preference of credit digests

8/11/2019 Preference of Credit DIGESTS

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1. DE BARRETO V. VILLANUEVAFACTS:

- Rosario Cruzado as administratrix of estate of husband obtainedfrom RFC loan amounting to 11K. To secure payment shemortgaged the land.

- She failed to pay certain installments on the loan and the mortgagewas foreclosed. She was given rights to repurchase the same.

- The land was sold back to her conditionally for P14K payable in 7yrs.

2 yrs after, Cruzado was authorized by the court w/ consent of RFCto sell the land with the improvements- Cruzado sold it to Pura Villanueva free from all charges and

encumbrances- Villanueva assumes to pay to the RFC obligations of Cruzado,

Villanueva issued P/N in favor of Cruzado and she was able tosecure TCT in her name

- Villanueva mortgaged the property to de Baretto as security for aloan in the amount of 30k

- Villanueva failed to pay the remaining installments on her P/N soCruzado filed complaint for recovery.

o Pending trial, LIEN was constituted on the property in favorof Cruzado, this was annotated.

o Decision was rendered ordering Villanueva to pay Cruzados- Villanueva failed to bay he debt to Baretto, so Baretto instituted a

foreclosure of mortgage; IMPLEADING Cruzadoo Decision absolved Cruzados, sentencing Villanueva to pay

- Barettos filed for issuance of writ of execution. In response,Cruzados filed their VENDORS LIEN

o Court gave due course to the lien and ordered that shouldthe realty be sold in a public auction, Cruzados shall becredited with PRO RATA share of proceeds.

- Barettos acquired the property at the public auction for P49Ko CFI confirmed the sale, subject to VENDORS LIEN of

Cruzado, Baretto appealed this.- Court said that Cruzado was an unpaid vendor of the realty and the

P/N was for the unpaid balance of the purchase price of the propertybought by Villanueva

- ART 2242: enumerates the claims, mortgages and liens thatconstitute encumbrance on specific movable property

o For unpaid price of real property sold, upon immovable soldo Mortgage credits recorded in the registry of property

- ART 2249: if there are 2 or more credits re: the SAME SPECIFICproperty, they shall be satisfied PRO RATA after the payment oftaxes and assessments

ISSUES/HELD: A. W/N Cruzado as unpaid vendor has the right to share PRO RATA withBarettos of the proceeds?

- Baretto argues that unpaid vendors lien was not registered, hence itcouldn't prejudice her rights over the property which was registered.

o Law did not give this requirement of registration on themortgage credits or vendors lien.

! Law doesn't distinguish re: registered vendors lien

and unregistered lien. Hence, any kind of vendorslien enjoys preference.o Baretto further argues that giving the same standing to an

unregistered vendors lien and a registered mortgage creditwould be to nullify the principle of land registration that priorunrecorded interest cannot prejudice persons whosubsequently acquire rights over the property

o LRA however, respects the paramount right of lien holderson real property.

B. W/N concurrence and preference credits are applicable only to insolventdebtor? NO.

- nothing in the law provides for such limitation; if we construe it thatway then other creditor-debtor relations where there are concurrenceof credit will be left w/o rules to govern them

2. DE BARETTO V. VILLANUEVA (Liquidation proceeding neededto apply 2242 and 2249; Cruzado doesn't have vendors lien)

FACTS: Same with first case

JBL Reyes RESOLUTION for MR:- Baretto is entitled to full satisfaction of her mortgage credit

o Previous decision failed to take in account he changes n theCiv Code re: system of priorities among creditors

o Only taxes enjoy absolute preference the 13 classes ofpreferred creditors under 2242 enjoy NO PRIORITY amongthemselves. = should be PRO RATA

o For prorating to be fully effective = the preferred creditorsenumerated in 2242 MUST necessarily be convened

o It is apparent that for the full application of 2249 and 2242there should be first some proceeding where all claims ofpreferred creditors may be adjudicated. (Ex. insolvency,settlement of estate or other liquidation proceedings ofsimilar import)

o Preferred creditors 3 rd party claim to the proceeds of aforeclosure sale is not a proceeding contemplated by law forthe enforcement of preference

o Since there was no insolvency or liquidation, claim ofCruzado as unpaid vendor did not acquire the rank co-equal

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to mortgagees recorded encumbrance= Cruzados rightsremain subordinate.

- There are also DOUBTS on W/N Cruzado should be considered anunpaid vendor

o The contract of resale in favor of Cruzado did NOT REVESTownership in them because they failed to comply with theterms and conditions of the contract itself. TITLE shouldremain with RFC until price was fully paid.

o

Cruzados sale to Villanuevas= merely an assignment ofwhatever rights or claims they might have; BUTOWNERSHIP remained with RFC.

! RFC should be regarded as true vendor! Cruzados only transferred to Villanueva option to

acquire property BUT NOT the property itself! Cruzados credit cannot be considered a vendors

lien

3. SAMPAGUITA PICTURES v. JALWINDOR (provider of Materialscannot defeat right of Lessor who acquired the materials asimprovements)

FACTS:- Sampaguita pictures is the owner of Building, the roofdeck and all

existing improvement thereon were leased to CAPITOL.o It was agreed upon that premises shall be used for the clubs

social purposes.o All permanent improvements made by lessee on the

premises shall belong to lessor w/o obligation to reimbursethe lessee for expenses.

! The improvements made by lessee will beconsidered part of the monthly rentals

- Capitol purchased on credit from JALWINDOR glass and wooden jalousies which were delivered and insta lled in the premises.

- Jalwindor filed action for collection of sum of money againstCAPITOL for its failure to pay purchases

o Capitol acknowledged indebtedness to JALWINDORo Pending liquidation of the obligation, the materials purchase

will be considered as security.- Capitol was also not able to pay rentals to Sampaguita, Sampaguita

filed for collection for sum of money and ejectment.- Sheriff made a levy on the glass an wooden jalousies

o Sampaguita filed 3 rd party claim saying that it is the owner ofthe materials and not Capitol.

o Jalwindor filed indemnity bond and items were sold at publicauction.

o Sampaguita filed action to nullify the sheriffs sale andJalwindor was ordered to maintain status quo.

ISSUE/S: A. W/N levy over the jalousies was proper? NOB. W/N Sampaguita can get the jalousies? YES

HELD:- Jalousies were delivered and installed in the leased premises,

Capitol became the owner. Ownership transferred not by perfectionbut by delivery. This is true even if the purchase was on creditbecause payment of purchase price is not essential to transferownership.

- Sampaguita is the owner of the jalousies by virtue of the contract- When the levy of the items were made, Capitol (judgment debtor)

was no longer the ownero Items were illegally levied upon since they don't belong to

debtor.o The power of the court in execution of judgment extend only

to properties belonging to debtor.o Complaint of sampaguita to nullify sale is well foundedo Execution sales only affect the rights of judgment debtor, the

purchaser at the auction sale only acquires the right thatdebtor has at the time of the sale.

o Levy and auction sale = null and void because sheriff cannotattach property that doesn't belong to debtor.

4. UY v. ZAMORA (CM on vehicle not registered in MVO)FACTS:

- UY obtained attachment on Zamoras vehicleo Writ of attachment was levied on vehicle on Aug 1960o Mun. Court rendered judgment in favor of UY and ordered

Zamora to pay! P1740 + interest & attys fees

- Zamora appealed to CFI Manila- Allied sought to intervene. It contends

o Vehicle attached was previously mortgaged by Zamora tosecure payment of a loan worth P3000 and Zamora still hadunpaid balance of P2400

! The deed of CM was recorded in chattel mortgageregister in favor of UY

! It wasn't recorded in MVO- Allied wants Zamora to pay P2400 as principal- The vehicle was already sold on order of court for P2500 to prevent

depreciation, Zamora agreed to have UYs credit to be paid out ofthe proceeds of the sale

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- Court found that Zamora is indebted to UY for 2500 and was alsoindebted to Allied for P2400.

ISSUE:- Since there was not enough money to pay both claims, which of the

2 credits is preferred?

HELD- Uy claims preference on basis of a lien arising from attachment of

vehicle on Aug 11 1960- Allied claims preference based on Deed of CM covering the vehicle(this deed was executed in Jan 14 1960 and acknowledged beforenotary public on June 20 1960)

o Lower court said that it was not shown whether CM wasrecorded in CM Register or in MVO but both parties agreedthat Mortgage was registered on Aug 24 1960 (After theattachment)

- Court resolved that it couldn't be considered specially preferredcredit under 2241 (4) because unregistered CM is VOID. BUT it canstill be considered preferred credit under 2241(14) as a creditappearing in a public instrument

o It is considered preferred over Uys attachment lien becauseof PRIORITY of date

- UY appealed, his arguments:o Allieds CM is void for lack of registration, since it was void, it

could not affect his lieno Allieds credit cound not be considered credit appearing in a

public instrument because it was not yet due at the time oflevy of attachment

o Even if the credi is considered to be a credit in publicinstrument UYs lien by attachment is SUPERIO because hislien is SPECIALLY preferred.

- SC held : lower court is wrong in upholding Allieds credit; that it wasallegedly embodied in a public instrument in an earlier date thanUYs attachment lien even if the CM was registered AFTER theattachment

o Credit of allied CANNOT be considered preferred UNTI it isrecorded in MVO.

o Mortgage of motor vehicles in order to be binding to 3 rd persons must be recorded in MVO

! UY is a 3 rd person, his credit should be preferred!! Note: preference in mortgage credits is determined

by first in time, preferred in right doctrine

5. PHIL SAVINGS BANK V. LANTIN (architect contractor lien)FACTS:

- duplex was owned by spouses Tagbilan and Espiritu- Architect Ramos built the building as contractor for P32K- Spouses paid Ramos only 7k so Ramos used his own money (25k)

to finish the construction.

- Spouses obtained loan from Phil Savings Bank in the amount of 35kfor the completion of the construction of the duplex.o Spouses executed in favor of the bank the ff:

! 3 P/Ns! REM over the duplex

- Bank registered the REM with the registry of deeds, TCT at this timewas free from liens/ encumbrances

- Spouses failed to pay monthly amortization hence bank foreclosedo Bank registered certificate of sale and consolidated

ownership- Ramos (architect) filed an action against spouses to collect the

unpaid cost of the construction of the duplex.o Ramos succeeded in the issuance of a writ of preliminary

attachment and had the property attached.! Decision of the civil case = in favor of Ramos

AGAINST spouseso Spouses did not have enough properties to satisfy Ramos

claim, Ramos sent letter to bank to deliver to him his pro-ratashare in the value of the duplex.

! Bank refused to pay pro-rata value! This prompted Ramos to file action against bank

ISSUE:W/N Ramos is entitled to pro-rata share? NO

Arguments:Bank:

- for 2242 to apply there must first be an insolvency proceeding orother liquidation proceeding

- there couldn't be an insolvency proceeding because there are only 2creditors. (under sec 20 of insolvency law, adjudication of insolvencymust be made on petition of 3 or more creditors)

- Ramos unpaid contractor claim did not acquire character of lienequal to the banks registered mortgage.

Ramos:- proceedings in the lower court can qualify as general liquidation of

estate of the spouses because the duplex is the only existingproperty of the spouses

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HELD:- Applicable provision is 2242- Concurrence of credit raises no question when assets are sufficient

to cover debts in favor of all creditors- However, when assets are INSUFFICIENT, question of preference

would arise re: who should be paid first?

- Only taxes enjoy absolute preference, credits under 2242 enjoy NOPREFERENCE among themselves= this should be satisfied pro-rata- Under Baretto ruling = there must first be an insolvency, settlement

of estate or liquidation proceeding before for 2242 and 2249 notapply

- Bank is correct = proceedings in the lower court do not partake thenature of an insolvency proceeding

o Action filed by Ramos in LC is to collect the unpaid cost ofconstruction it is NOT A GENERAL LIQUIDATION of theestate of the spouses.

! Insolvency proceedings of estate = IN REM! Ramos admitted that bank could not have known

that property had lien purchaser in GF (Bank)takes the property free from lien/ encumbrancesother than the annotation in the certificate of title

- Although the lower court held that only known creditors are Ramosand bank = this is NOT conclusive, it will not bar any other creditorsfrom showing up and presenting their claims

6. MANABAT v. LAGUNA FEDERATION (order of registrationshould be followed to determine distribution of proceeds)

FACTS:- suit was filed by Laguna Federation against Nieves Roxas, judgment

was rendered by Manabat.o Writ of execution was issued and sheriff sold at public

auction all rights, titles and interests of Roxas in 10 parcelsof land for total price of P37K

o Sheriff discovered that parcels of land were subject toregistered liens (ie writs of execution, attachments annotatedat the back of the certificates of title

o Sheriff instituted action for interpleader for the differentcreditors/ lienholders to litigate among themselves anddetermine the rights to the P37k proceeds of the sale.

! Nature of annotations, date of registration of creditand amount of claims were included in the claims ofthe 9 creditors

! It appears that Laguna Fed, Valeriana & Limaco andCosmopolitan insurance registered their creditsPRIOR to Cayco and Zorilla.

! Decision of CFI = claimants are entitled to theproceeds of the sale in order of registration ofcredits. CAYCO and ZORILLA appealed

ISSUE:

Whether the rule to follow in the satisfaction of credits is the order of dates ofregistration or distribution pro rata?

HELD: preference in the order of dates of registration NOT PRO RATA

Arguments:Cayco and Zorilla claim:

- several credits referring to the same specific real property must besatisfied pro rata (2249)

o there are exceptions!! Taxes and assessments on real property paid first! 2242(7) pro rata doesn't apply to:

claims, mortgages and liens shall bepreferred and shall constitute anencumbrance on the immovable

credits annotated in the registry of propertyby virtue of judicial order, by attachment orexecution upon the property affected andonly as to later credits

o this means that for the purpose ofsatisfying several credits annotatedby attachments or executions, therule is = preference according topriority of creditors in the order oftime.

- Cayco and Zorillas claim is later than Laguna Fed et al. HenceLagunas credit is superior and to apply pro rata distribution woulderase the difference between earlier and later credits provided byparagraph 7 of 2242

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7. PCIB v. MAINES (union workers right to wages preferred overmortgage etc)

FACTS:- National Mines and Allied Workers Union obtained judgment

ordering PHL Iron Mines to pay the union around P4.2 M asseverance pay

o Judgment was a result of an unfair labor practice case

against PIM because of its failure to comply with theconditions re: its shutting down of operations and lay off ofpersonnel due to bankruptcy

- NLRC granted the garnishment of P4.2 M due from AtlasConsolidated Mining as part of the price for which the miningmachinery and equipment of the PHL Iron Mines was sold by the 2bank to Atlas

o Atlas complied and delivered to the sheriff check worth 4.2 Mo Court ordered for injunction ordered the union to desist

from encashing the check.! Turned out that it was already encashed and

distributed to the members.- PIM was a mortgage debtor separately of the DBP and PCIB, but

DBP later conveyed its rights to PCIBo PCIB foreclosed all the mortgages in its favoro Union had already levied certain properties of PIM

ISSUE:Who has the better right over the properties? Union or PCIB?

HELD:- PCIB liable to Union for the judgment against PIM

o Workers enjoy first preference as regards to wages due forservices rendered prior to the bankruptcy or liquidationagainst other creditors

o Payment of wages = paid in full before other creditors mayestablish claim to the assets.

o Wages = refer to all remunerations, earning and otherbenefits in terms of money accruing to the employees orworkers for services rendered

o Even if the employers properties are encumbered by meansof mortgage, the workers wages still enjoy first preference incase of bankruptcy or liquidation. = there is an automatic firstlien in favor of the workers

! This is because of HUMANITARIAN REASONS /human justice

! Human beings must be treated above chattels andmachineries

! Right of the UNION of the properties of PIM vestedthe date NLRC approved PIMs application forclearance.

! PCIB sold the properties while knowing that workershad rights over it, they cannot cheat the workers ofwhat is due them by force of law.

8. CENTRAL BANK v. MORFE (judgment in favor of Depositor in

bank not preferred credit when bank already INSOLVENT)FACTS:- final judgment for payment of time deposit in a savings bank was

rendered after bank was declared insolvent. Is this a preferred claim?- Monetary Board found Fidelity Savings Bank insolvent and forbade it

to do business- After the insolvency, spouses ELIZES filed complaint against Fidelity

for the recovery of the balance of their time deposits.o Fidelity was ordered to pay the spouses

- In another case, spouses PADILLA secured judgment againstFidelity for balance of their time deposits as well.

- Depositors claim = bank should pay their time deposits as preferredcredits, evidenced by final judgment w/in the meaning of 2244(14b)

- Central Ban appealed: it claimed that the final judgments of thespouses do not enjoy preference because there were given afterFidelity was declared insolvent

o NO valid final judgment can be obtained against insolventbank

- General Banking Act = provides for sanctions on officers of BankingInstitutions who pays out or permits or cause to be paid out funds orthe said bank after it is declared insolvent.

- Civ Code = insolvency shall be governed by special laws notinconsistent with civ code

- CB reasons that: judgments against insolvent bank should not beconsidered as preferred credits

o Assets of insolvent bank are held in trust for the equalbenefit of all creditors, a person cannot obtain judgment toallow disbursement to the prejudice of others.

! If depositors find out that they could get reimbursedby insolvent bank they would rush to secure

judgments resu lting to multiple suitso Fixed saving, current deposits of money in banks are NOT

TRUE DEPOSITS. They are simple loans and are NOTPREFERED CREDITS

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preference of credit digests

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