FRANCISCO C. MANABAT, IN HIS CAPACITY AS PROVINCIAL SHE­RIFF OF LAGUNA, BRANCH I, PLAINTIFF-APPELLEE, VS. LAGUNA FEDERATION OF FACOMAS, INC., ET AL., DEFENDANTS-APPELLEES, FLORE…

Manabat versus Laguna Federation of Facomas

The Case

This is the case of Manabat versus Laguna Federation of Facomas. The provincial sheriff of Laguna, Francisco Manabat, sold at public auction the rights and interests of a judgment debtor over ten parcels of land. When he discovered that those parcels were burdened with several registered attachments and execution liens, he filed an action for interpleader so that the competing creditors could litigate among themselves and determine who should receive the proceeds of the sale. The case matters because it settles a single, examinable question of civil law: when several attachment and execution credits are annotated on the same specific real property, are they satisfied in the order of the dates of their registration, or are they distributed pro rata, that is, proportionately among them? The Supreme Court answers that question by reading the preference clause of the Civil Code closely.

Procedural History

The interpleader was instituted by the sheriff in the Court of First Instance of Laguna. After the parties submitted a stipulation of facts and their documentary evidence, the trial court rendered its decision on December sixth, 1961. It ruled that the defendants and claimants were entitled to the proceeds of the sale in the order of preference corresponding to the dates of registration of their respective credits.

Only Florentino Cayco and Jose Fernandez Zorilla appealed from that judgment. The Court of Appeals found that the appeal involved a question purely of law, and by resolution dated November twelfth, 1964, it certified the appeal to the Supreme Court. The case thus reached the Supreme Court as a certified question of law, not as an ordinary appeal on the facts.

Facts

In a suit filed by the Laguna Federation of Facomas against Nieves M. Vda. de Roxas, judgment was rendered for the plaintiff. Pursuant to that judgment, a writ of execution was issued on February eighth, 1960. By virtue of that writ, Francisco Manabat, the provincial sheriff, sold at public auction on November twenty-fourth, 1960, all the rights, titles, and interests of Nieves M. Vda. de Roxas in ten parcels of land, for a total price of thirty-seven thousand pesos.

The sheriff then discovered that the parcels of land alone were subject to registered liens, such as writs of execution and attachment annotated at the back of the respective certificates of title. On February twenty-first, 1961, he instituted an action for interpleader in the same Court of First Instance of Laguna, so that the different creditors or lienholders could litigate among themselves and determine their rights to the thirty-seven thousand pesos in proceeds.

Several claims were thereafter asserted. The Laguna Federation of Facomas held an attachment registered on October tenth, 1958, for seventeen thousand four hundred forty-eight pesos. Valeriana Limaco de Almeda held an attachment registered on October thirteenth, 1958, for three thousand seven hundred thirty-five pesos. Cosmopolitan Insurance Company held an attachment registered on October twentieth, 1958, for twelve thousand six hundred fifty pesos. Florentino Cayco and Jose Fernandez Zorilla held an attachment registered on October twenty-ninth, 1958, for twenty-six thousand seven hundred eighty-seven pesos and fifty centavos. Other creditors registered their attachments or execution liens at later dates, and one claim, that of Rosauro Taningco and Simplicio Ramos, was never registered at all. The trial court ruled that all these claimants were entitled to the proceeds in the order of preference according to the dates of registration of their credits. Only Cayco and Zorilla appealed.

Issues

• Whether or not several credits annotated on the same specific real property by virtue of attachments or executions should be satisfied in the order of the dates of their registration, rather than pro rata or proportionately among all of them.

Applicable Provisions

Article 2249 of the Civil Code provides:

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.

This is the general rule invoked by the appellants, and the Court acknowledges that the new Civil Code altered the old system by making pro rata distribution the general rule, but the Court reads it as subject to the exceptions that follow.

Article 2242 of the Civil Code provides:

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: (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;

This is the decisive provision, because its phrase "only as to later credits" is the language on which the entire ruling turns.

Ruling

The Court resolves the sole issue against the appellants and holds that the rule is preference in the order of the dates of registration, not pro rata distribution. The Court concedes that Article 2249 establishes pro rata satisfaction as the general rule for two or more credits over the same specific real property, and that this altered the set-up under the old Civil Code, which had provided for priority of payment. But the Court stresses that even under the new system, not all credits referring to the same specific real property come under the pro rata rule. Article 2249 itself expressly provides that taxes and assessments upon the real property are to be paid first. Similarly, the rule of pro rata does not apply to the credits mentioned in subparagraph seven of Article 2242.

The Court then reasons from the statutory text. Since Article 2242 expressly provides that credits annotated by attachments or executions are preferred "only as to later credits," it follows that the same limitation applies as among those credits themselves. For purposes of satisfying several credits annotated by attachments or executions, the rule remains preference according to priority of the credits in the order of time. The Court explains why this must be so: otherwise the result would be absurd, because the preference of an attachment or execution lien over later credits could easily be defeated by simply obtaining writs of attachment or execution and annotating them, no matter how much later. The Court adds that to satisfy the credits pro rata would erase the difference between earlier and later credits that subparagraph seven of Article 2242 provides for.

Applying this to the facts, the Court notes that it is not disputed that the credit of the appellants Cayco and Zorilla is later than those of the Laguna Federation of Facomas, Valeriana Limaco de Almeda, and Cosmopolitan Insurance Company. Their credits must therefore be deemed preferred to that of the appellants.

Doctrine

Two rules must be retained. First, under Article 2249 of the Civil Code, the general rule for two or more credits over the same specific real property is pro rata satisfaction, after taxes and assessments are paid. Second, that general rule yields to the preferred credits enumerated in Article 2242, and in particular to credits annotated in the Registry of Property by virtue of a judicial order, by attachments or executions, which are preferred "only as to later credits." Among such annotated credits themselves, the rule is preference according to the priority of the credits in the order of time. A bar candidate should state the rule as the Court did: to distribute these credits pro rata would erase the statutory distinction between earlier and later credits and would allow a later attaching creditor to defeat a preference that the law plainly grants to an earlier one.

Disposition

The Supreme Court affirmed the judgment appealed from, which ruled in favor of preference by order of registration, with no pronouncement as to costs.

Remember This

Memorize the line that decides the case: credits annotated by attachment or execution are preferred "only as to later credits," and among themselves they rank by the order of their registration, not pro rata. Examiners use this case in civil law on concurrence of credits and preference of liens, precisely to test whether you know that Article 2249 is a general rule subject to the exceptions in Article 2242.