creditors.

It should at once be apparent that these rulings 14 are on all fours with the proceedings at bar, and no reason of any cogency whatever has
been advanced to warrant a departure therefrom. On the authority of these rulings, there can be no qqqgainsaying that the decision of the Trial
Court of Antique is correct and should be upheld.

WHEREFORE, the decision of the Court of Appeals subject of the instant appeal is REVERSED AND SET ASIDE, and that rendered by the Antique
Trial Court is SUSTAINED AND AFFIRMED. Costs against private respondent.
 [G.R. No. 112830. February 1, 1996]

JERRY ONG, petitioner, vs. COURT OF APPEALS and RURAL BANK OF OLONGAPO, INC., represented by its Liquidator, GUILLERMO
G. REYES, JR. and Deputy Liquidator ABEL ALLANIGUE, respondents.

DECISION

BELLOSILLO, J.:

The jurisdiction of a regular court over a bank undergoing liquidation is the issue in this petition for review of the decision of the Court of
Appeals.[1]

On 5 February 1991 Jerry Ong filed with the Regional Trial Court of Quezon City a petition for the surrender of TCT Nos. 13769 and 13770
pursuant to the provisions of Secs. 63(b) and 107 of P.D. 1529[2] against Rural Bank of Olongapo, Inc. (RBO), represented by its liquidator
Guillermo G. Reyes, Jr. and deputy liquidator Abel Allanigue.[3] The petition averred inter alia that -

2. The RBO was the owner in fee simple of two parcels of land including the improvements thereon situated in Tagaytay City x x x particularly
described in TCT Nos. 13769 and 13770 x x x

3. Said parcels of land were duly mortgaged by RBO in favor of petitioner on December 29, 1983 to guarantee the payment of Omnibus Finance,
Inc., which is likewise now undergoing liquidation proceedings of its money market obligations to petitioner in the principal amount of
P863,517.02 x x x

4. Omnibus Finance, Inc., not having seasonably settled its obligations to petitioner, the latter proceeded to effect the extrajudicial foreclosure
of said mortgages, such that on March 23, 1984, the City Sheriff of Tagaytay City issued a Certificate of Sale in favor of petitioner xxx

5. Said Certificate of Sale x x x was duly registered with the Registry of Deeds of Tagaytay City on July 16, 1985, as shown in the certified true
copies of the aforementioned titles x x x

6. Respondents failed to seasonably redeem said parcels of land, for which reason, petitioner has executed an Affidavit of Consolidation of
Ownership which, to date, has not been submitted to the Registry of Deeds of Tagaytay City, in view of the fact that possession of the aforesaid
titles or owners duplicate certificates of title remains with the RBO.

7. To date, petitioner has not been able to effect the registration of said parcels of land in his name in view of the persistent refusal of
respondents, despite demand, to surrender RBOs copies of its owners certificates of title for the parcels of land covered by TCT Nos. 13769 and
13770.[4]

Respondent RBO filed a motion to dismiss on the ground of res judicata alleging that petitioner had earlier sought a similar relief from Br.
18 of the Regional Trial Court of Tagaytay City, which case was dismissed with finality on appeal before the Court of Appeals.

In a supplemental motion to dismiss, respondent RBO contended that it was undergoing liquidation and, pursuant to prevailing
jurisprudence, it is the liquidation court which has exclusive jurisdiction to take cognizance of petitioners claim.

On 7 May 1991 the trial court denied the motion to dismiss because it found that the causes of action in the previous and present cases
were different although it was silent on the jurisdictional issue. Accordingly, respondent RBO filed a motion for reconsideration but the same
was similarly rejected in the order of June 11, 1991 holding that: (a) subject parcels of land were sold to petitioner through public bidding on
23 March 1984 and, consequently, said pieces of realty were no longer part of the assets of respondent RBO; and, (b) in the same token,
subject lots were no longer considered assets of respondent RBO when its liquidation was commenced by the Central Bank on 9 November 1984
and when the petition for assistance in its liquidation was approved by the Regional Trial Court of Olongapo City on 30 May 1985.

On 5 July 1991 respondent RBO filed a manifestation and urgent motion for reconsideration arguing that the validity of the certificate of
sale issued to petitioner was still at issue in another case between them and therefore the properties covered by said certificate were still part
and parcel of its assets.

Still unpersuaded by respondent RBOs arguments, the trial court denied reconsideration in its order of 18 September 1991 prompting the
bank to elevate the case to respondent Court of Appeals by way of a petition for certiorari and prohibition. On 12 February 1992 respondent
court rendered a decision annulling the challenged order of the court a quo dated 19 June 1991 which sustained the jurisdiction of the trial court
as well as the order of 18 September 1991 denying reconsideration thereof. Moreover, the trial judge was ordered to dismiss Civil Case No. Q-
91-8019 without prejudice to the right of petitioner to file his claim in the liquidation proceedings (Sp. Proc. No. 170-0-85) pending before Br.
73 of the Regional Trial Court ofOlongapo City.[5]

In reversing the trial court the appellate court noted that Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827[6] does not limit the
jurisdiction of the liquidation court to claims against the assets of the insolvent bank. The provision is general in that it clearly and unqualifiedly
states that the liquidation court shall have jurisdiction to adjudicate disputed claims against the bank. Disputed claims refer to all claims,
whether they be against the assets of the insolvent bank, for specific performance, breach of contract, damages, or whatever. To limit the
jurisdiction of the liquidation court to those claims against the assets of the bank is to remove significantly and without basis the cases that
may be brought against a bank in case of insolvency.

Respondent court also noted that the certificates of title are still in the name of respondent RBO. As far as third persons are concerned
(and these include claimants in the liquidation court), registration is the operative act which would convey title to the property.

Petitioner submits that Civil Case No. Q-91-8019 may proceed independently of Sp. Proc. No. 170-0-85. He argues that the disputed
parcels of land have been extrajudicially foreclosed and the corresponding certificate of sale issued in his favor; that considering that respondent
RBO failed to redeem said properties he should now be allowed to consolidate his title thereto; that respondent RBOs mortgage of TCT Nos.
13769 and 13770 in favor of petitioner and its subsequent foreclosure are presumed valid and regular; and, that the liquidation court has no
jurisdiction over subject parcels of land since they are no longer assets of respondent RBO.

We find no merit in the petition. Section 29, par. 3, of R.A. 265 as amended by P. D. 1827 provides

If the Monetary Board shall determine and confirm within (sixty days) that the bank x x x is insolvent or cannot resume business with safety to
its depositors, creditors and the general public, it shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation
and approve a liquidation plan. The Central Bank shall, by the Solicitor General, file a petition in the Court of First Instance [7] reciting the
proceedings which have been taken and praying the assistance of the court in the liquidation of such institution. The court shall have jurisdiction
in the same proceedings to adjudicate disputed claims against the bank x x x and enforce individual liabilities of the stockholders and do all that
is necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary Board (italics supplied).

Applying the aforequoted provision in Hernandez v. Rural Bank of Lucena, Inc.,[8] this Court ruled
The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the Superintendent of Banks, as a receiver, for
conversion into cash, and that its liquidation is undertaken with judicial intervention means that, as far as lawful and practicable, all claims
against the insolvent bank should be filed in the liquidation proceeding (italics supplied).

We explained therein the rationale behind the provision, i.e., the judicial liquidation is intended to prevent multiplicity of actions against the
insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank, to obviate the
proliferation of litigations and to avoid injustice and arbitrariness. The lawmaking body contemplated that for convenience only one court, if
possible, should pass upon the claims against the insolvent bank and that the liquidation court should assist the Superintendent of Banks and
regulate his operations.

The phrase (T)he court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank appears to have
misled petitioner. He argues that to the best of his personal knowledge there is no pending action filed before any court or agency which contests
his right over subject properties. Thus his petition before the Regional Trial Court of Quezon City cannot be considered a disputed claim as
contemplated by law.

It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court. As may be gleaned in
the Hernandez case, the term disputed claim in the provision simply connotes that

[n] the course of the liquidation, contentious cases might arise wherein a full-dress hearing would be required and legal issues would have to
be resolved. Hence, it would be necessary injustice to all concerned that a Court of First Instance (now Regional Trial Court) x x x assist and
supervise the liquidation and x x x act as umpire or arbitrator in the allowance and disallowance of claims.

Petitioner must have overlooked the fact that since respondent RBO is insolvent other claimants not privy to their transaction may be
involved. As far as those claimants are concerned, in the absence of certificates of title in the name of petitioner, subject lots still form part of
the assets of the insolvent bank.

On the basis of the Hernandez case as well as Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827, respondent Court of Appeals was
correct in holding that the Regional Trial Court of Quezon City, Br. 79, did not have jurisdiction over the petition, much less in ordering the
dismissal of Civil Case No. Q-91-8019, without prejudice to petitioners right to file his claim in Sp. Proc. No. 170-0-85 before the Regional Trial
Court of Olongapo City, Br. 73.

WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals dated 12 February 1992 is AFFIRMED. Costs against
petitioner. SO ORDERED.
 [G.R. No. 74851. December 9, 1999]

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. INTERMEDIATE APPELLATE COURT AND BF HOMES,
INC., respondents.

RESOLUTION

MELO, J.:

On September 14, 1992, the Court passed upon the case at bar and rendered its decision, dismissing the petition of Rizal Commercial
Banking Corporation (RCBC), thereby affirming the decision of the Court of Appeals which canceled the transfer certificate of title issued in favor
of RCBC, and reinstating that of respondent BF Homes.

This will now resolve petitioners motion for reconsideration which, although filed in 1992 was not deemed submitted for resolution until
in late 1998. The delay was occasioned by exchange of pleadings, the submission of supplemental papers, withdrawal and change of lawyers,
not to speak of the case having been passed from one departing to another retiring justice. It was not until May 3, 1999, when the case was
re-raffled to herein ponente, but the record was given to him only sometime in the late October 1999.

By way of review, the pertinent facts as stated in our decision are reproduced herein, to wit:

On September 28, 1984, BF Homes filed a Petition for Rehabilitation and for Declaration of Suspension of Payments (SEC Case No. 002693)
with the Securities and Exchange Commission (SEC).

One of the creditors listed in its inventory of creditors and liabilities was RCBC.

On October 26, 1984, RCBC requested the Provincial Sheriff of Rizal to extra-judicially foreclose its real estate mortgage on some properties of
BF Homes. A notice of extra-judicial foreclosure sale was issued by the Sheriff on October 29, 1984, scheduled on November 29, 1984, copies
furnished both BF Homes (mortgagor) and RCBC (mortgagee).

On motion of BF Homes, the SEC issued on November 28, 1984 in SEC Case No. 002693 a temporary restraining order (TRO), effective for 20
days, enjoining RCBC and the sheriff from proceeding with the public auction sale. The sale was rescheduled to January 29, 1985.

On January 25, 1985, the SEC ordered the issuance of a writ of preliminary injunction upon petitioners filing of a bond. However, petitioner did
not file a bond until January 29, 1985, the very day of the auction sale, so no writ of preliminary injunction was issued by the SEC. Presumably,
unaware of the filing of the bond, the sheriffs proceeded with the public auction sale on January 29, 1985, in which RCBC was the highest bidder
for the properties auctioned.

On February 5, 1985, BF Homes filed in the SEC a consolidated motion to annul the auction sale and to cite RCBC and the sheriff for
contempt. RCBC opposed the motion.

Because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of a certificate of sale covering the auctioned properties.

On February 13, 1985, the SEC in Case No. 002693 belatedly issued a writ of preliminary injunction stopping the auction sale which had been
conducted by the sheriff two weeks earlier.

On March 13, 1985, despite SEC Case No. 002693, RCBC filed with the Regional Trial Court, Br. 140, Rizal (CC 10042) an action for mandamus
against the provincial sheriff of Rizal and his deputy to compel them to execute in its favor a certificate of sale of the auctioned properties.

In answer, the sheriffs alleged that they proceeded with the auction sale on January 29, 1985 because no writ of preliminary injunction had
been issued by SEC as of that date, but they informed the SEC that they would suspend the issuance of a certificate of sale to RCBC.

On March 18, 1985, the SEC appointed a Management Committee for BF Homes.

On RCBCs motion in the mandamus case, the trial court issued on May 8, 1985 a judgment on the pleadings, the dispositive portion of which
states:

WHEREFORE, petitioners Motion for Judgment on the pleadings is granted and judgement is hereby rendered ordering respondents to execute
and deliver to petitioner the Certificate of the Auction Sale of January 29, 1985, involving the properties sold therein, more particularly those
described in Annex C of their Answer. (p. 87, Rollo.)

On June 4, 1985, B.F. Homes filed an original complaint with the IAC pursuant to Section 9 of B.P. 129 praying for the annulment of the
judgment, premised on the following:

x x x: (1) even before RCBC asked the sheriff to extra-judicially foreclose its mortgage on petitioners properties, the SEC had already assumed
exclusive jurisdiction over those assets, and (2) that there was extrinsic fraud in procuring the judgment because the petitioner was not
impleaded as a party in the mandamus case, respondent court did not acquire jurisdiction over it, and it was deprived of its right to be heard.
(CA Decision, p. 88, Rollo).

On April 8, 1986, the IAC rendered a decision, setting aside the decision of the trial court, dismissing the mandamus case and suspending
issuance to RCBC of new land titles, until the resolution of case by SEC in Case No. 002693, disposing as follows:

WHEREFORE, the judgment dated May 8, 1985 in Civil Case No. 10042 is hereby annulled and set aside and the case is hereby dismissed. In
view of the admission of respondent Rizal Commercial Banking Corporation that the sheriffs certificate of sale has been registered on BF Homes
TCTs . . . (here the TCTs were enumerated) the Register of Deeds for Pasay City is hereby ordered to suspend the issuance to the mortgagee-
purchaser, Rizal Commercial Banking Corporation, of the owners copies of the new land titles replacing them until the matter shall have been
resolved by the Securities and Exchange Commission in SEC Case No. 002693.

(p. 257-260, Rollo; also pp. 832-834, 213 SCRA 830[1992]; Emphasis in the original.)

On June 18, 1986, RCBC appealed the decision of the then Intermediate Appellate Court (now, back to its old revered name, the Court of
Appeals) to this Court, arguing that:
1. Petitioner did not commit extrinsic fraud in excluding private respondent as party defendant in Special Civil Case No. 10042 as private
respondent was not indispensable party thereto, its participation not being necessary for the full resolution of the issues raised in said case.

2. SEC Case No. 2693 cannot be invoked to suspend Special Civil Case No. 10042, and for that matter, the extra-judicial foreclosure of the real
estate mortgage in petitioners favor, as these do not constitute actions against private respondent contemplated under Section 6(c) of
Presidential Decree No. 902-A.

3. Even assuming arguendo that the extra-judicial sale constitute an action that may be suspended under Section 6(c) of Presidential Decree
No. 902-A, the basis for the suspension thereof did not exist so as to adversely affect the validity and regularity thereof.

4. The Regional Trial court had jurisdiction to take cognizance of Special Civil Case No. 10042.

5. The Regional Trial court had jurisdiction over Special Civil Case No. 10042.

(p. 5, Rollo.)

On November 12, 1986, the Court gave due course to the petition. During the pendency of the case, RCBC brought to the attention of the
Court an order issued by the SEC on October 16, 1986 in Case No.002693, denying the consolidated Motion to Annul the Auction Sale and to
cite RCBC and the Sheriff for Contempt, and ruling as follows:

WHEREFORE, the petitioners Consolidated Motion to Cite Sheriff and Rizal Commercial Banking Corporation for Contempt and to Annul
Proceedings and Sale, dated February 5, 1985, should be as is, hereby DENIED.

While we cannot direct the Register of Deeds to allow the consolidation of the titles subject of the Omnibus Motion dated September 18, 1986
filed by the Rizal Commercial banking Corporation, and therefore, denies said Motion, neither can this Commission restrain the said bank and
the Register of Deeds from effecting the said consolidation.

SO ORDERED.

(p. 143, Rollo.)

By virtue of the aforesaid order, the Register of Deeds of Pasay City effected the transfer of title over subject pieces of property to
petitioner RCBC, and the issuance of new titles in its name. Thereafter, RCBC presented a motion for the dismissal of the petition, theorizing
that the issuance of said new transfer certificates of title in its name rendered the petition moot and academic.

In the decision sought to be reconsidered, a greatly divided Court (Justices Gutierrez, Nocon, and Melo concurred with the ponente, Justice
Medialdea; Chief Justice Narvasa, Justices Bidin, Regalado, and Bellosillo concurred only in the result; while Justice Feliciano dissented and was
joined by Justice Padilla, then Justice, now Chief Justice Davide, and Justice Romero; Justices Grio-Aquino and Campos took no part) denied
petitioners motion to dismiss, finding basis for nullifying and setting aside the TCTs in the name of RCBC. Ruling on the merits, the Court upheld
the decision of the Intermediate Appellate Court which dismissed the mandamus case filed by RCBC and suspended the issuance of new titles
to RCBC. Setting aside RCBCs acquisition of title and nullifying the TCTs issued to it, the Court held that:

. . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert
such preference, but . . . stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or
cause discrimination among them. If foreclosure is undertaken despite the fact that a petition for rehabilitation has been filed, the certificate of
sale shall not be delivered pending rehabilitation. Likewise, if this has also been done, no transfer of title shall be effected also, within the period
of rehabilitation. The rationale behind PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if one
creditor is preferred over the others.

In this connection, the prohibition against foreclosure attaches as soon as a petition for rehabilitation is filed. Were it otherwise, what is to
prevent the petitioner from delaying the creation of a Management Committee and in the meantime dissipate all its assets. The sooner the SEC
takes over and imposes a freeze on all the assets, the better for all concerned.

(pp. 265-266, Rollo; also p. 838, 213 SCRA 830[1992].)

Then Justice Feliciano (joined by three other Justices), dissented and voted to grant the petition. He opined that the SEC acted prematurely
and without jurisdiction or legal authority in enjoining RCBC and the sheriff from proceeding with the public auction sale. The dissent maintain
that Section 6 (c) of Presidential Decree 902-A is clear and unequivocal that, claims against the corporations, partnerships, or associations shall
be suspended only upon the appointment of a management committee, rehabilitation receiver, board or body. Thus, in the case under
consideration, only upon the appointment of the Management Committee for BF Homes on March 18, 1985, should the suspension of actions
for claims against BF Homes have taken effect and not earlier.

In support of its motion for reconsideration, RCBC contends:

The restraining order and the writ of preliminary injunction issued by the Securities and Exchange Commission enjoining the foreclosure sale of
the properties of respondent BF Homes were issued without or in excess of its jurisdiction because it was violative of the clear provision of
Presidential Decree No. 902-A, and are therefore null and void; and

Petitioner, being a mortgage creditor, is entitled to rely solely on its security and to refrain from joining the unsecured creditors in SEC Case
No. 002693, the petition for rehabilitation filed by private respondent.

We find the motion for reconsideration meritorious.

The issue of whether or not preferred creditors of distressed corporations stand on equal footing with all other creditors gains relevance
and materiality only upon the appointment of a management committee, rehabilitation receiver, board, or body. Insofar as petitioner RCBC is
concerned, the provisions of Presidential Decree No. 902-A are not yet applicable and it may still be allowed to assert its preferred status
because it foreclosed on the mortgage prior to the appointment of the management committee on March 18, 1985. The Court, therefore, grants
the motion for reconsideration on this score.

The law on the matter, Paragraph (c), Section 6 of Presidential Decree 902-A, provides:

Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission in
accordance with the pertinent provisions of the Rules of Court in such other cases whenever necessary to preserve the rights of the parties-
litigants to and/or protect the interest of the investing public and creditors; Provided, however, that the Commission may, in appropriate cases,
appoint a rehabilitation receiver of corporations, partnerships or other associations not supervised or regulated by other government agencies
who shall have, in addition to the powers of a regular receiver under the provisions of the Rules of Court, such functions and powers as are
provided for in the succeeding paragraph (d) hereof: Provided, finally, That upon appointment of a management committee, rehabilitation
receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnerships or associations under management or
receivership pending before any court, tribunal, board or body shall be suspended accordingly. (As amended by PDs No. 1673, 1758 and by PD
No. 1799. Emphasis supplied.)

It is thus adequately clear that suspension of claims against a corporation under rehabilitation is counted or figured up only upon the
appointment of a management committee or a rehabilitation receiver.The holding that suspension of actions for claims against a corporation
under rehabilitation takes effect as soon as the application or a petition for rehabilitation is filed with the SEC may, to some, be more logical
and wise but unfortunately, such is incongruent with the clear language of the law. To insist on such ruling, no matter how practical and noble,
would be to encroach upon legislative prerogative to define the wisdom of the law plainly judicial legislation.

It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is clear and free from any doubt or
ambiguity, there is no room for construction or interpretation. As has been our consistent ruling, where the law speaks in clear and categorical
language, there is no occasion for interpretation; there is only room for application (Cebu Portland Cement Co. vs. Municipality of Naga, 24
SCRA 708 [1968]).

Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has no choice but to see to it that its
mandate is obeyed (Chartered Bank Employees Association vs. Ople, 138 SCRA 273 [1985]; Luzon Surety Co., Inc. vs. De Garcia, 30 SCRA 111
[1969]; Quijano vs. Development Bank of the Philippines, 35 SCRA 270 [1970]).

Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true intent. Ambiguity is a condition of
admitting two or more meanings, of being understood in more than one way, or of referring to two or more things at the same time. A statute
is ambiguous if it is admissible of two or more possible meanings, in which case, the Court is called upon to exercise one of its judicial functions,
which is to interpret the law according to its true intent.

Furthermore, as relevantly pointed out in the dissenting opinion, a petition for rehabilitation does not always result in the appointment of
a receiver or the creation of a management committee. The SEC has to initially determine whether such appointment is appropriate and
necessary under the circumstances. Under Paragraph (d), Section 6 of Presidential Decree No. 902-A, certain situations must be shown to exist
before a management committee may be created or appointed, such as;

1. when there is imminent danger of dissipation, loss, wastage or destruction of assets or other properties; or

2. when there is paralization of business operations of such corporations or entities which may be prejudicial to the interest of
minority stockholders, parties-litigants or to the general public.

On the other hand, receivers may be appointed whenever:

1. necessary in order to preserve the rights of the parties-litigants; and/or

2. protect the interest of the investing public and creditors. (Section 6 (c), P.D. 902-A.)

These situations are rather serious in nature, requiring the appointment of a management committee or a receiver to preserve the existing
assets and property of the corporation in order to protect the interests of its investors and creditors. Thus, in such situations, suspension of
actions for claims against a corporation as provided in Paragraph (c) of Section 6, of Presidential Decree No. 902-A is necessary, and here we
borrow the words of the late Justice Medialdea, so as not to render the SEC management Committee irrelevant and inutile and to give it
unhampered rescue efforts over the distressed firm (Rollo, p. 265).

Otherwise, when such circumstances are not obtaining or when the SEC finds no such imminent danger of losing the corporate assets, a
management committee or rehabilitation receiver need not be appointed and suspension of actions for claims may not be ordered by the
SEC. When the SEC does not deem it necessary to appoint a receiver or to create a management committee, it may be assumed, that there
are sufficient assets to sustain the rehabilitation plan and, that the creditors and investors are amply protected.

Petitioner additionally argues in its motion for reconsideration that, being a mortgage creditor, it is entitled to rely on its security and that
it need not join the unsecured creditors in filing their claims before the SEC-appointed receiver. To support its position, petitioner cites the
Courts ruling in the case of Philippine Commercial International Bank vs. Court of Appeals, (172 SCRA 436 [1989]) that an order of suspension
of payments as well as actions for claims applies only to claims of unsecured creditors and cannot extend to creditors holding a mortgage,
pledge, or any lien on the property.

Ordinarily, the Court would refrain from discussing additional matters such as that presented in RCBCs second ground, and would rather
limit itself only to the relevant issues by which the controversy may be settled with finality.

In view, however, of the significance of such issue, and the conflicting decisions of this Court on the matter, coupled with the fact that
our decision of September 14, 1992, if not clarified, might mislead the Bench and the Bar, the Court resolved to discuss further.

It may be recalled that in the herein en banc majority opinion (pp. 256-275, Rollo, also published as RCBC vs. IAC, 213 SCRA 830 [1992]),
we held that:

. . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert
such preference, but . . . stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or
cause discrimination among them. If foreclosure is undertaken despite the fact that a petition for rehabilitation has been filed, the certificate of
sale shall not be delivered pending rehabilitation. Likewise, if this has also been done, no transfer of title shall be effected also, within the period
of rehabilitation. The rationale behind PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if one
creditor is preferred over the others.

In this connection, the prohibition against foreclosure attaches as soon as a petition for rehabilitation is filed. Were it otherwise, what is to
prevent the petitioner from delaying the creation of a Management Committee and in the meantime dissipate all its assets. The sooner the SEC
takes over and imposes a freeze on all the assets, the better for all concerned.

(pp. 265-266, Rollo; also p. 838, 213 SCRA 830[1992]. Emphasis supplied.)

The foregoing majority opinion relied upon BF Homes, Inc. vs. Court of Appeals (190 SCRA 262 [1990] per Cruz, J.: First Division) where
it was held that when a corporation threatened by bankruptcy is taken over by a receiver, all the creditors should stand on an equal footing. Not
anyone of them should be given preference by paying one or some of them ahead of the others. This is precisely the reason for the suspension
of all pending claims against the corporation under receivership. Instead of creditors vexing the courts with suits against the distressed firm,
they are directed to file their claims with the receiver who is a duly appointed officer of the SEC (pp. 269-270; emphasis in the original). This
ruling is a reiteration of Alemars Sibal & Sons, Inc. vs. Hon. Jesus M. Elbinias (pp. 99-100;186 SCRA 94 [1990] per Fernan, C.J.: Third Division).

Taking the lead from Alemars Sibal & Sons, the Court also applied this same ruling in Araneta vs. Court of Appeals (211 SCRA 390 [1992]
per Nocon, J.: Second Division).

All the foregoing cases departed from the ruling of the Court in the much earlier case of PCIB vs. Court of Appeals (172 SCRA 436 [1989]
per Medialdea, J.: First Division) where the Court categorically ruled that:
SECs order for suspension of payments of Philfinance as well as for all actions of claims against Philfinance could only be applied to claims of
unsecured creditors. Such order can not extend to creditors holding a mortgage, pledge or any lien on the property unless they give up the
property, security or lien in favor of all the creditors of Philfinance. . .

(p. 440. Emphasis supplied)

Thus, in BPI vs. Court of Appeals (229 SCRA 223 [1994] per Bellosillo, J.: First Division) the Court explicitly stated that . . . the doctrine
in the PCIB Case has since been abrogated. In Alemars Sibal & Sons v. Elbinias, BF Homes, Inc. v. Court of Appeals, Araneta v. Court of
Appeals and RCBC v. Court of Appeals, we already ruled that whenever a distressed corporation asks SEC for rehabilitation and suspension of
payments, preferred creditors may no longer assert such preference, but shall stand on equal footing with other creditors. . . (pp. 227-228).

It may be stressed, however, that of all the cases cited by Justice Bellosillo in BPI, which abandoned the Courts ruling in PCIB, only the
present case satisfies the constitutional requirement that no doctrine or principle of law laid down by the court in a decision rendered en banc or
in division may be modified or reversed except by the court sitting en banc (Sec 4, Article VIII, 1987 Constitution). The rest were division
decisions.

It behooves the Court, therefore, to settle the issue in this present resolution once and for all, and for the guidance of the Bench and the
Bar, the following rules of thumb shall are laid down:

1. All claims against corporations, partnerships, or associations that are pending before any court, tribunal, or board, without distinction
as to whether or not a creditor is secured or unsecured, shall be suspended effective upon the appointment of a management committee,
rehabilitation receiver, board, or body in accordance with the provisions of Presidential Decree No. 902-A.

2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally suspended upon the
appointment of a management committee, rehabilitation receiver, board, or body. In the event that the assets of the corporation, partnership,
or association are finally liquidated, however, secured and preferred credits under the applicable provisions of the Civil Code will definitely have
preference over unsecured ones.

In other words, once a management committee, rehabilitation receiver, board or body is appointed pursuant to P.D. 902-A, all actions for
claims against a distressed corporation pending before any court, tribunal, board or body shall be suspended accordingly.

This suspension shall not prejudice or render ineffective the status of a secured creditor as compared to a totally unsecured creditor. P.D.
902-A does not state anything to this effect. What it merely provides is that all actions for claims against the corporation, partnership or
association shall be suspended. This should give the receiver a chance to rehabilitate the corporation if there should still be a possibility for
doing so. (This will be in consonance with Alemars, BF Homes, Araneta, and RCBC insofar as enforcing liens by preferred creditors are
concerned.)

However, in the event that rehabilitation is no longer feasible and claims against the distressed corporation would eventually have to be
settled, the secured creditors shall enjoy preference over the unsecured creditors (still maintaining PCIB ruling), subject only to the provisions
of the Civil Code on Concurrence and Preferences of Credit (our ruling in State Investment House, Inc. vs. Court of Appeals, 277 SCRA 209
[1997]).

The majority ruling in our 1992 decision that preferred creditors of distressed corporations shall, in a way, stand on equal footing with all
other creditors, must be read and understood in the light of the foregoing rulings. All claims of both a secured or unsecured creditor, without
distinction on this score, are suspended once a management committee is appointed. Secured creditors, in the meantime, shall not be allowed
to assert such preference before the Securities and Exchange Commission. It may be stressed, however, that this shall only take effect upon
the appointment of a management committee, rehabilitation receiver, board, or body, as opined in the dissent.

In fine, the Court grants the motion for reconsideration for the cogent reason that suspension of actions for claims commences only from
the time a management committee or receiver is appointed by the SEC. Petitioner RCBC, therefore, could have rightfully, as it did, move for
the extrajudicial foreclosure of its mortgage on October 26, 1984 because a management committee was not appointed by the SEC until March
18, 1985.

WHEREFORE, petitioners motion for reconsideration is hereby GRANTED. The decision dated September 14, 1992 is vacated, the decision
of Intermediate Appellate Court in AC-G.R. No. SP-06313 REVERSED and SET ASIDE, and the judgment of the Regional Trial Court National
Capital Judicial Region, Branch 140, in Civil Case No. 10042 REINSTATED. SO ORDERED.
 [G.R. No. 126773. April 14, 1999]

RUBBERWORLD (PHILS.), INC., or JULIE YAP ONG, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, MARILYN F.
ARELLANO, EMILY S. LEGASPI, MYRNA S. GALGANA, MERCEDITA R. SONGCO, WILFREDO V. SANTOS, JOSEPHINE S.
RAMOS, REDENTOR G. HONA, LUZ B. HONA, ROLANDO B. CRUZ, GUILLERMA R. MUZONES, CARMELITA V. HALILI, SUSAN
A. REYES, EMILY A. ROBILLOS, PLACIDO REYES, MANOLITO DELA CRUZ, VICTORINO C. FRANCISCO, ROGER B. MARIAS,
VIOLETA ALEJO, RICARDO T. TORRES, EMMA DELA TORRE, PERLA N. MANZANERO, FRANCISCO D. SERDONCILLO,
LUISITO P. HERNANDEZ, RAYMOND PEREA, EDITHA A. SERDONCILLO, FRANCISCO GENER, MARIO B. REYES, VALERIANO
A. HERRERA, JORGE S. SEERES, ELENA S. IGNACIO, EMERITA S. CACHERO, NERIZA G. ENRIQUEZ, LOLITA M. FABULAR,
NORMITA M. HERNANDEZ, DOMINADOR P. ENRIQUEZ, respondents.

DECISION

PANGANIBAN, J.:

Presidential Decree 902-A, as amended, provides that "upon the appointment of a management committee, rehabilitation receiver board
or body pursuant to this Decree, all actions for claims against corporations, partnerships, or associations under management or receivership
pending, before any court, tribunal, board or body shall be suspended accordingly."[1] Such suspension is intended to give enough breathing
space for the management committee or rehabilitation receiver to make the business viable again, without having to divert attention and
resources to litigations in various fora. Among, the actions suspended are those for money claims before labor tribunals, like the National Labor
Relation Commission (NLRC) and the Labor arbiters.

Statement of the Case

The foregoing Summarizes this Court's grant of the Petition for Certiorari under Rule 65 of the Rules of Court, assailing the April 26, 1996
Resolution[2] promulgate by the NLRC[3]which upheld the labor arbiter's refusal to suspend proceedings involving, monetary claims of the
petitioner's employees.

Petitioner likewise assails the June 20, 1996 NLRC Resolution[4] which denied its Motion for Reconsideration.

On November 20, 1996, this Court issued a temporary restraining order signed by then Chief Justice Andres R. Narvasa, "restraining the
public respondents from further conducting proceedings in the aforesaid cases effective immediately xxx."

The Facts

The facts are undisputed. They are narrated by the Office of the Solicitor General as follows:

"Petitioner xxx is a domestic corporation which used to be in the business of manufacturing footwear, bags and garments. It filed with the
Securities and Exchange Commission on November 24, 1994 a petition for suspension of payments praying that it be declared in a state of
suspension of payments and that the SEC accordingly issue an order restraining its creditors from enforcing their claims against petitioner
corporation. It further prayed for the creation of a management committee as well as for the approval of the proposed rehabilitation plan and
memorandum of agreement between petitioner corporation and its creditors.

"In an order dated December 28, 1994, the SEC favorably ruled on the petition for suspension of payments thusly:

'Accordingly, with the creation of the Management Committee, all actions for claims against Rubberworld Philippines, Inc. pending before any
court, tribunal, office, board, body Commission of Sheriff are hereby deemed SUSPENDED.

'Consequently, all pending incidents for preliminary injunctions, writ of attachments (sic), foreclosures' and the like are hereby rendered moot
and academic.'

"Private respondents, who claim to be employees of petitioner corporation, filed against petitioners [from] April to July 1995 their respective
complaints for illegal dismissal, unfair labor practice, damages and payment of separation pay, retirement benefits, 13th month pay and service
incentive pay.

"Petitioners moved to suspend the proceedings in the above labor cases on the strength of the SEC Order dated December 28, 1994. Likewise,
petitioners cited the rulings of BF Homes vs.Court of Appeals (190 SCRA 262), Alemar's Sibal & Sons, Inc. vs. Elbinias (186 SCRA 94) and Bank
of Philippine Islands vs. Court of Appeals (229 SCRA 223) to support their motion to suspend the proceedings in the labor cases.

"In an Order dated September 25, 1995, the Labor Arbiter denied the aforesaid motion holding that the injunction contained in the SEC Order
applied only to the enforcement of established rights and did not include the suspension of proceedings involving claims against petitioner which
have yet to be ascertained. The Labor Arbiter further held that the order of the SEC suspending all actions for claims against petitioners does
not cover the claims of private respondents in the labor cases because said claims and the concomitant liability of petitioners still had to be
determined, thus carrying no dissipation of the assets of petitioners.

"Petitioners appealed the adverse order of the Labor Arbiter to public respondent which, in a Resolution dated April 26, 1996, dismissed the
appeal for lack of merit and, instead, sustained the rulings of the Labor Arbiter.

"The motion for reconsideration of petitioners fared no better and was denied by public respondent in a Resolution dated June 20, 1996."[5]

Hence, this petition.[6]

The Issue

Petitioner raises only one issue:

 "Whether or not the Respondent NLRC acted without or in excess of Jurisdiction or with grave abuse of discretion amounting to lack of
jurisdiction in affirming the order of Labor Arbiter Voltaire A. Balitaan denying petitioners' motion to suspend proceedings despite the
Order of the Securities and Exchange Commission under Sec. 6 (c) of P.D. 902-A directing the suspension of all actions against a company
under the first stages of insolvency proceedings."[7]

This Court's Ruling

The petition is meritorious.

Sole Issue:
Suspension Proceedings

Jurisprudence teaches us:

"xxx where the petition filed is one for declaration of a state of suspension of payments due to a recognition of the inability to pay one's debts
and liabilities, and where the petitioning corporation either: (a) has sufficient property to cover all its debts but foresees the impossibility of
meeting them when they fall due (solvent but illiquid) or (b) has no sufficient property (insolvent) but is under the management of a
rehabilitation receiver or a management committee, the applicable law is P.D. 902-A pursuant to Sec. 5 par. (d) thereof. However, if the
petitioning corporation has no sufficient assets to cover its liabilities and is not under a rehabilitation receiver or a management committee
created under P.D. 902-A and does not seek merely to have the payments of its debts suspended, but seeks a declaration of insolvency xxx
the applicable law is Act 1956 [The Insolvency Law] on voluntary insolvency, xxx." [8]

In the case at bar, Petitioner Rubberworld filed before the SEC a Petition for Declaration of Suspension of Payments, as well as a propose
rehabilitation plan. On December 28, 1994, the SEC ordered the creation of a management committee and the suspension of all actions for
claim against Rubberworld. Clearly, the applicable law is PD 902-A, as amended, the relevant provision of which read:

"SECTION 5. In addition to the regulatory adjudicative functions of the Securities and Exchange Commission over corporations, partnerships
and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:

xxxxxxxxx

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation,
partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the
management of a rehabilitation receiver or management committee created pursuant to this Decree.

SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

xxxxxxxxx

c) To appoint one or more receivers of the property, real or personal, which is the subject of the action pending before the Commission in
accordance with the pertinent provisions of the Rules of Court in such other cases whenever necessary in order to preserve the rights of the
parties-litigants and/or protect the interest of the investing public and creditors: x x x Provided finally, That upon appointment of a management
committee, the rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnerships, or
associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly."

It is plain from the foregoing provisions of law that "upon the appointment [by, the SEC] of a management committee or a rehabilitation
receiver," all actions for claims against the corporation pending before any court, tribunal or board shall ipso jure be suspended.[9] The
justification for the automatic stay of all pending actions for claims "is to enable the management committee or the rehabilitation receiver to
effectively exercise its/his powers free from any judicial or extra-judicial interference that might unduly hinder or prevent the 'rescue' of the
debtor company. To allow such other actions to continue would only add to the burden of the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring
and rehabilitation."[10]

Parenthetically, the rehabilitation of a financially distressed corporation benefits its employees, creditors, stockholders and, in a larger
sense, the general public. And in considering whether to rehabilitate or not, the SEC gives preference to the interest of creditors, including
employees. The reason that shareholders can recover their investments only upon liquidation of' the corporation, and only if there are assets
remaining after all corporate creditors ire paid.[11]

Labor Claims Included in Suspension Order

The solicitor general, representing Public Respondent NLRC, argues that the rationale for an automatic stay will not be frustrated even if
the NLRC proceeds with the disposition of these labor cases, because any favorable judgment obtained by the private respondents would
only establish their rights as creditors. The solicitor general also contends that the assailed Resolutions of the NLRC will not result in an undue
preference for the assets of Rubberworld, as the private respondents will still present their claims before the management committee.[12]

We disagree. The law is clear: upon the creation of a management committee or the appointment of rehabilitation receiver, all claims for
actions "shall be suspended accordingly." No exception in favor of labor claims is mentioned in the law. Since the law makes no distinction or
exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere debemos.[13] Allowing labor cases to proceed clearly defeats
the purpose of the automatic stay and severely encumbers the management committee's time and resources. The said committee would need
to defend against these suits, to the detriment of its primary and urgent duty to work towards rehabilitating the corporation and making it
viable again. To rule otherwise would open the floodgates to other similarly situated claimants and forestall if not defeat the rescue
efforts. Besides, even if the NLRC awards the claims of private respondents, as it did, its ruling could not be enforced as long as the petitioner
is under the management committee.[14]

In Chua v. National Labor Relation Commission,[15] we ruled that labor claims cannot proceed independently of a bankruptcy liquidation
proceeding, since these claims "would spawn needless controversy, delays, and confusion." [16] With more reason, allowing labor claims to
continue in spite of a SEC suspension order in rehabilitation case would merely lead to such results.
 The solicitor general insists that since Article 217 of the Labor Code[17] vested public respondent with jurisdiction to hear and decide these
labor cases, the NLRC did not exceed its jurisdiction when it refused to suspend the proceedings therein.[18] The Court is not persuaded.

Article 217 of the Labor Code should be construed not in isolation but in harmony with PD 902-A, according to the basic rule in statutory
construction that implied repeals are not favored.[19] Indeed, it is axiomatic that each and every statute must be construed in a way that would
avoid conflict with existing laws.[20] True, the NLRC has the power to hear and decide labor disputes, but such authority is deemed suspended
when PD 902-A is put into effect by the Securities and Exchange Commission.

Preference in Favor of Workers in Case of Bankruptcy or Liquidation

The private respondents contend that automatic stay under PD 902-A is not applicable to the instant case; otherwise, the preference
granted to workers by Article 110 of the Labor Code would be rendered ineffective.[21] This contention is misleading.

The preferential right of workers and employees under Article 110 of the Labor Code may be invoked only upon the institution of insolvency
or judicial liquidation proceeding.[22] Indeed, it is well-settled that "a declaration of bankruptcy or a judicial liquidation must be present before
preferences over various money claims may be enforced."[23] But debtors resort to preference of credit -- giving preferred creditors the right to
have their claims paid ahead of those of other claimants -- only when their assets are insufficient to pay their debts fully.[24] The purpose of
rehabilitation proceedings is precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from
its earnings. In insolvency proceedings, on the other hand, the company stops operating, and the claims of creditors are satisfied from the
assets of the insolvent corporation. The present case involves the rehabilitation, not the liquidation, of petitioner-corporation. Hence, the
preference of credit granted to workers or employees under Article 110 of the Labor Code is not applicable.

Duration of Automatic Stay Under PD 902-A

Finally, private respondents posit that under Section 6 of the Insolvency Law, the December 28, 1994 Order of the SEC suspending all
actions for claims against Rubberworld should have expired after three months, in the absence of an agreement between the company and the
corporate creditors.[25] Private respondents also accuse the SEC of abusing its power by "allowing said suspension order to remain pending for
many years without resolving and approving any rehabilitation plan."[26] They contend that "[t]his is fatal to the instant petition for it had been
a party to the abuse by the SEC of its suspension order."[27]

This Court notes that PD 902-A itself does not provide for the duration of the automatic stay. Neither does the Order[28] of the SEC. Hence,
the suspensive effect has no time limit and remains in force as long as reasonably necessary to accomplish the purpose of the Order. [29] On the
other hand, the attack against the SEC's alleged "abuse of power" is misplaced. Under review in this Petition for Certiorari are Resolutions of
the NLRC, not of the SEC. The scope of this review is thus limited to whether the NLRC gravely abused or exceeded its jurisdiction in refusing
to heed the SEC Order of Suspension and in issuing its challenged Resolutions. In any event, the bare allegation of inaction is insufficient to
condemn the Securities and Exchange Commission and the management committee where, it should be noted, all affected parties, including,
the labor union in the company, are represented.

WHEREFORE, the petition is hereby GRANTED. The assailed Resolutions of the NLRC dated April 26, 1996, and June 20, 1996,
are REVERSED and SET ASIDE. No costs. SO ORDERED.
G.R. No. L-16483 December 7, 1921

PHILIPPINE TRUST COMPANY, as assignee of Salvador Hermanos, insolvent, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK, defendant-appellee.

Ross & Lawrence and Ewald E. Selph for appellant.

Roman J. Lacson for appellee.

JOHNS, J.:

The plaintiff and defendant are corporations organized under the laws of the Philippine Islands and domiciled in the city of Manila.

Salvador Hermanos was a copartnership and during the month of January, 1919, executed to the defendant eight promissory notes aggregating
P156,000, payable on demand, and each secured by a quedan, or warehouse receipt, issued by the firm of Nieva, Ruiz and Company, Each
note recites that it is payable on demand after date, for value received, and that the firm has deposited "with the said bank as collateral security
for the payment of this note, or any note given in extension or renewal thereof, as well as for the payment of any other liability or liabilities of
the undersigned to the said bank due or to become due, whether now existing or hereafter arising, the following property owned by the
undersigned." The note then specifies the number of the quedan and the amount of copra in piculs, and states that the quedan was issued by
Nieva, Ruiz and Company. The note for P8,000, dated January 18, 1919, was secured by warehouse receipt No. 30; for P20,000, dated January
22, 1919, was secured by receipt No. 35; for P20,000, dated January 24, 1919 was secured by receipt No. 38; for P20,000, dated January 27,
1919, was secured by receipt No. 41; for P14,000, dated January 28, 1919 was secured by receipt No. 42; for P18,000, dated January 21,
1919, was secured by receipt No. 33; for P18,000, dated January 23, 1919, was secured by receipt No. 36; and for P18,000, dated January 25,
1919, was secured by receipt No. 39, making a total of 16,051.10 piculs of copra, covered by the warehouse receipts of the firm of Nieva, Ruiz
and Company issued to the firm of Salvador Hermano, and by that firm pledged as collateral to the defendant to secure the payment of the
eight above-described notes. Each of them further recites that "on the nonperformance of this promise, or upon the non-payment of any of the
liabilities above-mentioned, or upon the failure of the undersigned forthwith, with or without notice, to furnish satisfactory additional securities
in case of decline, as aforesaid, then and in either such case, this note and all liabilities of the undersigned, or any of them, shall forthwith
become due and payable, without demand or notice, and full power and authority are hereby given to said bank to sell, assign, transfer and
deliver the whole of the said securities, or any part thereof, or any substitutes therefor or any additions thereto, or any other securities or
property given unto or left in the possession of or hereafter give unto or left in the possession of said bank by the undersigned for safe keeping
or otherwise, at any brokers' board or at public or private sale, at the option of said bank or of its president or secretary, without either demand,
advertisement or notice of any kind, which are hereby expressly waived. At any such sale, the said bank may itself purchase the whole or any
part of the property sold, free from any right of redemption on the part of the undersigned, which is hereby waived and released." Stamped in
red ink across the face of each quedan are the words "Negotiable Warrant," and each of them was in the usual form of warehouse receipts.

On February 10, 1919, the firm of Salvador Hermanos withdrew from the defendant bank, by and with its consent, warehouse receipts Nos. 33,
36, and 39 above described, which the bank was holding as collateral security for each of the three 18,000-peso notes amounting to P54,000.
the total amount of copra evidenced by the receipts withdrawn was 6,024.55 piculs, the declared value of which, shown on the face of such
receipts, was P90,368.25. At the time of the withdrawal, the firm executed the following writing:

We received from the Philippine National Bank the warehouse receipts issued by Messrs. Nieva, Ruiz and Company, the contents of
which are as follows:

No. Date Sacks Piculs Declared Value

33 January 21/19 2,325 2,040.55 P30,608.25
36 January 23/19 2,175 1,992.00 29,880.00
39 January 25/19 2,335 1,992.00 29,880.00

Total 6,835 6,024.55 90,368.25

We promise to return to his bank the warehouse receipts above cited on or before the 27th instant. These warehouse receipts
are guaranteed by the attached certificate of existence of the effects of the 8th of February, 1919, issued by us.

Manila, P.I., February 10, 1919.

SALVADOR HERMANOS.
Per (Sgd.) G. SALVADOR.

to which was attached this writing:

MANILA, P. I., February 8, 1919.

We hereby certify that there exist the following articles in our bodegas as follows:

Soler Bodega.

100 tons kapok @ 200.00 .................. P20,000.00

100 piculs hemp @ 60.00 .................. 6,000.00
20,000 sacks (empty) @ 0.30 ............ 6,000.00
1 lot gum copal ................................... 1,900.00
1 lot gum elemi .................................... 1,700.00
500,000 rattan @ 12.00 ....................... 6,000.00
Aceites y grasas ................................. 800.00
9,000 sacks common salt @ 2.00 ...... 18,000.00

60,400.00
 Wise and Co. — Gagalañgin Bodega.

905 cas. Gs. in case @ 12.75 ............... P11,538.75

77 Cas, Gs. in drums
54 gals. 64.89 4,989.60
.................................

16,528.35

P76,928.35
========

and promise that none of the above articles would be removed without consulting first with the Philippine National Bank.

SALVADOR HERMANOS.
Per (Sgd.) G. SALVADOR.

Neither writing was in any manner authenticated by a notary or by a competent public official. The writing of February 10 is in form a receipt
from the firm of Salvador Hermanos to the Philippine National Bank of the quedans, or warehouse receipts, for the copra therein described. The
one of February 8 is, in legal effect, the certificate of Salvador Hermanos "that there exist the following articles in our bodegas as follows:"
(Here follows the described property.) That is to say, that the firm certifies that the property described is in the warehouse of the firm.

Act No. 1956 of the Philippine Legislature provides for the suspension of payments, the relief of insolvent debtors, the protection of creditors,
and the punishment of fraudulent debtors. The Act provides:

SECTION 1. This Act shall be known and may be cited as The Insolvency Law, and in accordance with its provisions every insolvent
debtor may be permitted to suspend payments or be discharged from his debts and liabilities.

Section 2 provides that debtor who possesses sufficient property to cover the debts, be it an individual, firm or corporation, and who
is unable to meet them at maturity, "may petition that he be declared in the state of suspension of payments by the court, or the
judge thereof in vacation."

Section 3 enacts that upon the filing of the petition, the court shall make an order calling a meeting of creditors specifying the time
and place; that notice thereof shall be published in a newspaper, and that "said order shall further contain an absolute injunction
forbidding the petitioning debtor from disposing in any manner of his property, except in so far as concerns the ordinary operations
of commerce or of industry in which the petitioner is engaged, and, furthermore, from making any payments outside of the necessary
or legitimate expenses of his business or industry, so long as the proceedings relative for the suspension of payments are pendings,
and said proceedings for the purposes of this Act shall be considered to have been instituted from the date of the filing of the petition."

Section 14, chapter 3, provides that any person owing debts exceeding P1,000 may apply to be discharged from his debts and liabilities
by petition to the Court of First Instance in which he has resided for six months preceding the filing of the petition.

Section 18 enacts that upon receiving and filing of the petition, schedule, and inventory, the court, or the judge, shall make an order
declaring the petitioner insolvent, and "shall further forbid the payment to the debtor of any debts due to him and the delivery to the
debtor, or to any person for him, of any property belonging to him, and the transfer of any property by him, and shall further appoint
a time and place for a meeting of the creditors to choose an assignee of the estate."

On April 21, 1919, Salvador Hermanos filed a petition of insolvency in the Court of First Instance of the city of Manila. Article 5 of the petition
recites:

That the following property and merchandise are being pledged in favor of the Philippine National Bank, as shown by a written
document, on account of its credit which amounts to P175,563.19, which are described as follows:

81,904 kilos kapok @ 0.20 ko ............................ P16,380.80

521,600 pieces rattan split 11.00 m ................... 5,737.60
93.94 piculs almaciga value ............................... 2,300.00
{@ 53 gls. each}
6,415.20
80 drums Union gasoline {@1.485 gal. } .........
100 cases gasoline 14.00 cs. ............................. 1,400.00
8 drums gasoline @ 54 gals, ea. 1.485 gl .......... 641.52
10,000 piculs copra p. picul 14.50 ....................... 145,000.00
35 bales cardboard value ..................................... 1,451.52

P179,326.64

The testimony is undisputed and conclusive that about May 3, 1919, Gregorio Salvador, a member of the firm of Salvador Hermanos, deliver
certain goods, wares, and merchandise to and in the warehouse of Nieva, Ruiz and Company, and requested that firm to issue its receipt
therefor to and in favor of the Philippine National Bank, and that, pursuant to such request, that firm did issue eight quedans to the bank as
follows:

No. 161 for 32 bales of hemp;

No. 162 for 953 bundles of rattan;
No. 165 for 72 bundles of empty sacks;
No. 167 for 136 sacks of gum;
No. 168 for 1,461 bales of kapok;
No. 175 for 288 packages of Talcum Powder;
 No. 176 for 35 packages of cardboard; and
No. 185 for 134 bundles of empty sacks.

On and between May 6, 1919 and August 7, 1919, acting under the terms and provisions of its respective notes, the defendant bank sold all of
the personal property for which it held warehouse receipts, or which had been surrendered to it by the Hermanos firm, save and except the
property described in the three warehouse receipts, which were released and surrendered to the firm on February 10, 1919.

Based upon its insolvency petition, and in the ordinary course of business, the firm of Salvador Hermanos was adjudged insolvent, and on July
19, 1919, the Philippine Trust Company was elected assignee of said firm and duly qualified. September 13, 1919, as such assignee, it made a
demand upon the bank for the surrender and delivery of the property described in all of the above receipts, and, upon the bank's refusal,
commenced this action to recover its value alleged to be P242,579.61, claiming that on April 21, 1919, the firm of Salvador Hermanos was the
sole and exclusive owner of the property, and that, as to the copra, about June 28, 1919, and after the filing of the insolvency petition, the
bank unlawfully seized and converted the copra to its own use, the value of which was P192,260. For a second cause of action, the plaintiff
alleges that, as such assignee, it was the owner of the remaining personal property, and that, after the insolvency petition was filed, the
defendant unlawfully seized and converted such property to its own use, and that it was of the value of P50,319.61.

For answer, the bank makes a general denial, as to each cause of action, of all of the material allegations of the complaint. This presents the
question as to who is the owner and entitled to possession of the property. There is but little, if any, dispute as to the facts.

It is conceded that in January, 1919, the firm of Salvador Hermanos executed to the Philippine National Bank the eight promissory notes above
described, and that each note was secured by the quedan, or warehouse receipt, of Nieva, Ruiz and Company, issued to the firm of Salvador
Hermanos for so many piculs of copra. That the notes are of the same form, the only difference being the date and the amount of the note, and
the number of the quedan, or warehouse receipt, and the amount of copra in piculs. Each warehouse receipt was duly numbered, dated and
signed by Nieva, Ruiz and Company, and recites "received from Salvador Hermanos the following packages of copra as specified below, which
are stored in warehouse No. 2, situated at _______________, subject to the terms and conditions stated on the face and back hereof, to be
delivered unto Salvador Hermanos, or order," giving the number of the warehouse where located, and the number of sacks, gross weight and
the declared value; across the face of each receipt is stamped in red ink the words "Negotiable Warrant." Among the conditions printed on the
back of the receipt is paragraph 4, as follows:

4. This Company will deliver the packages noted hereon, on surrender to the Company of this warrant endorsed by the party who
shall be for the time registered in the books of the Company as the owner of the packages described hereon; and the production by
the Company of this warrant shall at all times be conclusive proof that the Company and shall exempt the Company from all
responsibility in connection with the said packages or goods.

Also the following:

"Delivery is hereby authorized unto _____________________," opposite which some of the receipts were signed by the firm of Salvador
Hermanos, and others were not signed by any one.

The fact remains that at the time the eight promissory notes were executed, a given quedan, or warehouse receipt, was described and
incorporated in the note as to its number, when and by whom issued, and the property it represented, and each receipt was then delivered by
the firm to the defendant bank, all of which was during the month of January, 1919. The bank never had the manual possession or the physical
control of any of this property until after the insolvency petition was filed, and it is for such reason that the plaintiff claims that its was the
property of the firm, and that the defendant should account to the assignee.

Each quedan, or warehouse receipt, was specifically described in a given note, and was made a part of it, and the note recites that, for any
breach of its terms or conditions, the bank has full power and authority "to sell, assign, transfer and deliver the whole of the said security, or
any part thereof, etc.," and that "at any such sale, the said bank may itself purchase the whole any part of the property sold, free from any
right of redemption on the part of the undersigned, which is hereby waived and released."

In addition, the quedan itself was delivered to and held by the bank, and the warehouseman recognized the bank as the owner of the property.
Legally speaking, the owner of the quedans, or warehouse receipts, was the owner of the property described in them, and the quedans were
given as collateral to secure promissory notes, which, for value received, were executed to the bank.

The execution of the notes, the physical possession of the negotiable quedan, or warehouse receipt, and the recognition of ownership by the
warehouseman, legally carried with it both the titled to, and the possession of, the property. In such a case, a title is not founded on a public
instrument which should be authenticated by a notary or by competent public official. Legally speaking, the execution of the promissory notes
and the pledging of the quedans, or warehouse receipts, as collateral, and the describing of them in the notes, and the manual delivery of the
quedan, or warehouse receipt itself carries with it not only the title, but the legal possession of the property. In other words, as to the property
described in the quedans, or warehouse receipts, which were pledged, as collateral, in January, 1919, to secure the eight respective promissory
notes, both the title and the possession of that property were delivered to and vested in the defendant bank in January, 1919. Three of those
quedans, or warehouse receipts, were returned to the firm by the bank on February 10, 1919, but the bank still owned and held the notes,
which were secured by those warehouse receipts, and no part of the debt itself was paid by or through the surrender of the receipts. For such
reason, as to the first cause of action, the plaintiff cannot recover, and, as to it, the judgment of the lower court should be affirmed.

The second cause of action presents another and different question.

February 10, 1919, for some unexplained reason, the bank surrendered and returned to Salvador Hermanos the three quedans, or warehouse
receipts, Nos. 33, 36 and 39, which the firm has pledged to it as collateral on January 21, 23, and 25, 1919, to secure the payment of the three
notes of P18,000 each, executed on those respective dates. In its receipt for them, the firm promised to return the quedans to the bank "on or
before the 27th instant," meaning January 27, 1919, and it was therein stated that such warehouse receipts "are guaranteed by the attached
certificate of existence of the effects of the 8th of February, 1919, issued by us." The legal effect of this receipt is a promise on the part of the
firm to return the three quedans on or before January 27, 1919, and a statement that such receipts are guaranteed by the attached certificate
of the existence in the warehouse of the property described in the certificate. The statement of February 8, recites "we hereby certify that there
exist the following articles in our bodegas." Then follows a description of the property. This is nothing but a statement or representation to the
effect that the firm has the property in its warehouse. Nothing more. After describing the property, the certificate then says: "And promise that
none of the above articles would be removed without consulting first with the Philippine National Bank." There is no statement or representation
of any kind showing when or from whom the property was received, or how it was held, or who was the owner, or when or to whom it would
be delivered. When analyzed, this writing is nothing more than a certificate of the firm that the described property was then in its warehouse,
and a promise that none of the "articles would be removed without consulting first with the Philippine National Bank." Such a writing would not
transfer the title of the property to the bank, or give it possession, either actual or constructive. It will be noted that both the receipt of February
10 and the certificate and promise of February 8, are signed by the firm of Salvador Hermanos, and that the certificate says that the property
was then in the firm's warehouse, and that neither instrument was in any manner authenticated by a notary or a competent public officials, as
provided by article 1216 of the Civil code, and that the property was in the warehouse of the firm.

Article 1863 of the Civil Code provides:

 In addition to the requisites mentioned in article 1857, it shall be necessary, in order to constitute the contract of pledge, that the
pledge be placed in the possession of the creditor or of a third person appointed by common consent.

But here it appears from the certificate that the property was then in the possession of the firm, who made the certificate, and that it was in
the possession of that firm when its insolvency petition was filed on April 21, 1919. It further appears that on May 3, 1919, Gregorio Salvador,
a member of the firm, appeared at the offices of Nieva, Ruiz and Company, and requested that firm to issue its warehouse receipts to the
Philippine National Bank for certain goods, which on that date he placed in the warehouse of that company, and, in accord with his request,
Nieva, Ruiz and Company did issue to and in favor of the Philippine National Bank the following quedans, or warehouse receipts:

No. 161 for 32 bales of hemp, in warehouse No. 2, of the declared value of P880;

No. 162 for 953 bundles of rattan, in warehouse No. 2, of the declared value of P3,700.40;

No. 165 for empty sacks, in warehouse No. 2, of the declared value P450;

No. 167 for 136 sacks, of almaciga, in warehouse No. 1, of the declared value of P2,300;

No. 168 for 1,461 bales of kapok, in warehouse No. 1, of the declared value of P14,571.48;

No. 175 for 288 packages of talcum power, in warehouse No. 5, of the declared value of P15,582.26;

No. 176 for 35 packages of cartulina, in warehouse No. 5, of the declared value of P2,588.48; and

No. 185 for 134 bundles of empty sacks, in warehouse No. 2, of the declared value of P670, making a total declared value of the property
evidenced by such receipts of P40,742.62.

In the second cause of action, the complaint alleges that the defendant took and converted 88 drums of gasoline and 100 cases of gasoline;
none of which is included in the above receipts. Otherwise the property described in quedans Nos. 161 to 185, inclusive, correspond and are
identical with the property described in the second cause of action.1awphil.net

The bank founds its rights to claim the property described in the quedans Nos. 161 to 185, inclusive, upon the firm's certificate of February 8,
1919, above quoted. By comparison, it will be found that the property described in such quedans, or warehouse receipts, does not correspond
with the property described in the firm's certificate of February 8. In the certificate of February 8, there are aceites y grasas, or oil and grease,
valued at P800, and 9,000 sacks of common salt valued at P18,000 in the bodegas of the firm, and 905 cases of gasoline valued at P11,538.75,
and 77 cases of gasoline in drums, 54 gallons, valued at P4,989.60, in the warehouse of Wise and Company, that are not described in the
quedans Nos. 161 to 185 inclusive. It also appears that Talcum Power in receipt No. 175 of the value of P17,140, and cartulina in receipt No.
176 of the value of P2,847 are not included in the property described in the certificate of February 8, making a total value of the property
described in those two receipts, and which is not included in the certificate of February 8, of P19,987.

There is not any evidence of the actual market value of the property, but it does appear that at the time quedans Nos. 161 to 185, inclusive,
were issued, the bank itself placed a declared value upon that property of P40,742.62. Those quedans do not include the gasoline which the
bank admits it sold on May 24, 1919, for P4,989.60, and the gasoline when it held on May 28, 1919, for the sum of P2,641.80, or P7,631.40
which it received for gasoline. It is true that it appears from the sales report that the bank sold the property described in quedans Nos. 161 to
185, inclusive, for much less money than the valuation which it placed upon the property, but, in legal effect, when the quedans were issued,
the conversion of that property took place at the time they were issued to and accepted by the bank, and it should be charged with the value
of the property at the time of its conversion, and in the absence of any testimony as to the market value, it should be charged with the amount
which it actually received from the sale of the gasoline.

It will be noted that the promissory notes executed by the firm to the bank recite:

Full power and authority are hereby given to said bank to sell, assign, transfer and deliver the whole of the said securities, or any part
thereof, or any substitutes therefor or any additions thereto, or any other securities or property given unto or left in the possession
of or hereafter given unto or left in the possession of the said Bank by the undersigned.

Hence, the power and authority of the bank to sell, assign, or transfer is confined to property which was given unto or left in its possession.

As we have pointed out none of the property described in the certificate of February 8 was ever given unto or left in the possession of the bank.

The insolvency petition was filed April 21, 1919, and the plaintiff was duly elected and qualified, as assignee, on July 19, 1919, and, as such, it
represents both the creditors and the firm. Although it was not appointed until July, 1919, yet when it did qualify its right and title to all the
property of the firm related back and became vested as of April 21, 1919, when the insolvency petition was filed, and from that time it alone
had the power and authority to act for and represent the firm. Under the terms and provisions of Act No. 1956 of the Philippine Legislature,
after it was filed, the power of the firm or any member of it to deliver possession of the property to secure a preexisting debt was suspended
pending final adjudication. That is to say, if the debt was not legally secured before the insolvency petition was filed, no member of the firm
had any legal right to secure it after the petition was filed, and any attempt to do so would be null and void.

As to the first cause of action, we hold that in January, 1919, the bank became and remained the owner of the five quedans Nos. 30, 35, 38,
41 and 42; that they were in form negotiable, and that, as such owner, it was legally entitled to the possession and control of the property
therein described at the time the insolvency petition was filed and had a right to sell it and apply the proceeds of the sale to its promissory
notes, including the three notes of P18,000 each, which were formerly secured by the three quedans Nos. 33, 36, and 39, which the bank
surrendered to the firm. That is to say, the bank had a legal right to apply the proceeds from the property descried in the five remaining quedans
to the payment of its eight promissory notes.
As to the second cause of action, the judgment of the lower court is reversed, and one will be entered here in favor of the Philippine National
Bank, the defendant, for P40,742.62, the declared value of the property described in quedans Nos. 161 to 185, inclusive, and for the further
sum of P7,631.40, the value of the gasoline sold in May, 1919, or a total of P48,374.02 with interest thereon from September 22, 1919, at the
rate of 6 per cent per annum, and for the costs and disbursements in this and the lower court. So ordered.
G.R. No. L-27944 May 28, 1974

IN THE MATTER OF THE ESTATE OF MINDANAO MOTOR LINE, INC., An Insolvent Debtor, appellee, JESUS MORAZA, as President
and General Manager, petitioner,
vs.
EPIFANIO ALFORQUE, IGNACIO ALBA, FEDERICO BALUYOT, JOSE BENEMERITO, ANTONIO BORRE, ET AL., intervenors-appellants.

Manuel B. Pastrana for insolvent debtor, appellee.

Cesar E. Nitorreda for intervenors-appellants.

CASTRO, J.:p

On August 15, 1956 the fifty-three (53) appellants, Alforque, et al., filed a complaint against the Mindanao Motor Line, Inc. with the Court of
First Instance of Davao (docketed as civil case 2051) for payment of overtime compensation. The court, after due trial, found for the plaintiffs
and rendered judgment on December 23, 1957, ordering the defendant company to pay the plaintiffs the amount of P157,560.79 as unpaid
overtime compensation, the sum of P10,600 as attorney's fees, and the costs of the suit. The Court of Appeals affirmed, but decreed that the
company may present evidence of overtime compensation already paid to the plaintiffs, and, after its decision became final, accordingly
remanded the case to the Court of First Instance of Davao for that purpose.

Upon remand, the Davao court set the case for hearing on June 15 and 16, 1966 for reception of evidence, but the company sought on, June
7, 1966 a postponement, and the hearing was reset for July 6, 7 and 8, 1966.

On June 15, 1966, however, the defendant Mindanao Motor Line, Inc. filed a petition for voluntary insolvency in the Court of First Instance of
Cebu (docketed as special proceeding 2660-R). The schedule annexed to the petition named only two creditors: E.B. Garcia, for a payable
account of P1,200, and Carlos Dominguez, for a payable account of P1,000. Alforque and his fifty-two (52) companions were not named in the
schedule.

On June 18, 1966 the Court of First Instance of Cebu declared the Mindanao Motor Line, Inc. insolvent, ordered the sheriff to take possession
of all its properties and records, and directed the publication of a notice to all creditors and persons interested in the proceeding to appear
before the court on July 30, 1966 for the purpose of electing an assignee or receiver of the properties of the company.

On the same day, June 18, 1966, the Mindanao Motor Line, Inc., on its own initiative, sent Alforque, et al., a copy of the order of June 18,
1966; this copy was received by the latter on June 27, 1966.

Meanwhile, on June 24, 1966, the Court of First Instance of Cebu ordered the suspension of the proceedings in civil case 2051 of the Court of
First Instance of Davao.

On July 28, 1966 the appellants Alforque, et al., in the proceedings in the insolvency court, moved to intervene, suspend the election of an
assignee, and dismiss the insolvency proceedings. In these motions, Alforque, et al. informed the court that they are the plaintiffs in civil case
2051 of the Court of First Instance of Davao; that the said case was nearing termination as the only matter left for determination is the exact
amount of overtime compensation that the Mindanao Motor Line, Inc. has yet to pay; that they were not named as creditors in the schedule
annexed to the petition for insolvency; that the said petition was pro forma for failure to comply with the jurisdictional requirements prescribed
by the Insolvency Law; and that the petition was filed to defeat the objectives of the said law and to evade payment of their overtime
compensation award.

On August 13, 1966 the insolvency court declared Alfredo Marigomen the elected assignee. Alforque, et al. moved for reconsideration. Their
motion was denied in an order dated September 12, 1966. In this order, the court stated that it did not act on the previous motions to intervene,
to suspend election of an assignee and to dismiss the insolvency proceedings, because these motions were attached to the case records after
it had issued its order of August 13, 1966.

On November 18, 1966 the insolvency court granted the motion to intervene, but on December 27, 1966 denied the motion to dismiss as well
the motion for reconsideration of the appointment of Marigomen as assignee.

Alforque, et al. moved for reconsideration but their motion was denied on March 21, 1967. Not satisfied, they interposed, on April 7, 1967, the
present appeal, assigning the following errors:

I. The trial court erred in not dismissing these insolvency proceedings for failure of petitioner-appellee to include intervenors-
appellants as creditors in the annexed schedule as required by Sections 14 and 15, Chapter III of the law on insolvency.

II. The trial court erred in not dismissing these insolvency proceedings for failure of petitioner-appellee to attach a verified
inventory to its petition as required by Sections 14, 16 and 17, Chapter III of the law on insolvency.

III. The trial court erred in ordering the suspension of Civil Case No. 2051 in spite of the fact that petitioner in insolvency is
a corporation.

I. The explanation of the company in not including the appellants Alforque, et al. in the schedule annexed to its petition for insolvency is that it
considered as merely inchoate their claim in civil case 2051 of the Court of First Instance of Davao for overtime compensation. We reject this
explanation. The issue in the pending case is no longer the determination of the appellants' right to overtime compensation, which had already
been decided by the Court of First Instance of Davao and affirmed by the Court of Appeals, but the simple arithmetical determination of the
exact amount of overtime compensation the company has yet to pay. The comprehensiveness of the coverage of the matters required to be
stated explicitly in the schedule, as prescribed by section 15 of the Insolvency Law (Act 1956, as amended), is such that even an outline of the
facts giving rise or which might give rise to a cause of action against the insolvent debtor must be included. Thus:

Sec. 15. Said schedule must contain a full and true statement of all his debts and liabilities, together with a list of all those
to whom, to the best of his knowledge and belief, said debts or liabilities are due, the place of residence of his creditors and
the sum due each, the nature of the indebtedness or liability and whether founded on written security, obligation, contract
or otherwise, the cause and consideration thereof, the time and place when and where such indebtedness or liability accrued,
a declaration of any existing pledge, lien, mortgage, judgment, or other security for the payment of the debt or liability, and
an outline of the facts giving rise or which might give rise to a cause of action against such insolvent debtor.
Certainly, the appellants not merely had a cause of action at the time the appellee filed its petition for insolvency, for their cause of action had
already been adjudged in their favor. Nor was their non-inclusion in the schedule a minor defect, for they were fifty-three (53) in number and
represented a finally adjudged award in the substantial sum of P157,560.79.

The importance of rendering a true and complete statement of the matters called for in the schedule cannot be over-emphasized; if the name
of a creditor is omitted, he stands to be deprived of personal notice of the proceedings, apart from publication, and of his right to vote in the
election of an assignee. As has happened in the case at bar, only two creditors having credits of P1,200 and P1,000, respectively, elected the
assignee, while the fifty-three appellants with credits in the sum of P157,560.79 were totally deprived of all the rights accruing to them.

The circumstances obtaining immediately before and after the filing of the petition for insolvency clearly indicate that the omission of the
appellants from the schedule was other than innocent, and the purpose of the filing of the petition was other than the purpose for which the
Insolvency Law was enacted, which is to effect an equitable distribution of the bankrupt's properties among his creditors and to benefit the
debtor by discharging him from his liabilities and enabling him to start afresh with the property set apart for him as exempt. 1 The day when
the company filed its petition for insolvency with the Court of First Instance of Cebu (June 15, 1966) was the same day when it was supposed
to offer evidence of payment of overtime compensation in civil case 2051 in the Court of First Instance of Davao. It moved on June 7, 1966 to
postpone the hearing in Davao which was set for June 15, 1966, and when it succeeded in obtaining a postponement, it immediately filed
insolvency proceedings in Cebu without including the appellants in the schedule that it annexed to its petition. Under these circumstances, we
hold that the appellee company acted in gross bad faith in the filing of the petition for insolvency.

When the company notified the appellants of the insolvency proceedings on June 27, 1966, which it now claims was a gesture of good faith,
the harm caused by their malicious exclusion from the schedule had already been inflicted, as the court had already, on June 18, 1966, declared
the appellee insolvent. The notification did not cure the defect. Upon the contrary, it demonstrates that the company was fully aware that it
should have included the appellants in the schedule in the first place. Their non-inclusion completely vitiated the proceedings. 2

The Court of First Instance of Cebu ordered the suspension of the proceedings in the Davao court on June 24, 1966, but the appellants were
notified of the insolvency proceedings only after three (3) days. Since the appellants were intentionally not included in the schedule, and were
not priorly notified of the proceedings and had no actual knowledge thereof, the order of the Cebu court suspending the overtime compensation
case in the Davao court is ab initio null and void. 3

II. The appellee company did not attach an inventory to its petition for insolvency, but alleged in the petition that it did not "inasmuch as it has
no properties." The appellants would consider the lack of an inventory as fatal to the petition. We do not agree, because it is to be assumed,
until proven otherwise, that the appellee company was stating the truth when it alleged under oath that it had no property to inventory.

III. The third assigned error — whether a corporation, such as the appellee, may be discharged so as to stay suits instituted against it — need
not be passed upon since the order of the insolvency court suspending the case in Davao is null and void, as already indicated.

IV. The appellee company has raised the issue of the tardiness of the present appeal, upon the following premises: the court issued the order
declaring the appellee insolvent on June 18, 1966; the appellants received notice thereof on June 27, 1966 but filed their motions to intervene,
to suspend election of an assignee and to dismiss the petition only on July 28, 1966; the court did not categorically act on the motions to
suspend election of an assignee and to dismiss the petition until December 27, 1966 when it denied these motions; the appellants received the
order of December 27, 1966 on January 31, 1967; and the order dated March 21, 1967 denying reconsideration was received by appellants on
April 7, 1967. The appellee argues that since the appellants received on June 27, 1966 the order declaring it insolvent, and said order became
final in July, 1966, the appeal of the appellants on April 7, 1967 was time-barred.

This argument is devoid of merit. The order of June 18, 1966 declaring the appellee insolvent did not affect the appellants for lack of personal
notice to them of the insolvency proceedings; and they received no notice because they were, intentionally and in gross bad faith, omitted from
the schedule — for which reasons the said order is a complete and absolute nullity. Actually, the orders appealed from are (a) the order of
December 27, 1966 which denied both the motion to dismiss and the motion for reconsideration of the appointment of the assignee, and (b)
the order of March 21, 1967 which denied reconsideration of the order of December 27, 1966. (Notice of Appeal, Record on Appeal, pp. 75-76)
The appellants received the order of December 27, 1966 on January 31, 1967; they filed a motion for reconsideration thereof on February 28,
1967; they received the order denying reconsideration on April 7, 1967; they filed their notice of appeal on the same day, April 7, 1967, and
filed an appeal bond on April 11, 1967 (April 10 was a holiday because April 9 was an official holiday that fell on a Sunday). Clearly, their appeal
was perfected on time.

ACCORDINGLY, the orders appealed from are set aside, and judgment is hereby rendered dismissing special proceeding no. 2660-R of the Court
of First Instance of Cebu. Costs against the appellee company.
G.R. Nos. 79926-27 October 17, 1991

STATE INVESTMENT HOUSE, INC. and STATE FINANCING CENTER, INC., petitioners,
vs.
CITIBANK, N.A., BANK OF AMERICA, NT & SA, HONGKONG & SHANGHAI BANKING CORPORATION, and the COURT OF
APPEALS, respondents.

Roco, Bunag, Kapunan & Migallos for petitioners.

Agcaoili & Associates for Citibank, N.A, and Bank of America NT & SA.

Belo, Abiera & Associates for Hongkong & Shanghai Banking Corp.

NARVASA, J.:p

The chief question in the appeal at bar is whether or not foreign banks licensed to do business in the Philippines, may be considered "residents
of the Philippine Islands" within the meaning of Section 20 of the Insolvency Law (Act No. 1956, as amended, eff. May 20, 1909) reading in
part as follows: 1

An adjudication of insolvency may be made on the petition of three or more creditors, residents of the Philippine Islands,
whose credits or demands accrued in the Philippine Islands, and the amount of which credits or demands are in the aggregate
not less than one thousand pesos: Provided, that none of said creditors has become a creditor by assignment, however
made, within thirty days prior to the filing of said petition. Such petition must be filed in the Court of First Instance of the
province or city in which the debtor resides or has his principal place of business, and must be verified by at least three (3)
of the petitioners. . . .

The foreign banks involved in the controversy are Bank of America NT and SA, Citibank N.A. and Hongkong and Shanghai Banking Corporation.
On December 11, 1981, they jointly filed with the Court of First Instance of Rizal a petition for involuntary insolvency of Consolidated Mines,
Inc. (CMI), which they amended four days later. 2 The case was docketed as Sp. Proc. No. 9263 and assigned to Branch 28 of the Court.

The petition for involuntary insolvency alleged:

1) that CMI had obtained loans from the three petitioning banks, and that as of November/December, 1981, its outstanding obligations were
as follows:

a) In favor of Bank of America (BA) P15,297,367.67

(as of December 10, 1981) US$ 4,175,831.88

(b) In favor of Citibank US$ 4,920,548.85

(as of December 10, 1981)

c) In favor of Hongkong & Shanghai Bank US$ 5,389,434.12

(as of November 30, 1981); P6,233,969.24

2) that in November, 1981, State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI) had separately instituted actions for
collection of sums of money and damages in the Court of First Instance of Rizal against CMI, docketed respectively as Civil Cases Numbered
43588 and 43677; and that on application of said plaintiffs, writs of preliminary attachment had been issued which were executed on "the
royalty/profit sharing payments due CMI from Benguet Consolidated Mining, Inc;" and

3) that CMI had "committed specific acts of insolvency as provided in Section 20 of the Insolvency Law, to wit:

5. that he (CMI) has suffered his (CMI's) property to remain under attachment or legal process for three days for the purpose
of hindering or delaying or defrauding his (CMI's) creditors;

11. that being a merchant or tradesman he (CMI) has generally defaulted in the payment of his (CMI's) current obligations
for a period of thirty days; . . .

The petition was opposed by State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI). 3 It claimed that:

1) the three petitioner banks had come to court with unclean hands in that they filed the petition for insolvency — alleging the CMI was
defrauding its creditors, and they wished all creditors to share in its assets — although a few days earlier, they had "received for the account
of CMI substantial payments aggregating P10,800,000.00;"

2) the Court had no jurisdiction because the alleged acts of insolvency were false: the writs of attachment against CMI had remained in force
because there were "just, valid and lawful grounds for the(ir) issuance," and CMI was not a "merchant or tradesman" nor had it "generally
defaulted in the payment of (its) obligations for a period of thirty days . . . ;"

3) the Court had no jurisdiction to take cognizance of the petition for insolvency because petitioners are notresident creditors of CMI in
contemplation of the Insolvency Law; and

4) the Court has no power to set aside the attachment issued in favor of intervenors-oppositors SIHI and SFCI.
CMI filed its Answer to the petition for insolvency, asserting in the main that it was not insolvent, 4 and later filed a "Motion to Dismiss Based
on Affirmative Defense of Petitioner's Lack of Capacity to Sue," echoing the theory of SIHI and SFCI that the petitioner banks are not "Philippine
residents." 5 Resolution on the motion was "deferred until after hearing of the case on the merits" it appearing to the Court that the grounds
therefor did not appear to be indubitable. 6

SIHI and SFCI filed their own Answer-in-Intervention, 7 and served on the three petitioner banks requests for admission of certain facts in
accordance with Rule 26 of the Rules of Court, 8 receiving a response only from Hongkong & Shanghai Bank. 9

SIHI and SFCI then filed a Motion for Summary Judgment dated May 23, 1983 "on the ground that, based on the pleadings and admissions on
record, the trial court had no jurisdiction to adjudicate CMI insolvent since the petitioners (respondent foreign banks) are not "resident creditors"
of CMI as required under the Insolvency Law." 10 Oppositions to the motion were filed, 11 to which a reply was submitted. 12

The Regional Trial Court 13 found merit in the motion for summary judgment. By Order dated October 10, 1983, it rendered "summary judgment
dismissing the . . . petition for lack of jurisdiction over the subject matter, with costs against petitioners." 14 It ruled that on the basis of the
"facts on record, as shown in the pleadings, motions and admissions of the parties, an insolvency court could "not acquire jurisdiction to
adjudicate the debtor as insolvent if the creditors petitioning for adjudication of insolvency are not "residents" of the Philippines" — citing a
decision of the California Supreme Court which it declared "squarely applicable especially considering that one of the sources of our Insolvency
Law is the Insolvency Act of California of 1895 . . . " And it declared that since petitioners had been merely licensed to do business in the
Philippines, they could not be deemed residents thereof.

The three foreign banks sought to take an appeal from the Order of October 10, 1983. They filed a notice of appeal and a record on
appeal. 15 SIHI and SFCI moved to dismiss their appeal claiming it was attempted out of time. The Trial Court denied the motion.

SIHI and SFCI filed with this Court a petition for certiorari and prohibition (G.R. NO. 66449), impugning that denial. The Court dismissed the
petition and instead required the three banks to file a petition for review in accordance with Rule 45 of the Rules of Court. 16 This the banks
did (their petition was docketed as G.R. No. 66804). However, by Resolution dated May 16, 1984, the court referred the petition for review to
the Intermediate Appellate Court, where it was docketed as AC SP-03674. 17

In the meantime, the Trial Court approved on May 3, 1985 the banks' record on appeal and transmitted it to this Court, where it was recorded
as UDK-6866. As might have been expected, this Court required the banks to file a petition for review under Rule 45, but they asked to be
excused from doing so since they had already filed such a petition, which had been referred to the Intermediate Appellate Court and was there
pending as AC-G.R. No. SP 03674, supra. This Court then also referred UDK-6866 to the Intermediate Appellate Court where it was docketed
as AC-G.R. No. CV 07830.

Both referred cases, AC-G.R. No. SP 03674 and AC-G.R. No. CV 07830, were consolidated by Resolution of the Court of Appeals dated April 9,
1986, and Decision thereon was promulgated on July 14, 1987 by the Fifteenth Division of said Court. 18

The Appellate Court reversed the Trial Court's Order of October 10, 1983 and remanded the case to it for further proceedings. It ruled:

1) that the purpose of the Insolvency Law was "to convert the assets of the bankrupt in cash for distribution among creditors, and then to
relieve the honest debtor from the weight of oppressive indebtedness and permit him to start life anew, free from the obligations and
responsibilities consequent upon business misfortunes;" 19 and that it was "crystal clear" that the law was "designed not only for the benefit
of the creditors but more importantly for the benefit of the debtor himself," the object being "to provide not only for the suspension of payments
and the protection of creditors but also the discharge of insolvent honest debtors to enable them to have a fresh start;"

2) that the Trial Court had placed "a very strained and restrictive interpretation of the term "resident," as to exclude foreign banks which have
been operating in this country since the early part of the century," and "the better approach . . . would have been to harmonize the provisions
. . . (of the Insolvency Law) with similar provisions of other succeeding laws, like the Corporation Code of the Philippines, the General Banking
Act, the Offshore Banking Law and the National Internal Revenue Code in connection with or related to their doing business in the Philippines;"

3) that in light of said statutes, the three banks "are in truth and in fact considered as "residents" of the Philippines for purposes of doing
business in the Philippines and even for taxation matters;"

4) that the banks had "complied with all the laws, rules and regulations (for doing business in the country) and have been doing business in
the Philippines for many years now;" that the authority granted to them by the Securities and Exchange Commission upon orders of the
Monetary Board "covers not only transacting banking business . . . but likewise maintaining suits "for recovery of any debt, claims or demand
whatsoever," and that their petition for involuntary insolvency was "nothing more than a suit aimed at recovering a debt granted by them to
Consolidated Mines, Inc., or at least a portion thereof;"

4) that to deprive the foreign banks of their right to proceed against their debtors through insolvency proceedings would "contravene the basic
standards of equity and fair play, . . . would discourage their operations in economic development projects that create not only jobs for our
people but also opportunities for advancement as a nation;" and

5) that the terms "residence" and "domicile" do not mean the same thing, and that as regards a corporation, it is generally deemed an
"inhabitant" of the state under whose law it is incorporated, and has a "residence" wherever it conducts its ordinary business, and may have its
legal "domicile" in one place and "residence" in another.

SIHI and SFCI moved for reconsideration and then, when rebuffed, took an appeal to this Court. Here, they argue that the Appellate Court's
judgment should be reversed because it failed to declare that —

1) the failure of the three foreign banks to allege under oath in their petition for involuntary insolvency that they are Philippine residents,
wishing only to "be considered Philippine residents," is fatal to their cause;

2) also fatal to their cause is their failure to prove, much less allege, that under the domiciliary laws of the foreign banks, a Philippine corporation
is allowed the reciprocal right to petition for a debtor's involuntary insolvency;

3) in fact and in law, the three banks are not Philippine residents because:

a) corporations have domicile and residence only in the state of their incorporation or in the place
designated by law, although for limited and exclusive purposes, other states may consider them as
residents;

b) juridical persons may not have residence separate from their domicile;

4) actually, the non-resident status of the banks within the context of the Insolvency Law is confirmed by other laws;
5) the license granted to the banks to do business in the Philippines does not make them residents;

6) no substantive law explicitly grants foreign banks the power to petition for the adjudication of the Philippine corporation as a bankrupt;

7) the Monetary Board can not appoint a conservator or receiver for a foreign bank or orders its liquidation having only the power to revoke its
license, subject to such proceedings as the Solicitor General may thereafter deem proper to protect its creditors;

8) the foreign banks are not denied the right to collect their credits against Philippine debtors, only the right to "petition for the harsh remedy
of involuntary insolvency" not being conceded to them;

9) said banks have come to court with unclean hands, their filing of the petition for involuntary insolvency being an attempt to defeat validly
acquired rights of domestic corporations.

The concept of a foreign corporation under Section 123 of the Corporation Code is of "one formed, organized or existing under laws other than
those of the Philippines and . . . (which) laws allow Filipino citizens and corporations to do business . . . ." There is no question that the three
banks are foreign corporations in this sence, with principal offices situated outside of the Philippines. There is no question either that said banks
have been licensed to do business in this country and have in fact been doing business here for many years, through branch offices or agencies,
including "foreign currency deposit units;" in fact, one of them, Hongkong & Shanghai Bank has been doing business in the Philippines since as
early as 1875.

The issue is whether these Philippine branches or units may be considered "residents of the Philippine Islands" as that term is used in Section
20 of the Insolvency Law, supra, 20 or residents of the state under the laws of which they were respectively incorporated. The answer cannot
be found in the Insolvency Law itself, which contains no definition of the term, resident, or any clear indication of its meaning. There are
however other statutes, albeit of subsequent enactment and effectivity, from which enlightening notions of the term may be derived.

The National Internal Revenue Code declares that the term "'resident foreign corporation' applies to a foreign corporation engaged in trade or
business within the Philippines," as distinguished from a " "non-resident foreign corporation" . . . (which is one) not engaged in trade or business
within the Philippines." 21

The Offshore Banking Law, Presidential Decree No. 1034, states "that branches, subsidiaries, affiliation, extension offices or any other units of
corporation or juridical person organized under the laws of any foreign country operating in the Philippines shall be considered residents of the
Philippines." 22

The General Banking Act, Republic Act No. 337, places "branches and agencies in the Philippines of foreign banks . . . (which are) called
Philippine branches," in the same category as "commercial banks, savings associations, mortgage banks, development banks, rural banks, stock
savings and loan associations" (which have been formed and organized under Philippine laws), making no distinction between the former and
the later in so far, as the terms "banking institutions" and "bank" are used in the Act, 23 declaring on the contrary that in "all matters not
specifically covered by special provisions applicable only to foreign banks, or their branches and agencies in the Philippines, said foreign banks
or their branches and agencies lawfully doing business in the Philippines "shall be bound by all laws, rules, and regulations applicable to domestic
banking corporations of the same class, except such laws, rules and regulations as provided for the creation, formation, organization, or
dissolution of corporations or as fix the relation, liabilities, responsibilities, or duties of members, stockholders or officers or corporations." 24

This Court itself has already had occasion to hold 25 that a foreign corporation licitly doing business in the Philippines, which is a defendant in
a civil suit, may not be considered a non-resident within the scope of the legal provision authorizing attachment against a defendant not residing
in the Philippine Islands;" 26 in other words, a preliminary attachment may not be applied for and granted solely on the asserted fact that the
defendant is a foreign corporation authorized to do business in the Philippines — and is consequently and necessarily, "a party who resides out
of the Philippines." Parenthetically, if it may not be considered as a party not residing in the Philippines, or as a party who resides out of the
country, then, logically, it must be considered a party who does reside in the Philippines, who is a resident of the country. Be this as it may,
this Court pointed out that:

. . . Our laws and jurisprudence indicate a purpose to assimilate foreign corporations, duly licensed to do business here, to
the status of domestic corporations. (Cf. Section 73, Act No. 1459, and Marshall Wells Co. vs. Henry W. Elser & Co., 46 Phil.
70, 76; Yu; Cong Eng vs. Trinidad, 47 Phil. 385, 411) We think it would be entirely out of line with this policy should we
make a discrimination against a foreign corporation, like the petitioner, and subject its property to the harsh writ of seizure
by attachment when it has complied not only with every requirement of law made specially of foreign corporations, but in
addition with every requirement of law made of domestic corporations. . . . .

Obviously, the assimilation of foreign corporations authorized to do business in the Philippines "to the status of domestic corporations,"
subsumes their being found and operating as corporations, hence, residing, in the country.

The same principle is recognized in American law: that the "residence of a corporation, if it can be said to have a residence, is necessarily where
it exercises corporate functions . . . ;" that it is .considered as dwelling "in the place where its business is done . . . ," as being "located where
its franchises are exercised . . . ," and as being "present where it is engaged in the prosecution of the corporate enterprise;" that a "foreign
corporation licensed to do business in a state is a resident of any country where it maintains an office or agent for transaction of its usual and
customary business for venue purposes;" and that the "necessary element in its signification is locality of existence." 27 Courts have held that
"a domestic corporation is regarded as having a residence within the state at any place where it is engaged in the particulars of the corporate
enterprise, and not only at its chief place or home office;" 28 that "a corporation may be domiciled in one state and resident in another; its
legal domicil in the state of its creation presents no impediment to its residence in a real and practical sense in the state of its business
activities." 29

The foregoing propositions are in accord with the dictionary concept of residence as applied to juridical persons, a term which appears to
comprehend permanent as well as temporary residence.

The Court cannot thus accept the petitioners' theory that corporations may not have a residence (i.e., the place where they operate and transact
business) separate from their domicile (i.e., the state of their formation or organization), and that they may be considered by other states as
residents only for limited and exclusive purposes. Of course, as petitioners correctly aver, it is not really the grant of a license to a foreign
corporation to do business in this country that makes it a resident; the license merely gives legitimacy to its doing business here. What effectively
makes such a foreign corporation a resident corporation in the Philippines is its actually being in the Philippines and licitly doing business here,
"locality of existence" being, to repeat, the "necessary element in . . . (the) signification" of the term, resident corporation.

Neither can the Court accept the theory that the omission by the banks in their petition for involuntary insolvency of an explicit and categorical
statement that they are "residents of the Philippine Islands," is fatal to their cause. In truth, in light of the concept of resident foreign corporations
just expounded, when they alleged in that petition that they are foreign banking corporations, licensed to do business in the Philippines, and
actually doing business in this Country through branch offices or agencies, they were in effect stating that they are resident foreign corporations
in the Philippines.
There is, of course, as petitioners argue, no substantive law explicitly granting foreign banks the power to petition for the adjudication of a
Philippine corporation as a bankrupt. This is inconsequential, for neither is there any legal provision expressly giving domestic banks the same
power, although their capacity to petition for insolvency can scarcely be disputed and is not in truth disputed by petitioners. The law plainly
grants to a juridical person, whether it be a bank or not or it be a foreign or domestic corporation, as to natural persons as well, such a power
to petition for the adjudication of bankruptcy of any person, natural or juridical, provided that it is a resident corporation and joins at least two
other residents in presenting the petition to the Bankruptcy Court.

The petitioners next argue that "Philippine law is emphatic that only foreign corporations whose own laws give Philippine nationals reciprocal
rights may do business in the Philippines." As basis for the argument they invoke Section 123 of the Corporation Code which, however, does
not formulate the proposition in the same way. Section 123 does not say, as petitioners assert, that it is required that the laws under which
foreign corporations are formed "give Philippine nationals, reciprocal rights." What it does say is that the laws of the country or state under
which a foreign corporation is "formed, organized or existing . . . allow Filipino citizens and corporations to do business in its own country or
state," which is not quite the same thing. Now, it seems to the Court that there can be no serious debate about the fact that the laws of the
countries under which the three (3) respondent banks were formed or organized (Hongkong and the United States) do "allow Filipino citizens
and corporations to do business" in their own territory and jurisdiction. It also seems to the Court quite apparent that the Insolvency Law
contains no requirement that the laws of the state under which a foreign corporation has been formed or organized should grant reciprocal
rights to Philippine citizens to apply for involuntary insolvency of a resident or citizen thereof. The petitioners' point is thus not well taken and
need not be belabored.

That the Monetary Board can not appoint a conservator or receiver for a foreign bank or order its liquidation having only the power to revoke
its license, subject to such proceedings as the Solicitor General may thereafter deem proper to protect its creditors, which is another point that
petitioners seek to make, is of no moment. It has no logical connection to the matter of whether or not the foreign bank may properly ask for
a judicial declaration of the involuntary insolvency of a domestic corporation, which is the issue at hand. The fact is, in any event, that the law
is not lacking in sanctions against foreign banks or powerless to protect the latter's creditors.

The petitioners contend, too, that the respondent banks have come to court with unclean hands, their filing of the petition for involuntary
insolvency being an attempt to defeat validly acquired rights of domestic corporations. The Court wishes to simply point out that the effects of
the institution of bankruptcy proceedings on all the creditors of the alleged bankrupt are clearly spelled out by the law, and will be observed by
the Insolvency Court regardless of whatever motives — apart from the desire to share in the assets of the insolvent in satisfying its credits —
that the party instituting the proceedings might have.

Still another argument put forth by the petitioners is that the three banks' failure to incorporate their branches in the Philippines into new banks
in accordance with said Section 68 of the General Banking Act connotes an intention on their part to continue as residents of their respective
states of incorporation and not to be regarded as residents of the Philippines. The argument is based on an incomplete and inaccurate quotation
of the cited Section. What Section 68 required of a "foreign bank presently having branches and agencies in the Philippines, . . . within one year
from the effectivity" of the General Banking Act, was to comply with any of three (3) options, not merely with one sole requirement. These
three (3) options are the following:

1) (that singled out and quoted by the petitioners, i.e.:) "incorporate its branch or branches into a new bank in accordance
with Philippine laws . . . ; or

2) "assign capital permanently to the local branch with the concurrent maintenance of a 'net due to' head office account
which shall include all net amounts due to other branches outside the Philippines in an amount which when added to the
assigned capital shall at all times be not less than the minimum amount of capital accounts required for domestic commercial
banks under section twenty-two of this Act;" or

3) "maintain a "net due to" head office account which shall include all net amounts due to other branches outside the
Philippines, in an amount which shall not be less than the minimum amount of capital accounts required for domestic
commercial banks under section twenty-two of this Act."

The less said about this argument then, the better.

The petitioners allege that three days before respondent banks filed their petition for involuntary insolvency against CMI, they received from
the latter substantial payments on account in the aggregate amount of P6,010,800.00, with the result that they were "preferred in the
distribution of CMI's assets thereby defrauding other creditors of CMI." Non sequitur. It is in any case a circumstance that the Bankruptcy Court
may well take into consideration in determining the manner and proportion by which the assets of the insolvent company shall be distributed
among its creditors; but it should not be considered a ground for giving the petition for insolvency short shrift. Moreover, the payment adverted
to does not appear to be all that large. The total liabilities of CMI to the three respondent banks as of December, 1981 was P21,531,336.91,
and US$14,485,814.85. Converted into Philippine currency at the rate of P7.899 to the dollar, the average rate of exchange during December,
1981, 30 the dollar account would be P114,423,451.50. Thus, the aggregate liabilities of CMI to the banks, expressed in Philippine currency,
was P135,954,788.41 as of December, 1981, and therefore the payment to them of P6,010,800.00 constituted only some 4.42% of the total
indebtedness. WHEREFORE, the petition is DENIED and the challenged Decision of the Court of Appeals is AFFIRMED in toto, with costs against
the petitioners. SO ORDERED.
G.R. No. 30756 September 22, 1931

ENRIQUE BRIAS DE COYA, plaintiff-appellee,

vs.
TAN LUA and VICENTE NEPOMUCENO, defendants-appellants.

Ohnick and Mcfie and J.R. Balonkita for appellant Tan Lua.
Antonio Sanz for appellee.
Araneta, De Joya, Zaragoza and Araneta as amicus curiae.

VILLA-REAL, J.:

This is a new hearing of the appeal taken by the defendants Tan Lua and Vicente Nepomuceno from the judgment of the Court of First Instance
of Manila, the dispositive part of which reads as follows:

The defendants shall pay the plaintiff the sum total of P17,631.06, plus interest at 9 per cent per annum on the principal of P16,000
from this day until fully paid, and legal interest upon interest due at the time when the complaint was filed until fully paid, and the
legal costs. The defendants are hereby ordered to deposit with the clerk of this court said amount within the period of three months,
and if neither of them should do it, let the property described in transfer certificate of title No. 29363 of the registry of Manila, be sold
to satisfy this judgment.

Should the defendants appeal and this judgment be affirmed, let further judgment be rendered for P400 as attorney's fee for the
creditor.

At the original hearing, the appellants assigned the following alleged errors in their brief, as committed by the trial court, as the grounds of
their appeal, to wit:

1. The lower court erred in rendering judgment for the amount of the mortgage debt found in the decision against both defendants
Tan Lua, an adjudged insolvent, and her codefendant Vicente Nepomuceno, the assignee of the insolvent estate; in not limiting such
judgment against the latter in his official capacity as such assignee and legal representative of said insolvent; and in not dismissing
the complaint as to defendant Tan Lua.

2. The lower court erred in ordering alternatively either of the defendants, instead of the defendant assignee alone, to deposit the
amount of the judgment with the clerk of court within a period of three months in voluntary satisfaction of the judgment and to avoid
enforcement thereof by foreclosure sale of the mortgaged property.

The following relevant and undisputed facts are necessary to decide the question raised in this appeal:

On June 12, 1926, Attorney O'Brien and other lawyers filed with the Court of First Instance of Manila in civil case No. 29955 a petition praying,
for the reasons stated, that Mariano Velasco y Cia., Mariano Velasco & Co., Inc., and Mariano Velasco Sons & Co., and each and every member
of these partnerships and corporations, be declared involuntarily insolvent.

On March 17, 1927, the Court of First Instance of Manila entered an order declaring the company and corporations mentioned above and all
the members thereof, insolvent, including the herein defendant-appellant, Tan Lua. The order was published on March 22, 29, and April 5,
1927, in El Debate, a newspaper of general circulation published in the City of Manila, Philippine Islands. Each and every one of the persons
declared insolvent was, in addition, personally notified of the order by mail.

On April 15, 1927, the defendant-appellant Tan Lua, who resided and now resides in China, executed a general and special power of attorney
in favor of her son Chua Yok Ten (Exhibit A) to manage, sell, and encumber her property situated in the Philippine Islands.

On May 13, 1927, the defendant-appellant Vicente Nepomuceno was appointed assignee of the involuntary insolvency accepted the
appointment, and duly qualified.

On May 21, 1927, the clerk of the Court of First Instance of Manila conveyed to the aforementioned assignee all the inventoried property in his
possession belonging to the insolvents.

On June 15, 1927, the defendant-appellant Tan Lua, to secure a P16,000 loan payable within three years with interest at 9 per cent, executed,
through her attorney-in-fact, a mortgage deed (Exhibit B) of the parcel of land described in transfer certificate of title No. 24914 issued to her,
which was endorsed upon the original and duplicate certificates.

On September 17, 1927, the aforementioned assignee filed his appointment for the purpose of having it recorded on said certificate title No.
24914 issued to Tan Lua as registered owner, and to have the property transferred to him.

The first question to determine on this appeal is whether the mortgage given by the defendant-appellant Tan Lua to the plaintiff-appellee
Enrique Brias de Coya and noted on the proper certificate of title after the appointment of the assignee and the transfer of the property of the
insolvents to said assignee, but before his appointment and the transfer were recorded, was legal and valid or not.

Section 32 of Act No. 1956, entitled "The Insolvency Law" provides, among other things, the following:

SEC. 32. As soon as an assignee is elected or appointed and qualified, the clerk of the court shall, by an instrument under his hand
and seal of the court, assign and convey to the assignee all the real and personal property, estate, and effects of the debtor with all
his deeds, books, and papers relating thereto, and such assignment shall relate back to the commencement of the proceedings in
insolvency, and shall relate back to the acts upon which the adjudication was founded, and by operation of law shall vest the title to
all such property, estate, and effects in the assignee, although the same is then attached on mesne process, as the property of the
debtor. Such assignment shall operate to vest in the assignee of all the estate of the insolvent debtor not exempt by law from
execution. . . .
On the other hand, sections 50 and 86 of Act No. 496, entitled "The Land Registration Act," provide the following:

SEC. 50. An owner of registered land may convey, mortgage, lease, charge, or otherwise deal with the same as fully as if it had been
registered. He may use forms of deeds, mortgages, leases, or other voluntary instruments like those now in use and sufficient in law
for the purpose intended. But no deed, mortgage, lease, or other voluntary instrument, except a will, purporting to convey or affect
registered land, shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as
evidence of authority to the clerk or register of deeds to make registration. The act of registration shall be the operative act to convey
and affect the land, and in all cases under this Act the registration shall be made in the office of register of deeds for the province or
provinces or city where the land lies.

SEC. 86. Whenever proceedings in bankruptcy or insolvency, or analogous proceedings, are instituted against a debtor who is an
owner of registered land, it shall be the duty of the officer serving the notice of the institution of such proceedings on the debtor to
file a copy thereof in the debtor lies. The assignee or trustee appointed by the court having jurisdiction thereof in such proceedings
shall be entitled to the entry of a new certificate of registered land of the debtor upon presenting and filing a certified copy of the
order appointing him such assignee or trustee, with the debtor's duplicate certificate of title; the new certificate shall state that it is
entered to him as assignee or trustee in insolvency or bankruptcy or other proceedings, as the case may be.

An apparent conflict will be observed between the Insolvency Law and the Land Registration Act as above quoted; for while the former provides
that the assignment by the clerk of the court of all the real and personal property, estate, and effects of the debtor to the assignee appointed
shall operate to vest in the assignee all of said estate, the latter provides that with the exception of a will, no deed purporting to convey or
affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence
of authority to the register of deeds to properly record it, which shall be the operative act to convey and affect the land.

But this apparent conflict vanishes the moment one considers that section 34 of Act No. 1956 imposes upon the assignee the duty of having
the assignment of the debtor's property to him recorded in every province and city within the Philippine Islands where any real estate owned
by the debtor is situated, thereby recognizing the force and effect of the Land Registration Act on realty registered thereunder. Furthermore,
the aforementioned section 32 of Act No. 1956 makes the assignment date back to the commencement of the proceedings in insolvency, and
this can only take place if those proceedings have been recorded from their commencement. This amounts to a recognition of section 86 of Act
No. 496 cited above, which imposes upon the officer serving the notice of the institution of proceedings on the debtor, the duty of filing a copy
thereof in the registry of deeds for the province wherein the land of the debtor is located.

The Insolvency Law and the Land Registration Act are therefore in perfect accord with each other with reference to Torrens registered realty
belonging to insolvency debtors; they compliment each other and are both intended to protect the rights and interests of creditors, according
the latter a means for securing their insolvent debtor's property, against which they may enforce their credits. To construe the Insolvency Law
in and by itself, without reference to the Land Registration Act, when the property of an insolvent debtor with a Torrens title is in question,
would be to hold that one law has repealed another with which it is not in conflict and which it has not expressly repealed. Furthermore, such
a method of interpretation would completely destroy the value of the Torrens title as an entirely reliable guarantee of real property, and strip it
of its economic importance, founded upon two of its prime objects: to facilitate the circulation of wealth, and the promotion of credit.

Construing sections 32 and 34 of the Insolvency Law together with sections 50 and 86 of the Land Registration Act, we reach the conclusion
that in order that the assignment of the insolvent debtor's real property made by the clerk of the proper court to the assignee may operate to
vest in said assignee all of said estate from the commencement of the insolvency proceedings, both such proceedings and the assignment must
have been recorded in the registry of deeds, the former from their commencement. This is the only logical and reasonable construction that
may be placed upon the two laws above cited, for it gives effect to the Insolvency Law, which is intended to protect the creditors of an insolvent
debtor, and to the Land Registration Act, which creates a guaranteed title to real property, and at the same time facilitates the circulation of
wealth and promotes credit.

Applying the rule just laid down to the case at bar, we find that whereas the involuntary insolvency proceedings instituted on June 12, 1926,
against the defendant-appellant Tan Lua do not appear to have ever been recorded in the registry of deeds, and whereas the assignment of her
estate to the assignee made by the clerk of the Court of First Instance of Manila was not recorded till September 17, 1927, that estate was
vested in said assignee only on that date, and the land here in question belonged to Tan Lua and was unencumbered when she mortgaged it to
the plaintiff-appellee Enrique Brias de Coya on June 15, 1927, on which date it was recorded in the registry of deeds.

It is urged that since insolvency proceedings are proceedings in rem, the publication of the order declaring the debtor insolvent and prohibiting
him from assigning his property, serves as notice thereof to the whole world, and anyone doing business with the insolvent debtor with reference
to the latter's property cannot allege good faith.

In order that an action in rem may affect all persons in general, it is not enough to publish a notice of its institution; it must be addressed to
the whole world, like a notice of application for registration under the Torrens system, and must be published in a periodical of general circulation.
Section 24 of Act No. 1956 requires that the order declaring the debtor insolvent be published in a newspaper of general circulation in the
province or city in which the petition is filed, and if there be none, in a newspaper which, in the opinion of the judge, will best give notice to the
creditors of the said insolvent: therefore, it cannot affect the whole world.

Inasmuch as the order declaring a debtor insolvent is published merely to give notice to his creditors, and as the plaintiff-appellee was not a
creditor of the defendant-appellant Tan Lua, he cannot legally be presumed to have been apprised of said order, or deemed to have acted in
bad faith in giving said insolvent debtor, a loan of P16,000, upon the security of the land here in question, which is registered in the name of
said debtor with a Torrens title.

In conclusion, then, we are of the opinion that the plaintiff-appellee Enrique Brias de Coya is a mortgagee in good faith and for a valuable
consideration paid to the defendant-appellant Tan Lua, and therefore the mortgage upon the land in question given him by the latter, which
land is registered with a Torrens title, is legal and valid.

In view of this conclusion and of the fact that the defendant Vicente Nepomuceno, as assignee, has acquired the title to the mortgaged property
by virtue of the assignment made to him by the clerk of the Court of First Instance of Manila, and its record on September 17, 1927, upon
which date he was subrogated to all the rights and obligations of the insolvent debtor, his codefendant Tan Lua, said assignee is the one who
must be ordered to deposit in court the amount of the mortgage debt with interest, within the period fixed by law, and should he fail to do so
the land in question shall be sold at public auction to satisfy the said debt and interest, if possible.

For all the foregoing considerations, we are of opinion and so hold: (1) That in order that the assignment of an insolvent debtor's property to
an assignee by the clerk of the proper Court of First Instance may operate to vest title thereto in said assignee from the commencement of
insolvency proceedings, it is necessary that the proceedings where such assignment took place be recorded in the registry of deeds from their
commencement, and that the assignment be likewise recorded; (2) that the publication of an order declaring a debtor insolvent is notice only
to the creditors, and not to the whole world, for which reason it cannot adversely affect those who, in good faith and for a valuable consideration,
may have entered into transactions with said debtor with reference to the latter's real property covered by a Torrens title; and (3) a duly
recorded mortgage of registered land with a Torrens title given by an insolvent debtor to a creditor in good faith and for a valuable consideration,
after an assignee has been appointed and the insolvent debtor's property, estate and effects have been assigned to him, but before the
insolvency proceedings and the assignment have been recorded in the registry of deeds, is legal and valid.
Wherefore, the judgment of this court dated March 30, 1929, reversing that of the court below, is hereby set aside, and the appealed judgment
is hereby affirmed with the sole modification that the defendant Tan Lua shall also be absolved from the complaint, with costs against the
appellant, Vicente Nepomuceno, as assignee. So ordered.