PHILIPPINE SAVINGS BANK, PETITIONER, VS. HON. GREGORIO T. LANTIN, PRESIDING JUDGE, COURT OF FIRST INSTANCE OF MANILA, BRANCH VII, AND CANDIDO RAMOS, RESPONDENTS.

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

“WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant ordering the defendant to pay the plaintiff
the sum of
P15,000.00 as his pro-rata share in the value of the duplex-apartment house which was built by the
plaintiff for the spouses 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 subse­quent mortgages of February 1, 1967, and February 28, 1967, were registered
with the Register of Deeds of Manila on February
2, 1967 and March 1, 1967,
respectively.  At the time of the
registration of these mortgages, Transfer Certificate of Title No. 86195 was
free from all liens and encumbrances.

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

On August 5, 1969,
the petitioner bank registered the certificate 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 res­pondent
and against the spouses.  A writ of
execution was accordingly issued but was returned unsatisfied.

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

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

“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 re­imbursement, upon the immovable preserved or improved;

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

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

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

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

Both the petitioner
bank and private respondent Ramos rely on
the case of De 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 bind­ingly
adjudicated, such as insolvency, the settlement of a decedent’s estate under
Rule 87 of the Rules of Court, or other liquidation proceedings of similar import.

The pertinent ruling
reads:

“Thus, it becomes evident that one preferred creditor’s third-party claim to
the proceeds of a foreclosure sale (as in the case now before us) is not the
proceeding contemplated by law for the enforcement of preferences under Article
2242, unless the claimant were enforcing a credit for taxes that enjoy absolute
priority.  If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain
the pro rata dividend corresponding to each because the rights of the other creditors
likewise enjoying preference under Article 2242 can not be
ascertained.  Wherefore, the order of the Court of First Instance of
Manila now appealed from, decreeing that the proceeds of the foreclosure sale
be apportioned only between appellant and appellee,
is incorrect and must be reversed.

“In the absence of insolvency proceedings (or other equivalent
general liquidation of the debtor’s estate), the conflict between the parties
now before us must be decided pursuant
to the well established
principle concerning registered
lands; that a purchaser in good faith and for value (as the appellant
concededly is) takes registered property free from liens and encumbrances other
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 insol­vency proceeding or other liquidation
proceeding of similar import may be considered to have been conducted in the
court below.

The respondent court
ruled in the affirma­tive holding that:

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

“‘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 inte­rested persons whether known to the
parties or not may be bound by such proceeding.

In the case at bar, although the lower court found that
“there were no known
creditors other than the plaintiff and the defendant herein”, this can not
be conclusive.  It will not bar other
creditors in the event they show up and present their claims against the
petitioner bank, claiming that they also have preferred liens against the
property involved.  Consequently,
Transfer Certificate of Title No. 101864 issued in favor of the bank which is
supposed to be indefeasible would remain constantly unstable and
questionable.  Such could not have been
the intention of Article 2243 of the Civil Code although it considers claims
and credits under Article 2242 as statutory liens.  Neither does the De Barretto case sanction such instability. 
It emphasized the following:

“We are understandably loath (absent a clear precept of law so
commanding) to adopt a rule that would undermine the faith and credit to be accorded to registered Torrens titles and
nullify the beneficient objectives sought to be obtained by
the Land Registration Act.  No
argument is
needed to stress that if a person dealing with
registered land were to be held to take it in every instance subject to all the
fourteen preferred claims enumerated in Article 2242
of the new Civil Code, even if the existence and import thereof can not be
ascertained from the records, all
confidence in Torrens titles would be destroyed, and credit transactions on the faith of such titles
would be hampered, if not prevented, with
incalculable results.  Loans on real
estate security would become aleatory and risky tran­sactions,
for no prospective lender could accurately estimate the hidden liens on the property offered as security, unless he indulged in complicated, tedious investigations.  The logical
result might well be a contraction of credit to unforeseable
proportions that could lead to economic disaster.

“Upon the other hand, it does
not appear excessively burden some to re­quire the privileged creditors
to cause their claims to be recorded in
the books of the Register of Deeds should they desire to protect their rights
even outside of insolvency or liquidation proceedings.”

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

Respondent Ramos admitted in the partial sti­pulation of facts
submitted by both parties that at the time of the loans to the spouses, the
petitioner 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.

*
Section 20 of the Insolvency Law provides that the adjudication of insolvency must be
made on the petition of three or more creditors.