ANTICHRESIS
CIVIL CODE
CHAPTER 4 – Antichresis
ARTICLE 2132. By the contract of antichresis the creditor acquires the right to receive the fruits of
an immovable of his debtor, with the obligation to apply them to the payment of the interest, if
owing, and thereafter to the principal of his credit. (1881)
ARTICLE 2133. The actual market value of the fruits at the time of the application thereof to the
interest and principal shall be the measure of such application. (n)
ARTICLE 2134. The amount of the principal and of the interest shall be specified in writing;
otherwise, the contract of antichresis shall be void. (n)
ARTICLE 2135. The creditor, unless there is a stipulation to the contrary, is obliged to pay the taxes
and charges upon the estate.
He is also bound to bear the expenses necessary for its preservation and repair.
The sums spent for the purposes stated in this article shall be deducted from the fruits. (1882)
ARTICLE 2136. The debtor cannot reacquire the enjoyment of the immovable without first having
totally paid what he owes the creditor.
But the latter, in order to exempt himself from the obligations imposed upon him by the preceding
article, may always compel the debtor to enter again upon the enjoyment of the property, except
when there is a stipulation to the contrary. (1883)
ARTICLE 2137. The creditor does not acquire the ownership of the real estate for non-payment of
the debt within the period agreed upon.
Every stipulation to the contrary shall be void. But the creditor may petition the court for the payment
of the debt or the sale of the real property. In this case, the Rules of Court on the foreclosure of
mortgages shall apply. (1884a)
ARTICLE 2138. The contracting parties may stipulate that the interest upon the debt be
compensated with the fruits of the property which is the object of the antichresis, provided that if
the value of the fruits should exceed the amount of interest allowed by the laws against usury, the
excess shall be applied to the principal. (1885a)
ARTICLE 2139. The last paragraph of article 2085, and articles 2089 to 2091 are applicable to this
contract.
ALOJADO V. SIONGCO
[ G.R. No. 27084. December 31, 1927 ]
AMBROSIO T. ALOJADO, AS ADMINISTRATOR OF THE INTESTATE ESTATE OF THE DECEASED JUANA
MABAQUIAO, PLAINTIFF AND APPELLANT, VS. M. J. LIM SIONGCO ET AL., DEFENDANTS AND
APPELLEES.
DECISION
AVANCEÑA, C.J.:
On October 12, 1907 Juana Mabaquiao sold the land de- scribed in the complaint to Nicolas Alegata for
the sum of P7,744. After the death of Nicolas Alegata, proceeding for the settlement of his estate was
instituted, and on October 23, 1913 his property, which included that purchased from Juana Mabaquiao,
was adjudicated to Lim Kang Sang and Lim Eng Teeng, his only heirs. On November 11, 1913 they sold
this land to Lim Ponso & Co., with the right to repurchase for the period of one year, which period
expired without this right having been exercised. On February 15, 1918 Lim Ponso & Co. transferred
this land unconditionally to Lim Siongco and Lim Kingko.
Upon the death of Juana Mabaquiao, proceeding for the settlement of her intestate estate were also
instituted in which Ambrosio T. Alojado was appointed administrator. The latter, in said capacity, now
brings this action against Lim Sionco,, Lim Kingko and Lim Ponso & Co. and prays that he be declared
the absolute owner of this land with the improvements thereon, and that the defendants be ordered to
restore and respect his right of ownership, possession and usufruct of the property; and, moreover,
that other pronouncements be made as prayed for in his complaint. The court absolved the defendants
from the complaint and plaintiff appealed from this judgment.
The plaintiff contends that the contract executed by Juana Mabaquiao with Nicolas Alegata on October
12, 1907 was not a contract of sale with the right to repurchase, but a contract of antichresis. This
contention is untenable. From the terms of the contract it is clearly a sale with the right to repurchase.
It speaks in unequivocal terms of a sale and the conveyance of land with the right to repurchase, and
the character of the contract is that of a sale with the right to repurchase. The contract is very defective
in its wording, especially so where it refers to the period within which to exercise the right to repurchase.
But, examining it as a whole, it clearly appears that it was the parties' intention that the vendor could
repurchase the land without delay when he had the means to pay the purchase price. What characterizes
a contract of antichresis is that the creditor acquires the right to receive the fruits of the property of his
debtor with the obligation to apply them to the payment of interest, if any is due, and then to the
principal of his credit. Nowhere in the contract in question does this character of a contract of antichresis
appear. The only substantial thing agreed upon between the parties was that Juana Mabaquiao could
repurchase the land when she had the means. The decision of this court in the case of De la Vega vs.
Ballilps (34 Phil., 683), which the appellant. invokes in support of his contention, is in no way applicable.
That case dealt with a contract called mortgage by the parties and the court held that in reality it was
a contract of antichresis. But in the contract in that case it was agreed that the debtor assigned and
transferred the ownership and possession of the land to the creditor for his management and enjoyment
as a profit from the amount for which it had been mortgaged. This agreement, which characterizes the
contract of antichresis, does not exist in the instant case.
An attempt was made, by the testimony of Eulogia Espanola, Juana Mabaquiao's granddaughter, to
prove that the contract entered into between Juana Mabaquiao and Nicolas Alegata, was that
Mabaquiao, or any of her heirs, might recover possession of the land any time upon the payment of
P7,744, and that while this remained unpaid the land would continue in the possession of Nicolas
Alegata, with the obligation to deliver one-fifth of the products therefrom to Mabaquiao. Eulogia
Espanola testified having been present when the contract was entered into. Against this declaration the
witness Vicente Gomez was presented, who also stated that he was present at the time the contract
was entered into and contradicted Eulogia Espanola's testimony and, furthermore, stated that the latter
was not present then. The evidence is of such a character as not to justify in any manner the alteration
of the clear terms of the document in the sense that it expresses a contract of sale.
This action was brought in January, 1922, fifteen years after the contract was entered into. This being
a sale with the right to repurchase, the question, after this lapse of time, is reduced to whether or not
the title to the land conveyed by Juana Mabaquiao has been consolidated. The contract, as has been
noted, fixes the period for the exercise of the right of redemption until Juana Mabaquiao, or her heirs
has the means. Whether or not this is considered a period, it is clear that the title transmitted to Nicolas
Alegata has been consolidated. According to article 1508 of the Civil Code, when no period of redemption
is fixed it shall last four years, and if it is fixed, it shall not exceed ten years. The right of redemption
not having been exercised within the period of ten years, the title of Nicolas Alegata, or his heirs, has
by this fact alone been consolidated at any events.
Considering the case from this point of view, the appellant argues that, as it was never the intention of
the parties that, after a certain period, the land could not be repurchased by the vendor, the contract
cannot be one of sale with the right to repurchase, because it conflicts with the nature of this contract,
an essential element of which is the right of the purchaser to consolidate his title immediately after the
period of redemption has passed.
Another contention of the appellant is that if the right of redemption in this case is considered null after
ten years, this nullity must likewise affect the sale itself. These questions have been resolved by this
court in the case of Yadao vs, Yadao (20 Phil., 260). In that case the contract contained a stipulation
that the vendor could repurchase the land any time he had the money, it being understood that he
could not exercise this right of redemption after ten years, and not having done so within that period,
the court held that the vendor irrevocably acquired title to the land. In that case, notwithstanding the
fact that the right of redemption after ten years had been declared null, the sale itself, however, was
considered valid and the title acquired thereunder consolidated; and that is because the stipulation to
repurchase is accidental to a sale and may be made at the will of the parties. A contract of absolute
sale may be made without this stipulation. It seems logical that if this stipulation is made and it is
declared null, its nullity cannot affect the sale itself since the latter might be entered into without said
stipulation.
The judgment appealed from is affirmed, with the costs against the appellant. So ordered.
Johnson, Street, Malcolm, Villamor, Johns, Romualdez, and Villa-Real, JJ. concur.
BARRETTO V. BARRETTO
[ G.R. No. 11933. December 01, 1917 ]
ALBERTO BARRETTO, PLAINTIFF AND APPELLEE, VS. LEONARDO F. BARRETTO ET AL., DEFENDANTS
AND APPELLANTS. ANGELICA MARIA BARRETTO ET AL., INTERVENERS AND APPELLANTS.
DECISION
TORRES, J.:
This case was begun in the Court of First Instance of Zambales by Alberto Barretto, who claimed delivery
to him of a piece of land which was a part of the hacienda named "Balintagac" together with its. fruits
or their value, and also of a lot situated in the same hacienda together with the rents thereof, and was
brought to this court on appeal, by bill of exceptions, presented by the counsel for the defendants and
the defendant interveners from the judgment entered on July 2, 1915, in the office of the clerk of the
said Court of First Instance, by which, after declaring that the said Alberto Barretto y Blanco is the
owner of the hacienda of Balintagac described in the complaint, it was ordered that the defendant
Leonardo F. Barretto deliver to the plaintiff the possession of the piece of land and the lot withheld, and
to pay, tog-ether with the other defendants, the costs of the action.
In his complaint of November 11, 1913, filed in the Court of First Instance of Zambales, Alberto Barretto
alleges as his first cause of action that he is the owner of the whole hacienda called Balintagac, situated
in the barrio of the same name, in the municipality of San Felipe of said province, having an area of
about 200 quinones antiguos, and bounded on the north by the Anonang River; on the south by the
Carmen Mountain; on the east by the corner of Balintagac; and on the west by the Tectec Mountain.
Thathe was in possession of the said hacienda quietly, peacefully, and continuously, as were his
predecessors since the year 1884 until May, 1912; that on a certain day of the latter "month and year,
the defendant Leonardo F. Barretto alleging himself to be the owner of a certain part of said hacienda
illegally and unduly usurped a portion of land of the said hacienda on the eastern part situated in IlumIlog, Santa Maria and Inubo-grande y pequeno, Santa Maria and Carupisan, bounded on the north by
the Anonang River, on the east by the Golongoro River and the corner of Balintagac, on the south by
the Balintagac and Inbo mountains, and on the west by the rest of the hacienda which the plaintiff at
present holds; that since that time the defendant had been receiving two-thirds of the fruits which the
usurped portion annually produced, which amounted to 33 uyones and 145 and 33 per cent cavanes of
rice at P8 per uyon and P2 a cavan, and whose value amounts to the sum of P554; that the defendant
refused to return that portion of land usurped together with the fruits received, or their value, in spite
of the fact that he has been required to do so in writing by the plaintiff.
That, as a second cause of|action, the defendant, on the said month of May, 1912, illegally took
possession of a lot situated in the same hacienda and barrio of Balintagac, bounded on the front by the
provincial road, on its right, left, and rear sides by lands of the hacienda belonging to the plaintiff,
measuring 18 meters in front by 48 meters deep, that is, an area of 864 square meters, which lot
should reasonably produce for its use a monthly rent of P1, and that in spite of the fact that the plaintiff
had requested the defendant to vacate and to deliver the said lot to him with its rents, he (defendant)
refused to return the said lot or pay the rents therefor, for which reason the plaintiff prayed judgment
in his favor ordering the delivery or restitution of the said portion of land and lot, claimed in his first
and second causes of action, together with the products of rice said to have been received, and those
which in the future may be obtained, or their value, and the sum of P18 for the reasonable use of the
lot since May, 1912, to October, 1913, and the rent that it should produce at the rate of P1 a month
until the actual delivery of the lot shall have been made, with the costs of the action.
The demurrer to the said complaint having been overruled, the counsel for the defendant in an answer
dated May 23, 1914, denied each and every one of the allegations contained in the complaint and
alleged that the defendant is in possession of the land and lot claimed in the first and second causes of
action of the complaint, as well as of the rest of the hacienda, that is, that he is in possession of all the
hacienda of Balintagac as the true owner thereof since 1881.
Upon the permission of the Court, the attorney for Angelica Barretto, Beatriz Barretto West and her
husband, J. C. West, Maria Teresa Barretto York and her husband Archibald C. York, Carlos Alejandro
Barretto, Bernardo O. Barretto, and Ernesto E. Barretto, filed a complaint of intervention in this case,
alleging among other things that the hacienda of Balintagac in controversy was owned and possessed
by Juan Antonio Barretto, sr.; that on his death in Zambales on November 21, 1881, he left seven
children called Juan Antonio Barretto, domiciled in Macao, Angelica Maria Barretto, a resident of Manila,
Leonardo F. Barretto, a resident of San Felipe, Zambales, Francisca Barretto also domiciled in Macao,
Bartolome Barretto, a resident of Kow Loon, China, and the now deceased Jose A. Barretto and Leopoldo
Barretto, and these seven children of the deceased Juan Antonio Barretto, sr., were his only heirs who
succeeded him in all his rights and actions and for this reason they became owners with the right of
possession of the said hacienda of Balintagac, as in fact they are at present in possession of the same
through their agents and representatives; that one of his children Jose A. Barretto on his death in 1893
left three children, Beatriz Barretto, Amalia Barretto, and Jose Conde Barretto, who succeeded in all the
rights of their father Jose A. Barretto and in the possession of the said hacienda, as well as the four
children of Leopoldo F. Barretto, who died in 1894, named Maria Teresa Barretto, Carlos Alejandro
Barretto, Ernesto E. Barretto, and Bernardo .O. Barretto, co-owners and co-possessors of the said
hacienda; that the interveners deny that the plaintiff Alberto Barretto is the owner of any part of the
said hacienda and the lot mentioned in the complaint, or that the said plaintiff was in possession of
them, or any portion of the same, and that the defendant Leonardo F. Barretto is in possession of the
said hacienda Balintagac and the lot described in the complaint as the representative of the interveners
and of the other co-heirs of the estate of the deceased Juan Antonio Barretto, sr., since the said
Leonardo F. Barretto being one of the coheirs, is not the only owner of the said hacienda, nor of any
part of the same, except that portion which belongs to him as one of the heirs of the original owner,
but without any right to withhold the possession of the hacienda as against the interveners, and
concluded by asking that they be declared owners as the heirs of their deceased ascendant Juan Antonio
Barretto, sr., of their respective undivided shares in that hacienda and lot mentioned in the complaint,
adjudging to them the possession of the same, with the costs.
The counsel for Amalia Barretto Moore and her husband, J. B. Moore, residents of San Francisco,
California, with the permission of the court filed a complaint of intervention proclaiming their intention
to unite, take part and reproduced the application for intervention formerly asked by Angelica Maria
Barretto and others, adopting all the allegations contained in the former complaint of intervention with
the prayers therein made.
The demurrer interposed by the plaintiff having been overruled and the court having ordered Juan
Antonio Barretto, jr., Amalia Barretto, Jose Conde Barretto, Francisco Barretto, and Bartolome Barretto
to appear and become parties to this action, with the exception of the plaintiff, the latter in answer to
the complaint of intervention alleged: that he admits the first three paragraphs of said complaint and
denies generally and specifically those following, up to paragraph 13, except the last of these in which
it is alleged that Leonardo F. Barretto was the representative of the interveners and of the other heirs
of Juan Antonio Barretto, sr., which part is admitted. As a special defense he alleged that by a notarial
document executed May 16, 1882, Juan Antonio Barretto Grandpre, jr., then executor of his deceased
father Juan Antonio Barretto, sr.f declaring himself to be the absolute owner of all the hacienda of
Balintagac—the boundary of which is expressed and its area is 200 quinones—borrowed money in the
sum of P11,000 from Antonio Vicente Barretto for the expenses of the said hacienda with the obligation
to pay P1,000 for delinquency and other causes and interests at 8 per cent per annum, payable quarterly
in advance, and as guaranty for said loan he mortgaged specifically the cultivated half of the hacienda
and other properties mentioned in the instrument and to this effect the brothers of said Juan Antonio
Barretto Grandpre intervened and procured the granting of the loan for the indicated purpose, inducing
the creditor to grant said loan on the security of the mortgage above mentioned; that for the failure of
the debtor to pay his debt, the creditor Antonio Vicente Barretto, on April, 1885, brought an action to
foreclose the mortgage in order to recover the money loaned, against Juan Antonio Barretto Grandpre
in his own behalf and as executor of his father. The trial was at first conducted against himself and then
against Leonardo F. Barretto as attorney in fact of said Juan Antonio Barretto Grandpre. Half of the
mortgaged hacienda was levied upon and a judgment to sell the property was rendered, but said half
of the attached hacienda could not be sold in spite of the fact that it was placed at auction three times,
its price in the last two having been reduced; then the creditor, about May, 1888, prayed for the
adjudication of all the property attached to the payment of his credit of P7,648 to which adjudication
and conveyance in part payment the defendant Lieonardo F. Barretto voluntarily agreed and consented
as attorney in fact of Juan Antonio Barretto Grandpre. That Juan Antonio Barretto, jr., and his brothers,
not being able to pay the debt, interests, and costs delivered and conveyed all the hacienda of
Balintagac to the creditor about the year 1889 or 1890. That from these years the brothers of Juan
Antonio Barretto Grandpre named Leonardo F. Barretto, Jose Barretto, Leopoldo Barretto, and
Bartolome Barretto administered, by the appointment and exclusive account of Antonio Vicente
Barretto, the entire hacienda, acknowledging him as the owner of all of it and delivering to him all its
products till April 1896. That in this month of that year Antonio Vicente Barretto leased the whole
hacienda for P900 annually to Luis Bonifacio Barretto who administered it till his death in 1902 with the
knowledge and without the objection of Lieonardo F. Barretto, the attorney in fact and representative
of his brothers and coheirs. That on the death of Antonio Vicente Barretto his children Antonio Maria
Barretto y Rocha, Ricardo Esteban Barretto y Rocha and Guadalupe Barretto y Rocha succeeded him,
and about the year 1902 they appointed Antonio T. Barretto y Blanco.as administrator of the entire
hacienda with its annual rent of P225 and he administered it continuously without any interruption
whatsoever till May or June, 1912, when Leonardo F. Barretto illegally took possession of two portions
of the said hacienda the area and boundaries of which are described in the complaint. That on March
31, 1913, Antonio and Ricardo Barretto y Rocha, by means of a notarial document, sold to the plaintiff
Alberto Barretto y Blanco the two-thirds part which belonged to them as heirs of the creditor Antonio
Vicente Barretto. That about June, 1902, Guadalupe Barretto y Rocha with the consent of her husband
donated all her rights and interests as heir of Antonio Vicente Barretto, in the hacienda Balintagac, to
the plaintiff Alberto Barretto, on condition that the donee should deliver to every one of his brothers or
the latter s children one eighth part of what the donation consisted, and Alberto Barretto, having
acquired the rights which Ricardo, Antonio Maria, and Guadalupe Barretto y Rocha had as successors
of Antonio Vicente Barretto, over the whole of the said hacienda, the plaintiff has possessed the same
quietly, publicly, and peacefully as its owner until May or June, 1912, when Leonardo F. Barretto
usurped and retained certain portions of the property and its land tax (with the sworn declaration of
ownership since it was introduced up to the present) has been paid by him in the name and on the
account of the heirs of Antonio Vicente Barretto.
As a special defense and as an estoppel he (plaintiff) alleged that Juan Antonio Barretto, jr., and his
brothers Leonardo F. Barretto, Bartolome Barretto, Jose Barretto, and Leopoldo Barretto by their own
acts induced Antonio Vicente Barretto intentionally and deliberately to believe that Juan Antonio
Barretto, jr., had full and absolute power to dispose of all the hacienda of Balintagac, by reason of which
the creditor executed the loan on the security of the said property and then his brothers by their own
acts acknowledged Antonio Vicente Barretto as the owner of the whole hacienda, and Leonardo F.
Barretto, on his part, as attorney in fact of Juan Antonio Grandpre, jr., and as representative of his
coheirs agreed to the adjudication of the attached and cultivated half of the referred hacienda in favor
of Antonio Vicente Barretto in payment of the sum of P7,648. Lastly and likewise as a special defense
he (plaintiff) alleged prescription for the reason that Antonio Vicente Barretto in his own behalf and in
that of his successors and through his representatives, administrators, lessees and grantees, since 1889
and 1890 had been in possession of the hacienda publicly, quietly and peacefully till May or June, 1912,
without any interruption and as owner of the whole of said hacienda by means of which possession they
had acquired the dominion and ownership of all the said hacienda by acquisitive prescription, and at
the same time all the rights and actions which Leonardo F. Barretto and the interveners could have or
might allege as to all or part of it, have prescribed; and, therefore, Alberto Barretto asked the court to
dismiss the complaint of intervention, declaring him the owner of all the hacienda of Balintagac, with
costs to the defendants and interveners.
The counsel for the interveners in answer to the special defenses alleged in the preceding pleading,
said that he denies generally and specifically all that was alleged in it by the plaintiff, defendant in the
intervention.
After the trial and the introduction of evidence on both sides, the exhibits being attached to the record,
the court by judgment recorded in the office of the clerk of the Court of First Instance of Zambales July
2, 1915, rendered the decision above mentioned, against which the defendants and the interveners
excepted and asked for a new trial, which was denied and exception was taken to the ruling by them.
The corresponding bill of exceptions having been presented, the same was approved and forwarded to
this court together with the document and transcript of the stenographic notes and other proceedings
which constitute the evidence adduced by the parties in the action.
The fact is uncontroverted and fully proved in the record that Antonio Vicente Barretto as creditor—not
being able to collect his credit of Tl 1,000 and interest at 8 per cent, nor obtain the adjudication in his
favor of half of the hacienda of Balintagac which was mortgaged for the security of the debt, and there
having been no bidders on the three occasions in which it was offered for public auction—took
possession, in 1888 or 1889, of all the hacienda and from that time on received through his
administrators the products of the same for the purpose of collecting his credit and interests, arid on
the lack of proof to the contrary it may be established that he took possession of said hacienda by virtue
of voluntary assignment with the express consent of the heirs of the deceased Juan Antonio Barretto,
sr., owner of one-half of the hacienda and of Juan Antonio Barretto Grandpre, jr., owner of the other
half.
It does not fully appear which contract has been entered into between the creditor and the said heirs
of the deceased Juan Antonio Barretto, sr., and his son Juan Antonio Barretto Grandpre; but from the
facts that have been fully established it is inferred that since the years 1888-1889, once the foreclosure
proceedings brought by the creditor Antonio Vicente Barretto against Juan Antonio Barretto, jr., were
suspended, because the creditor had not been able to obtain the adjudication of the hacienda in his
favor, the creditor took possession of the hacienda of Balintagac, and held it in usufruct with the
knowledge and express, consent of its legitimate owners; thenceforth there has not been any opposition
or protest against the possession which by usufruct the creditor and his successors enjoyed, aside from
the usurpation of two small portions of that property effected by the defendant Leonardo F. Barretto in
1912.
Considering that from the facts proved, which refer to the possession and usufruct enjoyed by Antonio
Vicente Barretto while living, and then by his successors among whom was the plaintiff, Alberto Barretto
y Blanco, it is logically deduced that such facts were accomplished by virtue of a verbal contract, and
not by a written one, entered into between the owners of the hacienda and the creditor Antonio Vicente
Barretto. Since from the documentary and oral evidence on record it is not shown that the debtors have
delivered the whole hacienda to the creditor by assignment of the property, m payment of the debt that
weighed down, as it were, the half which secures the payment of the debt it is to be presumed with
founded and just reason that the debtors delivered not only one half, but the whole hacienda with a
view that the creditor might collect by usufruct his credit with the accrued interests.
Even when it cannot possibly be doubted that the assignment of the hacienda to Antonio Vicente
Barretto was not made in payment of his credit, as shown by the evidence adduced at the trial,
nevertheless, in spite of the fact that the agreement between the creditor and the debtors was not set
down in any document, due to the relationship which exists between them, it may safely be asserted,
assuming the facts that took place, that the debtors have limited themselves to give to the creditor the
right to collect his credit from the fruits of the hacienda of Balintagac, conferring upon him the
possession of the property, but not transferring to him the dominion of the same, since such transfer
does not in any way appear to be proved in the present action.
The agreement or verbal stipulation which lead to the facts proved deserves in law the name of
antichresis as defined by the Civil Code in its article 1881, which says:
"By antichresis a creditor acquires a right to receive the fruits of real property of his debtor, with the
obligation to apply them to the payment of the interest, if due, and afterwards to the principal of his
credit."
The perusal of the following articles, 1882 to 1886, of the Code, shows in a convincing way that the
possession of the hacienda enjoyed by the creditor Antonio Vicente Barretto while living and later on
by his successors up to the present time was conferred to them by virtue of the stated contract or
agreement in antichresis; thus, one of the administrators of the hacienda, Luis Barretto, was the one
who presented the sworn declaration of ownership of the same for the purposes of the assessment tax
and paid the land tax in the name of the creditor who possessed and held the hacienda in usufruct, as
it is duly established in the record.
Although article 1884 of the same Code states that the creditor does not acquire through possession
the ownership of the real property delivered by virtue of an antichresis, for failure to pay the debt within
the stipulated time—any agreement to the contrary being void—nevertheless, the debtor according to
the preceding article 1883 cannot recover the use of the real property given in antichresis to the
creditor, without previously fully paying the creditor, who in case of insolvency may ask for the sale of
the real property which he possesses by virtue of the covenant in antichresis, unless the pending debt
be paid.
It appears to be duly proved in the record that in 1912 the defendant Leonardo F. Barretto, by himself
and for himself and without the consent of the present possessor now the plaintiff, took over and
usurped a portion of land of the hacienda and a lot included in it, withholding and refusing to deliver
them to the creditor in antichresis on the pretext that he is the owner of the whole hacienda; and as it
does not appear in any way that the debt, for the payment of which the whole hacienda of Balintagac
was delivered in antichresis, has been paid, it is doubtless that the defendant Leonardo F. Barretto,
when he effected the usurpation, acted without just reason and in contravention of the provisions of
the said article 1883 of the Civil Code. It is known that the action to recover a thing, where a
legitimate possessor has been deprived of his possession, takes place in accordance with the law, even
against the owner himself, who wrested the possession, since the despoiler can never be protected by
the law even on his right of ownership, without first restoring what he acquired through his authority
by an illegal act of dispossession.
It is to be inferred from the facts and the foregoing statements that though the plaintiff Alberto Barretto
has no title of ownership over the hacienda of Balintagac, and therefore, he can not be declared owner
of the same, nevertheless, his claim that a judgment be rendered ordering the return to him of the
portion usurped by the defendant Leonardo F. Barretto which refers to the first cause of action of his
complaint, as well as the lot described in the second cause of action of the same, which is withheld by
said defendant, is in conformity with the law and is in accordance with the merits of the present action.
The plaintiff being in the legitimate possession and use of all the hacienda of Balintagac which was
voluntarily delivered to him by Juan Antonio Barretto Grandpre, jr., and his coheirs as the successors
of the deceased Juan Antonio Barretto, sr., with the object that the creditor Antonio Vicente Barretto
might collect the capital and interests which they owed and still owe him—a lawful contractual act called
by law a covenant or agreement in antichresis—the debtors, or any of them, can under no circumstances
while the debt exists and is not fully paid, recover or reacquire, as the mentioned article 1883 provides,
the possession and use of the real property delivered to the creditor, without the latter giving his
consent; consequently, the defendant Leonardo F. Barretto without the knowledge or consent of the
plaintiff Alberto Barretto who succeeded by singular title in the possession and use of the hacienda in
question, could not have recovered by usurpation the possession and use of a portion of the same.
Although the plaintiff affirms in his complaint that he is the sole owner of the said hacienda and as such
he claims in his complaint the delivery of the portion of the land and the lot withheld by the defendant,
his complaint is not, even then, explicit enough to affirm that the action brought thereby is a technical
one and precisely that of recovery of possession (reivindicatoria). In a complaint whereby the "accion
publiciana" is brought, also called in law a plenary action of possession, the restitution and delivery of
the thing or real property of the possession of which the plaintiff has been illegally deprived is equally
asked for. Therefore, it should not be understood that, because the plaintiff Barretto asks for the
delivery of the portion of land and lot claimed in his complaint, the action brought is that of recovery of
ownership and possession (reivindicatoria) : it should be understood, instead, that he seeks to recover
the portion of land, of the legal possession of which he has been improperly deprived by the usurper,
Leonardo F. Barretto; since the facts should be established in the suit as grounds for decision in
accordance with the results of the evidence adduced at the trial. When the defendants denied the
ownership which the plaintiff pretends to have over the said hacienda, they have not denied nor could
they deny the existence and the certainty of the debt guaranteed by the mortgage of one-half of the
hacienda of Balintagac in favor of the creditor, now deceased, Antonio Vicente Barretto; nor could they
allege and prove that the debt has been entirely paid, so that they may reacquire and recover the
possession and use of the hacienda which was delivered to the original creditor, the predecessor of the
plaintiff.
The preceding facts in this case are beyond discussion, since it appears duly proved in the record that
the original owner of the hacienda of Balintagac, according to the composition title issued by the State,
Exhibit A, on July 9, 1858, was Antonio Lorenzo Barretto, now deceased, from whom Juan Antonio
Barretto, sr., acquired one-half of said hacienda, on March, 1881 (Exhibit C), and Juan Antonio Barretto,
jr., had acquired the other half from the said original owner Antonio Lorenzo Barretto, on November,
1881.
After the death of Juan Antonio Barretto, sr., his son Juan Antonio Barretto Grandpre, in his own behalf
and as the executor of his father, mortgaged, on May 16, 1882, the cultivated half of said hacienda in
favor of Antonio Vicente Barretto as security for the amount of P11,000 which the latter loaned to him,
according to the document, Exhibit F, recorded in the registry.
In order to show how and in what manner the plaintiff Alberto Barretto succeeded to the rights acquired
by the creditor Antonio Vicente Barretto to whom the hacienda was delivered in 1888 or 1889, that he
might collect his credit from the products of the property, it is stated that on the death of the said
creditor his three children and heirs Antonio M.a Barretto, Ricardo Esteban Barretto, and Guadalupe
Barretto came to succeed him. The last one by means of a document, Exhibit 1, executed July 5, 1902,
made a donation inter vivos in favor of the plaintiff Alberto Barretto of the undivided one-third part of
the hypothecary credit and of the rights belonging to her deceased father Antonio Vicente Barretto,
assigning to the donee all the rights and actions which she might have in the foreclosure proceedings
exhibited at the trial of the present action, on the condition that as soon as the donee Alberto Barretto
could collect the said one-third part of the credit or should obtain the assignment of the property of the
debtor, he would divide what was donated, into nine equal parts among the donee himself and his six
living brothers and the heirs of their two brothers now dead, each receiving one-ninth part.
In the public documents, Exhibits J, J-1, J-2, J-3, J-4, J-5, and J-6, it appears to be established that the
plaintiff Alberto Barretto, complying with the condition imposed in said document of donation executed
by the donor Guadalupe Barretto, paid to each of his brothers and nephews, the latter by right of
representation, the sum of P875 as the price of one-eight part of one third of the said hacienda and in
exchange for the sums received as such price his co-donees assigned and conveyed to him one-eight
part of the third of the said hacienda and whatever rights and interests the grantors might have'by
virtue of the said donation in favor of the plaintiff Barretto. It is to be noted that the plaintiff bought
one-eight undivided part of the third of the whole hacienda of Balintagac and paid to every claimant
P875 as the price of the eight part to him, and, without these statements appearing in said seven
documents Exhibit 1, it may be understood at the third part of the ownership of the hacienda was
ansferred to the plaintiff by the donor Guadalupe Barretto.
In fact, with the mutual purpose on the part of the brothers Antonio M.a Barretto and Ricardo Esteban
Barreto and of that of Alberto Barretto of transferring to the latter the rest or the two-thirds part of the
hypothecary credit and of the right to collect its value from the fruits of the hacienda of Balintagac, the
notarial document, Exhibit K, was executed and after reciting in it that one undivided half of said
hacienda was in May, 1882, mortgaged to secure the sum of P11,000, at 8 per cent per annum, which
Juan Antonio Barretto Grandpre received from his uncle Antonio Vicente Barretto, and for neither having
paid the debt nor having sold the said half of the mortgaged hacienda on the three occasions in which
it was offered for public auction, the whole hacienda was delivered to the creditor in order that he might
collect his credit and interests. From that time on the said Antonio Vicente Barretto and later on his
successors have been in possession of the hacienda, receiving the fruits of the property, paying the
expenses and the corresponding taxes, the outcome being that the debt, capital and interests, up to
March 31, 1913, according to the liquidation, amounted to about one hundred thousand pesos. It is
further stated that by virtue of the same, the grantors, the brothers Antonio M.a Barretto and Ricardo
Esteban Barretto, sold and conveyed all their rights and actions included and derived from the said
hypothecary credit for the price of P14,000 which would be paid by the grantee and vendee by
installments and in the manner prescribed in the said deed, assigning to him, besides, all the rights
which the said brothers had over the two-third parts of the said hacienda.
The contents of this documents, which is public in nature, as well as those of another deed, Exhibit 1,
conclusively prove that the plaintiff did not obtain by assignment, sale, or transfer, as expressed in said
deeds, the ownership of the said hacienda of Balintagac, but only the hypothecary credit which the heirs
of the deceased creditor Antonio Vicente Barretto had inherited from the latter, after the plaintiff had
obtained from his other brothers the conveyance of their respective rights to the donation.
The rights acquired by the creditor were transmitted by hereditary title through operation of law to the
heirs of the same Antonio M.a, Ricardo Esteban, and Guadalupe, Barretto y Rocha and these in turn
assigned, sold and transferred the credit with all their rights as hypothecary creditors, as well as the
right to the usufruct of all the hacienda of Balintagac to the plaintiff Alberto Barretto, without it being
ever understood that the right of ownership over the same was transferred for the reason that neither
the original creditor Antonio Vicente Barretto nor his three heirs had acquired such right of ownership,
but merely the right to receive the products of the hacienda in order to cover the credit which the
owners of the hacienda owed.
If the fact were not certain that the hacienda was delivered by its owners to the creditor Antonio Vicente
Barretto, it cannot be understood why it is that in the long course of this action the defendant and the
interveners could not explain how and in what manner Antonio Vicente Barretto took possession of the
hacienda in 1888 or 1889 after the termination of the said foreclosure proceedings, nor could they
explain how and why several of the coowners of the said hacienda had acted as administrators of the
same in the name and representation of the creditor Antonio Vicente Barretto.
It appears from the record without any contradiction whatsoever that the first who administered the
said hacienda in the name and by direction of Antonio Vicente Barretto was the defendant Leonardo F.
Barretto himself till the year 1890 in which year the latter voluntarily left by direction of the creditor
and was succeeded by his brother Jose Barretto till 1893, when Leopoldo Barretto entered as
administrator relieving Jose Barretto by order of Antonio Vicente Barretto himself, till 1894. In this year
the defendant Leonardo F. Barretto himself returned to act as administrator by direction and in the
name of the creditor Antonio Vicente Barretto, till the year 1895, when according to the letter of
Leonardo, Exhibit L, and the letter, Exhibit M, of Antonio Vicente Barretto by direction of the latter the
defendant Leonardo F. Barretto delivered the hacienda to his other brother Bartolome Barretto. It is to
be noted that in the said letter, Exhibit M, Antonio Vicente Barretto advised the defendant Leonardo to
tell the tenants of the hacienda to transact their business with Bartolome as the administrator. In 1896,
because of the death of Bartolome Antonio Barretto, Luis Bonifacio Barretto succeeded him as
administrator, who managed the hacienda in the name of the same creditor. After the deathof the
latter; he (Luis) dealt with Antonio M.a Barretto, one of the heirs of the deceased creditor. On August,
1902, because of the death of the above-mentioned Luis Bonifacio Barretto, his brother Antonio T.
Barretto succeeded him in the administration of the hacienda in the name and account of the heirs of
the deceased Antonio Vicente Barretto and the said Antonio T. Barretto continued to act as administrator
of the hacienda in the name of the plaintiff Barretto, who acquired the rights of the heirs of the deceased
creditor Antonio Vicente Barretto, until the beginning of the present action.
These facts which have been fully established show that the whole hacienda was delivered to Antonio
Vicente Barretto so that he might collect his credit, and this is corroborated by the letters which have
been exchanged between Juan Antonio Barretto Grandpre, jr., residing abroad and Antonio Vicente
Barretto, as well as by the account, Exhibit 3, rendered to Juan Antonio Barretto, jr., by Antonio Vicente
Barretto up to December 31, 1888, in which the hypothecary credit of P11,000 with its interests
amounting to P16,255.70 still appear existing and complete. Such facts cannot in any way prove that
Antonio Vicente Barretto took possession of the hacienda in the character of owner although he had
been appointing administrators until his death in 1897 and the administrators had dealt with him while
living for the determination of the rent of the hacienda and other particulars, as well as the fact that
the declaration of ownership for the assessment of the property was made in his name and the payment
of the land tax due was made on his account, for the reason that he acted as creditor in antichresis,
and not as owner and proprietor of the hacienda, which fact does not appear to be proved by the oral
evidence, while the contrary has been fully established by the documentary evidence attached in the
record.
That the said verbal contract of antichresis was not set out in some document is not contrary to what
has been said, since the same, being a consensual contract, has the elements enumerated in article
1261 of the Civil Code and was complied with and carried into effect without any difficulty whatsoever
from the year 1888 until 1912, that is, during more than 24 years, without any protest or objection on
the part of any of those who could and probably had the right to impugn it; but, on the contrary, several
of the coowners of the hacienda usufructed by the creditor submitted themselves to the discretional
orders of the latter in the exercise of his right as creditor in antichresis, the former acting successively
as administrators of the very hacienda of which they were coowners; and they only dared to oppose
and to overlook the facts whose realization many of them have helped, from the time the defendant
Leonardo F. Barretto, who on two occasions administered the hacienda in the name and on the account
of the creditor Antonio Vicente Barretto, dared to usurp a portion of the hacienda and to deny the
unquestioned rights of the plaintiff which were directly derived from the said creditor, now dead, taking
possession of two portions of the hacienda in usufruct, in his own behalf, while the whole debt, or part
of it, still exists for the payment of which the right of usufruct is at present exercised.
In other respects, the proceedings in the present action do not offer any legal cause or reason by virtue
of which it can be established that the plaintiff has acquired the ownership of the said hacienda by
prescription, since the original possessor entered into possession of the same with the consent of the
owners and not as owner, but as a creditor with the right only to collect his credit on the fruits of the
said hacienda, and the plaintiff could not acquire better rights than those which had been conferred
upon him by his predecessors in possession. Thus, article 1884 of the Civil Code declares that the
creditor cannot acquire the ownership of the real property for failure to pay the debt within the time
agreed upon. Any stipulation to the contrary shall be void.
It is, therefore, clear and beyond all discussion that the possession enjoyed by the predecessors of the
plaintiff has not been conferred by the owners of the hacienda to the creditor that the latter might
acquire the ownership of the property, but merely that from its products he might collect the existing
debt. Consequently, the possession exercised by the creditor Antonio Vicente Barretto, not being under
title of ownership because no right of ownership could have taken place, the present possession of the
hacienda can not possibly turn into a title of acquisitive prescription of the property.
Furthermore, it does not appear that the donation made by Guadalupe Barretto and the sales or
assignment made by Antonio M.a Barretto and Ricardo Esteban Barretto were that of the ownership or
dominion of the hacienda, but the hypothecary credit and whatever right the donor and the assignors
and vendors had against the owners of the hacienda, as it is clearly expressed in the documents Exhibits
1, and K above referred to. The rights acquired by the plaintiff Alberto Barretto consist, without any
doubt whatsoever, of what the said three brothers of the creditor Antonio Vicente Barretto had
transferred to him and under no circumstance could it be understood that they transferred the dominion
and the ownership of the said hacienda.
As the extinguishment of the right of the creditor and the termination of the use and possession of the
real property depend upon the entire payment of the debt and its interest, it is proper—the liquidation
of accounts having been made—to fix definitely the sums of the amounts which the debtors had paid
on account of the capital and interests and which had been really received by the creditor.
For these considerations, whereby some of the errors, assigned against the sentence appealed from as
notoriously opposed to the foundation of right and justice laid down in this decision, are deemed to
have been refuted, holding the plaintiff to be in legitimate possession of the said hacienda, the
defendant Leonardo F. Barretto should be sentenced and we sentence him to vacate and release
immediately—otherwise subject to an order of ejectment—the portion of land and lot included within
the boundary of the hacienda Balintagac, and place same at the disposal of the plaintiff, Alberto
Barretto, or of his representatives; it being understood that before liquidation, the actual amount of the
debt be fixed, which debt, in the form of capital and interest, is collectible from the products of the
hacienda, by the adjustment of the amounts paid and received on their account to cover the debt. There
is no special finding as to costs in both instances; thus, that part of the judgment appealed from, which
is in conformity with this decision is affirmed and that contrary to it is reversed- So ordered.
Arellano, C. J., Johnson, Carson, Street, Malcolm, and Avancena, JJ., concur.
PERLAS-BERNABE, J.:
Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the March 30,
2009 Decision[1] of the Court of Appeals Mindanao Station (CA) and its December 2, 2009 Resolution [2]
in CA-G.R. CV No. 00722-MIN which declared that the transaction between the parties was a mortgage,
not a sale, and ordered petitioners to surrender the possession of the disputed lot upon respondents'
full payment of their indebtedness.
THE ANTECEDENT FACTS
The spouses Serafin, Sr. and Saludada[3] Adolfo were the original registered owners of a 126,622 square
meter lot covered by Original Certificate of Title (OCT) No. P-489 issued on December 15, 1954 (derived
from Homestead Patent No. V-34974), located in Valencia, Malaybalay, Bukidnon. This property was
mortgaged to the then Rehabilitation Finance Corporation (now Development Bank of the Philippines or
DBP) on August 18, 1955,[4] and upon default in the payment of the loan obligation, was foreclosed and
ownership was consolidated in DBP's name under Transfer Certificate of Title (TCT) No. T-1152.[5]
Serafin Adolfo, Sr., however, repurchased the same and was issued TCT No. 6313 [6] on December 1,
1971, a year after his wife died in 1970.
Sometime in 1975, Serafin Adolfo, Sr. (Adolfo) allegedly mortgaged the subject property for the sum
of P12,500.00 to Aniceto Bangis (Bangis) who immediately took possession of the land. [7] The said
transaction was, however, not reduced into writing. [8]
When Adolfo died, his heirs, namely, Luz Adolfo Bannister, Serafin Adolfo, Jr. and Eleuterio Adolfo (Heirs
of Adolfo), executed a Deed of Extrajudicial Partition dated December 24, 1997 covering the subject
property and TCT No. T-65152[9] was issued to them. On May 26, 1998, the said property was
subdivided and separate titles were issued in names of the Heirs of Adolfo, as follows: TCT Nos. T66562 and T-66563 for Luz Adolfo Banester[10]; TCT Nos. T-66560 and T-66561 in the name of Serafin
Adolfo, Jr.; and TCT Nos. T-66564 and T-66565 in favor of Eleuterio Adolfo.[11]
BANGIS V. HEIRS OF SERAFIN
THIRD DIVISION
In June 1998, the Heirs of Adolfo expressed their intention to redeem the mortgaged property from
Bangis but the latter refused, claiming that the transaction between him and Adolfo was one of sale.
During the conciliation meetings in the barangay, Bangis' son, Rudy Bangis, showed them a copy of a
deed of sale and a certificate of title to the disputed lot. [12] The parties having failed to amicably settle
their differences, a certificate to file action[13] was issued by the barangay.
[ G.R. No. 190875. June 13, 2012 ]
THE PROCEEDINGS BEFORE THE RTC
Araullo, J., did not take part.
ANICETO BANGIS SUBSTITUTED BY HIS HEIRS, NAMELY: RODOLFO B. BANGIS, RONNIE B. BANGIS,
ROGELIO B. BANGIS, RAQUEL B. QUILLO, ROMULO B. BANGIS, ROSALINA B. PARAN, ROSARIO B.
REDDY, REYNALDO B. BANGIS, AND REMEDIOS B. LASTRE, PETITIONERS, VS. HEIRS OF SERAFIN AND
SALUD ADOLFO, NAMELY: LUZ A. BANNISTER, SERAFIN ADOLFO, JR., AND ELEUTERIO ADOLFO REP.
BY HIS HEIRS, NAMELY: MILAGROS, JOEL, MELCHOR, LEA, MILA, NELSON, JIMMY AND MARISSA, ALL
SURNAMED ADOLFO, RESPONDENTS.
DECISION
On July 26, 2000, the Heirs of Adolfo filed a complaint [14] before the Regional Trial Court (RTC) for
annulment of deed of sale and declaration of the purported contract of sale as antichresis, accounting
and redemption of property and damages against Bangis, docketed as Civil Case No. 2993-00. The
complaint was amended on September 11, 2001 to include a prayer for the cancellation of TCT No. T10567 and the tax declarations in the name of Bangis in view of the manifestation[15] filed by Ex-Officio
Register of Deeds, Atty. Phoebe Loyola Toribio of the Registry of Deeds, Malaybalay City which states
that the said title was of "dubious" origin since there was no deed of conveyance upon which the said
transfer certificate of title was based and that its derivative title, TCT No. T-10566, does not exist in
the files of the Registry of Deeds. [16] On November 12, 2001, the complaint was again amended to
reflect the other certificates of titles issued in the names of the Heirs of Adolfo and the amount of
P12,500.00 representing the mortgage debt, [17] followed by another amendment on October 13, 2003
to include the allegation that they have partitioned the subject lot on December 24, 1997 and that no
copy of the supposed deed of sale in favor of Bangis can be found in the records of the Provincial
Assessor's Office and the Registrar of Deeds. They further prayed, in the alternative, to be allowed to
redeem the subject lot under the Homestead Law and that Bangis be ordered to indemnify them: (a)
P50,000.00 each as moral damages; (b) 20% of the value of the property as attorney's fees; and (c)
P50,000.00 as litigation expenses as well as the costs of suit. [18]
4. Declaring all the transfer certificates of title issued in favor of the plaintiffs namely,
Luz Adolfo-Bannister, Serafin Adolfo, Jr. and Eleuterio Adolfo, as above-mentioned as
the ones valid and issued in accordance with PD 1529.
SO ORDERED.
Aggrieved, the Heirs of Bangis appealed the foregoing disquisition to the Court of Appeals (CA).
THE CA RULING
In his Answer with Counterclaim, [19] Bangis claimed to have bought the subject property from Adolfo
for which TCT No. T-10567[20] was issued. He also alleged to have been in open and adverse possession
of the property since 1972 and that the cause of action of the Heirs of Adolfo has prescribed. On
November 11, 2001, Bangis died and was substituted in this suit by his heirs, namely, Rodolfo B. Bangis,
Ronie B. Bangis, Rogelio B. Bangis, Raquel B. Quillo, Romulo B. Bangis, Rosalina B. Paran, Rosario B.
Reddy, Reynaldo B. Bangis and Remedios B. Lastre (Heirs of Bangis).[21]
During the trial, one of the Heirs of Bangis, Rodolfo Bangis, presented a photocopy of an Extra-Judicial
Settlement with Absolute Deed of Sale dated December 30, 1971[22] for the purpose of proving the sale
of the subject lot by Adolfo and his heirs in favor of his predecessors-in-interest, Aniceto Bangis and
Segundino Cortel, for the sum of P13,000.00. He also presented a Promissory Note [23] of even date
purportedly executed by Bangis and Segundino Cortel undertaking to pay the balance of the purchase
price in the amount of P1,050.00. [24] Both documents were notarized by Atty. Valentin Murillo who
testified to the fact of their execution. [25] Rodolfo Bangis likewise testified that they have been paying
the taxes due on the property and had even used the same as collateral for a loan with a bank. [26]
In its assailed Decision, the CA affirmed the RTC finding that the contract between the parties was a
mortgage, not a sale. It noted that while Bangis was given possession of the subject property, the
certificate of title remained in the custody of Adolfo and was never cancelled. The CA also ordered the
Heirs of Adolfo to pay the Heirs of Bangis the mortgage debt of P12,500.00 [29] with twelve (12%)
percent interest reckoned from 1975 until 1998 and to deliver to them the possession of the property
upon full payment.[30] It, however, deleted the RTC order directing the Register of Deeds to cancel TCT
No. T-10567 in the name of Bangis for being a collateral attack proscribed under PD 1529.[31]
Dissatisfied, the Heirs of Bangis filed a Motion for Reconsideration [32] arguing that the CA erred in
disregarding their testimonial and documentary evidence, particularly, the Extra-Judicial Settlement
with Absolute Deed of Sale (Exh. 2) which purportedly established the sale in favor of their predecessorin-interest, Aniceto Bangis. The said motion was, however, denied in the Resolution [33] dated December
2, 2009.
THE ISSUE BEFORE THE COURT
On rebuttal, one of the Heirs of Adolfo, Luz Adolfo Bannister, denied the due execution and genuineness
of the foregoing Extra-Judicial Settlement with Absolute Deed of Sale alleging forgery. [27]
On December 29, 2005, the RTC rendered a Decision[28] in favor of the Heirs of Adolfo, the dispositive
portion of which reads:
WHEREFORE, the preponderance of evidence being strongly in favor of the plaintiffs and
against the defendants, decision is hereby rendered:
1. Declaring the contract between the plaintiffs and defendants as a mere mortgage or
antichresis and since the defendants have been in the possession of the property in 1975
up to the present time enjoying all its fruits or income, the mortgaged loan of P12,000.00
is deemed fully paid;
Hence, the instant petition for review on certiorari based on the lone assignment of error [34] that the
transaction between the parties was one of sale and not a mortgage or antichresis. In support, petitioner
Heirs of Bangis maintain that the CA erred in not giving probative weight to the Extra-Judicial Settlement
with Absolute Deed of Sale[35] which supposedly bolsters their claim that their father, Aniceto Bangis,
bought the subject parcel of land from Adolfo. Hence, the corresponding title, TCT No. T-10567, issued
as a consequence should be respected.
On their part, respondent Heirs of Adolfo averred that no reversible error was committed by the CA in
upholding that no sale transpired between the parties' predecessors-in-interest. Moreover, petitioners'
TCT No. T-10567 was not offered in evidence and worse, certified as of dubious origin per the
Manifestation of the Registrar of Deeds.[36]
THE COURT'S RULING
2. Ordering the defendants to deliver the possession of the property in question and all
the improvements thereon to the plaintiffs peacefully;
3. Declaring TCT No. 10567 in the name of Aniceto Bangis as NULL AND VOID AB INITIO
and directing the Office of the Register of Deeds to cause its cancellation from its record
to avoid confusion regarding the ownership thereof; and
The petition must fail.
At the outset, it should be emphasized that a petition for review on certiorari under Rule 45 of the Rules
of Court involves only questions of law and not of facts. A question of law exists when there is doubt as
to what the law is on a given set of facts while a question of fact arises when there is doubt as to the
truth or falsity of the alleged facts. [37]
The Heirs of Bangis, in insisting that both the RTC and the CA erroneously disregarded the evidence of
sale they presented, are effectively asking the Court to re-evaluate factual issues which is proscribed
under Rule 45. "Such questions as to whether certain items of evidence should be accorded probative
value or weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other
are clear and convincing and adequate to establish a proposition in issue, are without doubt questions
of fact."[38]
Nonetheless, the Court perused the records and found substantial evidence supporting the factual
findings of the RTC, as affirmed by the CA, that the nature of the transaction between the parties'
predecessors-in-interest was a mortgage and not a sale. Thus, the maxim that factual findings of the
trial court when affirmed by the CA are final and conclusive on the Court [39] obtains in this case.
THERE WAS NEITHER AN
ANTICHRESIS NOR SALE
For the contract of antichresis to be valid, Article 2134 of the Civil Code requires that "the amount of
the principal and of the interest shall be specified in writing; otherwise the contract of antichresis shall
be void." In this case, the Heirs of Adolfo were indisputably unable to produce any document in support
of their claim that the contract between Adolfo and Bangis was an antichresis, hence, the CA properly
held that no such relationship existed between the parties. [40]
On the other hand, the Heirs of Bangis presented an Extra-Judicial Settlement with Absolute Deed of
Sale dated December 30, 1971[41] to justify their claimed ownership and possession of the subject land.
However, notwithstanding that the subject of inquiry is the very contents of the said document, only its
photocopy[42] was presented at the trial without providing sufficient justification for the production of
secondary evidence, in violation of the best evidence rule embodied under Section 3 in relation to
Section 5 of Rule 130 of the Rules of Court, to wit:
SEC. 3. Original document must be produced; exceptions. - When the subject of inquiry
is the contents of a document, no evidence shall be admissible other than the original
document itself, except in the following cases:
(1) When the original has been lost or destroyed, or cannot be produced
in court, without bad faith on the part of the offeror;
(2) When the original is in the custody or under the control of the party
against whom the evidence is offered, and the latter fails to produce it
after reasonable notice;
(3) When the original consists of numerous accounts or other documents
which cannot be examined in court without great loss of time and the fact
sought to be established from them is only the general result of the whole;
and
(4) When the original is a public record in the custody of a public officer
or is recorded in a public office.
SEC. 5. When original document is unavailable. - When the original document has been
lost or destroyed, or cannot be produced in court, the offeror, upon proof of its execution
or existence and the cause of its unavailability without bad faith on his part, may prove
its contents by a copy, or by a recital of its content in some authentic document, or by
the testimony of witnesses in the order stated.
The bare testimony of one of the Heirs of Bangis, Rodolfo Bangis, that the subject document was only
handed[43] to him by his father, Aniceto, with the information that the original thereof "could not be
found"[44] was insufficient to justify its admissibility. Moreover, the identification made by Notary Public
Atty. Valentin Murillo[45] that he notarized such document cannot be given credence as his conclusion
was not verified against his own notarial records. [46] Besides, the Heirs of Bangis could have secured a
certified copy of the deed of sale from the Assessor's Office[47] that purportedly had its custody in
compliance with Section 7, Rule 130[48] of the Rules of Court.
In sum, the Heirs of Bangis failed to establish the existence and due execution of the subject deed on
which their claim of ownership was founded. Consequently, the RTC and CA were correct in affording
no probative value to the said document.[49]
TCT NO. T-10567 IN THE NAME OF
ANICETO BANGIS CANNOT PREVAIL
OVER THE TITLES OF THE HEIRS OF
ADOLFO
Records reveal that TCT No. T-10567 purportedly secured as a consequence of the deed of sale executed
by Adolfo and his heirs in favor of Bangis was not offered in evidence. A perusal of its copy, however,
shows that it was a transfer from TCT No. T-10566,[50] which title the Heirs of Bangis unfortunately
failed to account for, and bore no relation at all to either OCT No. P-489 (the original title of the Spouses
Adolfo) or TCT No. T-6313 (issued to Adolfo when he repurchased the same property from DBP). The
Manifestation[51] of the Register of Deeds of Malaybalay City regarding the doubtful origin of TCT No. T10567 and the regularity of the titles of the Heirs of Adolfo are insightful, thus:
That the verification from the office of the original copy of Transfer Certificate of Title
No. T-10567 in the name of Anecito Bangis is existing in the office. Machine copy of the
said title is hereto attached as annex "A" but nothing in the title whether annotated or
attached, any Deed of Conveyance or other Documents by which said title was issued or
transferred in the name of Anecito Bangis.
That for the information and guidance of the court attached herewith is a machine copies
[sic] Original Certificate of Title No. P-489 in the name of Serafin Adolfo, marked as
annex "B" which supposedly the mother title of Transfer Certificate of Title No. T-10567
as to how this title was transferred in the name of Anecito Bangis. Nothing will show
which will validly supports [sic] the said transfer, in other words the said title is dubious.
This Original Certificate of Title No. P-489 in the name of Serafin Adolfo was mortgage
to the Development Bank of the Philippines and then it was consolidated and Transfer
Certificate of Title No. T-1152 was issued in the name of Development Bank of the
Philippines. From the Development Bank of the Philippines a Deed of Sale was executed
by the Development Bank of the Philippines in favor of Serafin Adolfo and Transfer
Certificate of Title No. T-6313 marked annex "B-1" was issued in the name of Serafin
Adolfo.
An Extrajudicial Settlement was now [sic] by the Heirs of Serafin Adolfo and Transfer
Certificate of Title Nos. T-65152 annex "B-2", T-66560 annex "B-3", T-66561 annex "B4", T-66562 annex "B-5", T-66563 annex "B-6", T-66564 annex "B-7", and T-66565
annex "B-8" were issued to the Heirs.
The titles issued to the Heirs of Serafin Adolfo were legitimately issued by this office after
all its [sic] requirements and supporting documents were submitted and proper
annotations were reflected at the back of the title of Serafin Adolfo.
Transfer Certificate of Title No. T-10567 as shown on the title was derived from Transfer
Certificate of Title No. T-10566 but [sic] title is not existing in this office.
As held in the case of Top Management Programs Corporation v. Luis Fajardo and the Register of Deeds
of Las Piñas City:[52] "if two certificates of title purport to include the same land, whether wholly or
partly, the better approach is to trace the original certificates from which the certificates of titles were
derived."
Having, thus, traced the roots of the parties' respective titles supported by the records of the Register
of Deeds of Malaybalay City, the courts a quo[53] were correct in upholding the title of the Heirs of Adolfo
as against TCT No. T-10567 of Bangis, notwithstanding its earlier issuance on August 18, 1976 [54] or
long before the Heirs of Adolfo secured their own titles on May 26, 1998. To paraphrase the Court's
ruling in Mathay v. Court of Appeals:[55] where two (2) transfer certificates of title have been issued on
different dates, the one who holds the earlier title may prevail only in the absence of any anomaly or
irregularity in the process of its registration, which circumstance does not obtain in this case.
CANCELLATION OF
TCT NO. T-10567
The Court cannot sustain the CA's ruling [56] that TCT No. T-10567 cannot be invalidated because it
constitutes as a collateral attack which is contrary to the principle of indefeasibility of titles.
It must be noted that Bangis interposed a counterclaim in his Answer seeking to be declared as the true
and lawful owner of the disputed property and that his TCT No. T-10567 be declared as superior over
the titles of the Heirs of Adolfo. [57] Since a counterclaim is essentially a complaint [58] then, a
determination of the validity of TCT No. T-10567 vis-a-vis the titles of the Heirs of Adolfo can be
considered as a direct, not collateral, attack on the subject titles. [59]
In Pasiño v. Monterroyo, the Court has ruled, thus:
It is already settled that a counterclaim is considered an original complaint and as such,
the attack on the title in a case originally for recovery of possession cannot be considered
as a collateral attack on the title. Development Bank of the Philippines v. Court of Appeals
is similar to the case before us insofar as petitioner in that case filed an action for
recovery of possession against respondent who, in turn, filed a counterclaim claiming
ownership of the land. In that case, the Court ruled:
Nor is there any obstacle to the determination of the validity of TCT No.
10101. It is true that the indefeasibility of torrens title cannot be
collaterally attacked. In the instant case, the original complaint is for
recovery of possession filed by petitioner against private respondent, not
an original action filed by the latter to question the validity of TCT No.
10101 on which petitioner bases its right. To rule on the issue of validity
in a case for recovery of possession is tantamount to a collateral attack.
However, it should not [b]e overlooked that private respondent filed a
counterclaim against petitioner, claiming ownership over the land and
seeking damages. Hence, we could rule on the question of the validity of
TCT No. 10101 for the counterclaim can be considered a direct attack on
the same. ‘A counterclaim is considered a complaint, only this time, it is
the original defendant who becomes the plaintiff... It stands on the same
footing and is to be tested by the same rules as if it were an independent
action.’ x x x (Citations omitted) [60]
Besides, the prohibition against collateral attack does not apply to spurious or non-existent titles, which
are not accorded indefeasibility, [61] as in this case.
THE PRESENT ACTION
HAS NOT PRESCRIBED
The claim of the Heirs of Bangis that since they have been in possession of the subject land since 1972
or for 28 years reckoned from the filing of the complaint in 2000 then, the present action has prescribed
is untenable. It bears to note that while Bangis indeed took possession of the land upon its alleged
mortgage, the certificate of title (TCT No. 6313) remained with Adolfo and upon his demise, transferred
to his heirs, thereby negating any contemplated transfer of ownership. Settled is the rule that no title
in derogation of that of the registered owner can be acquired by prescription or adverse possession. [62]
Moreover, even if acquisitive prescription can be appreciated in this case, the Heirs of Bangis' possession
being in bad faith is two years shy of the requisite 30-year uninterrupted adverse possession required
under Article 1137 of the Civil Code.
Consequently, the Heirs of Bangis cannot validly claim the rights of a builder in good faith as provided
for under Article 449 in relation to Article 448 of the Civil Code. Thus, the order for them to surrender
the possession of the disputed land together with all its improvements was properly made.
LIABILITY FOR THE PAYMENT
OF INTEREST
Finally, it is undisputed that the Heirs of Bangis made no judicial or extrajudicial demand on the Heirs
of Adolfo to pay the mortgage debt. Instead, it was the latter who signified their intent to pay their
father's loan obligation, admittedly in the amount of P12,500.00, [63] which was refused. The mortgage
contract therefore continued to subsist despite the lapse of a considerable number of years from the
time it was constituted in 1975 because the mortgage debt has not been satisfied.
Following the Court's ruling in the iconic case of Eastern Shipping Lines, Inc. v. Court of Appeals,[64] the
foregoing liability, which is based on a loan or forbearance of money, shall be subject to legal interest
of 12% per annum from the date it was judicially determined by the CA on March 30, 2009 until the
finality of this Decision, and not from 1975 (the date of the constitution of the mortgage); nor from
1998 (when an attempt to pay was made) or in 2000 at the time the complaint was filed, because it
was the Heirs of Adolfo and not Bangis who filed the instant suit [65] to collect the indebtedness.
Thereafter, the judgment award inclusive of interest shall bear interest at 12% per annum until its full
satisfaction.[66]
WHEREFORE, premises considered, the instant petition for review on certiorari is DENIED and the
assailed Decision dated March 30, 2009 of the Court of Appeals Mindanao Station (CA) and its Resolution
dated December 2, 2009 in CA-G.R. CV No. 00722-MIN are AFFIRMED with MODIFICATION: (1)
cancelling TCT No. T-10567; and (2) ordering respondent Heirs of Adolfo to pay petitioner Heirs of
Bangis the sum of P12,500.00 with legal interest of 12% per annum reckoned from March 30, 2009
until the finality of this Decision and thereafter, 12% annual interest until its full satisfaction.
The rest of the Decision stands.
SO ORDERED.
Peralta, J., *(Acting Chairperson), Abad, Villarama, Jr.,** and Mendoza, JJ., concur.
MACAPINLAC V. REBIDE
[ G. R. No. 18574. September 20, 1922 ]
JOSE C. MACAPINLAC, PLAINTIFF AND APPELLANT, VS. FRANCISCO GUTIERREZ REPIDE ET AL.,
DEFENDANTS. FRANCISCO GUTIERREZ REPIDE, DEFENDANT AND APPELLEE. J. F. BOOMER,
DEFENDANT AND APPELLANT.
DECISION
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 defendant
Francisco Gutierrez Repide, with certain remedial measure incident 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, why 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 the 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 that 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 demurrer, 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, if 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 upon 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. Compañaia 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 ffus 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 P800,000, 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 Bachrach 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 date 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 notes, 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 HaciendaDolores), subject 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 latter; and at this time Francisco
Gutierrez Repide, so the 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 had 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 his own
name. To accomplish this it 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 proceeding 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 been 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, or the 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 mere 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
jurisdictions where the common Jaw prevails.
Speaking then with reference 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 reality a mortgage as between the original
parties, and as against all those deriving title from or under the grantee, who are not
bond fide purchasers for value and without notice. The principle which underlies this
doctrine is the fruitful source of many 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 grantor 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.)
any other cause, and this debt is still left subsisting, not being discharged or satisfied by
the conveyance, but the grantor 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 amounts 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.)
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
In Cuyugan vs. Santos, supra, the action to enforce the right of redemption 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 begun.
But it is obvious that this circumstance cannot be any obstacle to the enforcement of any rights that
the plaintiff may 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, with notice of any existing equitable estate, interest, claim, or right, in or to the same
subject-matter, held by a third person, is liable in equity to the same extent 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, had been executed as security for a debt, Francisco Gutierrez Repide—
or his estate, now that Repide is 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 the 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
title 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 reflects a mistaken point of view as to
the consequences of that act. Upon perusal of the complaint 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 another 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
circumstance is not to be ignored that the complaint contains in usual form the prayer for general relief.
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 anti-chresis, 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 America 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., secs. 12151218.)
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.
Directing our attention now to the appeal of the defendant Boomer, we note that this litigant asserts
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 here to enter into the details of Boomer's 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 his 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
interposed in behalf of Francisco Gutierrez Repide to the original complaint and to Boomer's crosscomplaint 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.
Araullo, C. J., Malcolm, Avanceña, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.
Johnson, J., dissents.
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.
SPS. REYES V. HEIRS OF MALANCE
FIRST DIVISION
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
has 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.
DECISION
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.
[ G.R. No. 219071. August 24, 2016 ]
SPOUSES CHARITO M. REYES AND ROBERTO REYES, AND SPOUSES VILMA M. MARAVILLO AND
DOMINGO MARAVILLO, JR., PETITIONERS, VS. HEIRS OF BENJAMIN MALANCE, * NAMELY: ROSALINA
M. MALANCE, BERNABE M. MALANCE, BIENVENIDO M. MALANCE, AND DOMINGA** M. MALANCE,
REPRESENTED BY BIENVENIDO M. MALANCE, RESPONDENTS.
PERLAS-BERNABE, J.:
Before the Court is a petition for review on certiorari[1] assailing the Decision[2] dated July 23, 2013 and
the Resolution[3] dated June 18, 2015 of the Court of Appeals (CA) in CA-G.R. CV No. 95984, which
directed petitioners Charito M. Reyes and Vilma M. Maravillo (the Magtalas sisters) to surrender and
turn-over the physical possession of the subject land to respondents Heirs of Benjamin Malance,
namely: Rosalina M. Malance, Bernabe M. Malance, Bienvenido M. Malance, and Dominga M. Malance,
represented by Bienvenido M. Malance (the Malance heirs) upon payment of the amount of P4,320.84.
The Facts
Benjamin Malance (Benjamin) was the owner of a 1.4017-hectare parcel of agricultural land covered
by Emancipation Patent No. (EP) 615124[4] situated at Dulong Malabon, Pulilan, Bulacan[5] (subject
land). During his lifetime, Benjamin obtained from the Magtalas sisters, who are distant relatives,[6] a
loan in the amount of P600,000.00, as evidenced by a Kasulatan Ng Ukol sa Utang[7] dated June 26,
2006 (Kasulatan). Under the Kasulatan, the Magtalas sisters shall have the right to the fruits of the
subject land for six (6) years or until the loan is fully paid.[8]
After Benjamin passed away on September 29, 2006, [9] his siblings, the Malance heirs, inspected the
subject land and discovered that the Magtalas sisters, their respective husbands, Roberto Reyes and
Domingo Maravilla, Jr. (petitioners), and their father, Fidel G. Magtalas (Fidel), [10] were cultivating the
same on the basis of the Kasulatan.[11] Doubting the authenticity of the said Kasulatan, the Malance
heirs filed a Complaint for Recovery of Possession, Declaration of Nullity of the Kasulatan and Damages
with Prayer for Writ of Preliminary Injunction and Temporary Restraining Order [12] against petitioners,
before the Regional Trial Court ofMalolos City, Bulacan (RTC), Branch 84, docketed as Civil Case No.
748-M-2006, which the Malance heirs subsequently amended. [13] They claimed that: (a) during his
lifetime, Benjamin accumulated enough wealth to sustain himself, was unmarried and had no children
to support;[14] (b) the Kasulatan was executed during the time when Benjamin was seriously ill and
mentally incapacitated due to his illness and advanced age; and (c) the Kasulatan was simulated as the
signature of Benjamin appearing thereon was not his signature. [15]
In their answer,[16] petitioners denied that Benjamin had accumulated enough wealth to sustain himself
as his only source of income was his farm, and averred, inter alia, that: (a) when Benjamin became
sickly in 2000, he leased the subject land to different people who cultivated the same with their
(petitioners') help;[17] (b) the Kasulatan was executed before a notary public at the time when Benjamin
was of sound mind, though sickly; (c) they were cultivating the subject land in accordance with the said
Kasulatan;[18] (d) the case involved an agrarian conflict within the jurisdiction of the Department of
Agrarian Reform Adjudication Board; and (e) the Malance heirs must pay Benjamin's indebtedness prior
to recovery of possession.[19]
The complaint was initially dismissed for lack of jurisdiction,[20] but was subsequently reinstated[21] and
re-raffled to Branch 9 of the same RTC.[22]
of its contents;[27] and (b) the contract between the parties was a contract of antichresis. [28] However,
it ruled that only the amount of P218,106.84 was actually received by Benjamin as expenses for his
medical treatment and the cost of his funeral service/memorial lot, [29] while the rest was kept in the
custody of the Magtalas sisters' father, Fidel. [30] Considering petitioners' evidence that the subject land
has an average annual production of 107 cavans of palay valued at P600.00/cavan, with half of the
income expended for costs, and that they had been cultivating the subject land for 6.66 years, the CA
ruled that the outstanding amount of the loan is only P4,320.84.[31] Consequently, it directed the
Magtalas sisters to surrender and turn-over the physical possession of the subject land to the Malance
heirs upon payment by the latter of the outstanding loan. [32]
Dissatisfied, petitioners moved for reconsideration,[33] contending that: (a) the CA should have imposed
interest on Benjamin's loan despite the absence of express stipulation, and applied the fruits from the
subject land thereto, and thereafter, to the principal; [34] and (b) the available receipts for Benjamin's
hospitalization were adduced for the purpose of proving that he had valid reason to obtain a loan for
his personal use, and should not have been considered as the only proceeds received by him. [35] The
same was, however, denied in a Resolution[36] dated June 18, 2015; hence, this petition.
The Issues Before the Court
The essential issues for the Court's resolution are whether or not: (a) the CA committed reversible error
in ruling that the amount of P218,106.84, representing the duly receipted expenses for Benjamin's
medical treatment and the cost of the funeral service/memorial lot, was the only proceeds received
from the P600,000.00 loan obligation; and (b) legal interest is due despite the absence of express
stipulation.
The Court's Ruling
Prefatorily, it should be mentioned that the remedy of appeal by certiorari under Rule 45 of the Rules
of Court contemplates only questions of law, not of fact. While it is not the function of the Court to reexamine, winnow and weigh anew the respective sets of evidence of the parties, [37] there are, however,
recognized exceptions,[38] among which is when the inference drawn from the facts was manifestly
mistaken, as in this case.
The RTC Ruling
In a Decision[23] dated August 31, 2010, the RTC dismissed the complaint for failure of the Malance
heirs to substantiate their claim that Benjamin's signature was forged, and upheld the validity of the
Kasulatan on the ground that it is a notarized document which enjoys the presumption of regularity in
its execution. It declared the Kasulatan as a contract of antichresis binding upon Benjamin's heirs - the
Malance heirs - and conferring on the Magtalas sisters the right to retain the subject land until the debt
is paid.[24]
Aggrieved, the Malance heirs appealed to the CA. [25]
The CA Ruling
In a Decision[26] dated July 23, 2013, the CA upheld the RTC's findings and declared that: (a) the mere
allegation of forgery will not suffice to overcome the positive value of the Kasulatan, a notarized
document which has in its favor the presumption of regularity and is conclusive as to the truthfulness
Here, the CA upheld the validity of the Kasulatan between Benjamin and the Magtalas sisters for failure
of the Malance heirs to prove their challenge against its due execution and authenticity, ruling further
that being a notarized document, it has in its favor the presumption of regularity and is conclusive as
to the truthfulness of its contents. [39]
Generally, a notarized document carries the evidentiary weight conferred upon it with respect to its due
execution, and documents acknowledged before a notary public have in their favor the presumption of
regularity which may only be rebutted by clear and convincing evidence. However, the presumptions
that attach to notarized documents can be affirmed only so long as it is beyond dispute that the
notarization was regular. A defective notarization will strip the document of its public character
and reduce it to a private document. Consequently, when there is a defect in the notarization of a
document, the clear and convincing evidentiary standard normally attached to a duly-notarized
document is dispensed with, and the measure to test the validity of such document is preponderance
of evidence.[40]
In this case, the Court observes that the Kasulatan was irregularly notarized since it did not reflect any
competent evidence of Benjamin's identity, such as an identification card (ID) issued by an official
agency bearing his photograph and signature, but merely indicated his Community Tax Certificate
Number despite the express requirement[41] of the 2004 Rules on Notarial Practice. [42] Consequently,
having failed to sufficiently establish the regularity in the execution of the Kasulatan, the presumption
accorded by law to notarized documents does not apply and, therefore, the said document should be
examined under the parameters of Section 20, Rule 132 of the Rules of Court which provides that
"[b]efore any private document offered as authentic is received in evidence, its due execution and
authenticity must be proved either: (a) [by] anyone who saw the document executed or written; or (b)
[by] evidence of the genuineness of the signature or handwriting of the maker."
amount;[53] (c) the creditor retains enjoyment of such property until the debtor has totally
paid what he owes;[54] and (d) should the obligation be duly paid, then the contract is
automatically extinguished proceeding from the accessory character of the agreement.[55]
The burden falls upon petitioners to prove the authenticity and due execution of the Kasulatan,[43] which
they were, nonetheless, able to discharge. Records show that while the notary public, Atty. Cenon
Navarro (Atty. Navarro),[44] did not require an ID when he notarized the Kasulatan, when confronted
with Benjamin's ID issued by the Office of Senior Citizens Affairs of Pulilan, Bulacan (Senior Citizen ID),
he identified the person in the picture as the person who signed the Kasulatan, and received money
from the Magtalas sisters in his presence. [45]
Na, ako ay nangangakong babayaran ang halagang aking inutang sa nasabing sina
CHARITO M. REYES at VILMA MARAVILLO, sa kanilang tagapagmana, makakahalili at
paglilipatan sa loob ng anim (6) na taon;
On the other hand, respondent Bienvenido Malance's self-serving and uncorroborated testimony that
Benjamin's signature on the Kasulatan was forged purportedly because he does not know how to
write[46] was contradicted by the Malance heirs' own manifestation that Benjamin has a Senior Citizen
ID and that the signature affixed thereon is different from his signature appearing on the Kasulatan.[47]
The said ID, however, was not offered in evidence [48] as to enable the RTC, the CA, and the Court to
make an examination of the signature thereon vis-a-vis that on the Kasulatan. It is important to note
that a finding of forgery does not depend exclusively on the testimonies of expert witnesses and that
judges must use their own judgment, through an independent examination of the questioned signature,
in determining the authenticity of the handwriting. [49]
Hence, the evidence as to the genuineness of Benjamin's signature, and the consequent due execution
and authenticity of the Kasulatan preponderate in favor of petitioners, who were likewise able to prove
Benjamin's receipt of the amount of P600,000.00 reflected in the Kasulatan. Atty. Navarro testified
having prepared the Kasulatan according to the agreement of the parties, [50] and that he witnessed the
exchange of money between the parties to the Kasulatan.[51] As such, it was erroneous for the CA to
conclude that the amount of P218,106.84, representing the duly receipted expenses for Benjamin's
medical treatment and the cost of the funeral service/memorial lot, was the only proceeds received
from the P600,000.00 loan obligation. Notably, the purpose indicated for the Malance heirs' formal offer
of the records and receipts of hospitalization, medicines, and burial expenses of Benjamin was merely
"to show proof of expenses incurred by x x x Benjamin x x x relative to his sickness and x x x where
he spent the loan he obtained"[52] from the Magtalas sisters.
The Court, however, concurs with the RTC's finding, as affirmed by the CA, that the Kasulatan is a
contract of antichresis. Article 2132 of the Civil Code provides:
Art. 2132. By the contract of antichresis the creditor acquires the right to receive the
fruits of an immovable of his debtor, with the obligation to apply them to the payment
of the interest, if owing, and thereafter to the principal of his credit.
Thus, antichresis involves an express agreement between parties whereby : (a) the creditor will have
possession of the debtor's real property given as security; (b) such creditor will apply the fruits
of the said property to the interest owed by the debtor, if any, then to the principal
Bearing these elements in mind, the evidence on record shows that the parties intended to enter into
a contract of antichresis. In the Kasulatan, Benjamin declared:
Na, ako ay tumanggap ng halagang ANIMNARAANG LIBONG PISO (P600,000.00)
salaping Pilipino buhat kina CHARITO M. REYES kasal kay Roberto Reyes at VILMA
MARAVILLO kasal kay Domingo Maravilla, Jr., pawang mga sapat na gulang, Pilipino at
nagsisipanirahan sa Dulong Malabon, Pulilan, Bulacan, bilang UTANG;
Na, upang mapanagutan ang matapat na pagbabayad sa aking pagkakautang ay aking
IPINANAGOT ang aking ani ng lupa na matatagpuan sa Dulong Malabon, Pulilan, Bulacan,
may sukat na 1 ektarya at kalahati (1 1/2) humigi't kumulang;
Na, kung sa loob ng Ianing na panahon na nabanggit ay mabayaran na ang halaga ng
aking inutang sa nasabing sina CHARITO M. REYES at VILMA MARAVILLO at sa kanilang
mga tagapagmana, makakahalili at paglilipatan, ang kasulatang ito ay kusang
mawawalan ng bisa. tibay at lakas, ngunit kung hindi mabayaran ang halaga ng aking
inutang ang kasulatang ito ay mananatiling mabisa, matibay at maaaring ipatupad ayon
sa umiiral na batas.[56]
As aptly observed by the CA:
The language of the Kasulatan leaves no doubt that the [P]600,00.00 was a loan secured
by the fruits or ani of the landholding beneficially owned by Benjamin. The document
specifically authorizes [the Magtalas sisters] to receive the fruits of the subject
landholding with the obligation to apply them as payment to his [P]600,000.00 principal
loan for a period of six (6) years. The instrument provides no accessory stipulation as to
interest due or owing the creditors, x x x. No mention of interest was ever made by the
creditors when they testified in court. This could only be interpreted that the [Magtalas
sisters] have no intention whatsoever to charge Benjamin of interest for his loan. We
note also that the Kasulatan is silent as to the transfer of possession of the subject
property. However, [the Magtalas sisters] admitted taking possession of Benjamin's
landholding after his death on September 29, 2006 and that they have been cultivating
it since then. They rationalize that their action is in accord with their agreement with
Benjamin when the latter was still alive. They assure the return of the subject property
upon full payment of Benjamin's loan by [the Malance heirs], the successors-in-interest
of Benjamin.[57]
While the Kasulatan did not provide for the transfer of possession of the subject land, the
contemporaneous and subsequent acts of the parties show that such possession was intended to be
transferred. Atty. Navarro testified that while the Kasulatan only shows that the harvest and the fruits
shall answer for Benjamin's indebtedness, the parties agreed among themselves that the lenders would
be the one to take possession of the subject land in order for them to get the harvest.[58] Indeed, such
arrangement would be the most reasonable under the premises since at that time, Benjamin's medical
condition necessitated hospitalization, hence, his physical inability to cultivate and harvest the fruits
thereon.[59]
to the Malance heirs, as represented by Bienvenido Malance, of the annual net yield from the subject
land, until such time that they have completely collected the outstanding balance of said debt.
As antichretic creditors, the Magtalas sisters are entitled to retain enjoyment of the subject land until
the debt has been totally paid. Article 2136 of the Civil Code reads:
Art. 2136. The debtor cannot reacquire the enjoyment of the immovable without first
having totally paid what he owes the creditor.
In the present case, the CA deemed the amount of P600.00 as reasonable cost of a cavan of palay from
the subject land, which yields an annual harvest of 107 cavans, or a gross income of P64,200.00; [60]
half of the income is expended for expenses, resulting to an annual net income of P32,100.00. [61] This,
both parties failed to refute. Thus, from June 2006 up to the date of this Decision, only the amount of
P326,351.07 is deemed to have been paid on Benjamin's loan, leaving an unpaid amount of
P273,648.93, computed as follows:
WHEREFORE, the Decision dated July 23, 2013 and the Resolution dated June 18, 2015 of the Court
of Appeals in CA-G.R. CV No. 95984 are hereby MODIFIED: (a) declaring that the unpaid loan balance
of Benjamin Malance's (Benjamin) to petitioners Charita M. Reyes and Vilma M. Maravilla (the Magtalas
sisters) is P273,648.93 as herein computed; (b) dismissing the counterclaim of petitioners the Magtalas
sisters and their respective husbands, Roberto Reyes and Domingo Maravilla, Jr., on the ground of
prematurity, without prejudice; and (c) directing the Magtalas sisters, as antichretic creditors, to
henceforth render an annual accounting to respondents Heirs of Benjamin Malance, namely: Rosalina
M. Malance, Bernabe M. Malance, Bienvenido M. Malance, and Dominga M. Malance, as represented by
Bienvenido Malance, of the annual net yield from the subject land, until such time that they have
completely collected the outstanding loan balance of Benjamin's debt.
Amount
indebtedness
of
P600,000.00
SO ORDERED.
Sereno, C. J., (Chairperson), Leonardo-De Castro, Bersamin, and Caguioa, JJ., concur.
Less:
Amount
deemed paid
RAMIREZ V. CA
SECOND DIVISION
[ G.R. No. L-38185. September 24, 1986 ]
Annual
income
net
From June 2006
to August 2016
P32,100.00
x 10.1667
326,351.07
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.
DECISION
Outstanding balance
P273,648.93
GUTIERREZ, JR., J.:
The debt not having been totally paid, petitioners are entitled to retain enjoyment of the subject land.
Consequently, the Malance heirs' complaint for recovery of possession, declaration of nullity of the
Kasulatan, and damages against petitioners must be dismissed.
As a final matter for resolution, the Court likewise dismisses petitioners' counterclaim for the payment
of Benjamin's principal debt, including interest, considering that the same was not yet due and
demandable at the time the claim therefor was filed. Particularly, petitioners' counterclaim was
prematurely filed on January 4, 2007,[62] which was well within the six-year payment period under the
Kasulatan, and hence, should be dismissed. Nonetheless, it should be noted that the dismissal of
petitioners' counterclaim is without prejudice to the proper exercise of the Magtalas sisters' rights under
Article 2137 of the Civil Code[63] now that Benjamin's debt is due and demandable. In the meantime,
the Magtalas sisters, as antichretic creditors, are directed to henceforth render an annual accounting [64]
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 Gregoria 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 the 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 FACT 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:
"xxx 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 allotted
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 identity of the lot to the true owner by the
applicant causing the former to withdraw his opposition. In all these examples the over-riding
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
295; 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. 40425R, 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 P400.00 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.
Feria, (Chairman), Fernan, Alampay, and Paras, JJ., concur.
CONCURRENCE AND PREFERENCE OF CREDITS
CIVIL CODE
TITLE XIX – Concurrence and Preference of Credits
CHAPTER 1 – General Provisions
ARTICLE 2236. The debtor is liable with all his property, present and future, for the fulfillment of his
obligations, subject to the exemptions provided by law. (1911a)
ARTICLE 2237. Insolvency shall be governed by special laws insofar as they are not inconsistent with
this Code. (n)
ARTICLE 2238. So long as the conjugal partnership or absolute community subsists, its property shall
not be among the assets to be taken possession of by the assignee for the payment of the insolvent
debtor’s obligations, except insofar as the latter have redounded to the benefit of the family. If it is
the husband who is insolvent, the administration of the conjugal partnership or absolute community
may, by order of the court, be transferred to the wife or to a third person other than the assignee.
(n)
ARTICLE 2239. If there is property, other than that mentioned in the preceding article, owned by two
or more persons, one of whom is the insolvent debtor, his undivided share or interest therein shall
be among the assets to be taken possession of by the assignee for the payment of the insolvent
debtor’s obligations. (n)
ARTICLE 2240. Property held by the insolvent debtor as a trustee of an express or implied trust, shall
be excluded from the insolvency proceedings. (n)
CHAPTER 2 – Classification of Credits
ARTICLE 2241. With reference to specific movable property of the debtor, the following claims or
liens shall be preferred:
(1) Duties, taxes and fees due thereon to the State or any subdivision thereof;
(2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials
committed in the performance of their duties, on the movables, money or securities obtained by
them;
(3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the
possession of the debtor, up to the value of the same; and if the movable has been resold by the
debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the
immobilization of the thing by destination, provided it has not lost its form, substance and identity;
neither is the right lost by the sale of the thing together with other property for a lump sum, when
the price thereof can be determined proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor,
or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value
thereof;
(5) Credits for the making, repair, safekeeping or preservation of personal property, on the movable
thus made, repaired, kept or possessed;
(6) Claims for laborers’ wages, on the goods manufactured or the work done;
(7) For expenses of salvage, upon the goods salvaged;
(8) Credits between the landlord and the tenant, arising from the contract of tenancy on shares, on
the share of each in the fruits or harvest;
(9) Credits for transportation, upon the goods carried, for the price of the contract and incidental
expenses, until their delivery and for thirty days thereafter;
(10) Credits for lodging and supplies usually furnished to travellers by hotel keepers, on the movables
belonging to the guest as long as such movables are in the hotel, but not for money loaned to the
guests;
(11) Credits for seeds and expenses for cultivation and harvest advanced to the debtor, upon the
fruits harvested;
(12) Credits for rent for one year, upon the personal property of the lessee existing on the immovable
leased and on the fruits of the same, but not on money or instruments of credit;
(13) Claims in favor of the depositor if the depositary has wrongfully sold the thing deposited, upon
the price of the sale.
In the foregoing cases, if the movables to which the lien or preference attaches have been wrongfully
taken, the creditor may demand them from any possessor, within thirty days from the unlawful
seizure. (1922a)
ARTICLE 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:
(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;
(13) Gifts due to public and private institutions of charity or beneficence;
(8) Claims of co-heirs for warranty in the partition of an immovable among them, upon the real
property thus divided;
(14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final
judgment, if they have been the subject of litigation. These credits shall have preference among
themselves in the order of priority of the dates of the instruments and of the judgments, respectively.
(1924a)
(9) Claims of donors or 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. (1923a)
ARTICLE 2243. The claims or credits enumerated in the two preceding articles 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)
ARTICLE 2244. With reference to other property, real and personal, of the debtor, the following claims
or credits shall be preferred in the order named:
(1) Proper funeral expenses for the debtor, or children under his or her parental authority who have
no property of their own, when approved by the court;
(2) Credits for services rendered the insolvent by employees, laborers, or household helpers for one
year preceding the commencement of the proceedings in insolvency;
(3) Expenses during the last illness of the debtor or of his or her spouse and children under his or
her parental authority, if they have no property of their own;
(4) Compensation due the laborers or their dependents under laws providing for indemnity for
damages in cases of labor accident, or illness resulting from the nature of the employment;
(5) Credits and advancements made to the debtor for support of himself or herself, and family, during
the last year preceding the insolvency;
ARTICLE 2245. Credits of any other kind or class, or by any other right or title not comprised in the
four preceding articles, shall enjoy no preference. (1925)
CHAPTER 3 – Order of Preference of Credits
ARTICLE 2246. Those credits which enjoy preference with respect to specific movables, exclude all
others to the extent of the value of the personal property to which the preference refers.
ARTICLE 2247. If there are two or more credits with respect to the same specific movable property,
they shall be satisfied pro rata, after the payment of duties, taxes and fees due the State or any
subdivision thereof. (1926a)
ARTICLE 2248. Those credits which enjoy preference in relation to specific real property or real rights,
exclude all others to the extent of the value of the immovable or real right to which the preference
refers.
ARTICLE 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 property or real right. (1927a)
ARTICLE 2250. The excess, if any, after the payment of the credits which enjoy preference with
respect to specific property, real or personal, shall be added to the free property which the debtor
may have, for the payment of the other credits. (1928a)
(6) Support during the insolvency proceedings, and for three months thereafter;
ARTICLE 2251. Those credits which do not enjoy any preference with respect to specific property,
and those which enjoy preference, as to the amount not paid, shall be satisfied according to the
following rules:
(7) Fines and civil indemnification arising from a criminal offense;
(1) In the order established in article 2244;
(8) Legal expenses, and expenses incurred in the administration of the insolvent’s estate for the
common interest of the creditors, when properly authorized and approved by the court;
(2) Common credits referred to in article 2245 shall be paid pro rata regardless of dates. (1929a)
(9) Taxes and assessments due the national government, other than those mentioned in articles
2241, No. 1, and 2242, No. 1;
(10) Taxes and assessments due any province, other than those referred to in articles 2241, No. 1,
and 2242, No. 1;
(11) Taxes and assessments due any city or municipality, other than those indicated in articles 2241,
No. 1, and 2242, No. 1;
BARRETTO V. VILLANUEVA
[ G.R. No. L-14938. December 29, 1962 ]
MAGDALENA S. DE BARRETTO AND JOSE C. BARRETTO, PLAINTIFFS-APPELLANTS, VS. JOSE C.
VILLANUEVA, ET AL, DEFENDANTS-APPELLEES.
(12) Damages for death or personal injuries caused by a quasi-delict;
DECISION
REYES, J.B.L., J.:
SUMMARY
Subject of this appeal is the decision of the Court of First Instance which ordered the annotation of
Cruzado's "vendor's lien" on the back of the certificate of title to the property under foreclosure sale
with a proviso that the vendor's lien and appellants' mortgage credit be satisfied pro rata cut of the
proceeds of the sale. This was affirmed in a decision of this Court promulgated on January 28, 1961
which in effect recognized both rights on equal footing without regard to the system of priorities. The
appellants moved to reconsider this decision asking the Court to declare their mortgage credit superior
to the vendor's lien of Cruzado. They reasoned that Articles 2242 and 2243 of the New Civil Code
become effective only in the event that the vendee becomes insolvent and that Cruzado is not a true
vendor of the foreclosed property. After mature consideration of the facts and the law of the case, the
Court set aside its decision and declared the appellants' mortgage credit superior to that of the vendor's
lien.
HELD:—Substantial changes in the system of priorities ordained in the Civil Code of 1889 were
introduced in the New Civil Code of the Philippines such that recorded encumbrances over real property
offered as security for loans in the absence of tax burdens, statutory liens and insolvency proceedings,
must take priority over all unrecorded claims and must be satisfied with preference from the proceeds
of the sale of such property.
EN BANC
G.R. No. L-14938
About two years thereafter, or on February 13, 1953 Rosario Cruzado, as guardian of her minor children
in Special Proceedings No. 14198 of the Court of First Instance of Manila, was authorized by the court,
to sell with the previous consent of the RFC the land in question together with the improvements thereon
for a sum not less than P19,000. Pursuant to such authority and with the consent of the RFC, she sold
to Pura L. Villanueva for P19,000.00 "all their rights, interest,' title and dominion and over the herein
described parcel of land together with the existing improvements thereon, including one use and an
annex thereon; free from all charges and encumbrances, , with the exception of the sum of P11,009.52,
is stipulated interest thereon, which the vendor, is still presently obligated to the RFC and which the
vendee herein now assumes to pay to the RFC under the same terms and conditions specified in that
deed of sale dated July 26, 1951." Having paid in advance the sum of P500.00, Pura L. Villanueva, the
vendee, in consideration of the aforesaid sale, executed in favor of the vendor Rosario Cruzado a
promissory note dated March 9, 1953, undertaking to pay the balance of P17,500.00 in monthly
installments. On April 22, 1953, she made an additional payment of P5,500.00 on the promissory note.
She was, subsequently, able to secure in her name Transfer Certificate of Title No. 32526 covering the
house and lot above referred to, and on July 10, 1953, she mortgaged the said property to Magdalena
C. Barretto as security for a loan the amount of P30,000.00.
As said Pura L. Villanueva had failed to pay the remaining installments on the unpaid balance of
P12,000.00 her promissory note for the sale of the property in question, a complaint for the recovery
of the same from her and her husband was filed on September 21, 1963 by Rosario Cruzado in her own
right and in her capacity as judicial guardian of her minor children. Pending trial of the case, a lien was
constituted upon the property in the nature of a levy in attachment in favor of the Cruzados said lien
being annotated at the back of Transfer Certificate of Title No. 32526. After trial, decision was rendered
ordering Pura Villanueva and her husband, jointly and severally, to pay Rosario Cruzado the sum of
P12,000.00, with legal interest thereon from the date of the filing of the complaint until fully paid plus
the sum of P1,500.00 as attorney's fees.
January 28, 1961
MAGDALENA
C.
DE
BARRETO,
vs.
JOSE G. VILLANUEVA, ET AL., defendants-appellees.
Bausa,
Ampil
&
Esteban Ocampo for defendants-appellees.
Suarez
ET
AL.,
for
plaintiffs-appellants,
plaintiffs-appellants.
GUTIERREZ DAVID, J.:
On May 10, 1948, Rosario Cruzado, for herself and as administratix of the intestate estate of her
deceased husband Pedro Cruzado in Special Proceedings No. 4959 of the Court of First Instance of
Manila, obtained from the defunct Rehabilitation Finance Corporation (hereinafter referred to as the
RFC a loan in the amount of P11,000.00. To secure payment thereof, she mortgaged the land then
covered by Transfer Certificate of Title No. 61358 issued in her name and that of her deceased. husband.
As she failed to pay certain installments on the loan, the mortgage was foreclosed and the RFC acquired
the property for P11,000.00, subject to her rights as mortgagor to re-purchase the same. On July 26,
1951, upon her application, the land was sold back to her conditionally for the amount of P14,269.03,
payable in seven years.
Pura Villanueva having, likewise, failed to pay her indebtedness of P30,000.00 to Magdalena C. Barretto,
the latter, jointly with her husband, instituted against the Villanueva spouses an action for foreclosure
of mortgage, impleading Rosario Cruzado and her children as parties defendants. On November 11,
1956, decision was rendered in the case absolving the Cruzados from the complaint and sentencing the
Villanuevas to pay the Barrettos, jointly and severally, the sum of P30,000.00, with interest thereon at
the rate of 12% per annum from January 11, 1954 plus the sum of P4,000.00 as attorney's fees. Upon
the finality of this decision, the Barrettos filed a motion for the issuance of a writ of execution which
was granted by the lower court on July 31, 1958. On August 14, 1958, the Cruzados filed their "Vendor's
Lien" in the amount of P12,000.00, plus legal interest, over the real property subject of the foreclosure
suit, the said amount representing the unpaid balance of the purchase price of the said property. Giving
due course to the line, the court on August 18, 1958 ordered the same annotated in Transfer Certificate
of Title No. 32526 of the Registry of Deeds of Manila, decreeing that should the realty in question be
sold at public auction in the foreclosure proceedings, the Cruzados shall be credited with their pro-rata
share in the proceeds thereof, "pursuant to the provision of articles 2248 and 2249 of the new Civil
Code in relation to Article 2242, paragraph 2 of the same Code." The Barrettos filed a motion for
reconsideration on September 12, 1958, but on that same date, the sheriff of Manila, acting in
pursuance of the order of the court granting the writ of execution, sold at public auction the property
in question. As highest bidder, the Barrettos themselves acquired the properties for the sum of
P49,000.00.
On October 4, 1958, 'the Court of First Instance issued an order confirming the aforesaid sale and
directing the Register of Deeds of the City of Manila to issue to the Barrettos the corresponding
certificate of title, subject, however, to the order of August 18, 1958 concerning,. the vendor's lien. On
the same date, the motion of the Barettos seeking reconsideration of the order of the court giving due
course to the said vendor's lien was denied. From this last order, the Barretto spouses interposed the
present appeal.
The appeal is devoid of merit.
In claiming that the decision of the Court, of First Instance of Manila in Civil Case No. 20075 . awarding
the amount of P12,000.00 in favor of Rosario Cruzado and her minor children . cannot constitute a basis
for the vendor's lien filed by the appellee Rosario Cruzado, appellants allege that the action in said civil
case was merely to recover the balance of a promissory note. But while, apparently, the action was to
recover the remaining obligation of promissor Pura Villanueva on the note, the fact remains that Rosario
P. Cruzado as guardian of her minor children, was an unpaid vendor., of the realty in question, and the
promissory note, was, precisely, for the unpaid balance of the price of the property bought by, said
Pura Villanueva.
Article 2242 of the new Civil, Code enumerates the claims, mortgage and liens that constitute an
encumbrance on specific immovable property, and among them are: .
Land Registration Act itself, however, respects without reserve or qualification the paramount rights of
lien holders on real property. Thus, section 70 of that Act provides that .
Registered land, and ownership therein shall in all respects be subject to the same burdens and incidents
attached by law to unregistered land. Nothing contained in this Act shall in any way be construed to
relieve registered land or the owners thereof from any rights incident to the relation of husband and
wife, or from liability to attachment on mesne process or levy, on execution, or from liability to any lien
of any description established by law on land and the buildings thereon, or the interest of the owners
of such land or buildings, or to change the laws of descent, or the rights of partition between co-owners,
joint tenants and other co-tenants or the right to take the same by eminent domain, or to relieve such
land from liability to be appropriated in any lawful manner for the payment of debts, or to change or
affect in any other way any other rights or liabilities created by law and applicable to unregistered land,
except as otherwise expressly provided in this Act or in the amendments thereof, (Emphasis supplied)
As to the point made that the articles of the Civil Code on concurrence and preference of credits are
applicable only to the insolvent debtor, suffice it to say that nothing in the law shows any such limitation.
If we are to interpret this portion of the Code as intended only for insolvency cases, then other creditordebtor relationships where there are concurrence of credits would be left without any rules to govern
them, and it would render purposeless the special laws an insolvency.
Premises considered, the order appealed from is hereby affirmed. Costs against the appellants.
(2) For the unpaid price of real property sold, upon the immovable sold; and
(5) Mortgage credits recorded in the Registry of Property."
Bengzon,
Padilla,
Bautista
Angelo,
Labrador,
Paredes
Concepcion, Reyes, J.B.L. and Barrera, JJ., concur in the result.
Article 2249 of the same Code provides that "if there are two or more credits with respect to the same
specific real property or real rights, they shall be satisfied pro-rata after the payment of the taxes and
assessment upon the immovable property or real rights.
Application of the above-quoted provisions to the case at bar would mean that the herein appellee
Rosario Cruzado as an unpaid vendor of the property in question has the right to share pro-rata with
the appellants the proceeds of the foreclosure sale.
The appellants, however, argue that inasmuch as the unpaid vendor's lien in this case was not
registered, it should not prejudice the said appellants' registered rights over the property. There is
nothing to this argument. Note must be taken of the fact that article 2242 of the new Civil Code
enumerating the preferred claims, mortgages and liens on immovables, specifically requires that . unlike
the unpaid price of real property sold . mortgage credits, in order to be given preference, should be
recorded in the Registry of Property. If the legislative intent was to impose the same requirement in
the case of the vendor's lien, or the unpaid price of real property sold, the lawmakers could have easily
inserted the same qualification which now modifies the mortgage credits. The law, however, does not
make any distinction between registered and unregistered vendor's lien, which only goes to show that
any lien of that kind enjoys the preferred credit status.
Appellants also argue that to give the unrecorded vendor's lien the same standing as the registered
mortgage credit would be to nullify the principle in land registration system that prior unrecorded
interests cannot prejudice persons who subsequently acquire interests over the same property. The
and
Dizon,
JJ.,
concur.
RESOLUTION ON MOTION TO RECONSIDER
December 29, 1962
REYES, J.B.L., J.:
Appellants, spouses Barretto, have filed a motion vigorously urging, for reason to be discussed in the
course of this resolution, that our decision of 28 January 1961 be reconsidered and set aside, and a
new one entered declaring that their right as mortgagees remain superior to the unrecorded claim of
herein appellee for the balance of the purchase price of her rights, title, and interests in the mortgaged
property.
It will be recalled that, with Court authority, Rosario Cruzado sold all her right, title, and interest and
that of her children in the house and lot herein involved to Pura I. Villanueva for P19,000.00. The
purchaser paid Pl,500 in advance, and executed a promissory note for the balance of P17,506.00.
However, the buyer could only pay P5,500 On account of the note, for which reason the vendor obtained
judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean
certificate of title (No. 32626), and mortgaged the property to appellant Magdalena C. Barretto, married
to Jose C. Barretto, to secure a loan of P30,000.03, said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage
in her favor, obtained judgment, and upon its becoming final asked for execution on 31 July 1958. On
14 August 1958, Cruzado filed a motion for recognition for her "vendor's lien" in the amount of
Pl2,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After
hearing, the court below ordered the "lien" annotated on the back of Certificate of Title No. 32526, with
the proviso that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit
of appellant Barretto should be paid pro rata from the proceeds. Our original decision affirmed this
order of the Court of First Instance of Manila.
Appellants insist that:
(1) The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the Philippines, can only
become effective in the event of insolvency of the vendee, which has not been proved to exist in the
instant case; and .
(2) That the appellee Cruzado is not a true vendor of the foreclosed property. We have given protracted
and mature consideration to the facts and law of this case, and have reached the conclusion that our
original decision must be reconsidered and set aside, for the following reasons:
A. The previous decision failed to take fully into account the radical changes introduced by the Civil
Code of the Philippines into the system of priorities among creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property
under Article 1923 were to be resolved according to an order of priorities established by Article 1927,
whereby one class of creditors could exclude the creditors of lower order until the claims of the former
were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and
could even exhaust proceeds if necessary.
Under the system of the Civil Code of the Philippines however, only taxes enjoy a similar absolute
preference. All the remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority
among themselves, but must be paid pro-rata i.e., in proportion to the amount of the respective credits.
Thus, Article 2249 provides:
If there are two or more credits with respect to the same specific real property or real rights, they, shall
be satisfied pro-rata after the payment of the taxes and assessments upon the immovable property or
real rights."
But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14
of Article 2242 (or such of their, as have credits outstanding) must necessarily be convened, and the
import of their claims ascertained. It is thus apparent that the full, application (of Articles 2249 and
2242 demands that there must be first some proceedings where the claims of all the preferred creditors
may be bindingly adjudicated, such as insolvency, the settlement of decedents estate under Rule 87 of
the Rules of Court, or other liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that —
The claims or credits enumerated in the two preceding articles" shall be considered as mortgages or
pledges of real or personal property, or liens within the purview of legal provisions governing insolvency
. . . (Emphasis supplied),
And the rule is further clarified in he Report of the Code Commission, as follows:
The question as to whether the Civil Code and the insolvency Law can be harmonized is settled by this
Article (2243). The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be
enforced in accordance with the Insolvency Law." (Emphasis supplied) .
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure
sale (as in the case now before us) is not the proceeding contemplated by law for the enforcement of
preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy absolute
priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to
ascertain 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 than statutory liens and those
recorded in the certificate of title. There being no insolvency or liquidation, the claim of the appellee,
as unpaid vendor, did not require the character and rank of a statutory lien co-equal to the mortgagee's
recorded encumbrance, and must remain subordinate to the latter.
We are understandably loathed (absent a clear precept of law so commanding) to adopt a rule that
would undermine the faith and credit to be accorded to registered Torrens titles and nullify the
beneficient objectives sought to be obtained by the Land Registration Act. No argument is needed to
stress that if a person dealing with registered land were to be held to take it in every instance subject
to all the fourteen preferred claims enumerate 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 unforeseeable proportions that could lead to economic disaster.
Upon the other hand, it does not appear excessively burdensome to require the privileged creditors to
cause their claims to be recorded in the books of the Register of deeds should they desire to protect
their rights even outside of insolvency or liquidation proceedings.
B. The close study of the facts disclosed by the records lasts strong doubt on the proposition that
appellees Cruzados should be regarded as unpaid vendors of the property( land, buildings, and
improvements ) involved in the case at bar so as to be entitled to preference under Article 2242. The
record on appeal, specially the final decision of the Court of First Instance of Manila in the suit of the
,Cruzados against Villanueva, clearly establishes that after her husband's death, and with due court
authority, Rosario Cruzado, for herself and as administratrix of her husband's state, mortgaged the
property to the Rehabilitation Finance Corporation (RFC) to secure payment of a loan of P11,000,
installments, but that the debtor failed to pay some of the installments; wherefore the RFC, on 24
August 1949, foreclosed the mortgage, and acquired the property, subject to the debtor's right to
redeem or repurchase the said property; and that on 25 September 1950, the RFC consolidated its
ownership, and the certificate of title of the Cruzados was cancelled and a new certificate issued in the
name of the RFC.
While on 26 July 1951 the RFC did execute a deed selling back the property to the erstwhile mortgagors
and former owners Cruzados in installments, subject to the condition (among others) that the title to
the property and its improvements "shall remain in the name of Corporation (RFC) until after said
purchase price, advances and interests shall have been fully paid", as of 27 September 1952, Cruzado
had only paid a total of P1,360, and had defaulted on six monthly amortizations; for which reason the
RFC rescinded the sale, and forfeited the payments made, in accordance with the terms of the contract
of 26 July 1951.
It was only on 10 March 1953 that the Cruzados sold to Pura L. Villanueva all "their rights, title, interest
and dominion on and over" the property, lot, house, and improvements for P19,000.00, the buyer
undertaking to assume payment of the obligation to the RFC, and by resolution of 30 April 1953, the
RFC approved "the transfer of the rights and interest of Rosario P. Cruzado and her children in their
property herein above-described in favor of Pura L. Villanueva"; and on 7 May 1953 the RFC executed
a deed of absolute sale of the property to said party, who had fully paid the price of P14,269.03.
Thereupon, the spouses Villanueva obtained a new Transfer Certificate of Title No. 32526 in their name.
On 10 July 1953, the Villanuevas mortgaged the property to the spouses Barretto, appellants herein.
It is clear from the facts above-stated that ownership of the property had passed to the Rehabilitation
Finance Corporation since 1950, when it consolidated its purchase at the foreclosure sale and obtained
a certificate of title in its corporate name. The subsequent contract of resale in favor of the Cruzados
did not revest ownership in them, since they failed to comply with its terms and conditions, and the
contract itself provided that the title should remain in the name of the RFC until the price was fully paid.
Therefore, when after defaulting in their payments due under the resale contract with the RFC the
appellants Cruzados sold to Villanueva "their rights, title, interest and dominion" to the property, they
merely assigned whatever rights or claims they might still have thereto; the ownership of the property
rested with the RFC. The sale from Cruzado to Villanueva, therefore, was not so much a sale of the land
and its improvements as it was a quit-claim deed in favor of Villanueva. In law, the operative sale was
that from the RFC to the latter, and it was the RFC that should be regarded as the true vendor of the
property. At the most, the Cruzados transferred to Villanueva an option to acquire the property, but
not the property itself, and their credit, therefore, can not legally constitute a vendor's lien on the
corpus of that property that should stand on an equal footing with the mortgaged credit held by
appellant Barretto.
In view of the foregoing, the previous decision of this Court, promulgated on 28 January 1961, is hereby
reconsidered and set aside, and a new one entered reversing the judgment appealed from and declaring
the appellants Barretto entitled to full satisfaction of their mortgaged credit out of the proceeds of the
foreclosure sale in the hands of the Sheriff of the City of Manila. No costs.
Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Regala and Makalintal, JJ.,
Bengzon, Labrador and Dizon, JJ., took no part.
concur.
PHILIPPINE SAVINGS V. LANTIN
FIRST DIVISION
[ G.R. No. L-33929. September 02, 1983 ]
PHILIPPINE SAVINGS BANK, PETITIONER, VS. HON. GREGORIO T. LANTIN, PRESIDING JUDGE, COURT
OF FIRST INSTANCE OF MANILA, BRANCH VII, AND CANDIDO RAMOS, RESPONDENTS.
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 prorata share in the value of the duplex-apartment house which was built by the plaintiff
for the spouses Filameno Tabligan and Socorro Espiritu, which is now registered in the
name of the defendant under Transfer Certificate of Title No. TCT 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
loans, 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 subse-quent 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 or 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 res-pondent
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 prorata 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 respon-dent 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:
"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:
"(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 furnisher 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 re-imbursement, 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 cre-dits;
"(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 Barretto 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 Barretto 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, 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 Barretto 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 bind-ingly 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 than statutory liens and those recorded in the
certificate of title. There being no insolvency or liquidation, the claim of the appellee, as
unpaid vendor, did not acquire the character and rank of a statutory lien co-equal to the
mortgagee's recorded encumbrance, and must remain subordinate to the latter."
The resolution of this petition, therefore, hinges on the determination of whether an insol-vency
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 affirma-tive 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:
"'x x x 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 consideration 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 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 inte-rested
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 tran-sactions, 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 burden some to re-quire 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 sti-pulation of facts submitted by both parties that at the
time of the loans to the spouses, the petitioner 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 Tagliban
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.
Teehankee, (Chairman), Melencio-Herrera, Plana, Vasquez, and Relova, JJ., concur.
J.L. BERNARDO V. CA
THIRD DIVISION
[ 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.
2.
Decision dated February 6, 1992 issued by the Eleventh Division of the Court of Appeals in
CA-G.R. No. 26336 which nullified the order of the Regional Trial Court of Cabanatuan City in
Civil Case No. 1016-AF granting plaintiffs (petitioners herein) a writ of attachment and a
contractor’s lien upon the San Antonio Public Market; and
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’ "grantloan-equity" financing program, the funding for the market would be composed of a (a) grant from
ESFS, (b) loan extended by ESFS to the Municipality of San Antonio, and (c) equity or counterpart funds
from the Municipality.
It is claimed by petitioners Santiago R. Sugay, Edwin A. Sugay, Fernando S.A. Erana and J.L. Bernardo
Construction, a single proprietorship owned by Juanito L. Bernardo, that they entered into a business
venture for the purpose of participating in the bidding for the public market. It was agreed by petitioners
that Santiago Sugay would take the lead role and be responsible for the preparation and submission of
the bid documents, financing the entire project, providing and utilizing his own equipment, providing
the necessary labor, supplies and materials and making the necessary representations and doing the
liaison work with the concerned government agencies.
On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay, submitted its bid
together with other qualified bidders. After evaluating the bids, the municipal pre-qualification bids and
awards committee, headed by respondent Jose L. Salonga (then incumbent municipal mayor of San
Antonio) as Chairman, awarded the contract to petitioners. On June 8, 1990, a Construction Agreement
was entered into by the Municipality of San Antonio thru respondent Salonga and petitioner J.L.
Bernardo Construction.
It is claimed by petitioners that under this Construction Agreement, the Municipality agreed to assume
the expenses for the demolition, clearing and site filling of the construction site in the amount of
P1,150,000 and, in addition, to provide cash equity of P767,305.99 to be remitted directly to petitioners.
Petitioners allege that, although the whole amount of the cash equity became due, the Municipality
refused to pay the same, despite repeated demands and notwithstanding that the public market was
more than ninety-eight percent (98%) complete as of July 20, 1991. Furthermore, petitioners maintain
that Salonga induced them to advance the expenses for the demolition, clearing and site filling work by
making representations that the Municipality had the financial capability to reimburse them later on.
However, petitioners claim that they have not been reimbursed for their expenses. [1]
On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and Fernando Erana, with
the latter three bringing the case in their own personal capacities and also in representation of J.L.
Bernardo Construction, filed a complaint for breach of contract, specific performance, and collection of
a sum of money, with prayer for preliminary attachment and enforcement of contractor’s lien against
the Municipality of San Antonio, Nueva Ecija and Salonga, in his personal and official capacity as
municipal mayor. After defendants filed their answer, the Regional Trial Court held hearings on the
ancillary remedies prayed for by plaintiffs. [2]
On September 5, 1991, the Regional Trial Court issued the writ of preliminary attachment prayed for
by plaintiffs. It also granted J.L. Bernardo Construction the right to maintain possession of the public
market and to operate the same. The dispositive portion of the decision provides:
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 Court’s approval and to deposit the income they may
derive therefrom to the Provincial Treasurer of Nueva Ecija after deducting the necessary
expenses for the operation and management of said market, subject to further orders
from this Court.
SO ORDERED.
The trial court gave credence to plaintiffs’ claims that defendants were guilty of fraud in incurring their
contractual obligations as evidenced by the complaint and the affidavits of plaintiffs Santiago Sugay
and Erana. The court ruled that defendants’ acts of "…obtaining property, credit or services by false
representations as to material facts made by the defendant to the plaintiff with intent to deceive
constitutes fraud warranting attachment" and that "… a debt is considered fradulently contracted if at
the time of contracting it, the debtor entertained an intention not to pay."
With regards to the contractor’s lien, the trial court held that since plaintiffs have not been reimbursed
for the cash equity and for the demolition, clearing and site filling expenses, they stand in the position
of an unpaid contractor and as such are entitled, pursuant to articles 2242 and 2243 of the Civil Code,
to a lien in the amount of P2,653,576.84 (as of August 1, 1991), excluding the other claimed damages,
attorney’s fees 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 court’s order, to which the plaintiffs filed an
opposition. On October 10, 1991 the motion was denied. The following day, the trial court approved
the guidelines for the operation of the San Antonio Public Market filed by plaintiffs.
Respondent Salonga filed a motion for the approval of his counterbond which was treated by the trial
court in its October 29, 1991 order as a motion to fix counterbond and for which it scheduled a hearing
on November 19, 1991.
On October 21, 1991, during the pendency of his motion, respondent Salonga filed with the Court of
Appeals a petition for certiorari under Rule 65 with prayer for a writ of preliminary injunction and
temporary restraining order which case was docketed as CA-G.R. SP No. 26336.[4] Petitioners opposed
the petition, 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 court’s decision and ruled in favor of
Salonga. The dispositive portion of its decision states –
FOR ALL THE FOREGOING, the petition is hereby granted as follows:
1.
The respondent judge’s ORDER dated September 5, 1991 for the issuance of a
writ of attachment and for the enforcement of a contractor’s lien, is hereby
NULLIFIED and SET ASIDE; the writ of attachment issued pursuant thereto
and the proceedings conducted by the Sheriffs assigned to implement the
same are, as a consequence, also hereby NULLIFIED and SET ASIDE;
2.
The respondent judge’s ORDER dated October 11, 1991 further enforcing the
contractor’s lien and approving the guidelines for the operation of the San
Antonio Public Market is also NULLIFIED and SET ASIDE.
Petitioner’s prayers for the dismissal of Civil Case No. 1016 (now pending before
respondent judge) and for his deletion from said case as defendant in his private capacity
are, however, DENIED.
The respondent judge may now proceed to hearing of Civil Case No. 1016 on the merits.
SO ORDERED.
The appellate court reasoned that since the Construction Agreement was only between Juanito Bernardo
and the Municipality of San Antonio, and since there is no sworn statement by Juanito Bernardo alleging
that he had been deceived or misled by Mayor Salonga or the Municipality of San Antonio, it is apparent
that the applicant has not proven that the defendants are guilty of inceptive fraud in contracting the
debt or incurring the obligation, pursuant to Rule 57 of the Rules of Court, and therefore, the writ of
attachment should be struck down for having been improvidently and irregularly issued.
The filing of a motion for the approval of counter-bond by defendants did not, according to the Court of
Appeals, render the petition for 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 contractor’s 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 contractor’s lien, the appellate
court held that the same right cannot be expanded to include the right to use the building. Therefore,
the trial court’s grant of authority to plaintiffs to operate the San Antonio Public Market amounts to a
grave abuse of discretion.
With regard to the allegations of defendants that plaintiffs are not the proper parties, the Court of
Appeals ruled that such issue should be assigned as an error by defendants later on should the outcome
of the case be adverse to the latter. [6]
Petitioners are now before this Court assailing the appellate court’s decision. In their petition, they
make the following assignment of errors:
1.
THE DECISION IS CONTRARY TO LAW IN THAT THE COURT OF APPEALS OVERLOOKED
AND/OR DISREGARDED THE FUNDAMENTAL REQUIREMENT AND ESTABLISHED SUPREME
COURT DECISIONS IN ACTIONS FOR CERTIORARI CONSIDERING THAT THE FILING OF THE
PETITION BY RESPONDENT SALONGA WITH THE COURT OF APPEALS IS OBVIOUSLY
PREMATURE AND IMPROPER SINCE THERE ADMITTEDLY EXISTS A PLAIN, SPEEDY AND
ADEQUATE REMEDY AVAILABLE TO RESPONDENT SALONGA WHICH IS HIS UNRESOLVED
"MOTION TO APPROVE COUNTERBOND" PENDING WITH THE TRIAL COURT.
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 -
2.
3.
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.
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 CORESPONDENT 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
1.
Whether or not the Court of Appeals correctly assumed jurisdiction over the petition for
certiorari filed by respondents herein assailing the trial court’s interlocutory orders granting
the writ of attachment and the contractor’s lien?
2.
Whether or not the Court of Appeals committed reversible errors of law in its decision?
A petition for certiorari may be filed in case a tribunal, board or officer exercising judicial or quasijudicial 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 counterbond, which they in fact filed with the trial court, the grant of which would effectively prevent the
issuance of the writ of attachment. Moreover, they could also have filed a motion to discharge the
attachment for having been improperly or irregularly issued or enforced, or that the bond is insufficient,
or that the attachment is excessive. [12] With such remedies still available to the Municipality and
Salonga, the filing of a petition for certiorari with the Court of Appeals insofar as it questions the order
of attachment was clearly premature.
However, with regards to the contractor’s lien, we uphold the appellate court’s ruling reversing the trial
court’s grant of a contractor’s lien in favor of petitioners.
Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy preference with respect
to specific personal or real property of the debtor. Specifically, the contractor’s lien claimed by
petitioners is granted under the third paragraph of Article 2242 which provides that the claims of
contractors engaged in the construction, reconstruction or repair of buildings or other works shall be
preferred with respect to the specific building or other immovable property constructed. [13]
However, Article 2242 only finds application when there is a concurrence of credits, i.e. when the same
specific property of the debtor is subjected to the claims of several creditors and the value of such
property of the debtor is insufficient to pay in full all the creditors. In such a situation, the question of
preference will arise, that is, there will be a need to determine which of the creditors will be paid ahead
of the others.[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]
WHEREFORE, we UPHOLD the Court of Appeal’s Decision dated February 6, 1992 in CA-G.R. SP No.
26336 insofar as it nullifies the contractor’s lien granted by the trial court in favor of petitioners in its
September 5, 1991 Order. Consequently, we also UPHOLD the appellate court’s nullification of the trial
court’s October 11, 1991 Order approving the guidelines for the operation of the San Antonio Public
Market. However, we REVERSE the appellate court’s order nullifying the writ of attachment granted by
the trial court.
No pronouncement as to costs.
SO ORDERED.
This is made explicit by Article 2243 which states that the claims and liens enumerated in articles 2241
and 2242 shall be considered as mortgages or pledges of real or personal property, or liens within the
purview of legal provisions governing insolvency. [16]
The action filed by petitioners in the trial court does not partake of the nature of an insolvency
proceeding. It is basically for specific performance and damages. [17] Thus, even if it is finally adjudicated
that petitioners herein actually stand in the position of unpaid contractors and are entitled to invoke
the contractor’s lien granted under Article 2242, such lien cannot be enforced in the present action for
there is no way of determining whether or not there exist other preferred creditors with claims over the
San Antonio Public Market. The records do not contain any allegation that petitioners are the only
creditors with respect to such property. The fact that no third party claims have been filed in the trial
court will not bar other creditors from subsequently bringing actions and claiming that they also have
preferred liens against the property involved.[18]
Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.
ATLANTIC V. HERBAL COVE
THIRD DIVISION
[ G.R. No. 148568. March 20, 2003 ]
ATLANTIC ERECTORS, INC., PETITIONER, VS. HERBAL COVE REALTY CORPORATION, RESPONDENT.
DECISION
PANGANIBAN, J.:
Our decision herein is consistent with our ruling in Philippine Savings Bank v. Lantin,[19] wherein we also
disallowed the contractor from enforcing his lien pursuant to Article 2242 of the Civil Code in an action
filed by him for the collection of unpaid construction costs.
It not having been alleged in their pleadings that they have any rights as a mortgagee under the
contracts, petitioners may only obtain possession and use of the public market by means of a
preliminary attachment upon such property, in the event that they obtain a favorable judgment in the
trial court. Under our rules of procedure, a writ of attachment over registered real property is enforced
by the sheriff by filing with the registry of deeds a copy of the order of attachment, together with a
description of the property attached, and a notice that it is attached, and by leaving a copy of such
order, description, and notice with the occupant of the property, if any. [20] If judgment be recovered by
the attaching party and execution issue thereon, the sheriff may cause the judgment to be satisfied by
selling so much of the property as may be necessary to satisfy the judgment. [21] Only in the event that
petitioners are able to purchase the property will they then acquire possession and use of the same.
Clearly, the trial court’s order of September 5, 1991 granting possession and use of the public market
to petitioners does not adhere to the procedure for attachment laid out in the Rules of Court. In issuing
such an order, the trial court gravely abused its discretion and the appellate court’s nullification of the
same should be sustained.
At this stage of the case, there is no need to pass upon the question of whether or not petitioners herein
are the real parties-in-interest. In the event that judgment is rendered against Salonga and the
Municipality, this issue may be assigned as an error in their appeal from such judgment.
The pendency of a simple collection suit arising from the alleged nonpayment of construction services,
materials, unrealized income and damages does not justify the annotation of a notice of lis pendens on
the title to a property where construction has been done.
Statement of the Case
Before the Court is a Petition for Review on Certiorari [1] under Rule 45 of the Rules of Court, challenging
the May 30, 2000 Decision[2] of the Court of Appeals (CA) in CA-GR SP No. 56432. The dispositive
portion of the Decision is reproduced as follows:
“WHEREFORE, the petition is granted and the assailed November 4, 1998 and October
22, 1999 orders annulled and set aside. The July 30, 1998 order of respondent judge is
reinstated granting the cancellation of the notices of lis pendens subject of this
petition.”[3]
In its July 21, 2001 Resolution,[4] the CA denied petitioner’s Motion for Reconsideration.
The Facts
The factual antecedents of the case are summarized by the CA in this wise:
“On June 20, 1996, [respondent] and [petitioner] entered into a Construction Contract
whereby the former agreed to construct four (4) units of [townhouses] designated as
16-A, 16-B, 17-A and 17-B and one (1) single detached unit for an original contract price
of P15,726,745.19 which was late[r] adjusted to P16,726,745.19 as a result of additional
works. The contract period is 180 days commencing [on] July 7, 1996 and to terminate
on January 7, 1997. [Petitioner] claimed that the said period was not followed due to
reasons attributable to [respondent], namely: suspension orders, additional works, force
majeure, and unjustifiable acts of omission or delay on the part of said [respondent].
[Respondent], however, denied such claim and instead pointed to [petitioner] as having
exceeded the 180 day contract period aggravated by defective workmanship and
utilization of materials which are not in compliance with specifications.
xxxxxxxxx
“On November 21, 1997, [petitioner] filed a complaint for sum of money with damages
(Civil Case No. 97-2707) with the Regional Trial Court of Makati entitled ‘Atlantic
Erectors, Incorporated vs. Herbal Cove Realty Corp. and Ernest C. Escal[e]r’. This case
was raffled to Branch 137, x x x Judge Santiago J. Ranada presiding. In said initiatory
pleading, [petitioner] AEI asked for the following reliefs:
‘AFTER DUE NOTICE AND HEARING, to order x x x defendant to:
1.
Pay plaintiff the sum of P4,854,229.94 for the unpaid
construction services already rendered;
2.
To x x x pay plaintiff the sum of P1,595,551.00 for the
construction materials, equipment and tools of plaintiff held by
defendant;
3.
To x x x pay plaintiff the sum of P2,250,000.00 for the [loss] x
x x of expected income from the construction project;
4.
[T]o x x x pay plaintiff the sum of P800,000.00 for the cost of
income by way of rental from the equipment of plaintiff held by
defendants;
5.
To x x x pay plaintiff the sum of P5,000,000.00 for moral
damages;
6.
To x x x pay plaintiff the sum of P5,000,000.00 for exemplary
damages;
7.
To x x x pay plaintiff the sum equivalent of 25% of the total
money claim plus P200,000.00 acceptance fee and P2,500.00
per court appearance;
8.
To x x x pay the cost of suit.’
“On the same day of November 21, 1997, [petitioner] filed a notice of lis pendens for
annotation of the pendency of Civil Case No. 97-707 on titles TCTs nos. T-30228, 30229,
30230, 30231 and 30232. When the lots covered by said titles were subsequently
subdivided into 50 lots, the notices of lis pendens were carried over to the titles of the
subdivided lots, i.e., Transfer Certificate of Title Nos. T-36179 to T-36226 and T-36245
to T-36246 of the Register of Deeds of Tagaytay City.
“On January 30, 1998, [respondent] and x x x Ernest L. Escaler, filed a Motion to Dismiss
[petitioner’s] Complaint for lack of jurisdiction and for failure to state a cause of action.
They claimed [that] the Makati RTC has no jurisdiction over the subject matter of the
case because the parties’ Construction Contract contained a clause requiring them to
submit their dispute to arbitration.
xxxxxxxxx
“On March 17, 1998, [RTC Judge Ranada] dismissed the Complaint as against
[respondent] for [petitioner’s] failure to comply with a condition precedent to the filing
of a court action which is the prior resort to arbitration and as against x x x Escaler for
failure of the Complaint to state a cause of action x x x.
“[Petitioner] filed a Motion for Reconsideration of the March 17, 1998 dismissal order.
[Respondent] filed its Opposition thereto.
“On April 24, 1998, [respondent] filed a Motion to Cancel Notice of Lis Pendens. It argued
that the notices of lis pendens are without basis because [petitioner’s] action is a purely
personal action to collect a sum of money and recover damages and x x x does not
directly affect title to, use or possession of real property.
“In his July 30, 1998 Order, [Judge Ranada] granted [respondent’s] Motion to Cancel
Notice of Lis Pendens x x x:
“[Petitioner] filed a Motion for Reconsideration of the aforesaid July 30, 1998 Order to
which [respondent] filed an Opposition.
“In a November 4, 1998 Order, [Judge Ranada,] while finding no merit in the grounds
raised by [petitioner] in its Motion for Reconsideration, reversed his July 30, 1998 Order
and reinstated the notices of lis pendens, as follows:
‘1. The Court finds no merit in plaintiff’s contention that in dismissing the
above-entitled case for lack of jurisdiction, and at the same time granting
defendant Herbal Cove’s motion to cancel notice of lis pendens, the Court
[took] an inconsistent posture. The Rules provide that prior to the
transmittal of the original record on appeal, the court may issue orders
for the protection and preservation of the rights of the parties which do
not involve any matter litigated by the appeal (3rd par., Sec. 10, Rule
41). Even as it declared itself without jurisdiction, this Court still has
power to act on incidents in this case, such as acting on motions for
reconsideration, for correction, for lifting of lis pendens, or approving
appeals, etc.
‘As correctly argued by defendant Herbal Cove, a notice of lis pendens
serves only as a precautionary measure or warning to prospective buyers
of a property that there is a pending litigation involving the same.
‘The Court notes that when it issued the Order of 30 July 1998 lifting the
notice of lis pendens, there was as yet no appeal filed by plaintiff.
Subsequently, on 10 September 1998, after a notice of appeal was filed
by plaintiff on 4 September 1998, the Branch Clerk of Court was ordered
by the Court to elevate the entire records of the above-entitled case to
the Court of Appeals. It therefore results that the above-entitled case is
still pending. After a careful consideration of all matters relevant to the
lis pendens, the Court believes that justice will be better served by setting
aside the Order of 30 July 1998.’
“On November 27, 1998, [respondent] filed a Motion for Reconsideration of the
November 4, 1998 Order arguing that allowing the notice of lis pendens to remain
annotated on the titles would defeat, not serve, the ends of justice and that equitable
considerations cannot be resorted to when there is an applicable provision of law.
xxxxxxxxx
“On October 22, 1999, [Judge Ranada] issued an order denying [respondent’s] Motion
for Reconsideration of the November 4, 1998 Order for lack of sufficient merit.” [5]
Thereafter, Respondent Herbal Cove filed with the CA a Petition for Certiorari.
Ruling of the Court of Appeals
Setting aside the Orders of the RTC dated November 4, 1998 and October 22, 1999, the CA reinstated
the former’s July 30, 1998 Order [6] granting Herbal Cove’s Motion to Cancel the Notice of Lis Pendens.
According to the appellate court, the re-annotation of those notices was improper for want of any legal
basis. It specifically cited Section 76 of Presidential Decree No. 1529 (the Property Registration Decree).
The decree provides that the registration of such notices is allowed only when court proceedings directly
affect the title to, or the use or the occupation of, the land or any building thereon.
The CA opined that the Complaint filed by petitioner in Civil Case No. 97-2707 was intended purely to
collect a sum of money and to recover damages. The appellate court ruled that the Complaint did not
aver any ownership claim to the subject land or any right of possession over the buildings constructed
thereon. It further declared that absent any claim on the title to the buildings or on the possession
thereof, the notices of lis pendens had no leg to stand on.
Likewise, the CA held that Judge Ranada should have maintained the notice cancellations, which he had
directed in his July 30, 1998 Order. Those notices were no longer necessary to protect the rights of
petitioner, inasmuch as it could have procured protective relief from the Construction Industry Arbitral
Commission (CIAC), where provisional remedies were available. The CA also mentioned petitioner’s
admission that there was already a pending case before the CIAC, which in fact rendered a decision on
March 11, 1999.
The appellate court further explained that the re-annotation of the Notice of Lis Pendens was no longer
warranted after the court a quo had ruled that the latter had no jurisdiction over the case. The former
held that the rationale behind the principle of lis pendens -- to keep the subject matter of the litigation
within the power of the court until the entry of final judgment -- was no longer applicable. The reason
for such inapplicability was that the Makati RTC already declared that it had no jurisdiction or power
over the subject matter of the case.
Finally, the CA opined that petitioner’s Complaint had not alleged or claimed, as basis for the continued
annotation of the Notice of Lis Pendens, the lien of contractors and laborers under Article 2242 of the
New Civil Code. Moreover, petitioner had not even referred to any lien of whatever nature. Verily, the
CA ruled that the failure to allege and claim the contractor’s lien did not warrant the continued
annotation on the property titles of Respondent Herbal Cove.
Hence, this Petition.[7]
The Issues
Petitioner raises the following issues for our consideration:
“I. Whether or not money claims representing cost of materials [for] and labor [on] the
houses constructed on a property [are] a proper lien for annotation of lis pendens on the
property title[.]
“II. Whether or not the trial court[,] after having declared itself without jurisdiction to
try the case[,] may still decide on [the] substantial issue of the case.” [8]
This Court’s Ruling
The Petition has no merit.
First Issue:
Proper Basis for a
Notice of Lis Pendens
Petitioner avers that its money claim on the cost of labor and materials for the townhouses it constructed
on the respondent’s land is a proper lien that justifies the annotation of a notice of lis pendens on the
land titles. According to petitioner, the money claim constitutes a lien that can be enforced to secure
payment for the said obligations. It argues that, to preserve the alleged improvement it had made on
the subject land, such annotation on the property titles of respondent is necessary.
On the other hand, Respondent Herbal Cove argues that the annotation is bereft of any factual or legal
basis, because petitioner’s Complaint [9] does not directly affect the title to the property, or the use or
the possession thereof. It also claims that petitioner’s Complaint did not assert ownership of the
property or any right to possess it. Moreover, respondent attacks as baseless the annotation of the
Notice of Lis Pendens through the enforcement of a contractor’s lien under Article 2242 of the Civil
Code. It points out that the said provision applies only to cases in which there are several creditors
carrying on a legal action against an insolvent debtor.
As a general rule, the only instances in which a notice of lis pendens may be availed of are as follows:
(a) an action to recover possession of real estate; (b) an action for partition; and (c) any other court
proceedings that directly affect the title to the land or the building thereon or the use or the occupation
thereof.[10] Additionally, this Court has held that resorting to lis pendens is not necessarily confined to
cases that involve title to or possession of real property. This annotation also applies to suits seeking
to establish a right to, or an equitable estate or interest in, a specific real property; or to enforce a lien,
a charge or an encumbrance against it.[11]
Apparently, petitioner proceeds on the premise that its money claim involves the enforcement of a lien.
Since the money claim is for the nonpayment of materials and labor used in the construction of
townhouses, the lien referred to would have to be that provided under Article 2242 of the Civil Code.
This provision describes a contractor’s lien over an immovable property as follows:
“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:
xxxxxxxxx
“(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[.]”
(Emphasis supplied)
However, a careful examination of petitioner’s Complaint, as well as the reliefs it seeks, reveals that no
such lien or interest over the property was ever alleged. The Complaint merely asked for the payment
of construction services and materials plus damages, without mentioning -- much less asserting -- a
lien or an encumbrance over the property. Verily, it was a purely personal action and a simple collection
case. It did not contain any material averment of any enforceable right, interest or lien in connection
with the subject property.
As it is, petitioner’s money claim cannot be characterized as an action that involves the enforcement of
a lien or an encumbrance, one that would thus warrant the annotation of the Notice of Lis Pendens.
Indeed, the nature of an action is determined by the allegations of the complaint.[12]
Even assuming that petitioner had sufficiently alleged such lien or encumbrance in its Complaint, the
annotation of the Notice of Lis Pendens would still be unjustified, because a complaint for collection and
damages is not the proper mode for the enforcement of a contractor’s lien.
In J.L. Bernardo Construction v. Court of Appeals,[13] the Court explained the concept of a contractor’s
lien under Article 2242 of the Civil Code and the proper mode for its enforcement as follows:
“Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy
preference with respect to specific personal or real property of the debtor. Specifically,
the contractor’s lien claimed by the petitioners is granted under the third
paragraph of Article 2242 which provides that the claims of contractors
engaged in the construction, reconstruction or repair of buildings or other
works shall be preferred with respect to the specific building or other
immovable property constructed.
“However, Article 2242 finds application when there is a concurrence of credits,
i.e., when the same specific property of the debtor is subjected to the claims of
several creditors and the value of such property of the debtor is insufficient to
pay in full all the creditors. In such a situation, the question of preference will arise,
that is, there will be a need to determine which of the creditors will be paid ahead of the
others. Fundamental tenets of due process will dictate that this statutory lien
should then only be enforced in the context of some kind of a proceeding where
the claims of all the preferred creditors may be bindingly adjudicated, such as
insolvency proceedings.”[14] (Emphasis supplied)
Clearly then, neither Article 2242 of the Civil Code nor the enforcement of the lien thereunder is
applicable here, because petitioner’s Complaint failed to satisfy the foregoing requirements. Nowhere
does it show that respondent’s property was subject to the claims of other creditors or was insufficient
to pay for all concurring debts. Moreover, the Complaint did not pertain to insolvency proceedings or to
any other action in which the adjudication of claims of preferred creditors could be ascertained.
Another factor negates the argument of petitioner that its money claim involves the enforcement of a
lien or the assertion of title to or possession of the subject property: the fact that it filed its action with
the RTC of Makati, which is undisputedly bereft of any jurisdiction over respondent’s property in
Tagaytay City. Certainly, actions affecting title to or possession of real property or the assertion of any
interest therein should be commenced and tried in the proper court that has jurisdiction over the area,
where the real property involved or a portion thereof is situated.[15] If petitioner really intended to assert
its claim or enforce its supposed lien, interest or right over respondent’s subject properties, it would
have instituted the proper proceedings or filed a real action with the RTC of Tagaytay City, which clearly
had jurisdiction over those properties. [16]
Narciso Peña, a leading authority on the subject of land titles and registration, gives an explicit
exposition on the inapplicability of the doctrine of lis pendens to certain actions and proceedings that
specifically include money claims. He explains in this wise:
“By express provision of law, the doctrine of lis pendens does not apply to attachments,
levies of execution, or to proceedings for the probate of wills, or for administration of
the estate of deceased persons in the Court of First Instance. Also, it is held generally
that the doctrine of lis pendens has no application to a proceeding in which the
only object sought is the recovery of a money judgment, though the title or
right of possession to property be incidentally affected. It is essential that the
property be directly affected, as where the relief sought in the action or suit includes
the recovery of possession, or the enforcement of a lien, or an adjudication between
conflicting claims of title, possession, or the right of possession to specific property, or
requiring its transfer or sale”[17] (Emphasis supplied)
Peña adds that even if a party initially avails itself of a notice of lis pendens upon the filing of a case in
court, such notice is rendered nugatory if the case turns out to be a purely personal action. We quote
him as follows:
“It may be possible also that the case when commenced may justify a resort to lis
pendens, but during the progress thereof, it develops to be purely a personal action for
damages or otherwise. In such event, the notice of lis pendens has become
functus officio.”[18] (Emphasis supplied)
Thus, when a complaint or an action is determined by the courts to be in personam, the rationale for
or purpose of the notice of lis pendens ceases to exist. To be sure, this Court has expressly and
categorically declared that the annotation of a notice of lis pendens on titles to properties is not proper
in cases wherein the proceedings instituted are actions in personam.[19]
Second Issue:
Jurisdiction of the Trial Court
Petitioner argues that the RTC had no jurisdiction to issue the Order canceling the Notice of Lis Pendens
as well as the Order reinstating it. Supposedly, since both Orders were issued by the trial court without
jurisdiction, the annotation made by the Register of Deeds of Tagaytay City must remain in force.
Petitioner avers that the trial court finally declared that the latter had no jurisdiction over the case on
July 27, 1998, in an Order denying the former’s Motion for Reconsideration of the March 17, 1998
Order dismissing the Complaint. Petitioner insists that the subsequent July 30, 1998 Order cancelling
the subject Notice of Lis Pendens is void, because it was issued by a court that had no more jurisdiction
over the case.
judgment for the recovery of money and damages against respondent. Yet again, it was also petitioner
which assailed that same jurisdiction for issuing an order unfavorable to the former’s cause. Indeed,
parties cannot invoke the jurisdiction of a court to secure affirmative relief, then repudiate or question
that same jurisdiction after obtaining or failing to obtain such relief. [22]
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.
DBP V. NLRC
FIRST DIVISION
[ G.R. No. 108031. March 01, 1995 ]
Rule 41 of the 1997 Rules on Civil Procedure, which governs appeals from regional trial courts, expressly
provides that RTCs lose jurisdiction over a case when an appeal is filed. The rule reads thus:
“SEC. 9. Perfection of appeal; effect thereof. -- A party’s appeal by notice of appeal is
deemed perfected as to him upon the filing of the notice of appeal in due time.
xxxxxxxxx
“In appeals by notice of appeal, the court loses jurisdiction over the case upon the
perfection of the appeals filed in due time and the expiration of the time to
appeal of the other parties.” (Emphasis supplied)
On the basis of the foregoing rule, the trial court lost jurisdiction over the case only on August 31,
1998, when petitioner filed its Notice of Appeal. [20] Thus, any order issued by the RTC prior to that date
should be considered valid, because the court still had jurisdiction over the case. Accordingly, it still
had the authority or jurisdiction to issue the July 30, 1998 Order canceling the Notice of Lis Pendens.
On the other hand, the November 4, 1998 Order that set aside the July 30, 1998 Order and
reinstated that Notice should be considered without force and effect, because it was issued by the trial
court after it had already lost jurisdiction.
In any case, even if we were to adopt petitioner’s theory that both the July 30, 1998 and the November
4, 1998 Orders were void for having been issued without jurisdiction, the annotation is still improper
for lack of factual and legal bases.
As discussed previously, erroneously misplaced is the reliance of petitioner on the premise that its
money claim is an action for the enforcement of a contractor’s lien. Verily, the annotation of the Notice
of Lis Pendens on the subject property titles should not have been made in the first place. The Complaint
filed before the Makati RTC -- for the collection of a sum of money and for damages -- did not provide
sufficient legal basis for such annotation.
Finally, petitioner vehemently insists that the trial court had no jurisdiction to cancel the Notice. Yet,
the former filed before the CA an appeal, docketed as CA-GR CV No. 65647,[21] questioning the RTC’s
dismissal of the Complaint for lack of jurisdiction. Moreover, it must be remembered that it was
petitioner which had initially invoked the jurisdiction of the trial court when the former sought a
DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER, VS. NATIONAL LABOR RELATIONS
COMMISSION AND LEONOR A. ANG, RESPONDENTS.
DECISION
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 mortgagee, 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]
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:
to mean that -
x x x 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 x x x x
(underscoring 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:
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 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 & Streiff (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] x x x 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
x x x x 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 x x x x 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.
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.
The present controversy could have been easily settled by public respondent had it referred to ample
jurisprudence which already provides the solution. Stare decisis et non quieta movere. Once a case is
decided by this Court as the final arbiter of any justiciable 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.
Davide, Jr., Quiason, and Kapunan, JJ., concur.
Padilla, (Chairman), J., see dissenting opinion.
REPUBLIC V. PERALTA
EN BANC
[ G.R. No. 56568. May 20, 1987 ]
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE BUREAU OF CUSTOMS AND THE BUREAU OF
INTERNAL REVENUE, PETITIONER, VS. HONORABLE E.L. PERALTA, PRESIDING JUDGE OF THE COURT
OF FIRST INSTANCE OF MANILA, BRANCH XVII, QUALITY TOBACCO CORPORATION, FRANCISCO
CANDELARIA, FEDERACION OBRERO DE LA INDUSTRIA TABAQUERA Y OTROS TRABAJADORES DE
FILIPINAS (FOITAF), USTC EMPLOYEES ASSOCIATION WORKERS UNION-PTGWO, RESPONDENTS.
DECISION
FELICIANO, J.:
The Republic of the Philippines seeks the review on certiorari of the Order dated 17 November 1980 of
the Court of First Instance of Manila in its Civil Case No. 108395 entitled "In the Matter of Voluntary
Insolvency of Quality Tobacco Corporation, Quality Tobacco Corporation, Petitioner", and of the Order
dated 19 January 1981 of the same court denying the motion for reconsideration of the earlier Order
filed by the Bureau of Internal Revenue and the Bureau of Customs for the Republic.
In the voluntary insolvency proceedings commenced in May 1977 by private respondent Quality Tobacco
Corporation (the "Insolvent"), the following claims of creditors were filed:
(i)
P2,806,729.92, by the USTC Association of Employees and Workers Union -- PTGWO ("USTC"),
as separation pay for their members. This amount plus an additional sum of P280,672.99 as attorney's
fees had been awarded by the National Labor Relations Commission in NLRC Case No. RB-IV-977577.[1]
(ii)
P53,805.05 by the Federacion de la Industria Tabaquera y Otros Trabajadores de Filipinas
("FOITAF"), as separation pay for their members, an amount similarly awarded by the NLRC in the same
NLRC Case.
(iii) P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection fees covering the period
1 October 1967 to 28 February 1973;
(iv)
P276,161.00 by the Bureau of Customs for customs duties and taxes payable on various
importations by the Insolvent. These obligations appear to be secured by surety bonds. [2] Some of these
imported items are apparently still in customs custody so far as the record before this Court goes.
In its questioned Order of 17 November 1980, the trial court held that the above-enumerated claims of
USTC and FOITAF (hereafter collectively referred to as the "Unions") for separation pay of their
respective members embodied in final awards of the National Labor Relations Commission were to be
preferred over the claims of the Bureau of Customs and the Bureau of Internal Revenue. The trial court,
in so ruling, relied primarily upon Article 110 of the Labor Code which reads thus:
"Article 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."
The Solicitor-General, in seeking the reversal of the questioned Orders, argues that Article 110 of the
Labor Code is not applicable as it speaks of "wages", a term which he asserts does not include the
separation pay claimed by the Unions. "Separation pay", the Solicitor General contends,
"is given to a laborer for a separation from employment computed on the basis of the
number of years the laborer was employed by the employer; it is a form of penalty or
damage against the employer in favor of the employee for the latter's dismissal or
separation from service.[3]
Article 97 (f) of the Labor Code defines "wages" in the following terms:
"'Wage’ paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or ascertained
on a time, task, piece, or commission basis, or other method of calculating the same,
which is payable by an employer to an employee under a written or unwritten contract
of employment for work done or to be done, or for services rendered or to be rendered,
and includes the fair and reasonable value, as determined by the Secretary of Labor, of
board, lodging, or other facilities customarily furnished by the employer to the employee.
'Fair and reasonable value' shall not include any profit to the employer or to any person
affiliated with the employer." (italics supplied)
We are unable to subscribe to the view urged by the Solicitor General. We note, in this connection, that
in Philippine Commercial and Industrial Bank (PCIB) vs. National Mines and Allied Workers Union, [4] the
Solicitor General took a different view and there urged that the term "wages" under Article 110 of the
Labor Code may be regarded as embracing within its scope severance pay or termination or separation
pay. In PCIB, this Court agreed with the position advanced by the Solicitor General. [5] We see no reason
for overturning this particular position. We continue to believe that, for the specific purposes of Article
110 and in the context of insolvency, termination or separation pay is reasonably regarded as forming
part of the remuneration or other money benefits accruing to employees or workers by reason of their
having previously rendered services to their employer; as such, they fall within the scope of
"remuneration or earnings — for services rendered or to be rendered —". Liability for separation pay
might indeed have the effect of a penalty, so far as the employer is concerned. So far as concerns the
employees, however, separation pay is additional remuneration to which they become entitled because,
having previously rendered services, they are separated from the employer's service. The relationship
between separation pay and services rendered is underscored by the fact that separation pay is
measured by the amount (i.e., length) of the services rendered. This construction is sustained both by
the specific terms of Article 110 and by the major purposes and basic policy embodied in the Labor
Code.[6] It is also the construction that is suggested by Article 4 of the Labor Code which directs that
doubts — assuming that any substantial rather than merely frivolous doubts remain — in the
interpretation of the provisions of the Labor Code and of its implementing rules and regulations shall
be "resolved in favor of labor".
The resolution of the issue of priority among the several claims filed in the insolvency proceedings
instituted by the Insolvent cannot, however, rest on a reading of Article 110 of the Labor Code alone.
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.[7] It is thus important to begin by outlining the scheme constituted by the
provisions of the Civil Code on this subject.
Those provisions may be seen to classify credits against a particular insolvent into three general
categories, namely:
(a) special preferred credits listed in Articles 2241 and 2242;
(b)
ordinary preferred credits listed in Article 2244; and
(c) common credits under Article 2245.
Turning first to special preferred credits under Articles 2241 and 2242, it should be noted at once that
these credits constitute liens or encumbrances on the specific movable or immovable property to which
they relate. Article 2243 makes clear that these credits "shall be considered as mortgages or pledges
of real or personal property, or liens within the purview of legal provisions governing insolvency". It
should be emphasized in this connection that "duties, taxes and fees due [on specific movable property
of the insolvent] to the State or any subdivision thereof" (Article 2241 [1]) and "taxes due upon the
[insolvent's] land or building (2242 [1])" stand first in preference in respect of the particular movable
or immovable property to which the tax liens have attached. Article 2243 is quite explicit: "[T]axes
mentioned in number 1, Article 2241 and number 1, Article 2242 shall first be satisfied". The claims
listed in numbers 2 to 13 in Article 2241 and in numbers 2 to 10 in Articles 2242, all come after taxes
in order of precedence; such claims enjoy their privileged character as liens and may be paid only to
the extent that taxes have been paid from the proceeds of the specific property involved (or from any
other sources) and only in respect of the remaining balance of such proceeds. What is more, these
other (non-tax) credits, although constituting liens attaching to particular property, are not preferred
one over another inter se. Provided tax liens shall have been satisfied, non-tax liens or special preferred
credits which subsist in respect of specific movable or immovable property are to be treated on an equal
basis and to be satisfied concurrently and proportionately. [8] Put succinctly, Articles 2241 and 2242
jointly with Articles 2246 to 2249 establish a two-tier order of preference. The first tier includes only
taxes, duties and fees due on specific movable or immovable property. All other special preferred credits
stand on the same second tier to be satisfied, pari passu and pro rata, out of any residual value of the
specific property to which such other credits relate.
Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take
precedence over ordinary preferred credits so far as concerns the property to which the liens have
attached. The specially preferred credits must be discharged first out of the proceeds of the property
to which they relate, before ordinary preferred creditors may lay claim to any part of such proceeds. [9]
If the value of the specific property involved is greater than the sum total of the tax liens and other
specially preferred credits, the residual value will form part of the "free property" of the insolvent —
i.e., property not impressed with liens by operation of Articles 2241 and 2242. If, on the other hand,
the value of the specific movable or immovable is less than the aggregate of the tax liens and other
specially preferred credits, the unsatisfied balance of the tax liens and other such credits are to be
treated as ordinary credits under Article 2244 and to be paid in the order of preference there set up. [10]
In contrast with Article 2241 and 2242, Article 2244 creates no liens on determinate property which
follow such property. What Article 2244 creates are simply rights in favor of certain creditors to have
the cash and other assets of the insolvent applied in a certain sequence or order of priority. [11]
Only in respect of the insolvent's "free property" is an order of priority established by Article 2244. In
this sequence, certain taxes and assessments also figure but these do not have the same kind of
overriding preference that Articles 2241 no. 1 and 2242 no. 1 create for taxes which constitute liens on
the taxpayer's property. Under Article 2244,
(a)
taxes and assessments due to the national government, excluding those which result in tax
liens under Article, 2241 no. 1 and 2242 no. 1 but including the balance thereof not satisfied
out of the movable or immovable property to which such liens attached, are ninth in priority;
It is within the framework of the foregoing rules of the Civil Code that the question of the relative
priority of the claims of the Bureau of Customs and the Bureau of Internal Revenue, on the one hand,
and of the claims of the Unions for separation pay of their members, on the other hand, is to be resolved.
A related vital issue is what impact Article 110 of the Labor Code has had on those provisions of the
Civil Code.
A. Claim of the Bureau of Customs for Unpaid Customs Duties and Taxes —
Under Section 1204 of the Tariff and Customs Code[12], the liability of an importer
"for duties, taxes and fees and other charges attaching on importation constitute a
personal debt due from the importer to the government which can be discharged only
by payment in full of all duties, taxes, fees and other charges legally accruing. It also
constitutes a lien upon the articles imported which may be enforced while such articles
are in the custody or subject to the control of the government." (Italics supplied)
Clearly, the claim of the Bureau of Customs for unpaid customs duties and taxes enjoys the status of a
specially preferred credit under Article 2241, no. 1, of the Civil Code, only in respect of the articles
importation of which by the Insolvent resulted in the assessment of the unpaid taxes and duties, and
which are still in the custody or subject to the control of the Bureau of Customs. The goods imported
on one occasion are not subject to a lien for customs duties and taxes assessed upon other importations
though also effected by the Insolvent. Customs duties and taxes which remain unsatisfied after levy
upon the imported articles on which such duties and taxes are due, would have to be paid out of the
Insolvent’s "free property" in accordance with the order of preference embodied in Article 2244 of the
Civil Code. Such unsatisfied customs duties and taxes would fall within Article 2244, no. 9, of the Civil
Code and hence would be ninth in priority.
B. Claims of the Bureau of Internal Revenue for Tobacco Inspection Fees —
(b)
(c)
taxes and assessments due any province, excluding those impressed as tax liens under
Articles 2241 no. 1 and 2242 no. 1, but including the balance thereof not satisfied out of
the movable or immovable property to which such liens attached, are tenth in priority; and
taxes and assessments due any city or municipality, excluding those impressed as tax liens
under Articles 2241 no. 1 and 2242 no. 2 but including the balance thereof not satisfied out
of the movable or immovable property to which such liens attached, are eleventh in priority.
Under Section 315 of the National Internal Revenue Code ("old Tax Code") [13], later reenacted in
identical terms as Section 301 of the Tax Code of 1977[14], an unpaid "internal revenue tax", together
with related interest, penalties and costs, constitutes a lien in favor of the Government from the time
an assessment therefor is made and until paid, "upon all property and rights to property belonging to
the taxpayer''.
Tobacco inspection fees are specifically mentioned as one of the miscellaneous taxes imposed under
the National Internal Revenue Code, specifically Title VIlI, Chapter IX of the old Tax Code and Title VIII,
Chapter VII of the Tax Code of 1977. [15] Tobacco inspection fees are collected both for purposes of
regulation and control and for purposes of revenue generation: half of the said fees accrues to the
Tobacco Inspection Fund created by Section 12 of Act No. 2613, as amended by Act No. 3179, while
the other half accrues to the Cultural Center of the Philippines. Tobacco inspection fees, in other words,
are imposed both as a regulatory measure and as a revenue-raising measure. In Commissioner of
Internal Revenue vs. Guerrero, et al,[16] this Court held, through Mr. Chief Justice Concepcion, that the
term "tax" is used in Section 315 of the old Tax Code:
"not in the limited sense [of burdens imposed upon persons and/or properties, by way of contributions
to the support of the Government, in consideration of general benefits derived from its operation], but,
in a broad sense, encompassing all government revenues collectible by the Commissioner of Internal
Revenue under said Code, whether involving taxes, in the strict technical sense thereof, or not. x x x
As used in Title IX of said Code, the term 'tax' includes 'any national internal revenue tax, fee or charge
imposed by the Code".[17]
It follows that the claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees constitutes
a claim for unpaid internal revenue taxes [18] which gives rise to a tax lien upon all the properties and
assets, movable and 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. [19]
C. Claims of the Unions for Separation Pay of Their Members —
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 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 within 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.
We come to the question of what impact Article 110 of the Labor Code has had upon the complete
scheme of classification, concurrence and preference of credits in insolvency set out in the Civil Code.
We believe and so hold that Article 110 of the Labor Code did not sweep away the overriding preference
accorded under the scheme of the Civil Code to tax claims of the government or any subdivision thereof
which constitute a lien upon properties of the Insolvent. It is frequently said that taxes are the very
lifeblood of government. The effective collection of taxes is a task of highest importance for the
sovereign. It is critical indeed for its own survival. It follows that language of a much higher degree of
specificity than that exhibited in Article 110 of the Labor Code is necessary to set aside the intent and
purpose of the legislator that shines through the precisely crafted provisions of the Civil Code. It cannot
be assumed simpliciter that the legislative authority, by using in Article 110 the words "first preference"
and "any provision of law to the contrary notwithstanding" intended to disrupt the elaborate and
symmetrical structure set up in the Civil Code. Neither can it be assumed casually that Article 110
intended to subsume the sovereign itself within the term "other creditors" in stating that "unpaid wages
shall be paid in full before other creditors may establish any claim to a share in the assets of employer".
Insistent considerations of public policy prevent us from giving to "other creditors" a linguistically
unlimited scope that would embrace the universe of creditors save only unpaid employees.
We, however, do not believe that Article 110 has had no impact at all upon the provisions of the Civil
Code. Bearing in mind the overriding precedence given to taxes, duties and fees by the Civil Code and
the fact that the Labor Code does not impress any lien on the property of an employer, the use of the
phrase "first preference" in Article 110 indicates that what Article 110 intended to modify is the order
of preference found in Article 2244, which order relates, as we have seen, to property of the Insolvent
that is not burdened with the liens or encumbrances created or recognized by Articles 2241 and 2242.
We have noted that Article 2244, number 2, establishes second priority for claims for wages for services
rendered by employees or laborers of the Insolvent "for one year preceding the commencement of the
proceedings in insolvency". Article 110 of the Labor Code establishes "first preference" for services
rendered "during the period prior to the bankruptcy or liquidation", a period not limited to the year
immediately prior to the bankruptcy or liquidation. Thus, very substantial effect may be given to the
provisions of Article 110 without grievously distorting the framework established in the Civil Code by
holding, as we so hold, that Article 110 of the Labor Code has modified Article 2244 of the Civil Code in
two respects: (a) firstly, by removing the one year limitation found in Article 2244, number 2; and (b)
secondly, by moving up claims for unpaid wages of laborers or workers of the Insolvent from second
priority to first priority in the order of preference established by Article 2244.
Accordingly, and by way of recapitulating the application of Civil Code and Labor Code provisions to the
facts herein, the trial court should inventory the properties of the Insolvent so as to determine
specifically: (a) whether the assets of the Insolvent before the trial court includes stocks of processed
or manufactured tobacco products; and (b) whether the Bureau of Customs still has in its custody or
control articles imported by the Insolvent and subject to the lien of the government for unpaid customs
duties and taxes.
In respect of (a), if the Insolvent has inventories of processed or manufactured tobacco products, such
inventories must be subjected firstly to the claim of the Bureau of Internal Revenue for unpaid tobacco
inspection fees. The remaining value of such inventories after satisfaction of such fees (or should such
inspection fees be satisfied out of other properties of the Insolvent) will be subject to a lien in favor of
the Unions by virtue of Article 2241, number 6. In case, upon the other hand, the Insolvent no longer
has any inventory of processed or manufactured product, then the claim of the Unions for separation
pay would have to be satisfied out of the "free property" of the Insolvent under Article 2244 of the Civil
Code, as modified by Article 110 of the Labor Code.
Turning to (b), should the Bureau of Customs no longer have any importations by the Insolvent still
within customs custody or control, or should the importations still held by the Bureau of Customs be or
have become insufficient in value for the purpose, customs duties and taxes remaining unpaid would
have only ninth priority by virtue of Article 2244, number 9. In respect therefore of the Insolvent's "free
property", the claims of the Unions will enjoy first priority under Article 2244 as modified and will be
paid ahead of the claims of the Bureau of Customs for any customs duties and taxes still remaining
unsatisfied.
It is understood that the claims of the Unions referred to above do not include the 10% claim for
attorney's fees. Attorney's fees incurred by the Unions do not stand on the same footing as the Unions'
claims for separation pay of their members.
WHEREFORE, the petition for review is granted and the Orders dated 17 November 1980 and 19
January 1981 of the trial court are modified accordingly. This case is hereby remanded to the trial court
for further proceedings in insolvency compatible with the rulings set forth above. No pronouncement as
to costs.
SO ORDERED.
Teehankee, C.J., Yap, Fernan, Narvasa, Melencio-Herrera, Gutierrez, Jr., Paras, Gancayco, Padilla,
Bidin, Sarmiento, and Cortes, JJ., concur.
Cruz, J., see dissent.
METROBANK V. S.F. NAGUIAT
SECOND DIVISION
[ G.R. No. 178407. March 18, 2015 ]
METROPOLITAN BANK AND TRUST COMPANY, PETITIONER, VS. S.F. NAGUIAT ENTERPRISES, INC.,
RESPONDENT.
DECISION
LEONEN, J.:
This case calls for the determination of whether the approval and consent of the insolvency court is
required under Act No. 1956, otherwise known as the Insolvency Law, before a secured creditor like
petitioner Metropolitan Bank and Trust Company can proceed with the extrajudicial foreclosure of the
mortgaged property.
This is a Petition for Review[1] under Rule 45, seeking to reverse and set aside the November 15, 2006
Decision[2] and June 14, 2007 Resolution[3] of the Court of Appeals (Sixth Division) in CA-G.R. SP No.
94968. The questioned Decision and Resolution dismissed Metropolitan Bank and Trust Company's
Petition for Certiorari and Mandamus [4] and denied its subsequent Motion for Reconsideration and
Clarification.[5]
Sometime in April 1997, Spouses Rommel Naguiat and Celestina Naguiat and S.F. Naguiat Enterprises,
Inc. (S.F. Naguiat) executed a real estate mortgage[6] in favor of Metropolitan Bank and Trust Company
(Metrobank) to secure certain credit accommodations obtained from the latter amounting to P17 million.
The mortgage was constituted over the following properties:
(1) TCT No. 58676[7] - a parcel of land in the Barrio of Pulung Bulu, Angeles, Pampanga,
with an area of 489 square meters; and
(2) TCT No. 310523 - a parcel of land in Marikina, Rizal, with an area of 1,200.10 square
meters.[8]
On March 3, 2005, S.F. Naguiat represented by Celestina T. Naguiat, Eugene T. Naguiat, and Anna N.
Africa obtained a loan[9] from Metrobank in the amount of P1,575,000.00. The loan was likewise secured
by the 1997 real estate mortgage by virtue of the Agreement on Existing Mortgage(s) [10] executed
between the parties on March 15, 2004.
On July 7, 2005, S.F. Naguiat filed a Petition for Voluntary Insolvency with Application for the
Appointment of a Receiver[11] pursuant to Act No. 1956, as amended, [12] before the Regional Trial Court
of Angeles City and which was raffled to Branch 56. [13] Among the assets declared in the Petition was
the property covered by TCT No. 58676 (one of the properties mortgaged to Metrobank).[14]
Presiding Judge Irin Zenaida S. Buan (Judge Buan) issued the Order [15] dated July 12, 2005, declaring
S.F. Naguiat insolvent; directing the Deputy Sheriff to take possession of all the properties of S.F.
Naguiat until the appointment of a receiver/assignee; and forbidding payment of any debts due, delivery
of properties, and transfer of any of its properties.
Pending the appointment of a receiver, Judge Buan directed the creditors, including Metrobank, to file
their respective Comments on the Petition.[16] In lieu of a Comment, Metrobank filed a Manifestation
and Motion[17] informing the court of Metrobank's decision to withdraw from the insolvency proceedings
because it intended to extrajudicially foreclose the mortgaged property to satisfy its claim against S.F.
Naguiat.[18]
Subsequently, S.F. Naguiat defaulted in paying its loan. [19] On November 8, 2005, Metrobank instituted
an extrajudicial foreclosure proceeding against the mortgaged property covered by TCT No. 58676 [20]
and sold the property at a public auction held on December 9, 2005 to Phoenix Global Energy, Inc., the
highest bidder.[21] Afterwards, Sheriff Claude B. Balasbas prepared the Certificate of Sale [22] and
submitted it for approval to Clerk of Court Vicente S. Fernandez, Jr. and Executive Judge Bernardita
Gabitan-Erum (Executive Judge Gabitan-Erum). However, Executive Judge Gabitan-Erum issued the
Order[23] dated December 15, 2005 denying her approval of the Certificate of Sale in view of the July
12, 2005 Order issued by the insolvency court. Metrobank's subsequent Motion for Reconsideration was
also denied in the Order[24] dated April 24, 2006.
Aggrieved by both Orders of Executive Judge Gabitan-Erum, Metrobank filed a Petition[25] for certiorari
and mandamus before the Court of Appeals on June 22, 2006. S.F. Naguiat filed its Manifestation [26]
stating that it was not interposing any objection to the Petition and requested that the issues raised in
the Petition be resolved without objection and argument on its part. [27]
On November 15, 2006, the Court of Appeals rendered its Decision dismissing the Petition on the basis
of Metrobank's failure to "obtain the permission of the insolvency court to extrajudicially foreclose the
mortgaged property."[28] The Court of Appeals declared that "a suspension of the foreclosure
proceedings is in order, until an assignee [or receiver,] is elected or appointed [by the insolvency court]
so as to afford the insolvent debtor proper representation in the foreclosure [proceedings]." [29]
Metrobank filed a Motion for Reconsideration and Clarification, which was denied by the Court of Appeals
in its Resolution dated June 14, 2007. [30] The Court of Appeals held that leave of court must be obtained
from the insolvency court whether the foreclosure suit was instituted judicially or extrajudicially so as
to afford the insolvent estate's proper representation (through the assignee) in such action [31] and "to
avoid the dissipation of the insolvent debtor's assets in possession of the insolvency court without the
latter's knowledge."[32]
Hence, the present Petition for Review was filed. Petitioner contends that the Court of Appeals decided
questions of substance in a way not in accord with law and with the applicable decisions of this court:
A.
By ruling that there must be a motion for leave of court to be filed and granted by the
insolvency court, before the petitioner, as a secured creditor of an insolvent, can
extrajudicially foreclose the mortgaged property, which is tantamount to a judicial
legislation.
B.
By ruling that the Honorable Executive Judge Bernardita Gabitan-Erum did not abuse her
discretion in refusing to perform her ministerial duty of approving the subject certificate
of sale, despite the fact that the petitioner and the designated sheriff complied with all
the requirements mandated by Act No. 3135, as amended, circulars, administrative
matters and memorandums issued by the Honorable Supreme Court.
creditor opts to exercise the right to foreclose extrajudicially the mortgaged property under Act No.
3135, as amended, because extrajudicial foreclosure is not a civil suit. [37] Thus, the Court of Appeals
allegedly imposed a new condition that was tantamount to unauthorized judicial legislation when it
required petitioner to file a Motion for Leave of the insolvency court. [38] Said condition, petitioner argues,
defeated and rendered inutile its right or prerogative under Act No. 1956 to independently initiate
extrajudicial foreclosure of the mortgaged property.[39]
Nonetheless, petitioner contends that the filing of its Manifestation before the insolvency court served
as sufficient notice of its intention and, in effect, asked the court's permission to foreclose the
mortgaged property.[40]
Petitioner further contends that "the powers and responsibilities of an Executive Judge in extrajudicial
foreclosure proceedings, in line with Administrative Order No. 6, is merely to supervise the conduct of
the extra-judicial foreclosure of the property"[41] and to oversee that the procedural requirements are
faithfully complied with; [42] and when "the Clerk of Court and Sheriff concerned complied with their
designated duties and responsibilities under the [administrative] directives and under Act No. 3135, as
amended, and the corresponding filing and legal fees were duly paid, it becomes a ministerial duty on
the part of the executive judge to approve the certificate of sale." [43] Thus, Executive Judge GabitanErum allegedly exceeded her authority by "exercising judicial discretion in issuing her Orders dated
December 15, 2006 and April 24, 2006 . . . despite the fact that Sheriff Balasbas complied with all the
notices requirements under Act No. 3135, [as] amended, . . . and the petitioner and the highest bidder
paid all the requisite filing and legal fees[.]" [44]
C.
By ruling that the action of the Honorable Executive Judge Bernardita Gabitan-Erum is
proper in denying the approval of the Certificate of Sale on the grounds that the issuance
of the Order dated 12 July 2005 declaring respondent insolvent and the pendency of the
insolvency proceeding forbid the petitioner, as a secured creditor, to foreclose the
subject mortgaged property.[33] (Emphasis supplied)
On October 20, 2007, S.F. Naguiat filed a Manifestation[34] stating that it interposed no objection to the
Petition and submitted the issues raised therein without any argument.
On November 28, 2007, the court resolved "to give due course to the petition [and] to decide the case
according to the pleadings already filed[.]" [35]
Furthermore, citing Chartered Bank v. C.A. Imperial and National Bank,[45] petitioner submits that the
order of insolvency affected only unsecured creditors and not secured creditors, like petitioner, which
did not surrender its right over the mortgaged property. [46] Hence, it contends that the Court of Appeals
seriously erred in holding as proper Executive Judge Gabitan-Erum's disapproval of the Certificate of
Sale on account of the Order of insolvency issued by the insolvency court. [47]
Finally, petitioner points out that contrary to the Court of Appeals' ruling, "there is nothing more to
suspend because the extrajudicial foreclosure of the mortgaged property was already a fait accompli as
the public auction sale was conducted on December 9, 2005 and all the requisite legal fees were paid
and a Certificate of Sale was already prepared."[48] "The only remaining thing to do [was] for the . . .
Executive Judge to sign the Certificate of Sale, which she . . . refused to do." [49]
The Petition has no merit.
The issues for resolution are:
I
First, whether the Court of Appeals erred in ruling that prior leave of the insolvency court is necessary
before a secured creditor, like petitioner Metropolitan Bank and Trust Company, can extrajudicially
foreclose the mortgaged property.
Second, whether the Court of Appeals erred in ruling that Executive Judge Gabitan-Erum did not abuse
her discretion in refusing to approve the Certificate of Sale.
Petitioner argues that nowhere in Act No. 1956 does it require that a secured creditor must first obtain
leave or permission from the insolvency court before said creditor can foreclose on the mortgaged
property.[36] It adds that this procedural requirement applies only to civil suits, and not when the secured
A look at the historical background of the laws governing insolvency in this country will be helpful in
resolving the questions presented before us.
The first insolvency law, Act No. 1956, was enacted on May 20, 1909. It was derived from the Insolvency
Act of California (1895), with a few provisions taken from the United States Bankruptcy Act of 1898. [50]
Act No. 1956 was entitled "An Act Providing for the Suspension of Payments, the Relief of Insolvent
Debtors, the Protection of Creditors, and the Punishment of Fraudulent Debtors." The remedies under
the law were through a suspension of payment [51] (for a debtor who was solvent but illiquid) or a
discharge from debts and liabilities through the voluntary [52] or involuntary[53] insolvency proceedings
(for a debtor who was insolvent).
The objective of suspension of payments is the deferment of the payment of debts until such time as
the debtor, which possesses sufficient property to cover all its debts, is able to convert such assets into
cash or otherwise acquires the cash necessary to pay its debts. On the other hand, the objective in
insolvency proceedings is "to effect an equitable distribution of the bankrupt's properties among his
creditors and to benefit the debtor by discharging [54] him from his liabilities and enabling him to start
afresh with the property set apart for him as exempt." [55]
Act No. 1956 was meant to be a complete law on insolvency, [56] and debts were to be liquidated in
accordance with the order of priority set forth under Chapter VI, Sections 48 to 50 on "Classification
and Preference of Creditors"; and Sections 29 and 59 with respect to mortgage or pledge of real or
personal property, or lien thereon. Jurisdiction over suspension of payments and insolvency was vested
in the Courts of First Instance (now the Regional Trial Courts). [57]
The Civil Code[58] (effective August 30, 1950) established a system of concurrence and preference of
credits, which finds particular application in insolvency proceedings. [59] Philippine Savings Bank v. Hon.
Lantin[60] explains this scheme:
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.)[61]
The credits are classified into three general categories, namely, "(a) special preferred credits listed in
Articles 2241[62] and 2242,[63] (b) ordinary preferred credits listed in Article 2244[,] [64] and (c) common
credits under Article 2245."[65]
The special preferred credits enumerated in Articles 2241 (with respect to movable property) and 2242
(with respect to immovable property) are considered as mortgages or pledges of real or personal
property, or liens within the purview of Act No. 1956. [66] These credits, which enjoy preference with
respect to a specific movable or immovable property, exclude all others to the extent of the value of
the property.[67] If there are two or more liens on the same specific property, the lienholders divide the
value of the property involved pro rata, after the taxes on the same property are fully paid. [68]
"Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take
precedence over ordinary preferred credits so far as concerns the property to which the liens have
attached. The specially preferred credits must be discharged first out of the proceeds of the property
to which they relate, before ordinary preferred creditors may lay claim to any part of such proceeds." [69]
"In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate property which
follow such property. What Article 2244 creates are simply rights in favor of certain creditors to have
the cash and other assets of the insolvent applied in a certain sequence or order of priority." [70]
It was held that concurrence and preference of credits can only be ascertained in the context of a
general liquidation proceeding that is in rem, such as an insolvency proceeding, where properties of the
debtor are inventoried and liquidated and the claims of all the creditors may be bindingly adjudicated. [71]
The application of this order of priorities established under the Civil Code in insolvency proceedings
assures that priority of claims are respected and credits belonging to the same class are equitably
treated.
Conformably, it is the policy of Act No. 1956 to place all the assets and liabilities of the insolvent debtor
completely within the jurisdiction and control of the insolvency court without the intervention of any
other court in the insolvent debtor's concerns or in the administration of the estate. [72] It was considered
to be of prime importance that the insolvency proceedings follow their course as speedily as possible in
order that a discharge, if the insolvent debtor is entitled to it, should be decreed without unreasonable
delay. "Proceedings of [this] nature cannot proceed properly or with due dispatch unless they are
controlled absolutely by the court having charge thereof." [73]
In 1981, Presidential Decree No. 1758 amended Presidential Decree No. 902-A, the Securities and
Exchange Commission charter. Under its terms, [74] jurisdiction regarding corporations that sought
suspension of payments process was taken away from the regular courts and given to the Securities
and Exchange Commission.[75] In addition, an alternative to suspension of payments — rehabilitation —
was introduced. It enables a corporation whose assets are not sufficient to cover its liabilities to apply
to the Securities and Exchange Commission for the appointment of a rehabilitation receiver and/or
management committee[76] and then to develop a rehabilitation plan with a view to rejuvenating a
financially distressed corporation. However, the procedure to avail of the remedy was not spelled out
until 20 years later when the Securities and Exchange Commission finally adopted the Rules of
Procedure on Corporate Recovery on January 4, 2000.
Shortly thereafter, with the passage of Republic Act No. 8799 or The Securities Regulation Code on July
19, 2000, jurisdiction over corporation rehabilitation cases was reverted to the Regional Trial Courts
designated as commercial courts or rehabilitation courts. [77] This legal development was implemented
by the Interim Rules of Procedure on Corporate Rehabilitation (made effective in December 2000),
which was later replaced by A.M. 00-8-10-SC or the Rules of Procedure on Corporate Rehabilitation of
2008.
Act No. 1956 continued to remain in force and effect until its express repeal on July 18, 2010 when
Republic Act No. 10142,[78] otherwise known as the Financial Rehabilitation and Insolvency Act of 2010,
took effect. Republic Act No. 10142 now provides for court proceedings in the rehabilitation or
liquidation of debtors, both juridical and natural persons, in a "timely, fair, transparent, effective and
efficient"[79] manner. The purpose of insolvency proceedings is "to encourage debtors . . . and their
creditors to collectively and realistically resolve and adjust competing claims and property rights"[80]
while "maintaining] certainty and predictability in commercial affairs, preserving] and maximizing] the
value of the assets of these debtors, recognizing] creditor rights and respecting] priority of claims, and
ensuring] equitable treatment of creditors who are similarly situated." [81] It has also been provided that
whenever rehabilitation is no longer feasible, "it is in the interest of the State to facilitate a speedy and
orderly liquidation of [the] debtors' assets and the settlement of their obligations."[82]
Unlike Act No. 1956, Republic Act No. 10142 provides a broad definition of the term, "insolvent":
Act No. 1956 impliedly requires a secured creditor to ask the permission of the insolvent court before
said creditor can foreclose the mortgaged property.
SEC. 4. Definition of Terms. - As used in this Act, the term:
When read together, the following provisions of Act No. 1956 reveal the necessity for leave of the
insolvency court:
....
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to
pay its or his liabilities as they fall due in the ordinary course of business or has liabilities
that are greater than its or his assets.
(A)
Under Section 14, "[a]n insolvent debtor, owing debts exceeding in amount the sum of one
thousand pesos, may apply to be discharged from his debts and liabilities by petition to the
Court of First Instance of the province or city in which he has resided for six months next
preceding the filing of such petition. In his petition, he shall set forth his place of residence,
the period of his residence therein immediately prior to filing said petition, his inability to pay
all his debts in full, his willingness to surrender all his property, estate, and effects not exempt
from execution for the benefit of his creditors, and an application to be adjudged an insolvent.
He shall annex to his petition a schedule and inventory in the form hereinafter provided. The
filing of such petition shall be an act of insolvency."
(B)
Under Section 16, "[the] inventory must contain, besides the creditors, an accurate
description of all the real and personal property, estate, and effects of the [insolvent],
including his homestead, if any, together with a statement of the value of each item of said
property, estate, and effects and its location, and a statement of the incumbrances thereon.
All property exempt by law from execution shall be set out in said inventory with a statement
of its valuation, location, and the incumbrances thereon, if any. The inventory shall contain
an outline of the facts giving rises [sic], or which might give rise, to a right of action in favor
of the insolvent debtor."
(C)
Under Section 18, upon receipt of the petition, the court shall issue an order declaring the
petitioner insolvent, and directing the sheriff to take possession of and safely keep, until the
appointment of a receiver or assignee, all the debtor's real and personal property, except
those exempt by law from execution. The order also forbids the transfer of any property by
the debtor.
Republic Act No. 10142 also expressly categorizes different forms of debt relief available to a corporate
debtor in financial distress. These are out-of-court restructuring agreements;[83] pre-negotiated
rehabilitation;[84] court-supervised rehabilitation; [85] and liquidation (voluntary and involuntary). [86] An
insolvent individual debtor can avail of suspension of payments, [87] or liquidation.[88]
During liquidation proceedings, a secured creditor may waive its security or lien, prove its claim, and
share in the distribution of the assets of the debtor, in which case it will be admitted as an unsecured
creditor; or maintain its rights under the security or lien, [89] in which case:
1.
[T]he value of the property may be fixed in a manner agreed upon by the
creditor and the liquidator. When the value of the property is less than the
claim . . . the [creditor] will be admitted ... as a creditor for the balance. If its
value exceeds the claim . . . the liquidator may convey the property to the
creditor and waive the debtor's right of redemption upon receiving the excess
from the creditor;
2.
[T]he liquidator may sell the property and satisfy the secured creditor's entire
claim from the proceeds of the sale; or
3.
[T]he secured creditor may enforce the lien or foreclose on the property
pursuant to applicable laws.[90]
A secured creditor, however, is subject to the temporary stay of foreclosure proceedings for a period of
180 days,[91] upon the issuance by the court of the Liquidation Order. [92]
Republic Act No. 10142 was to govern all petitions filed after it had taken effect, and all further
proceedings in pending insolvency, suspension of payments, and rehabilitation cases, except when its
application "would not be feasible or would work injustice, in which event the procedures set forth in
prior laws and regulations shall apply."[93]
The relevant proceedings in this case took place prior to Republic Act No. 10142; hence, the issue will
be resolved according to the provisions of Act No. 1956.
II
(D)
Under Section 32, once an assignee is elected and qualified, the clerk of court shall assign
and convey to the assignee all the real and personal property of the debtor, not exempt from
execution, and such assignment shall relate back to the commencement of the insolvency
proceedings, and by operation n of law, shall vest the tide to all such property in the assignee.
With the declaration of insolvency of the debtor, insolvency courts "obtain full and complete jurisdiction
over all property of the insolvent and of all claims by and against [it.]"[94] It follows that the insolvency
court has exclusive jurisdiction to deal with the property of the insolvent. [95] Consequently, after the
mortgagor-debtor has been declared insolvent and the insolvency court has acquired control of his
estate, a mortgagee may not, without the permission of the insolvency court, institute proceedings to
enforce its lien. In so doing, it would interfere with the insolvency court's possession and orderly
administration of the insolvent's properties. [96]
It is true that under Section 59 of Act No. 1956, the creditor is given the option to participate in the
insolvency proceedings by proving the balance of his debt, after deducting the value of the mortgaged
property as agreed upon with the receiver or determined by the court or by a sale of the property as
directed by the court; or proving his whole debt, after releasing his claim to the receiver/sheriff before
the election of an assignee, or to the assignee. However, Section 59 of Act No. 1956 proceeds to state
that when "the property is not sold or released, and delivered up, or its value fixed, the creditor [is]
not allowed to prove any part of his debt," but the assignee shall deliver to the creditor the mortgaged
property. Hence, explicitly under Section 59 and as a necessary consequence flowing from the exclusive
jurisdiction of the insolvency court over the estate of the insolvent, the mortgaged property must first
be formally delivered by the court or the assignee (if one has already been elected) before a mortgageecreditor can initiate proceedings for foreclosure. [97]
Here, the foreclosure and sale of the mortgaged property of the debtor, without leave of court,
contravene the provisions of Act No. 1956 and violate the Order dated July 12, 2005 of the insolvency
court which declared S.F. Naguiat insolvent and forbidden from making any transfer of any of its
properties to any person.
Petitioner would insist that "respondent was given the opportunity to be represented in the public
auction sale conducted on December 9, 2005"[98] because it received a copy of the Notice of the Sheriffs
Sale on November 11, 2005;"[99] and the Notice of Auction Sale was published in a newspaper of general
circulation.[100] However, respondent allegedly opted not to participate by not attending the public
auction sale.[101]
Petitioner should have waited for the insolvency court to act on its Manifestation and Motion before
foreclosing the mortgaged property and its lien (assuming valid) would not be impaired or its claim in
any way jeopardized by any reasonable delay. There are mechanisms within Act No. 1956 such as
Section 59 that ensure that the interests of the secured creditor are adequately protected.
Parenthetically, mortgage liens are retained in insolvency proceedings. What is merely suspended until
court approval is obtained is the creditor's enforcement of such preference.
On the other hand, to give the secured creditor a free hand in foreclosing its collateral upon the initiation
of insolvency proceedings may frustrate the basic objectives of Act No. 1956 of maximizing the value
of the estate of the insolvent or obtaining the highest return possible from its sale for the benefit of all
the creditors (both secured and unsecured).
III
Executive Judge Gabitan-Erum did not unlawfully neglect to perform her duty when she refused to
approve and sign the Certificate of Sale, as would warrant the issuance of a writ of mandamus against
her.
An executive judge has the administrative duty in extrajudicial foreclosure proceedings to ensure that
all the conditions of Act No. 3135 have been complied with before approving the sale at public auction
of any mortgaged property.[106]
"Certain requisites must be established before a creditor can proceed to an extrajudicial foreclosure,
namely: first, there must have been the failure to pay the loan obtained from the mortgagee-creditor;
second, the loan obligation must be secured by a real estate mortgage; and third, the mortgageecreditor has the right to foreclose the real estate mortgage either judicially or extrajudicially."[107]
Furthermore, Act No. 3135 outlines the notice and publication requirements and the procedure for the
extrajudicial foreclosure which constitute a condition sine qua non for its validity. Specifically, Sections
2, 3, and 4 of the law prescribe the formalities of the extrajudicial foreclosure proceeding:
Such was to be expected because when the foreclosure proceeding was initiated, respondent was
already declared insolvent. Indeed, upon the adjudication of insolvency, the insolvent ceased to exist
and was in effect judicially declared dead as of the filing of the insolvency petition and by the nature of
things had no further interest in the property covered by the mortgage. [102] Under Section 32 of Act No.
1956, title to the insolvent's estate relates back to the filing of the insolvency petition upon the election
of the assignee who shall thereafter act on behalf of all the creditors. Under Section 36, the assignee
has the power to redeem all valid mortgages or sell property subject to mortgage. Thus, the extrajudicial
foreclosure of the mortgaged property initiated by petitioner without leave of insolvency court would
effectively exclude the assignee's right to participate in the public auction sale of the property and to
redeem the foreclosed property[103] to the prejudice of all the other creditors of the insolvent.
SEC. 2. Said sale cannot be made legally outside of the province in which the property
sold is situated; and in case the place within said province in which the sale is to be
made is the subject of stipulation, such sale shall be made in said place or in the
municipal building of the municipality in which the property or part thereof is situated.
Petitioner filed its Manifestation and Motion before the insolvency court on September 7, 2005, [104]
praying that it would no longer file the Comment required as it opted to exercise its right to
extrajudicially foreclose the property mortgaged and that it "be allowed to temporarily withdraw its
active participation in the . . . proceeding pending the outcome of the extra-judicial foreclosure
proceeding of the mortgaged property."[105]
SEC. 4. The sale shall be made at public auction, between the hours of nine in the
morning and four in the afternoon; and shall be under the direction of the sheriff of the
province, the justice or auxiliary justice of the peace of the municipality in which such
sale has to be made, or a notary public of said municipality, who shall be entitled to
SEC. 3. Notice shall be given by posting notices of the sale for not less than twenty days
in at least three public places of the municipality or city where the property is situated,
and if such property is worth more than four hundred pesos, such notice shall also be
published once a week for at least three consecutive weeks in a newspaper of general
circulation in the municipality or city.
collect a fee of five pesos for each day of actual work performed, in addition to his
expenses.
''Mandamus will not issue to enforce a right which is in substantial dispute or to which a substantial
doubt exists."[108]
There was a valid reason for Executive Judge Gabitan-Erum to doubt the propriety of the foreclosure
sale. Her verification with the records of the Clerk of Court showed that a Petition for Insolvency had
been filed and had already been acted upon by the insolvency court prior to the application for
extrajudicial foreclosure of the mortgaged properties. Among the inventoried unpaid debts and
properties attached to the Petition for Insolvency was the loan secured by the real estate mortgage
subject of the application for extrajudicial foreclosure sale. [109] With the pendency of the insolvency
case, substantial doubt exists to justify the refusal by Executive Judge Gabitan-Erum to approve the
Certificate of Sale as the extrajudicial foreclosure sale without leave of the insolvency court may
contravene the policy and purpose of Act No. 1956. [110]
Act No. 3135 is silent with respect to mortgaged properties that are in custodia legis, such as the
property in this case, which was placed under the control and supervision of the insolvency court. This
court has declared that "[a] court which has control of such property, exercises exclusive jurisdiction
over the same, retains all incidents relative to the conduct of such property. No court, except one having
supervisory control or superior jurisdiction in the premises, has a right to interfere with and change
that possession."[111] The extrajudicial foreclosure and sale of the mortgaged property of the debtor
would clearly constitute an interference with the insolvency court's possession of the property.
Furthermore, Executive Judge Gabitan-Erum noticed that the President of the highest bidder in the
public auction sale may be related to the owners of S.F. Naguiat Enterprises, Inc. The President of the
highest bidder, Phoenix Global Energy, Inc., was a certain Eugene T. Naguiat. [112] "Among the
incorporators of S.F. Naguiat Enterprises, Inc. [the insolvent corporation] [were] Sergio F. Naguiat,
Maningning T. Naguiat, Antolin M. Tiglao, Nero F. Naguiat and Antolin T. Naguiat. Later[,] its capital
was increased and the listed subscribers [were] Celestina T. Naguiat, Rommel T. Naguiat, Antolin T.
Naguiat, Sergio T. Naguiat, Jr., Alexander T. Naguiat, Coumelo T. Naguiat, Fely Ann Breggs and Teresita
Celine Quemer."[113]
Under the foregoing circumstances, the refusal of Executive Judge Gabitan-Erum to approve the
Certificate of Sale was in accord with her duty to act with prudence, caution, and attention in the
performance of her functions.
WHEREFORE, the Petition is DENIED, and the Court of Appeals' Decision dated November 15, 2006
and Resolution dated June 14, 2007 are AFFIRMED.
SO ORDERED.
Carpio, (Chairperson), Velasco, Jr.,* Del Castillo, and Mendoza, JJ., concur.