PACIFIC FARMS, INC., PLAINTIFF-APPELLEE, VS. SIMPLICIO G. ESGUERRA, ET AL., DEFENDANTS, CARRIED LUMBER COMPANY, DEFENDANT-APPELLANT.

Before us for review, on appeal by the defendant Carried Lumber
Company (hereinafter referred to as the Company), is the decision, dated May
30, 1962, of the Court of First Instance of Pangasinan
in civil case D-1317, annulling the levy and certificate of sale covering six
buildings owned by the plaintiff Pacific Farms, Inc., executed by the defendant
deputy provincial sheriff Simplicio C. Esguerra in favor of the Company to satisfy a money
judgment against the Insular Farms, Inc., the plaintiff’s predecessor-in-interest
over the said buildings.

The environmental setting is uncontroverted.

On several occasions from October
1, 1956 to March 2, 1957
the Company sold and delivered lumber and construction materials to the Insular
Farms, Inc. which the latter used in the construction of the aforementioned six
buildings at its compound in Bolinao, Pangasinan.  Of the
total procurement price of P15,000, the sum of P4,710.18 has not been paid by
the Insular Farms, Inc.  Consequent­ly,
on October 17, 1958 the
Company instituted civil case D-775 with the Court of First Instance of Pangasinan to recover the said unpaid balance from the
Insular Farms, Inc.  On August 23, 1961 the trial court
rendered judgment sustaining the Company’s claim.  The judgment-debtor did not appeal; so on December 19, 1961 the cor­responding
writ of execution was issued.  On January 16, 1962 the defendant
sheriff levied upon the six buildings. 
On January 30, 1962
the Pacific Farms, Inc. filed a third-party claim, subscribed by its corporate
president, asserting ownership over the levied build­ings which it had acquired
from the Insular Farms, Inc. by virtue of a deed of absolute sale executed on March 21, 1958, about seven months
before the Company filed the abovementioned action (civil case D-775).  Shielded by an indemnity bond of P7,120 put
up by the Company and the Cosmopolitan Insurance Company, Inc., the sheriff
proceeded with the announced public auction on February 12, 1962 and sold the levied buildings to the
Company for P6,110.78.

Asserting absolute and exclusive ownership of the buildings in
question, the Pacific Farms, Inc. filed a complaint on May 14, 1962 against the
Company and the sheriff with the court a quo, pray­ing that
judgment be rendered, (a) declaring null and void the levy and judicial sale of
the six buildings, and (b) adjudging the defendants jointly and severally
liable to the plaintiff in the sum of P2,000 by way of actual damages and for
such amount as the court may deem proper and just to impose by way of exemplary
damages and for the costs of the suit.

After due trial, the court a quo on May 30, 1963
rendered judgment annulling the levy of January 16, 1962 and the certificate of
sale of February 12, 1962.  The court,
however, denied the plain­tiff’s claim for actual and exemplary damages on the
ground that it was not “prepared to find that there was gross negligence
or bad faith on the part of any of the defendants.”

Hence this appeal, imputing errors which, according to the
appellant’s formulation, are the following:

“1.  The lower court erred in holding that the
credit of the defendant-appellant, Carried Lumber Company, against the Insular
Farms, Inc., con­sisting of the value of lumber and construction materials used
in the buildings which were later acquired by the Pacific Farms, Inc., the appel­lee, was not a statutory lien on those buildings;

“2.  The lower court, likewise, erred in holding
that the doctrine laid down in De Barretto, et al.
vs. Villanueva, et al. (G. R. No. L-14938, December 29, 1962) is applicable
to the facts of this case as found by said court; and

“3. The lower
court erred, finally, in declaring that the sale at public auction conducted by
the defendant deputy provincial sheriff of Pangasinan,
covering the six buildings described in the certificate of sale dated February 12, 1962, was null and
void.”

1.  In ruling against the
appellant below, the trial court re­lied mainly on the resolution (on The
motion for reconsideration) promulgated on December 29, 1962 by this Court in De
Barretto, et al. vs. Villanueva et al., L-14938
(6 SCRA 928).  The said case, however, is
inapplicable because it concerned not one but two or more preferred creditors
who, pursuant to articles 2242 and 2249 of the Civil Code, must necessarily be
convened and the nature ad extent of their respective claims ascertained.  Thus, we held that before there can be a pro
rata payment of credits entitled to prefe­rence as to the same specific
real property, 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
liquidation proceedings of similar import.

But the case before us does not involve a question of prefe­rence
of credits, and is not one where two or more creditors have separate and
distinct claims against the same debtor who has in­sufficient property.  Indeed, it is a matter of necessity and logic
that the question of preference should arise only where the debtor cannot pay
his debts in full.  For, if debtor A is
able in full to pay all his three creditors, B, C, and D, how can the need
arise for determining which of the three creditors shall be paid first or
whether they shall be paid out of the proceeds of a specific property?

2.  It is undenied
and undeniable that the appellant furnished lumber and construction materials
to the Insular Farms, Inc. (the appellee’s
predecessor-in-interest) which the latter used in the construction of the six
buildings.  Likewise unchallenged is the
low­er court’s factual finding that out of the total procurement price of
P15,000, the amount of P4,710.18 remains outstanding and unpaid by the Insular
Farms, Inc.  The appellant is therefore
an unpaid fur­nisher of materials.

Whether there exists a materialman’s
lien over the six buildings in favor of the appellant, is a question we do not
here decide.  To our mind the application
by analogy of the rules of accession would suffice for a just adjudication.

Article 447 of the Civil Code^[1]
provides:

“The owner of the land who makes thereon personally or through
another, plantings, constructions or works with the materials of another, shall
pay their value; and, if he acted in bad faith, he shall also be obliged to the
reparation of damages.  The owner of the
materials shall have the right to remove them only in case he can do so without
injury to the work constructed, or without the plantings, constructions or works
being destroyed.  How­ever, if the landowner
acted in bad faith, the owner of the materials may remove them in any event
with a right to be indemnified for damages.”

The abovequoted legal provision
contemplates a principal and an accessory, the land being considered the
principal, and the plantings, constructions or works, the accessory.  The owner of the land who in good faith –
whether personally or through another – makes constructions or works thereon,
using materials belonging to somebody else, becomes the owner of the said
materials with the obligation however of paying for their value.^[2]
The owner of the materials, on the other hand, is entitled to remove them,
provided no substantial injury is caused to the landowner.  Otherwise, he has the right only to
reimbursement for the value of his materials.

Although it does not appear from the records of this case that
the land upon which the six buildings were built is owned by the appellee, nevertheless, that the appellee
claims that it owns the six buildings constructed out of the lumber and construction
materials furnished by the appellant, is indubitable.  Therefore, applying article 447 by analogy,
we perforce consider the build­ings as the principal and the lumber and
construction materials that went into their construction as the accessory.  Thus the appellee,
if it does own the six buildings, must bear the obligation to pay for the value
of the said materials; the appellant – which apparently has no desire to remove
the materials, and, even if it were minded to do so, cannot remove them without
necessarily damaging the buildings – has the corresponding right to recover the
value of the unpaid lumber and construction materials.

Well-established in jurisprudence is the rule that compen­sation
should be borne by the person who has been benefited by the accession.^[3]
No doubt, the appellee benefited from the acces­sion,
i.e., from the lumber and materials that went into the cons­truction of the six
buildings.  It should therefore shoulder
the com­pensation due to the appellant as unpaid furnisher of materials.

Of course, the character of a buyer in good faith and for value,
if really possessed by the appellee, could possibly
exone­rate it from making compensation.

But the appellee’s stance that it is an
innocent purchaser for value and in good faith is open to grave doubt because
of cer­tain facts of substantial import (evident from the records) that cannot
escape notice.

In the deed of absolute sale, exhibit 1, the Insular Farms, Inc.
(vendor) was represented in the contract by its president, J. Antonio Araneta.  The latter
was a director of the appellee (Paci­fic Farms, Inc.)
and was the counsel who signed the complaint filed by the appellee
in the court below.  J. Antonio Araneta was, therefore, not only the president of the
Insular Farms, Inc. but also a director and counsel of the appellee.

During the trial of civil case D-775 the insular Farms, Inc. was
represented by Attorney Amado Santiago, Jr. of the
law firm of J. Antonio Araneta.  The latter was one of the counsels of the
Pacific Farms, Inc.  The appellee cannot claim ignorance of the pendency
of civil case D-775 because the Insular Farms, Inc. was defended by the same
lawyer from the same law firm that com­menced the present action, J. Antonio Araneta, as counsel for the Pacific Farms, Inc., cannot
close his eyes to facts of which he as president of the Insular Farms, Inc. had
actual knowledge.  Significantly, exhibit
1 (supra) itself shows that the Insular Farms, Inc. and the Pacific
Farms, Inc. were housed in adjacent rooms (nos. 304 and 303, respectively), of
the same building, the Insular Life
Building, as early as March 21, 1958.

It is reasonable therefore to conclude that the appellee, through its director and counsel, J. Antonio Araneta, knew about the unpaid balance of the purchase price
of the lumber and cons­truction materials supplied or furnished by the
appellant to the Insular Farms, Inc.

Parenthetically, it is likewise worth our attention that des­pite
the appellee’s knowledge of the suit instituted by
the appellant against the Insular Farms, Inc. (the appellee’s
predecessor-in-­interest) for the recovery of the unpaid balance of the
purchase price of the lumber and materials used in the construction of its six
buildings, it merely folded its arms in disinterest and waited, so to
speak.  Not until a decision was rendered
therein in favor of the appellant, a writ of execution issued, and the six
buildings le­vied upon by the sheriff, did it file a third-party claim over the
levied buildings.  In the face of the
knowledge that its predecessor-­in-interest had not fully paid for the lumber
and construction materials used in the six buildings it had purchased, its
natural and expected reaction should have been to intervene in the suit filed
by the appellant against the insular Farms, Inc. and hold the latter to account
for breach of the warranties deemed included in the deed of absolute sale
conveying said buildings to it.

Curiously enough, although the six buildings in question were
supposedly sold by the Insular Farms to the appellee on
March 21, 1958, as evidenced by the deed of absolute sale (exhibit 1), about
seven months before the appellant filed civil case D-775, the Insular Farms,
Inc. never moved to implead the appellee
therein as a necessary party-defendant, and remained completely and strangely
silent about the sale.  It is not amiss
to surmise that it is entirely possible that the Insular Farms, Inc. and the appellee chose to remain silent in the hope that the
appellant’s claim against the Insular Farms, Inc. in civil case D-775 would be
dismissed or non-suited.

Moreover, the appellee was in a better
position to protect its interest.  It
knew that the Insular Farms, Inc., its predecessor-in-interest, was a mere
lessee of the premises on which the build­ings were located.  This should have placed it on guard and com­pelled
it to ascertain the circumstances surrounding the construc­tion of the said
buildings on the premises.

On the other hand, the appellant was not as advantageously
situated as the appellee.  There being no separate registry of property
for buildings and no procedure provided by law for register­ing or annotating
the claim of an unpaid furnisher of materials, it was helpless to prevent the
sale of the property built from lumber and construction materials it furnished.  But certainly, because it has a right,
pursuant to article 447, supra, to reimbursement for the value of its
unpaid materials, the appellant could pursue any remedy available to it under
the law in order to enforce the said right. 
Thus, the appellant acted correctly in bringing an action (D-775)
against the Insular Farms, Inc. and enforcing its right of reimbursement
through the execution of the final judgment it ob­tained in the said case
against the six buildings in the possession of the appellee
who now stands to benefit therefrom.  It follows, as a necessary corollary, that
the sale at public auction conducted by the defendant sheriff of the six
buildings described in the certifi­cate of sale dated February 12, 1962, exhibit 7, was valid, and ef­fective.

ACCORDINGLY, the judgment a quo is reversed,
and the complaint is hereby dismissed.

In view, however, of the equities clearly attendant in this case,
it is the sense of this Court that the plaintiff-appellee
Paci­fic Farms, Inc. should be, as it is hereby, granted a period of thirty
(30) days from the date this judgment becomes final, within which it may
exercise the option of redeeming the six buildings, by paying to the
defendant-appellant Carried Lumber Company the sum of P4,710.18, with legal interest
from September 23, 1961 (the date the judgment in civil case D-775 became
final), until the said amount shall have been fully paid.

No pronouncement as to costs.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando,
Teehankee, and Barredo, JJ., concur.

Concepcion, C.J., in the result.

^[1]
This article is found in Book II, Title II, Chapter 2, Section 2 of the Civil
Code relating to right of accession with res­pect to immovable
property.

^[2]
To the same effect is article 466 of the Civil Code (found in Book II, Title
II, Chapter 2, Section 3, which refers to right of accession with respect to
movable property) which provides that: 
“Whenever two movable things belonging to different owners are,
without bad faith, united in such a way that they form a single object, the
owner of the principal thing acquires the accessory, indemnifying the former
owner thereof for its value.” Article 467 points to the principal thing,
as between two things incorporated, as “that to which the other has been
united as an ornament, or for its use or perfection.”

^[3] 3
Manresa 212
(cited in Gongon v. Tiangco, 36 O.G. no. 35, p. 824).