Académique Documents
Professionnel Documents
Culture Documents
Involving Personal Property certificates of sale executed in its favor by the sheriff of
a. Chattel Mortgage Davao.
i. Laws
Chattel Mortgage Law (Act No. 1506) Davao Saw Mill Co., Inc., has, on a number of
Revised Administrative Code occasions, treated the machinery as personal property
Art. 319, Revised Penal Code by executing chattel mortgages in favor of third persons.
Ship Mortgage Decree of 1978 (PD One of such persons is the appellee by assignment from
1521) the original mortgagees.
ii. Subject Matter Davao Saw Mill Co., Inc. filed a case against
Davao Saw Mill Co., Inc. v. Catillo, 61 Davao Light & Power Co., Inc. to recover the properties
Phil 709 executed upon on the claim that such properties were
Davao Saw Mill Co., Inc. vs. Aproniano G. Castillo & real properties that were attached to the land and are
Davao Light & Power Co., Inc., G.R. No. 40411, exempt from execution.
August 7, 1935 (61 Phil 709)
Lower Court Decision: The lower court ruled that the
FACTS: properties were personal properties and dismissed the
The Davao Saw Mill Co., Inc. is the holder of a case.
lumber concession from the Government of the
Philippine Islands. However, the land upon which the ISSUE:
business was conducted belonged to another person.
On the land, the sawmill company erected a building
which housed the machinery used by it. Some of the HELD:
implements thus used were clearly personal property.
Tsai v. CA, 366 SCRA 324
The conflict concerns machines which were Facts:
placed and mounted on foundations of cement. The ● Ever Textile Mills, Inc. (EVERTEX) obtained a 3
contract between the sawmill company and the owner of million loan from Philippine Bank of
the land explicity provides that all improvements and Communications (PBCom), secured by a deed
buildings introduced to and erected on the land will pass of Real and Chattel Mortgage over the lot where
to the owner upon the expiration of the lease, except its factory stands, and the chattels located
machineries and accessories. therein as enumerated in a schedule attached to
the mortgage contract.
In another action, wherein the Davao Light & ● PBCom granted a second loan of P3,356,000.00
Power Co., Inc., was the plaintiff and the Davao Saw Mill to EVERTEX which was secured by a Chattel
Co., Inc., was the defendant, a judgment was rendered Mortgage over personal properties similar to
in favor of the plaintiff in that action against the those listed in the first mortgage deed.
defendant in that action; a writ of execution issued ● After the date of the execution of the second
thereon, and the properties now in question were levied mortgage mentioned above, EVERTEX
upon as personality by the sheriff. No third party claim purchased various machines and equipment.
was filed for such properties at the time of the sales ● EVERTEX filed insolvency proceedings where
thereof as is borne out by the record made by the CFI Pasay City declared the corporation
plaintiff herein. insolvent. All its assets were taken into the
custody of the Insolvency Court, including the
Indeed the bidder, which was the plaintiff in that collateral, real and personal, securing the two
action, and the defendant herein having consummated mortgages.
the sale, proceeded to take possession of the machinery ● EVERTEX failed to meet its obligation, hence,
and other properties described in the corresponding PBCom commenced extrajudicial foreclosure
proceedings against EVERTEX under Act 3135 chattel mortgage shall be deemed to cover only the
and Act 1506 or "The Chattel Mortgage Law". property described therein and not like or substituted
● PBCom emerged as the highest bidder and property thereafter acquired by the mortgagor and
consolidated its ownership over the properties. It placed in the same depository as the property originally
then leased and subsequently sold the entire mortgaged, anything in the mortgage to the contrary
factory premises to Tsai. notwithstanding.” And, since the disputed machineries
● EVERTEX filed a complaint for annulment of were acquired in 1981 and could not have been involved
sale, reconveyance, and damages with the in the 1975 or 1979 chattel mortgages, it was
Regional Trial Court against PBCom, alleging consequently an error on the part of the Sheriff to
inter alia that the extrajudicial foreclosure of include subject machineries with the properties
subject mortgage was in violation of the enumerated in said chattel mortgages. As the auction
Insolvency Law. EVERTEX claimed that no sale of the subject properties to PBCom is void, no valid
rights having been transmitted to PBCom over title passed in its favor. Consequently, the sale thereof
the assets of insolvent EVERTEX, therefore Tsai to Tsai is also a nullity under the elementary principle of
acquired no rights over such assets sold to her, nemo dat quod non habet, one cannot give what one
and should reconvey the assets. EVERTEX does not have.
averred that PBCom, without any legal or factual
basis, appropriated the contested properties,
which were not included in the Real and Chattel Acme Shoe Rubber & Plastic Corp. v.
Mortgage. CA, 260 SCRA 714
FACTS:
Issue: ● Chua Pac, the president and general manager
Whether or not the properties acquired after the of ACME executed a chattel mortgage in favor of
execution of the chattel mortgage are covered by the Producers Bank of the Philippines.
chattel mortgage. (NO) ● The mortgage stood by way of security for
Whether immovables can be treated as movables for petitioner's corporate loan of three million pesos
purpose of executing a chattel mortgage. (YES) (P3,000,000).
● The mortgage provided that it shall stand as
Ruling: security for said obligations and any and all
While it is true that the controverted properties appear to other obligations of the MORTGAGOR to the
be immobile, a perusal of the contract of Real and MORTGAGEE of whatever kind and nature,
Chattel Mortgage executed by the parties herein gives whether such obligations have been contracted
us a contrary indication. The true intention of PBCOM before, during or after the constitution of this
and the owner, EVERTEX, is to treat machinery and mortgage.
equipment as chattels. ● In due time, ACME was able to pay the loan.
Assuming arguendo that the properties in question are ● Subsequently, in 1981, the company obtained
immovable by nature, nothing detracts the parties from from the bank additional financial
treating it as chattels to secure an obligation under the accommodations totaling P2.7M. These
principle of estoppel. An immovable may be considered borrowings were also paid on due date.
a personal property if there is a stipulation as when it is ● In January 1984, the bank yet again extended to
used as security in the payment of an obligation where a the corporation a loan of P1M, but this was not
chattel mortgage is executed over it, as in the case at paid. The bank thereupon applied for an
bar. extrajudicial foreclosure of the chattel mortgage.
ACME was prompted to file an action for
Inasmuch as the subject mortgages were intended by injunction.
the parties to involve chattels, insofar as equipment and
machinery were concerned, the Chattel Mortgage Law ISSUE:
applies, which provides in Section 7 thereof that: “a
WoN a clause in a chattel mortgage that purports to compelled upon, the security itself, however, does
extend its coverage to obligations yet to be contracted or not come into existence or arise until after a chattel
incurred is valid and effective. (NO) mortgage agreement covering the newly contracted
debt is executed either by concluding a fresh chattel
HELD: mortgage or by amending the old contract
Contracts of security are either personal or real. In conformably with the form prescribed by the Chattel
contracts of personal security, such as a guaranty or a Mortgage Law.
suretyship, the faithful performance of the obligation by
the principal debtor is secured by the personal Refusal on the part of the borrower to
commitment of another (the guarantor or surety). execute the agreement so as to cover the after-
incurred obligation can constitute an act of default
In contracts of real security, such as a pledge, a on the part of the borrower of the financing
mortgage or an antichresis, that fulfillment is secured by agreement whereon the promise is written but, of
an encumbrance of property. course, the remedy of foreclosure can only cover the
debts extant at the time of constitution and during
In pledge, the placing of movable property in the the life of the chattel mortgage sought to be
possession of the creditor; foreclosed.
in chattel mortgage, by the execution of the
corresponding deed substantially in the form One of the requisites, under Section 5 thereof, is
prescribed by law; an affidavit of good faith. While it is not doubted that
in real estate mortgage, by the execution of a if such an affidavit is not appended to the
public instrument encumbering the real property agreement, the chattel mortgage would still be valid
covered thereby; and between the parties (not against third persons acting
in antichresis, by a written instrument granting in good faith), the fact, however, that the statute has
to the creditor the right to receive the fruits of an provided that the parties to the contract must
immovable property with the obligation to apply execute an oath makes it obvious that the debt
such fruits to the payment of interest, if owing, referred to in the law is a current, not an obligation
and thereafter to the principal of his credit. that is yet merely contemplated.
Upon the essential condition that if the principal In the chattel mortgage here involved, the only
obligation becomes due and the debtor defaults, then obligation specified in the chattel mortgage contract was
the property encumbered can be alienated for the the P3,000,000.00 loan which petitioner corporation later
payment of the obligation, but that should the obligation fully paid. By virtue of Section 3 of the Chattel Mortgage
be duly paid, then the contract is automatically Law, the payment of the obligation automatically
extinguished proceeding from the accessory character of rendered the chattel mortgage void or terminated.
the agreement. As the law so puts it, once the
obligation is complied with, then the contract of Doctrine: A chattel mortgage, as hereinbefore so
security becomes, ipso facto, null and void. intimated, must comply substantially with the form
prescribed by the Chattel Mortgage Law itself.
While a pledge, real estate mortgage, or
antichresis may exceptionally secure after-incurred Jaca v. Davao Lumber Co., 113 SCRA 107
obligations so long as these future debts are FACTS:
accurately described, a chattel mortgage, however, ● Urbano Jaca is a licensee of a logging
can only cover obligations existing at the time the concession in Davao, together with Bonifacio
mortgage is constituted. Jaca. They are engaged in the logging business
of producing timber and logs for export and/or
Although a promise expressed in a chattel domestic purposes. Davao Lumber Company is
mortgage to include debts that are yet to be a business corporation with which plaintiffs had
contracted can be a binding commitment that can be
business dealings covering the sale and/or Lower Court’s Decision: The lower court dismissed the
exportation of their logs. complaint and granted the counterclaim. A motion
● the parties entered into an agreement whereby pending appeal was granted. The Jacas are questioning
the Jacas may secure, by way of advances, the execution
either cash or materials, foodstuffs, and or
equipment from the company. The payment of ISSUE:
such account was to be made either in cash Whether a chattel mortgage that secures any
and/or by the Jacas turning over all the logs that and all obligations hereinbefore and hereinafter
they produce in the aforesaid concession to the contracted is void.
company.
● While the aforesaid business relationship HELD: YES.
between the parties was subsisting, the As provided in Sec. 2, Rule 39 of the New
company made Urbano Jaca execute in its favor Rules of Court, the existence of good reasons is
a chattel mortgage, a copy of which instrument, what confers discretionary power on a court of first
however, was never furnished to the Jacas. instance to issue a writ of execution pending appeal.
● Urbano Jaca executed assignments of letters of The reasons allowing execution must constitute
credit in favor of the company, in order that the superior circumstances demanding urgency which
latter may be able to use, as it did use, the said will outweigh the injury or damage should the losing
letters of credit for bank negotiations of the party secure a reversal of the judgment on appeal.
former in the exportation of logs. The business
relationship of the parties continued from 1954 The decision in Civil Case No. 4189 requires
up to August 1963. petitioners to pay the enormous amount of P867,887.52.
Clearly, premature execution of said decision will result
Jaca’s Contention: The Jacas made repeated in irreparable damage to petitioners as the collection of
demands on the company for a formal accounting of said amount may be enforced through the seizure of
their business relationship from 1954 up to August, money and/or sale of properties used in the logging
1963, but the company failed and refused, and still fails business of petitioners.
and refuses, to effect such formal accounting, asserting
that it had no time as yet to examine into all the details of In other words, execution of the decision in Civil
the accounting. Sometime on October 30, 1963, much to Case No. 4189 may result in the termination of
their surprise, the Jacas received letters of demand from petitioner's business. Thus, any damage to the
the company in which they were requested to pay their petitioners brought about by the premature execution of
allegedly overdue accounts. The Jacas filed this case in the decision will be justified only upon a finding that the
order to compel the company to have a formal appeal is being taken only for the purpose of delay and
accounting between them. of rendering the judgment nugatory.
Davao Lumber’s Contention: Davao Lumber Company The facts of record show that the petitioner's
filed its Answer with Affirmative Defenses and appeal is not frivolous and not intended for delay. The
Counterclaim. In its counterclaim, the Davao Lumber findings of the respondent judge that the petitioners are
Company alleged that Plaintiffs Urbano Jaca and indebted to the respondent Davao Lumber Company are
Bonifacio Jaca are the ones indebted to the defendant in based solely on the report submitted by Estanislao R.
the sum of P756,236.52 and P91,651.97, respectively. Lagman, the commissioner appointed by the court. This
The company also alleged that Urbano Jaca executed a report was assailed by the petitioners as null and void in
chattel mortgage in favor of the defendant to secure the a motion to strike out the report from the records of the
payment of any and all obligations contracted by him in case.
favor of the defendant covering several chattels valued
at P532,000. The reasons stated in the order of execution
pending appeal are not well founded. The first reason
stated in the order was the consistent refusal of
petitioner to deliver the mortgaged chattels to the conclusion that petitioners do not have sufficient assets
receiver. The records disclose that respondent Davao is an unsubstantiated allegation in the motion for
Lumber Company is not even entitled to the appointment execution pending appeal of respondent lumber
of a receiver. company.
It is an established rule that the applicant for iii. Formalities & Registration
receivership must have an actual and existing Lilius v. Manila Railroad Co., 62 Phil
interest in the property for which a receiver is 56
sought to be appointed. The Davao Lumber DOCTRINE:
Company's proof of interest in the property is the deed of · Under section 5 of Act No. 1507, as amended by Act
chattel mortgage executed by Urbano Jaca in favor of No. 2496, a chattel mortgage does not have to be
the Davao Lumber Company on January 24, 1961. This acknowledged before a notary public. But as against
deed of chattel mortgage is void because it provides creditors and subsequent encumbrancers, the law does
that the security stated therein is for the payment of require an affidavit of good faith appended to the
any and all obligations herein before contracted and mortgage and recorded with it.
which may hereafter be contracted by the Mortgagor · A chattel mortgage may be valid as between the
in favor of the Mortgagee. parties without an affidavit of good faith. As between the
parties and as to third persons who have no rights
In the case of Belgian Catholic Missionaries vs. against the mortgagor, no affidavit of good faith is
Magallanes Press this Court held that a mortgage that necessary.
contains a stipulation in regard to future advances in the
credit will take effect only from the date the same are FACTS:
made and not from the date of the mortgage. Where the 1. In 1931, Aleko Lilius, his wife, and daughter,
statute provides that the parties to a chattel were driving to Laguna when their car collided with a
mortgage must make oath that the debt is a just locomotive of the Manila Railroad Company (MRC).
debt, honestly due and owing from the mortgagor to Lilius filed an action for damages
the mortgagee, it is obvious that a valid mortgage 2. Lilius’ creditors; BPI, Laura Lindley Shuman,
cannot be made to secure a debt to be thereafter Manila Wine Merchants, and Manila Motor Co.
contracted. intervened.
3. Manila Motor Co. Inc. (MMC) supported its claim
The second reason stated was the fact that by presenting a Certified Copy of Judgment, along
petitioner Urbano Jaca violated Article 319 of the with a Certified Copy of the Writ of Execution and
Revised Penal Code by selling to a certain Teodoro Garnishment awarded to it from Civil Case No. 41159.
Alagon some of the mortgaged properties. As 4. The judgment referred to a mortgage between
already discussed, the deed of chattel mortgage MMC and Lilius appearing in the evidence in the
executed by Urbano Jaca in favor of the Davao case as Exhibit A, without mentioning the date of the
Lumber Company is void. Hence, petitioner Urbano execution of that exhibit, and The alleged public
Jaca could not have violated Article 319 of the Revised document of mortgage evidencing its claim was not
Penal Code. Moreover, the respondent Davao Lumber offered in evidence.
Company has not successfully refuted the allegation of 5. The lower court ruled that Manila Railroad was
the petitioners that the sale of the wrecker to Teodoro guilty of negligence and thus awarded damages, and
Alagon, was exclusively negotiated by the lumber fixed the degree of preference in the distribution of the
company's managing partner, Tian Se, and that the award.
latter caused Urbano Jaca to sign the deed of sale 6. Manila Motor appealed arguing that it should
because he was the owner of the wrecker. have preference over the claims of other creditors as
against Lilius.
The third reason stated is the fact that
petitioners have no properties and assets to satisfy ISSUE:
the judgment. The basis of respondent judge's
A. WON Manila Motor Co. Inc. has preference over unsecured judgment creditor of Manila Yellow Taxicab,
other creditors in the distribution of the judgment Inc. and was able to levy on the taxicabs.
award. 3.Northern Motors is claiming to have a superior lien
over Honesto Ong.
RULING: 4.The Supreme Court decided in favor of Northern
A. No. MMC has no preference over other Motors; hence, motion for reconsideration.
creditors.
· Granting that a mortgage existed between the Manila Issues:
Motor Co., Inc., and Aleko Lilius, this does not warrant 1. Whether or not a chattel mortgage lien is superior to
the conclusion that the instrument evidencing that an execution levy.
mortgage is a public document entitled to preference. 2. Whether or not registration of a chattel mortgage is an
Under section 5 of Act No. 1507, as amended by Act No. effective and binding notice to a judgment creditor.
2496, a chattel mortgage does not have to be
acknowledged before a notary public. As against Ruling:
creditors and subsequent encumbrancers, the law 1. YES. Ong had no right to levy upon the mortgaged
does require an affidavit of good faith appended to taxicabs and that he could have levied only upon the
the mortgage and recorded with it. mortgagor's equity of redemption. The essence of the
· A chattel mortgage may, however, be valid as chattel mortgage is that the mortgaged chattels
between the parties without such an affidavit of good should answer for the mortgage credit and not for
faith. In 11 Corpus Juris, 482, the rule is expressly stated the judgment credit of the mortgagor's unsecured
that as between the parties and as to third persons creditor. The mortgagee is not obligated to file an
who have no rights against the mortgagor, no "independent action" for the enforcement of his credit.
affidavit of good faith is necessary. It will thus be To require him to do so would be a nullification of his lien
seen that under the law, a valid mortgage may exist and would defeat the purpose of the chattel mortgage
between the parties without its being evidenced by a which is to give him preference over the mortgaged
public document. chattels for the satisfaction of his credit. (See art. 2087,
· If the Manila Motor Co., Inc., desired to rely upon a Civil Code).
public document in the form of a mortgage as
establishing its preference in this case, it should have 2. YES. Honesto Ong's theory that Manila Yellow
offered that document in evidence, so that the court Taxicab's breach of the chattel mortgage should not
might satisfy itself as to its nature and affect him because he is not privy of such contract is
unquestionably fix the date of its execution. There is untenable. The registration of the chattel mortgage is
nothing either in the judgment relied upon or in the an effective and binding notice to him of its
evidence to show the date of said mortgage. The burden existence.The mortgage creates a real right (derecho
was upon the claimant to prove that it actually had a real, jus in re or jus ad rem, XI Enciclopedia Juridica
public instrument within the meaning of article 1924 of Española 294) or a lien which, being recorded, follows
the Civil Code. It is essential that the nature and the date the chattel wherever it goes.
of the document be established by competent evidence
before the court can allow a preference as against the Sison v. Yap Tico & Avancena, 37
other parties to this proceeding. Phil 584
Facts:
Northern Motors, Inc. v. Coquia, 68 1. The plaintiffs Sison borrowed a sum of money
SCRA 374 from Eugenio Kilayko, for which the plaintiffs
Facts: executed and delivered a chattel mortgage
1.Northern Motors, Inc. has chattel mortgages over covering machinery, crops and a number of
several taxicabs owned by Manila Yellow Taxicab, Inc. carabaos.
and foreclosed on these chattel mortgages.
2. On the other hand, Honesto Ong, is an assignee of an
2. The plaintiff-mortgagors also agreed to deliver obligation to the mortgagee or to the assignee.
crops to the bodega of the defendant Yap Tico Consequently, they can recover the property attached by
at the request of the mortgagee Kilayko. and in the hands of the sheriff.
3. Upon liquidation, there was still a debt in the
amount of PHP 650 due from the plaintiff-
mortgagors. The plaintiff-mortgagors delivered Rubiso & Gelito v. Rivera, 37 Phil 72
the payment to Kilayko. The mortgage was then Fausto Rubiso & Bonifacio Gelito vs. Florentino E.
cancelled. Rivera, G.R. No. L-11407, October 30, 1917 (37 Phil
4. Kilayko on an earlier date, however, assigned 72)
the chattel mortgage to defendant Yap Tico.
Such assignment was duly registered, but FACTS:
without notice to the plaintiff-mortgagors either Valentina, a pilot boat, belonged to Gelito & Co.,
from Kilayko or from Yap Tico. Bonifacio Gelito being a copartner thereof to the extent
5. Yap Tico moved for the foreclosure of the of two-thirds, and the Chinaman Sy Qui, to that of one-
mortgage. The sheriff, despite notice from the third of the value of said vessel.
plaintiff-mortgagors that the mortgaged had
been paid and cancelled, attached and took Bonifacio Gelito sold his share to his copartner
possession of the property. Sy Qui, through an instrument which was registered in
the office of the Collector of Customs. Sy Qui, in turn,
Issue: sold the boat to Florentino Rivera through a deed
executed on January 4,1915 which was registered in the
Whether or not the registration of the assignment of the Bureau of Customs on March 17, 1915.
mortgage constitutes a valid notice to the mortgagor
A case was filed against Sy Qui by his creditor,
Ruling: Fausto Rubiso, to enforce payment of a certain sum of
money. Rubiso acquired the vessel at an auction sale on
NO. The law does not require such assignments to be January 23, 1915, and the sale was recorded on
recorded. While such assignments may be recorded, the January 27, 1915.
law is permissible and not mandatory. The filing and
recording of an instrument in the office of the registrar, So, the boat was twice sold: first privately by its
when the law does not require such filing and recording, owner Sy Qui to the defendant Florentino E. Rivera on
does not constitute notice to the parties. January 4, 1915, and afterwards by the sheriff at public
auction in conformity with the order contained in the
The debtor or party liable on contracts like the one in judgment rendered by the justice of the peace court, on
question is not affected by the assignment until he has January 23 of the same year, against the Chinaman Sy
notice thereof, and consequently he may set up against Qui and in behalf of the plaintiff, Fausto Rubiso.
the claim of the assignee any defense acquired before
notice that would avail him against the assignor had It is undeniable that the defendant Rivera
there been no assignment, and payment by the debtor to acquired by purchase the pilot boat Valentina on behalf
the assignor, or any compromise or release of the of the plaintiff Rubiso; but it is no less true that the sale
assigned claim by the latter before notice will be valid of the vessel by Sy Qui to Florentino E. Rivera, on
against the assignee and discharge the debtor. January 4, 1915, was entered in the customs registry
only on March 17, 1915, while its sale in public auction
Article 1527 of the Civil Code provides that a debtor to Fausto Rubiso on the 23rd of January of the same
who, before having been informed of the assignment, year, 1915, was recorded in the office of the Collector of
pays the creditor, shall be free from the obligation. Customs on the 27th of the same month, and in the
commercial registry on the 4th of March, following; that
Thus, without being notified of such assignment, the is, the sale on behalf of the defendant Rivera was prior
plaintiff-mortgagors in this case were free from the to that made at public auction to Rubiso, but the
registration of this latter sale was prior by many days to not recorded in the office of the Collector of Customs
the sale made to the defendant. until many days afterwards, that is, not until March 17,
1915.
The lower court judge ordered Rivera to give the
boat to Rubiso. Rivera appealed. The legal rule set down in the Mercantile Code
subsists, inasmuch as the amendment solely refers to
ISSUE: the official who shall make the entry; but, with respect to
WoN a prior registrant has better rights than a the rights of the two purchases, whichever of them first
prior buyer over a pilot boat. registered his acquisition of the vessel in the one entitled
to enjoy the protection of the law, which considers him
HELD: Yes. Affirmed. the absolute owner of the purchased boat, an this latter
Article 573 of the Code of Commerce provides to be free of all encumbrance and all claims by strangers
that merchant vessels constitute property which may be for, pursuant to article 582 of the said code, after the bill
acquired and transferred by any of the means of the judicial sale at auction has been executed and
recognized by law. The acquisition of a vessel must be recorded in the commercial registry, all the other
included in a written instrument, which shall not produce liabilities of the vessel in favor of the creditors shall be
any effect with regard to third persons if not recorded in considered canceled.
the commercial registry. So, inscription in the
commercial registry was indispensable, in order that said The purchaser at public auction, Fausto Rubiso,
acquisition might affect and produce consequences with who was careful to record his acquisition, opportunely
respect to third persons. and on prior date, has, according to the law, a better
right than the defendant Rivera who subsequently
The requisite of registration on the registry, of recorded his purchase. The latter is a third person, who
the purchase of a vessel, is necessary and was directly affected by the registration which the
indispensable in order that the purchaser's rights may be plaintiff made of the acquisition.
maintained against a claim filed by a third person. Such
registration is required both by the Code of Commerce Ships or vessels, whether moved by steam or by
and by Act No. 1900. The amendment solely consisted sail, partake, to a certain extent, of the nature and
in charging the Insular Collector of Customs, as at conditions of real property, on account of their value and
present, with the fulfillment of the duties of the importance in the world commerce; and for this reason
commercial register concerning the registering of the provisions of article 573 of the Code of Commerce
vessels; so that the registration of a bill of sale of a are nearly identical with article 1473 of the Civil Code.
vessel shall be made in the office of the Insular Collector
of Customs, who, since May 18, 1909, has been Borlough v. Fortune Enterprise, Inc.,
performing the duties of the commercial register in place 100 Phil 1063
of this latter official.
Olaf N. Borlough vs. Fortune Enterprises, Inc. &
In view of said legal provisions, it is undeniable CA,
that the defendant Florentino E. Rivera's rights cannot G.R. No. L-9451, March 29,
prevail over those acquired by Fausto Rubiso in the 1957 (100 Phil 1063)
ownership of the pilot boat Valentina, inasmuch as,
though the latter's acquisition of the vessel at public
Facts:
auction, on January 23, 1915, was subsequent to its
purchase by the defendant Rivera, nevertheless said United Car Exchange sold to the Fortune
sale at public auction was antecedently record in the Enterprises, Inc. a Chevrolet car. The same car
office of the Collector of Customs, on January 27, and was sold by the Fortune Enterprises,Inc. to
entered in the commercial registry. — An unnecessary oneSalvador Aguinaldoon installments.To secure
proceeding -on March 4th; while the private and the payment of this note, Aguinaldo executed a
voluntary purchase made by Rivera on a prior date was
deed of chattel mortgage over said car. The deed
was duly registered in the office of the Register of Issue: Whether the sale of a car subsequently
Deeds of Manila. When Aguinaldo failed to registered
pay, a demand letter was sent to him. with the Motor Vehicles Office coupled with
actual
It appears that the said car found its way
again to United Car Exchange which sold the car in HELD:
cash to Mr. Borlough. Borlough took possession of Yes. Affirmed
the vehicle from the time he purchased it. While the question can be resolved by the general
principles found in civil code and expressly stated ij
Fortune Enterprises, Inc. brought action Article 559, there is no need of resorting need to in
against Salvador Aguinaldo to recover the balance view of the express provision of thr revised motor
of the purchase price. Borlough filed a third-party vehicles law which specifically regulate the
complaint, claiming the vehicle. Thereupon, registration , sale,transfer and mortgaged of motor
Fortune Enterprises, Inc. amended its complaint, vehicles.
including Borlough as a defendant and alleging A mortgaged in order to affect the third persons
that he was in connivance with Salvador should not only be registered in the chattel registry
Aguinaldo and was unlawfully hiding and but same should also be registered in the motor
concealing the vehicle in order to evade seizure by vehicles office as required by such law . And the
judicial process. failure of the respondent mortgage to report the
mortgage executed in its favor had the effect of
The vehicle was seized by the sheriff of makinh said mortgage ineffective agaibst borlough.
Manila on August 4, 1952 and was later sold at
public auction. iv. Foreclosure
Esguerra v. CA, 173 SCRA 1
The Court of First Instance rendered FACTS:
GA Machineries, Inc. (GAMI) sold a ford trader
judgment in favor of Borlough, and against plaintiff,
truck to Hilario-Lagmay and Bonifacio Masilungan. The
ordering the latter to pay Borlough the sum of
right to the same was bought by Esguerra, assuming the
P4,000, with interest at 6 per cent perannum, from unpaid purchase price of P20,454. In doing so, Esguerra
the date of the seizure of the car on August executed a promissory note and a chattel mortgage over
4, the said truck in favor of GAMI.
1952, and in addition thereto, attorney's fees in
the sum of P1,000. Esguerra having defaulted in his obligation and
GAMI having granted his request for extension, a new
The CA rendered judgment ordering that chattel mortgage and a promissory note were executed.
Emil B. Fajardo pay Borlough P4,000 plus
Esguerra failed to comply with the obligation, the
attorney's fees and that plaintiff pay to Borlough
said truck was taken by GAMI’s agents while the same
any amount received by it in excess of its credits
was in possession of Esguerra’s driver, Carlito Padua.
and judicial expenses. The reason for the
modification of the judgment is that the mortgage Esguerra filed a complaint to recover the truck.
was superior, being prior in point of time, to The court dismissed the complaint, CA affirmed the
whatever rights may have been acquired by decision but took exception at the failure of the GAMI to
Borlough by reason of his possession and by the sell the truck at public auction. Due to this failure,
registration of his title in the Motor Vehicles Office. Esguerra was awarded damages.
for every 30 days or fraction thereof that the amount
ISSUE: remain outstanding and unpaid plus 10% of the
WON the mortgagee-vendor of personal principal as attorney's fees, and the cost.
property sold on the installment is legally obligated to
foreclose the chattel mortgage and sell the chattel *That in case of non-payment, the decision also
subject thereof at public auction in case the mortgagor- provided that properties covered by the chattel
vendee defaults in the payment of the agreed mortgage be subject to sale on a public auction.
instalments. *After decision became executory, instead of
properties sold at public auction, the parties, however
HELD:
agreed to have them sold at a private sale, net
Yes, the vendee has the option to foreclose the
proceeds obtained was used to partially satisfy the
mortgage either judicially or extrajudicially and in case of
previous judgment
foreclosure, it was agreed between the parties that the
vendor may take the property outside the municipality or
*On August 11,1964, five years but less than ten
city where the vendor may sell the same. years from the date when decision became executory,
the Philippine National Bank filed in the same Court of
The vendor’s taking of the chattel did not Instance of Manila an action to revive it.
amount to foreclosure of the mortgage but taking it *Defendants filed an answer admitting some
without proceeding to the sale of the chattel at a public allegations of complaint and denying others.
auction and appropriating the same as payment is *After the parties had submitted their respective
unlawful. Such automatic appropriation is null and void memorandum, the court rendered on August 30,
under Article 2088 of the Civil Code. 196,6 the appealed decision whose dispositive portion
reads as follows:
GAMI can no longer cancel the sale since it WHEREFORE, the Court renders judgment ordering
opted to foreclose the chattel mortgage. The remedies the defendants to pay the plaintiff, jointly and
of the vendor in case vendee defaults in contracts of severally, the amount of THREE HUNDRED EIGHTY
personal property payable in installments are TWO THOUSAND THREE HUNDRED THIRTY
alternative and not cumulative. Should the vendee EIGHT AND 47/100 (P382,338.47) PESOS, with
default in the payment of two or more agreed interest at the legal rate from August 12, 1964 until
installments, the vendor either exacts fulfillment of the
fully paid. Costs against the defendants.
obligation, cancel the sale, or foreclose the mortgage.
*The defendants appealed to have the decision be
The exercise of one bar the exercise of the others.
reversed, claiming, firstly, that the action instituted
below is not the proper remedy; secondly, that the
PNB v. Manila Investment & Construction, Inc., 38
SCRA 462 private sale of the mortgaged personal properties was
null and void, and lastly, that the appellee is not
Facts: A civil case was decided in the Court of First entitled to a deficiency judgment.
Instance of Manila with a dispositive portion being that:
IN VIEW WHEREOF, judgment is rendered ISSUE: Whether or not the private sale of the
condemning defendants, jointly and severally, to pay mortgaged property was null and void.
plaintiff:
(1) Under the first cause of action the sum of HELD: NO. Private sale is VALID as both parties agreed
P88,939.48 with daily interest of P12,77385 plus 1/4% on the process, it is likewise true that said personal
commission or P194.6689 for every 30 days or a properties were sold at a private sale by agreement
fraction thereof, plus 10% on the principal as between the parties. Besides, We see nothing illegal,
attorney's fees and the cost; immoral or against public order in such agreement
(2) On the second cause of action the sum of entered into freely and voluntarily. In line with the
P356,913.01, plus P48,464 03 and 1/4% or P629.31 provisions of the substantive law giving the
contracting parties full freedom to contract provided CABRALS filed a complaint against Tunaya and
their agreement is not contrary to law, morals, good Evangelista spouses.
customs, public order or public policy (Article 1306,
Civil Code of the Philippines), We held in Philippine City court rendered judgement in favor of the CABRALS
National Bank vs. De Poli thus: as against Tunaya, but dismissed the case as against
Under article 1255 of the Civil Code (Art. 1306 New the Evangelistas. The CFI reversed such decision, and it
Civil Code), the contracting parties may stipulate that upheld the rights of plaintiffs-appellees as mortgage
in case of violation of the conditions of the mortgage creditors to the personal properties in question, holding
that defendants-appellants, "being subsequent judgment
contract, the creditor may sell, at private sale and
creditors in another case, have only the right of
without previous advertisement or notice, the whole or
redemption."
part of the good mortgaged for the purpose of
applying the proceeds thereof on the payment of the
Issue(s):
debt. Said stipulation is not contrary to law or public
order, and therefore it is valid. (Emphasis supplied). 1. Whether a mortgagee’s action to sell
As the disposition of the mortgaged personalities in a foreclosed mortgaged chattels after 30 days from
private sale was by agreement between the parties, it breach of contract is barred by prescription.
is clear that appellants are now in estoppel to
question it except on the ground of fraud or duress — 2. Whether a purchaser of mortgaged chattels
pleas that they do not invoke. They do not even claim in an execution sale has a superior right over the
that the private sale agreed upon had caused them mortgagee.
substantial prejudice.
3. Whether a judgment creditor who levies on
mortgaged properties can be held solidarily liable
with the mortgagor.
Where the right of the plaintiff to the vii. Effect of Separate Action
possession of the specific property is so conceded or Movido v. Rehabilitation Finance Corp., 105 Phil 886
evident, the action need only be maintained against him
who so possesses the property. In rem actio est per Facts: Vet Bros. & Company, Inc. mortgaged to Jose S.
quam rem nostram quae ab alio possidetur petimus, et Movido its rights, title, interest and participation in a
semper adversus eum est qui rem possidet. In Northern complete sawmill with all its machineries, tools and
Motors, Inc. vs. Herrera, there can be no question that equipment in good running condition to secure the
persons having a special right of property in the goods payment of a loan of P15,000. The chattel mortgage
the recovery of which is sought; such as a chattel was registered in the Office of the Register of Deeds.
mortgagee, may maintain an action for replevin Movido brought an action against Vet Bros. & Company,
therefor. Where the mortgage authorizes the Inc. to recover a sum of money and the parties, assisted
mortgagee to take possession of the property on by their respective counsel, entered into and submitted
default, he may maintain an action to recover to the Court a compromise agreement terminating their
possession of the mortgaged chattels from the dispute and renouncing their respective claims for
mortgagor or from any person in whose hands he may damages and any other claim in connection with the
find them. In effect then, the mortgagee, upon the subject matter of the case which was approved and
mortgagor's default, is constituted an attorney-in-fact the Court rendered judgment in accordance
of the mortgagor enabling such mortgagee to act for therewith.
and in behalf of the owner. Accordingly, that the
By an instrument duly executed, Vet Bros. & Company,
defendant is not privy to the chattel mortgage should
Inc. and the spouses Toribio mortgaged the real estate
be inconsequential. By the fact that the object of
and chattels therein enumerated and described in favor
replevin is traced to his possession, one properly can be
of the Rehabilitation Finance Corporation to secure the
a defendant in an action for replevin. It is here assumed
payment of a loan of P46,000. When Vet Bros. &
that the plaintiffs right to possess the thing is not or
Company, Inc. failed to pay, Rehabilitation Finance
cannot be disputed.
Corp. moved for the sale of the properties in a public
auction. Movido filed with the Sheriff a third party claim
A chattel mortgagee, unlike a pledgee, need not
on the chattels advertised for sale at public auction
be in, nor entitled to the possession of the property
asserting a prior and superior right in them because of
unless and until the mortgagor defaults and the
his chattel mortgage recorded before that of the
mortgagee thereupon seeks to foreclose thereon. Since
Rehabilitation Finance Corporation and by virtue of a
the mortgagee's right of possession is conditioned upon
judgment in his favor rendered by the lower court.
the actual fact of default which itself may be Despite such claim, the Sheriff proceeded to carry out
controverted, the inclusion of other parties like the the sale and after the sale had been successively
debtor or the mortgagor himself, may be required in postponed, sold the chattels, except those expressly
order to allow a full and conclusive determination of the excluded from the public auction sale, to the
case. When the mortgagee seeks a replevin in order to successful bidders.
effect the eventual foreclosure of the mortgage, it is not
only the existence of, but also the mortgagor's default Movido filed an action against RFC for having unlawfully,
fraudulently and maliciously disregarded his third
party claim on the chattels. The court rendered As a result of the foreclosure,there was a
judgment holding that the compromise agreement deficiency in the amount of P5,158.06 as of July
entered into by and between the parties in the civil case 31,1981, and BISLA made a demand to pay the same.
and the judgment rendered by the Court pursuant BISLA filed a complaint for the recovery of a sum of
thereto novated the plaintiff's credit secured by the money constituting the deficiency after foreclosure of the
chattel mortgage, and that when the Vet Bros. Company, chattel mortgage.
Inc. and the spouses Simeon G. Toribio and Maximiana
Escobar de Toribio mortgaged to the RFC, the plaintiff's The City Court ruled for BISLA.
lien on the chattels no longer existed. The court
dismissed the case. The CFI reversed.
Issue: Whether a prior mortgagee who obtains a Issue: Whether a creditor can collect the deficiency
personal judgment against the mortgagor waives his Amount after foreclosure of the chattel mortgage.
right to enforce the mortgage securing the loan.
Held: Yes. Reversed.
Held: Yes. Affirmed.
Ratio: If in an extrajudicial foreclosure of a chattel
Ratio: A mortgagee who sues and obtains a personal Mortgage a deficiency exists, an independent civil action
judgment against a mortgagor upon his credit waives may be instituted for the recovery of said deficiency.
thereby his right to enforce the mortgage securing it. By
instituting the civil case and by securing a judgment in If the mortgagee has foreclosed the mortgage
his favor upon the compromise agreement, the appellant judicially, he may ask for the execution of the judgment
abandoned his mortgage lien on the chattels in question. against any other property of the mortgagor for the
The rule in Tizon vs. Valdez, 48 Phil., 910 and Matienzo payment of the balance. To deny to the mortgagee the
vs. San Jose, G. R. No. 39510, 16 June 1934, relied right to maintain an action to recover the deficiency after
upon by the appellants, has been abandoned in foreclosure of the chattel mortgage would be to overlook
Bachrach Motor Company vs. Icarangal (68 Phil 287). the fact that the chattel mortgage is only given as
Moreover, the appellant secured a writ of execution of security and not as payment for the debt in case Of
the judgment rendered in the civil case on 26 June 1953 failure of payment.(Bank of the Philippine Islands v.
only or fifteen days after the public auction sale had Supply Co.v.Tamaraw Plantation Co.,47Phil.513.)
been carried out.
The case of Pascual, as cited by the
Respondent court,is not applicable in this instant case
viii. Recovery of Deficiency because it was a case of sale on installment,where after
Bicol Savings & Loan Assoc. v. Guinhawa, 188 foreclosure of the units the plaintiffs-guarantors who had
SCRA 642 likewise executed a real estate mortgage of up to
P50,000,cannot be held answerable anymore for the
Facts: Victorio Depositario together with private Deficiency.
respondent Jaime Guinhawa,acting as solidary comaker,
took a loan from petitioner Bicol Savings and Loan The conclusion therefore reached by the Lower
Association (BISLA). court was erroneous because in the case at Bar,the
obligation contracted by the principal debtor
To secure the payment of the foregoing loan (Depositario) with a Solidary co-maker (private
obligation, the principal borrower Victorio Depositario put respondent therein), was one Of loan secured by a
up as security a chattel mortgage which was a Yamaha chattel mortgage,executed by the Principal debtor,and
Motorcycle. Said motorcycle was eventually foreclosed not a sale where the price is Payable on installments
by reason of the failure of Depositario and Guinhawa to and where a chattel mortgage on the thing sold was
pay the loan.
constituted by the buyer and, further, the obligation to
pay the installments having been guaranteed by another.
b. Pledge
i. Requirements
Betita v. Ganzon, 49 Phil 87
ISSUE: Whether or not the sale of the pledged The court found Zamora liable to both Uy and
jewelry extinguished the liability of Velayo. Allied Finance, Inc. Since the proceeds of the sale of the
vehicle was not enough to cover the two debts, there is
RULING: YES. now a controversy on who has preference.
Article 2115, in its last portion, clearly
establishes that the extinction of the principal obligation In resolving the issue, the lower court held that
supervenes by operation of imperative law that the intervenor's claim could not be considered specially
parties cannot override: preferred credit under Article 2241(4) of the Civil Code
“If the price of the sale is less, neither shall the creditor because an unregistered chattel mortgage is void.
be entitled to recover the deficiency notwithstanding any However, the court held that the same could be
stipulation to the contrary.” considered a credit appearing in a public instrument
The provision is clear and unmistakable, and its under Article 2244(14) so that it could be considered
effect can not be evaded. By electing to sell the articles preferred over plaintiff's attachment lien because of
pledged, instead of suing on the principal obligation, the priority of its date. Uy appealed.
creditor has waived any other remedy, and must abide
by the results of the sale. No deficiency is recoverable.
ISSUE:
viii. Pledges by operation of law Whether an unregistered chattel mortgage credit
is preferred to an attachment lien.
III. Preference and Concurrence of Credits
A. Classification of Credits HELD: NO.
Uy v. Zamora, 13 SCRA 508 Considering the fact that the intervenor Allied
Zosimo D. Uy vs. Jose R. Zamora, The Allied Finance, Inc. registered its mortgage only on August 24,
Finance, Inc., G.R. No. L-19482, March 31, 1965 (13 1960, or subsequent to the date of the writ of attachment
SCRA 508) obtained by plaintiff Uy on August 11, 1960, the credit
of the intervenor cannot prevail over that of the
FACTS: plaintiff.
Uy had a motor vehicle of Zamora attached in
court. The writ of attachment was levied on the vehicle The lower court upheld intervenor's credit on the
on August 11, 1960. Subsequently, the Municipal Court ground that, being embodied in a public instrument of an
rendered judgment for Uy. Zamora appealed. earlier date (June 20, 1960), it should take precedence
over plaintiff's lien by attachment (August 11, 1960),
While the case was thus pending appeal, the pursuant to Article 2244 of the Civil Code. This is
Allied Finance, Inc. sought and was allowed to intervene. untenable, for the reason that, as already stated, the
According to the intervenor, the motor vehicle, which credit of the intervenor cannot be considered as
was attached by the Sheriff, had previously been preferred until the same has been recorded in the
mortgaged to it by defendant Zamora to secure the Motor Vehicles Office.
payment of a loan of P3,060 and that at the time of the
filing of the complaint in intervention on December 19, Thus, in Borlough v. Fortune Enterprises, Inc.,
1960 there remained a balance of P2,451.93 in its favor. 53 O.G. 4070, it was held that a mortgage of motor
vehicles, in order to affect third persons, should not
only be registered in the Chattel Mortgage Registry, The sheriff, nevertheless, proceeded with the
but the same should also be recorded in the Motor auction sale and the company came out as the highest
Vehicles Office (now the Land Transportation bidder. A certificate of sale was issued. Since no
Commission), as required in Section 5 (e) of the then redemption was made, a final deed of sale was issued.
Revised Motor Vehicles Law.
The company sued ACCFA for the purpose of
There is no doubt that with respect to defendant asserting its preferential lien. ACCFA raised the defense
Zamora and the intervenor Allied Finance, Inc., plaintiff that the company waived its lien when it filed an ordinary
Uy is a third person. We, therefore, hold that plaintiff's action to recover its claim instead of enforcing its lien.
credit should first be paid. After trial, the lower court held that the lumber
company’s materialman’s lien was superior to ACCFA’s
mortgage lien.
B. Concurrence of Credits
Carried Lumber Co. v. ACCFA, 63 SCRA 411
Carried Lumber Company vs. Agricultural Credit & ISSUE:
Cooperative Financing Administration (ACCFA), G.R. Whether preferred credits on a specific
No. L-21836, April 22, 1975 (63 SCRA 411) immovable property should be satisfied pro rata and
should be considered as concurrent? (YES)
FACTS:
Sta Barbara Farmer’s Cooperative Marketing Whether an insolvency proceeding is required in order to
Association, Inc. (Facoma) purchased on credit from have a concurrence of credit? (NO)
Carried Lumber Company lumber and materials which
were used in the construction of Facom’s warehouse. HELD:
The company extended credit to the Facoma after The lower court was mistaken in assuming that
having been informed by the ACCFA’s General Manager the enumeration of 10 claims, mortgages and liens in
in a telegram that a loan had been approved for the Art. 2242 creates an order of preference. It is not correct
construction of the Facoma’s warehouse. to say that the materialman’s lien or refectionary credit of
the lumber company being listed as No. 4 in Art. 2242 is
Facoma made partial payments to Carried superior to ACCFA’s mortgage credit which is listed as
Lumber Company, but was unable to pay the balance. No. 5. The enumeration is not in order of preference.
The company sued Facoma. In a decision dated The article lists the credits which may concur with
September 26, 1960, based on compromise, the lower respect to specific real properties and which would be
court ordered Facoma to make monthly installment satisfied pro rata according to Art. 2249.
payments to the company and the failure to pay any
installment will render the whole unpaid balance due. The lumber company has no lien on the ricemill
Since Facoma failed to make the installments, the building as the lien is only on the warehouse.
company enforced the judgment and levied upon the
Facoma’s lease rights, warehouse and ricemill building. There is no necessity of initiating a liquidation or
insolvency proceeding in this case in order to assert a
ACCFA filed a 3rd party claim with the sheriff on pro rata satisfaction of the debt. In this case, there are
the ground that the properties had already been sold to no other creditors aside from the lumber company and
ACCFA on November 6, 1960. Facoma was granted by ACCFA.
ACCFA a loan for the construction of a warehouse. As
security for that loan, Facoma mortgaged to ACCFA its
lease rights over the land and the warehouse to be De Barretto v. Villanueva, 1 SCRA 288
constructed. This mortgage was recorded. When Magdalena C. De Barreto, et al. vs. Jose G.
Facoma defaulted, ACCFA extrajudicially foreclosed on Villanueva, et al., G.R. No. L-14938, January 28, 1961
the properties and came out as the highest bidder. (1 SCRA 288)
HELD: Initially Yes, but SC reversed its decision
FACTS: upon Motion for Reconsideration - NO.
Rosario Cruzado, for herself and as Art. 2242 NCC enumerates the claims that
administratrix of the intestate estate of her deceased constitute as encumbrance on specific immovable
husband Pedro Cruzado, obtained from Rehabilitation property and lists as No. (2) the vendor’s lien and as No.
Finance Corporation (RFC) an P11,000 loan which was (5) the mortgage lien. Art. 2249 provides that if there are
secured by a parcel of land owned by the spouses. 2 or more credits with respect to the same specific real
When she failed to pay installments on the loan, the property or real rights, they shall be satisfied pro-rata.
mortgage was foreclosed and the RFC acquired the The law does not make any distinction between
property. Upon application, the land was sold back to registered and unregistered vendor’s lien, which
Rosario conditionally for an amount payable in 7 years. only goes to show that any lien of that kind enjoys
the preferred credit status. Section 70 of the Land
2 years later, Rosario was authorized by the Registration Act itself respects without reserve or
court to sell the land with the previous consent of RFC. qualification the paramount rights of lien holders on real
Pursuant to such authority and consent, Rosario sold the property.
land to Pura L. Villanueva with the condition that the
latter will now assume the obligation owed to RFC. Pura As to the point made that the articles of the Civil
made partial payments and was able to secure the land Code on concurrence and preference of credits are
title in her name. She then mortgaged the property to applicable only to the insolvent debtor, suffice it to say
Magdalena C. Barretto as security for a loan. that nothing in the law shows any such limitation. If we
are to interpret this portion of the Code as intended only
Pura failed to pay the remaining installments on for insolvency cases, then other creditor-debtor
the unpaid balance for the sale of the property. A relationships where there are concurrence of credits
complaint for recovery of the same was filed with a levy would be left without any rules to govern them, and it
in attachment upon the property in favor of the vendor would render purposeless the special laws on
(Rosario Cruzado). insolvency.
After trial, the court ruled for the vendor. Pura Ratio of MFR: Under the system of the Civil Code, only
also failed to pay Magdalena Baretto. An action for taxes enjoy an absolute preference. All the remaining
foreclosure of mortgage impleading the Cruzados was classes of preferred creditors under Art. 2242 enjoy no
filed. A decision was promulgated against Pura. The priority among themselves, but must be paid pro rata,
court ordered the issuance of a writ of execution. i.e. in proportion to the amount of the respective credits.
But in order to make this prorating fully effective, the
The Cruzados filed their Vendor’s lien over the preferred creditors must necessarily be convened, and
property, and the court gave due course to the lien and the import of their claims ascertained. It is thus apparent
ordered its annotation. The court also decreed that that the full application of Art. 2249 and 2242 demands
should the realty be sold at public auction, the Cruzados that there must be first some proceeding where the
shall be credited with their pro-rata share in the claims of all the preferred creditors may be bindingly
proceeds. At the sale, the Barrettos were able to buy the adjudicated, such as insolvency, the settlement of
property. The Barrettos sought reconsideration of the decedent’s estate, or other liquidation proceedings of
order of the court giving due course to the lien of the similar import. This explains the rule of Art. 2243 NCC
Cruzados which the court denied. They appealed on this that the claims or credits enumerated shall be
issue. considered as mortgages or pledges of real or personal
property or liens within the purview of legal provisions
ISSUE: governing insolvency.
Whether an unregistered vendor’s lien shall be
satisfied pro-rata together with a mortgage lien. Thus, it becomes evident that one preferred
creditor’s 3 rd party claim to the proceeds of a
foreclosure sale is not the proceeding contemplated by
law for the enforcement of preferences under Art. 2242, assigned whatever rights or claims they might still have
unless the claimant was enforcing a credit for taxes that thereto.
enjoys absolute priority. If none of the claims is for taxes,
a dispute between 2 creditors will not enable the Court to The ownerhip of the property rested with RFC
ascertain the pro rata dividend corresponding to each, which was the one that sold the property to Pura. The
because the rights of the other creditors likewise sale from Cruzado to Villanueva, therefore, was not so
enjoying preference under Article 2242 cannot be much a sale of the land as it was a quitclaim deed in
ascertained. favor of Villanueva.
ISSUE:
Whether a declaration of bankruptcy or a judicial
liquidation is required before the worker’s preference
may be enforced.
HELD: YES.
A declaration of bankruptcy or a judicial
liquidation must be present before the worker’s
preference may be enforced. Thus, Art. 110 of the Labor