G.R. No. 10870. February 18, 1918
INSOLVENCY OF YAP CANGCO. E. VIEGELMANN & COMPANY ET AL., PETITIONERS AND APPELLEES, VS. JOSE PEREZ, CLAIMANT AND APPELLANT.
CARSON, J.:
of March, 1913:
“That It Tan Achiong, alias Yap Cangco, of legal age, married, and a merchant
and resident of this city of Manila, Philippine Islands, hereby make the
following declaration and statement:
“First. That I am the sole and absolute owner of a hat factory situated on
Calle Sacristia, No. 231, Binondo, Manila ; and that said factory at the present
time contains the articles specified, with their respective value, in the
detailed inventory hereinbelow set forth, to wit:
hats………………………………………………………………
presser…………………………………………………………………
hats………………………………………………………………
hats……………………………………………………………
hatbands………………………………………
hatbands…………………………………………………………………………
thread…………………………………………………………………………..
hats……………………………………………………………………………………..
umbrellas………………………………………………………
umbrellas…………………………………………………………………
……………………………………………………………………………………………
lining………………………………………………………………………………………..
gum……………………………………………………………………………………
straw……………………………………………………………………
process…………………………………………………….
forms…………………………………………………………………………….
total……………………………………………
“Second. That the above-mentioned goods are free from all charges and
encumbrances or liabilities.
“Third. That in consideration of the sum of one thousand pesos (1,000),
Philippine currency, which in this act I have received from Don Jose Perez, of
legal age, married, an employee by occupation, and a resident of this city of
Manila, I do hereby assign, sell, and convey to the said Don Jose Perez, to his
heirs and assigns, the personal property specified in the preceding paragraph of
this instrument, and do hold myself responsible to him for the title over said
goods which titles I bind myself to defend now and always against all just
claims by whomsoever presented.
“Fourth. That this sale is executed under the covenant or condition that if I
should return to the purchaser within the period of three months from the date
of the execution of this instrument the one thousand pesos (P1,000), Philippine
currency, which constitute consideration in this sale, I shall be entitled to
redeem or repurchase the goods hereby sold; but I shall not be entitled so to
do, if I should allow the said period for redemption to elapse without availing
myself of the right, in which case this sale shall become absolute and
irrevocable.
“Fifth. That I obligate myself (not), in any manner, to dispose of the
personal property hereby sold, but shall be entitled to do so only after I
should repurchase them.
“Sixth. That I Jose Perez, state that I accept this deed of sale under right
of repurchase, in the precise terms and conditions upon which it has been
executed in my favor by the vendor Tan Achiong, alias Yap Gangco.
“Seventh. That I, the vendor with right of repurchase, likewise obligate
myself, for the safeguard of the purchaser Don Jose Perez, to keep in good and
serviceable condition in the said hat factory the personal property described in
the first paragraph of this instrument.
“Eighth. That I, Jose Perez, whose (personal circumstances have hereinabove
been set forth, hereby lease during the term for the redemption, to Tan Achiong,
alias Yap Cangco, the personal property sold to me by him and mentioned in the
first paragraph of this instrument, for the monthly rental of thirty pesos
(P30), Philippine currency, payable in advance precisely on the eighteenth day
of each month, it being understood that if, as lessee, he should fail so to pay
a single month’s rent, this sale shall likewise be absolutely and irrevocably
consummated.
“Ninth. That I, Tan Achiong, alias Yap Cangco, whose personal
circumstances have hereinabove been set forth, do accept this contract of lease
in the precise terms in which it has been executed in my favor by the purchaser
under right of repurchase, said D. Jose Perez, and obligate myself to pay the
said rent in the residence of the lessor.
“Tenth. It is also stipulated by and between the contracting parties that the
purchaser under right of repurchase may make use of the right to reject the
lessee, although the term of the contract may not have expired, if the lessee
should violate any of the clauses of this contract.
“Eleventh. That Tan Achiong, alias Yap Cangco, obligates himself to
endorse in favor of Don Jose Perez the fire insurance policy of the property
hereby sold, which policy bears the number 1016867 of the Yorkshire Fire and
Life Insurance Company.
“In witness whereof we sign these presents in triplicate in Manila, this
eighteenth day of March, nineteen hundred and thirteen. (Sgd.) Tan Achiong.
(Sgd.) Jose Perez signed in the presence of: (Sgd.) Paulino Flores. (Sgd.) Lope
Consing.
“United States of America,
“Philippine Islands
“City op
Manila.
“Reg. No. 51, p. 14.
“In the city of Manila, this eighteenth day of March, nineteen hundred and
thirteen, A. D., before me, the undersigned, a notary public of this city,
personally appeared Tan Achiong, alias Yap Cangco, and Jose Perez, whom
I certify that I know to be the persons who executed the foregoing instrument,
and they stated that they freely and voluntarily executed the same. The
contracting parties exhibited to me their personal registration certificates
Nos. H-33113 and F-41794, issued by the Collector of Internal Revenue, at
Manila, on July 13th and April 10th, 1912, respectively.
“In witness whereof I hereunto sign these presents and affix my official
seal, on the day, month, and year above mentioned.”
It appears that more than three months after the date of the acknowledgment
of this instrument, Yap Cangco was declared insolvent; that on the 4th day of
November, 1913, K. Matsumato was designated as assignee by the creditors; and
that on the same day he was ordered to sell all the insolvent’s estate.
Under the order of the court the greater part of the property described in
the foregoing document was taken into the possession of the assignee as the
property of the insolvent. On November 18, 1913, Perez, the appellant in this
case, presented a claim in the course of the insolvency proceedings, setting
forth that under the terms of the foregoing document, he had become the owner of
the property described therein, as a result of the failure of the insolvent to
redeem or repurchase it at the time stipulated therefor; and that he was
entitled to possession as against the assignee and the creditors of the
insolvent, or to the proceeds arising from its sale in the course of the
bankruptcy proceedings.
The trial judge relying upon our rulings in the cases of Fidelity and Deposit
Co. of Maryland vs. Wilson (8 Phil. Rep., 51), Kuenzle & Streiff
vs. Macke & Chandler (14 Phil. Rep., 610) and Williams vs.
McMicking (17 Phil. Rep., 408) was of the opinion that, since there was no
actual physical delivery of the possession of these goods at the time of the
execution of the document, title did not pass from the insolvent, so that the
claimant was not entitled to the possession of the goods, or to the proceeds of
their sale. He, therefore, ordered that Perez be paid merely his pro
rata share of the proceeds of the sale of the property of the insolvent on
an equal footing with the general unsecured creditors.
It is manifest that in thus construing the cases relied upon, the trial judge
overlooked, or did not have his attention specifically called to the fact that
in this case, the document evidencing the transfer is a public instrument
acknowledged before a notary; while in the cases relied upon, the claims of
transfer of title rested on alleged agreements set forth in private documents
unaccompanied by the actual or physical transfer of the property.
The cases relied upon should be read together with our decision in Florendo
vs. Foz (20 Phil. Rep., 388).wherein we said:
“When the sale should be made by means of a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of
the contract, if in said instrument the contrary does not appear or may be
clearly inferred.
“As the contrary does not appear nor is to be inferred from the public
instrument executed by the defendant, its execution was really a formal or
symbolical delivery of the property sold and authorized the plaintiff to use the
title of ownership as proof that he was thenceforth the owner of the
property.”
The importance of this distinction will readily be seen from the express
terms of article 1462 of the Civil Code, which reads as follows:
“A thing sold shall be considered as delivered, when it is placed in the
hands and possession of the vendee.
“When the sale should be made by means of a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of
the contract, if in said instrument the contrary does not appear or may be
clearly inferred.”
From what has been said it must be clear that if the document above set forth
was in fact, what it purports on its face to be, Perez, the purchaser of the
goods described therein, is entitled to the possession of these goods as against
the assignee of the vendor, in the insolvency proceedings, or to the proceeds of
the sale of these goods by the assignee in the course of those proceedings.
It is contended, however, that having in mind the terms of this instrument
and the circumstances under which it was executed, it should not be held to be a
genuine and valid sale of the goods therein mentioned with a reserved right to
repurchase in the vendor. We are compelled to agree with this contention.
Examining the instrument itself, it will be seen that it purports to convey
to the purchaser a hat and cane factory, including the machinery, the stock of
raw materials, and all the manufactured goods actually on hand, and at the same
time leaves this property in the possession of the vendor, with the right to
sell the manufactured goods on hand, to convert the raw materials into hats and
canes, and to dispose of the manufactured articles. It will be seen furthermore,
that it purports to sell goods inventoried at an agreed valuation of more than
P8,000 for and in consideration of the sum of P1,000 which the purchaser had
advanced to the vendor. The record further discloses that this instrument
purporting to be a deed of sale with a reserved right of repurchase, was
executed by the vendor with relation to the same property which had been
conveyed to the same purchaser in a former deed wherein the purchase price was
fixed at P2,000, and the vendor was left in possession under an agreement that
he would hold the property as the tenant of the purchaser at a monthly rental of
P60. The evidence of record explains and discloses the necessity for the
execution of the second deed of sale, by the fact that the purchase price set
forth in the first deed was in truth and in fact the amount of an advance of
money to the vendor by the alleged purchaser, which had been partially repaid at
the time the second deed was executed, so that the parties deemed it expedient
to execute a new instrument, fixing the purchase price at the amount of the
unpaid balance of the original advance, and reducing the amount of the rent from
a monthly payment equal to three per cent per month on the original advance to a
monthly payment equal to three per cent per month on the balance due after
payment had been made of a part of that advance.
Under the doctrine announced in the cases of Laureano vs. Kilayco
(34 PhiL Rep., 148) ; Cuyugan vs. Santos (34 Phil. Rep., 100) ; and PP.
Agustinos Recoletos vs. Lichauco (34 Phil. Rep.( 5), we have no
hesitation in holding that the instrument in question did not evidence a genuine
sale with the right to repurchase reserved to the vendor, and that although it
was cast in the form usually adopted in evidencing such a transaction, it was in
truth and in fact no more than a solemn declaration in a public document
acknowledging his indebtedness, in the sum of P1,000, the borrower at the same
time solemnly obligating himself to hold the property described in the
instrument under the conditions set forth therein as security for the payment of
the loan.
The instrument, not having been recorded in the mortgage registry, cannot be
given the effect of a mortgage, so as to prejudice the rights of third persons
in and to the property; the creditor cannot therefore maintain his claim to the
property or the proceeds of its sale in the hands of the assignee on bankruptcy
proceedings on the ground that he held a mortgage, either legal or equitable,
upon the property.
We are of opinion, however, that the creditor, Perez, whose indebtedness is
acknowledged in a public instrument, executed more than three months prior to
the institution of the bankruptcy proceedings, is entitled to a preference in
the distribution of the proceeds of the sale of his debtor’s property in the
hands of the assignee in these bankruptcy proceedings, as against unsecured
creditors. (Subsection 3, article 1924, Civil Code.)
Ruling upon a motion for a rehearing in the case of Tec Bi & Co.
vs. Chartered Bank of India, Australia and China, (16 Off. Gaz. 911) we
said:
“It is true, as said by counsel, that in a long line of decision, filed
before and since the enactment of the Bankruptcy Act on May 20, 1909, this court
has steadfastly and uniformly construed, applied and recognized as in full force
and effect, in this jurisdiction, the various provisions of articles 1922 and
1924 of the Spanish Civil Code touching statutory preferences where such
preferences have been asserted, as in the case at bar, in judicial proceedings,
other than formal bankruptcy proceedings; and we have said, furthermore, on more
than one occasion, that the doctrine announced in these decisions constitutes a
rule of property not subject to change except by legislative enactment. See
discussion and citation of cases in Alzua and Arnalot vs. Johnson, 21
Phil. Rep., 308.) But counsel contends that all these statutory preferences were
swept away by necessary implication as a result of the enactment of the
Insolvency Law (Act No. 1956). We cannot give our assent to this contention.
“It seems to be based on the general provisions of chapter VI of the
Bankruptcy Act, which do not provide for the recognition of any of these
‘statutory preferences/ other than those included in the list of preferred
claims set forth in sections 49 and 50, although the order in which ‘preferred
claims’ shall be paid from the proceeds of the sale of the property of the
insolvent which comes into the hands of the assignee, is expressly set
forth in these sections, which provide furthermore that ‘all other creditors
shall be paid pro rata.’
“But this argument for repeal, by implication, of the provisions of the
Spanish Code touching ‘statutory preferences,’ not mentioned in Chapter VI of
the Act, takes no account of the provisions of section 59 of the Bankruptcy Act,
by virtue of which a right to any of these statutory preferences may be set up
and maintained, if duly asserted in the manner and form therein prescribed. This
article is as follows:
” ‘When a creditor has a mortgage, or pledge of real or personal property of
the debtor, or a lien thereon, for securing the payment of a debt owing to him
from the debtor, or an attachment or execution on property of the debtor duly
recorded and not dissolved under this Act, he shall be admitted as a creditor
for the balance of the debt only, after deducting the value of such property,
such value to be ascertained by the agreement between him and the receiver, if
any, and if no receiver, then upon such sum as the court or a judge thereof may
decide to be fair and reasonable, before the election of an assignee, or by a
sale thereof, to be made in such manner as the court or judge thereof shall
direct; or the creditor may release or convey his claim to the receiver, if any,
or if no receiver then to the sheriff, before the election of an assignee, or to
the assignee if an assignee has been elected, upon such property, and be
admitted to prove his whole debt. If the value of the property exceeds the sum
for which it is so held as security, the assignee may release to the creditor
the debtor’s right of redemption thereon on receiving such excess; or he may
sell the property subject to the claim of the creditor thereon, and in either
case the assignee and creditor, respectively, shall execute all deeds and
writings necessary or proper to consummate the transaction. If the property is
not sold or released, and delivered up, or its value fixed, the creditor shall
not be allowed to prove any part of his debt, but the assignee shall deliver to
the creditor all such property upon which the creditor holds a mortgage, pledge,
or lien, upon which he has an attachment or execution.
” ‘It has been suggested that under our former rulings, these “statutory
preferences” cannot be treated as Hens affecting the property of the debtor, as
that word is used in the above cited section of the Bankruptcy Act. But while it
is true that we have held in a number of decisions, that these “statutory
preferences” of the Civil Code are not Hens in the strict and limited sense of
that word as used in Anglo-American jurisprudence, and while we have taken
considerable pains to distinguish the nature and effect of these “statutory
preferences” (sometimes called “civil law liens” by American law writers), from
that of “liens,” as that word is used in the strict technical parlance of the
American and English authorities; nevertheless there can be no question that
when a right to one qf these “statutory preferences” has actually been asserted,
in the course of judicial proceedings which have for their object the
distribution of funds derived from the sale of all or any part of the assets of
the debtor, by a proper party to such proceedings, as intervener or otherwise,
the consequences flowing therefrom are closely assimilated to, and substantially
identical with those arising as a result of the assertion in the course of such
proceedings, of a recorded “lien” upon the assets of the debtor with a view to
its enforcement therein. We are of opinion, therefore, that the word “lien” as
used in section 59 of the Insolvency Law should be held to include “statutory
preferences” such as those now under consideration if and when they are duly
asserted in the course of bankruptcy proceedings.
” ‘We are not unaware of the fact that this construction of the language of
the statute may give rise to some practical difficulties in the administration
of insolvency proceedings; but we do not apprehend that these difficulties will
prove to be any less surmountable than similar practical difficulties with which
our courts have been confronted, in applying and construing the terms of many
other statutes enacted in recent years, wherein the general provisions and the
terminology in which they are expressed have been borrowed directly from
American or English precedents, in the enactment of which the legislator had in
mind provisions of substantive law radically different from those of the Spanish
substantive law still in force in these Islands.
” ‘The right to a preference in the case at bar being founded upon the
failure of a debtor to pay the purchase price of goods sold to him by the
plaintiff, it may be well to add that the right of the vendor of merchandise
bought on credit by an insolvent, “so long as the actual delivery thereof has
not been made” to have such goods placed at his disposal, in the manner and form
prescribed in subsection 8, section 48 of the Insolvency Law, is manifestly an
additional and cumulative remedy allowed a vendor of merchandise, the purchase
price of which has not been paid, and is in no wise in conflict with the right
of such a vendor to assert the preference secured to him in article 1922 of the
Code of Civil Procedure, in any case wherein delivery has actually been
made.
” ‘As we said in the case of Smith, Bell &. Co., vs. Maronilla
(R. G. No. 8769), decided February 5, 1916, (Off. Gaz., 976) (wherein we ruled
adversely upon a similar contention as to the repeal by implication of the
provisions of articles 1922 and 1924 of the Civil Code, as a result of the
enactment of the provisions of the new Code of Civil Procedure touching the
distribution of the estates of deceased person), we would be loath to believe
that it was the intention of the legislator to destroy all these valuable
privileges, without substituting anything in their stead; and we decline to
sustain such a contention in the absence of clear and explicit language in the
statute which, either in express terms or by necessary implication,
leads to conclusion.
” ‘Strong and compelling reasons of public policy, in this jurisdiction as
elsewhere, have resulted in the enactment of legislation providing special
security in one form or another, for credits for construction, repair and
preservation of personal property; transportation charges; seeds and ether
agricultural advances; rents; credits evidence in solemn judgments; and the
like. The security in such cases, furnished under statutory authority in the
United States, in the form of liens on the property of the debtor, was not
affected, nor intended to be affected by the enactment of the American
prototypes of the provisions of our Insolvency Law and our Code of Civil
Procedure; and we are satisfied that it was not the intention of the legislature
to destroy, without providing a substitute therefor, the security in the form of
“statutory preferences” furnished in our Civil Code in like cases, and that the
language of these statutes does not sustain such a contention.’ “
Twenty days hereafter let judgment be entered, reversing the judgment entered
in the court below, in so far as it denies the right of the appellant, Jose
Perez, to a preference, a3 against unsecured general creditors, in the
distribution of the funds in the hands of the assignee in these bankruptcy
proceedings, to the full amount of the indebtedness acknowledged in the public
document above set forth, without costs in this instance, and ten.days
thereafter let the record be returned to the court below where judgment will be
entered making provision for the distribution of these funds in accordance
herewith. So ordered.
Arellano, C. J., Johnson, Araullo, Street, and Malcolm,
JJ., concur.
Torres, Avanceña, and Fisher, JJ., did not take part in the
case.