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NORTHERN MOTORS VS. COQUIA
Facts:
Manila Yellow Taxicab, executed a chattel mortgage over several taxicabs in favorof
Northern Motors. TROPICAL is a judgment creditor of Yellow Taxicab who assigned
the judgment to ONG. On December 12 1974, Sheriff then levied upon 20taxicabs, 8
of which are security for the chattel mortgage. Northern Motors filed
anintervention on December 18, 1974; however, the levied taxicabs were
sold thesame day at 2pm although agreement shows that it should have happened
at 4pm.Indemnity bond was posted by TROPICAL, but the bond was cancelled after
the salewithout notice to Northern Motors. The petitioner now seeks
reconsideration also onthe reinstatement of the bond.A second levy was
made upon 35 taxicabs, 7 of which are mortgaged to NorthernMotors.This is a
motion for reconsideration in the SC decision pronouncing that theMortgagee has a
better right than the judgment debtor over the taxicabs.The taxies were levied
and sold at an auction sale. Ong argues admits that themortgagee has a better right
that the judgment creditor, but argues that thepurchaser from the auction sale
must have a right superior to that of themortgagee. The auction sale proceeded and
the purchasers were of unknownaddresses, hence the 8 taxicabs cannot be
recovered. The proceeds of the auctionwere in contest and the sheriff is deducting
the expenses of the execution sale fromthe proceeds.
Issue/s:
Whether the expenses for the execution sale should be deducted from the
proceedsthereof?
Whether the purchaser has a better right than the creditor?
Whether the bond should be reinstated?
Held:
1st: No, it was already established that the levy on the property was illegal,
it istherefore improper to deduct the expenses of an illegal auction from
the proceedsthereof. The mortgagee can only able to collect the proceeds from the
auction salebecause the purchasers are of unknown addresses. The full proceeds of
the sale aredue to the mortgagee without any unreasonable and illegal deductions.
2nd: No, the purchaser of the auction sale merely steps in the shoes of thejudgment
creditor as they have been aware of the claim of the mortgagee. Themortgagee has
a better right to the possession of the taxicabs, however, since theaddresses of the
purchasers are unknown, the proceeds of the sale must bedelivered to the
mortgagee.
3rd: Yes, the bond should be reinstated, as it is to serve as indemnity for damagesin
cases that the sold taxicabs cannot be recovered. Proceedings in the lower
courtwould be an exercise in futility if the bond will not be reinstated.
PNB vs RBL Enterprises
Fact:
 Sometime in 1987, [respondents] opened a prawn hatchery in San Enrique,
Negros Occidental, and for this purpose, leased from Nelly Bedrejo a parcel
of land where the operations were conducted;
 In order to increase productions and improve the hatchery facilities,
[respondents] applied for and was approved a loan of P2,000,000.00, by
[Petitioner] PNB. To secure its payment, [respondents] executed in favor of
PNB, a real estate mortgage over two (2) parcels of land, located at Bago
City, Negros Occidental, covered by Transfer Certificate of Title Nos. T-
13005 and T-12642 in the names of [respondents], and another real
[estate] and chattel mortgage over the buildings, culture tanks and other
hatchery facilities located in the leased property of Nelly Bedrejo;
 PNB partially released to [respondents] on several dates, the total sum
of P1,000,000.00 less the advance interests, which amount [respondents]
used for introducing improvements on the leased property where the
hatchery business was located.
 During the mid-part of the construction of the improvements, PNB refused
to release the balance of P1,000,000.00 allegedly because [respondents]
failed to comply with the bank’s requirement that Nelly Bedrejo should
execute an undertaking or a ‘lessors’ conformity’ provided in Real Estate
and Chattel Mortgage contract dated August 3, 1989, which states, ‘par.
9.07. It is a condition of this mortgage that while the obligations remained
unpaid, the acquisition by the lessor of the permanent improvements
covered by this Real Estate Mortgage as provided for in the covering Lease
Contract, shall be subject to this mortgage. For this purpose, the
mortgagor hereby undertakes to secure the lessor’s conformity hereto’.
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 For said alleged failure of [respondents] to comply with the additional
requirement and the demand of PNB to pay the released amount
of P1,000,000.00, PNB foreclosed the mortgaged properties, to the
detriment of [respondents].
 Due to the non-release of the remaining balance of the loan applied for
and approved, the productions-operations of the business were disrupted
causing losses to [respondents], and thereafter, to the closure of the
business.
 On June 29, 1990, [Petitioner] PNB filed its Answer with Counterclaim
alleging that the lessors’ conformity was not an additional requirement but
was already part of the terms and conditions contained in the Real Estate
and Chattel Mortgage  dated August 3, 1989, executed between
[respondents] and [petitioner]; and that the release of the balance of the
loan was conditioned on the compliance and submission by the
[respondents] of the required lessors’ conformity.
 On November 8, 1993, a writ of preliminary injunction was issued by
the court a quo prohibiting PNB and the Provincial Sheriff of Negros
Occidental from implementing the foreclosure proceedings including the
auction sale of the properties of the [respondents] subject matter of the
real [estate] and chattel mortgages."
ISSUE:
Whether the non-release of the balance of the loan by PNB is justified?
Held:
 Petitioner maintains that the lessor’s signature in the conforme portion of
the Real Estate and Chattel Mortgage Contract was a condition precedent
to the release of the balance of the loan to respondents. Petitioner invokes
paragraph 9.07 of the Contract as legal basis for insisting upon
respondents’ fulfilment of the aforesaid clause.
 We are not persuaded. If the parties truly intended to suspend the release
of the P1,000,000 balance of the loan until the lessor’s conformity to the
Mortgage Contract would have been obtained, such condition should have
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been plainly stipulated either in that Contract or in the Credit Agreement.
The tenor of the language used in paragraph. 9.07, as well as its position
relative to the whole Contract, negated the supposed intention to make
the release of the loan subject to the fulfilment of the clause. From a mere
reading thereof, respondents could not reasonably be expected to know
that it was petitioner’s unilateral intention to suspend the release of
the P1,000,000 balance until the lessor’s conformity to the Mortgage
Contract would have been obtained.
 Respondents had complied with all the requirements set forth in the
recommendation and approval sheet forwarded by petitioner’s main office
to the Bacolod branch for implementation; and the Credit Agreement had
been executed thereafter. Naturally, respondents were led to believe and
to expect the full release of their approved loan accommodation. This
belief was bolstered by the initial release of the first P1,000,000 portion of
the loan.
PAMECA v CA
DOCTRINE:
• In pledge, the sale of the thing pledged extinguishes the entire principal
obligation, such that the pledgor mayno longer recover proceeds of the sale in
excess of the amount of the principalobligation
• Sec 14 of theChattel Mortgage Lawexpressly ENTITLES the mortgagor (debtor)
to the balance of the proceeds, upon satisfaction of the principal obligation and
costs
FACTS:
Petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of
US$267,881.67, or the equivalent of P2,000,000.00 from respondent Bank. By virtue
of this loan, petitioner PAMECA, through its President, petitioner Herminio C. Teves,
executed a promissory note for the said amount, promising to pay the loan by
installment. As security for the said loan, a chattel mortgage was also executed over
PAMECAs properties in Dumaguete City, consisting of inventories, furniture and
equipment, to cover the whole value of the loan.
On January 18, 1984, and upon petitioner PAMECAs failure to pay,
respondent bank extrajudicially foreclosed the chattel mortgage, and, as sole bidder
in the public auction, purchased the foreclosed properties for a sum of P322,350.00.
On June 29, 1984, respondent bank filed a complaint for the collection of the
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balance of P4,366,332.46 with Branch 132 of the Regional Trial Court of Makati City
against petitioner PAMECA and private petitioners herein, as solidary debtors with
PAMECA under the promissory note.
ISSUE:
Whether or not the action can be instituted for deficiency of a debt after
the foreclosure of a chattel mortgage. - YES
HELD:
In the leading case of Ablaza vs. Ignacio, the lower court dismissed the
complaint for collection of deficiency judgment in view of Article 2141 of the Civil
Code, which provides that the provisions of the Civil Code on pledge shall also apply
to chattel mortgages, insofar as they are not in conflict with the Chattel Mortgage
Law. It was the lower courts opinion that, by virtue of Article 2141, the provisions of
Article 2115 which deny the creditor-pledgee the right to recover deficiency in case
the proceeds of the foreclosure sale are less than the amount of the principal
obligation, will apply.
This Court reversed the ruling of the lower court and held that the provisions
of the Chattel Mortgage Law regarding the effects of foreclosure of chattel
mortgage, being contrary to the provisions of Article 2115, Article 2115 in relation
to Article 2141, may not be applied to the case.
Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law,
states:
xxx
The officer making the sale shall, within thirty days thereafter, make in writing a
return of his doings and file the same in the office of the Registry of Deeds where
the mortgage is recorded, and the Register of Deeds shall record the same. The fees
of the officer for selling the property shall be the same as the case of sale on
execution as provided in Act Numbered One Hundred and Ninety, and the
amendments thereto, and the fees of the Register of Deeds for registering the
officers return shall be taxed as a part of the costs of sale, which the officer shall
pay to the Register of Deeds. The return shall particularly describe the articles sold,
and state the amount received for each article, and shall operate as a discharge of
the lien thereon created by the mortgage. The proceeds of such sale shall be
applied to the payment, first, of the costs and expenses of keeping and sale, and
then to the payment of the demand or obligation secured by such mortgage, and
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the residue shall be paid to persons holding subsequent mortgages in their order,
and the balance, after paying the mortgage, shall be paid to the mortgagor or
persons holding under him on demand. (Emphasis supplied)
It is clear from the above provision that the effects of foreclosure under the
Chattel Mortgage Law run inconsistent with those of pledge under Article 2115.
Whereas, in pledge, the sale of the thing pledged extinguishes the entire principal
obligation, such that the pledgor may no longer recover proceeds of the sale in
excess of the amount of the principal obligation, Section 14 of the Chattel Mortgage
Law expressly entitles the mortgagor to the balance of the proceeds, upon
satisfaction of the principal obligation and costs.
Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining
the excess of the sale proceeds there is a corollary obligation on the part of the
debtor-mortgagee to pay the deficiency in case of a reduction in the price at public
auction.
Makati Leasing and Finance Corp., vs Wearever Textile Mills, Inc.,
Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor of Makati
Leasing and Finance Corporation covering certain raw materials and machinery.
Upon default, Makati Leasing fi led a petition for judicial foreclosure of the
properties mortgaged. Acting on Makati Leasing’s application for replevin, the lower
court issued a writ of seizure. Pursuant thereto, the sheriff enforcing the seizure
order seized the machinery subject matter of the mortgage. In a petition for
certiorari and prohibition, the Court of Appeals ordered the return of the machinery
on the ground that the same can-not be the subject of replevin because it is a real
property pursuant to Article415 of the new Civil Code, the same being attached to
the ground by means of bolts and the only way to remove it from Wearever textile’s
plant would be to drill out or destroy the concrete fl oor. When the motion for
reconsideration of Makati Leasing was denied by the Court of Appeals, Makati
Leasing elevated the matter to the Supreme Court.
ISSUE
Whether the machinery in suit is real or personal property from the point of view of
the parties.
HELD
There is no logical justification to exclude the rule out the present case from the
application of the pronouncement in Tumalad v Vicencio, 41 SCRA 143. If a house of
strong materials, like what was involved in the Tumalad case, may be considered as
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personal property for purposes of executing a chattel mortgage thereon as long as
the parties to the contract so agree and no innocent third party will be prejudiced
thereby, there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may not be
likewise treated as such. This is really because one who has so agreed is estopped
from the denying the existence of the chattel mortgage.
In rejecting petitioner’s assertion on the applicability of the Tumalad doctrine, the
CA lays stress on the fact that the house involved therein was built on a land that
did not belong to the owner of such house. But the law makes no distinction with
respect to the ownership of the land on which the house is built and We should not
lay down distinctions not contemplated by law.
It must be pointed out that the characterization by the private respondent is
indicative of the intention and impresses upon the property the character
determined by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44
Phil. 630, it is undeniable that the parties to a contract may, by agreement, treat as
personal property that which by nature would be a real property as long as no
interest of third parties would be prejudiced thereby.
The status of the subject matter as movable or immovable property was not raised
as an issue before the lower court and the CA, except in a supplemental
memorandum in support of the petition filed in the appellate court. There is no
record showing that the mortgage has been annulled, or that steps were taken to
nullify the same. On the other hand, respondent has benefited from the said
contract.
Equity dictates that one should not benefit at the expense of another.
As such, private respondent could no longer be allowed to impugn the efficacy of
the chattel mortgage after it has benefited therefrom.
Therefore, the questioned machinery should be considered as personal property.
Monserrat v. Ceron
DOCTRINE:
SC holds that: since section 35 of the Corporation Law does not require the notation
upon the books of a corporation of transactions relating to its shares, except the
transfer of possession and ownership thereof, as a necessary requisite to the
validity of such transfer, the notation upon the aforesaid books of the corporation,
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of a chattel mortgage constituted on the shares of stock in question is not necessary
to its validity.
FACTS:
- Petitioner, Monserrat, was president and manager of the Manila Yellow Taxicab
Company Inc., and the owner of P1,200 common shares of stock of the company.
He assigned the usufruct (right in a property owned by another for a limited time or
until death) of half of his common shares of stock to Carlos Ceron (defendant).
- The assignment included the right to enjoy the profits from the shares, prohibiting
Ceron from selling, mortgaging, encumbering, or exercising any act implying
absolute ownership.
- Ceron mortgaged some of the shares of stock of Manila Yellow Taxicab, including
the 600 common shares assigned to him by Monserrat to Eduardo Matute,
President to Erma, Inc as payment of his debt.
- Matute was not informed of the document that contained Ceron’s rights and
prohibitions with regard to the 600 common shares of stock from Monserrat.
- *Original case did not mention how the case was instituted in the CFI.
- The CFI Manila rendered judgment in favor of the plaintiff declaring the plaintiff
the owner of the 600 shares of stock; and declaring the mortgage constituted on
the ownership of the shares of stock null and void and without force and effect,
although the mortgage on the usufruct enjoyed by the mortgage debtor Ceron in
the said 600 shares of stock is hereby declared valid; with costs against the
defendants.
- Erma Inc. and the Sheriff of Manila, the defendants therein, appealed from the
decision.
ISSUE:
1.) Whether it is necessary to enter upon the books of the corporation a mortgage
constituted on common shares of stock in order that such mortgage may be valid
and may have force and effect as against third persons.
2.) Whether or not the defendant entity, Erma, Inc., had knowledge of the
document that states that the transfer of the 600 shares of common stocks from
Monseratt to Ceron was only for the usufruct of the shares, and that Ceron bound
himself not to alienate nor encumber them.
HELD:
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1.) Section 35 of the Corporation Law provides the following: The capital stock of
stock corporations shall be divided into shares for which certificates signed by the
president or the vice-president, counter signed by the secretary or clerk and sealed
with the seal of the corporation, shall be issued in accordance with the by-laws.
Shares of stock so issued are personal property and may be transferred by delivery
of the certificate indorsed by the owner or his attorney in fact or other person
legally authorized to make the transfer. No transfer, however, shall be valid, except
as between the parties, until the transfer is entered and noted upon the books of
the corporation so as to show the names of the parties to the transaction, the date
of the transfer the number of the certificate, and the number of shares transferred.
- Section 35 of the Corporation Law does not require any entry except of transfers
of shares of stock in order that such transfers may be valid as against third persons.
- The word transfer is defined by the "Diccionario de la Academia de la Lengua
Castellana" as the act and effect of transferring; and the verb as to assign or waive
the right in, or absolute ownership of, a thing in favor of another, making him the
owner thereof.
- Section 3 of Act No. 1508, as amended by Act No. 2496, defines the phrase (chattel
mortgage) as: a conditional sale of personal property as security for the payment of
a debt... the condition being that the sale shall be avoided upon the seller paying to
the purchaser a sum of money or doing some other act named. If the condition is
performed according to its terms the mortgage and sale immediately become void,
and the mortgage is hereby divested of his title.
- The chattel mortgage is not the transfer referred to in section 35 the Corporation
law, which transfer should be entered and noted upon the books of a corporation in
order to be valid, and which, means the absolute and unconditional conveyance of
the title and ownership of a share of stock.
- Inasmuch as a chattel mortgage of the aforesaid title is not a complete and
absolute alienation of the dominion and ownership thereof, its entry and notation
upon the books of the corporation is not necessary requisite to its validity.
2.) The evidence shows that when Matute went to the office of the Manila Yellow
Taxicab Co., Inc., to examine the Stock and Transfer Book of the said corporation,
for the purpose of ascertaining the actual status of Carlos G. Ceron's shares of stock,
Matute found nothing but that the shares in question were recorded therein in the
name of said Carlos G. Ceron, free from all liens and encumbrances.
- The notation of liens and encumbrances was placed there only on May 5, 1931,
the same date on which the 600 common shares were to have been sold at public
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auction, in view of Carlos G. Ceron's default in the payment of the loan secured by
them.
- Therefore, defendant entity Erma, Inc. as conditional purchaser of the 600 shares
of stock, acquired, in good faith, Ceron’s right and title to the shares of stock.
SC holds that: since section 35 of the Corporation Law does not require the notation
upon the books of a corporation of transactions relating to its shares, except the
transfer of possession and ownership thereof, as a necessary requisite to the
validity of such transfer, the notation upon the aforesaid books of the corporation,
of a chattel mortgage constituted on the shares of stock in question is not necessary
to its validity.
Davao Saw Mill v. Castillo [G.R. No. 40411. August 7, 1935]
Doctrine: Machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant, but not when so
placed by a tenant, a usufructuary, or any person having only a temporary right,
unless such person acted as the agent of the owner.
Facts: The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the
Government of the Philippine Islands. It has operated a sawmill in Davao, but the
land upon which the business was conducted belonged to another person. On the
land the sawmill company erected a building which housed the machinery used by
it. Some of the implements thus used were clearly personal property, the conflict
concerning machines which were placed and mounted on foundations of cement.
In the contract of lease between the sawmill company and the owner of the land
there appeared that:
 Upon expiration, all the improvements and buildings introduced and
erected shall pass to the lessor
 In the event the lessee should leave or abandon the land leased before the
expiration, the improvements and buildings shall likewise pass to the
lessee
 The machines and accessories are not included in the improvements which
will pass to the lessee of the first part on the expiration or abandonment of
the land leased."
In another action, a judgment was rendered in favor of Davao Light & Power in that
action against Davao Saw Mill in that action seeking levy upon the properties as
personalty by the sheriff. The bidder, which was Davao Light & Power, and the
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defendant herein having consummated the sale, proceeded to take possession of
the machinery and other properties described in the corresponding certificates of
sale executed in its favor by the sheriff of Davao.
Davao Saw Mill claims the disputed property as personal in character by executing
chattel mortgages in favor of third persons. One of such persons is Castillo, the
appelle by assignment from the original mortgagees.
Issue: Was the machineries rendered as immovables?
Held: No.
it must again be pointed out that the Davao Saw Mill should have registered its
protest before or at the time of the sale of this property. It must further be pointed
out that while not conclusive, the characterization of the property as chattels by the
appellant is indicative of intention and impresses upon the property the character
determined by the parties.
It is machinery which is involved; moreover, machinery not intended by the owner
of any building or land for use in connection therewith, but intended by a lessee for
use in a building erected on the land by the latter to be returned to the lessee on
the expiration or abandonment of the lease.
According to the US Supreme Court, machinery which is movable in its nature only
becomes immobilized when placed in a plant by the owner of the property or
plant, but not when so placed by a tenant, a usufructuary, or any person having
only a temporary right, unless such person acted as the agent of the owner.
Reliance was made to a US decision over a property in Puerto Rico where it held
that, so far as the subject-matter with which we are dealing — machinery placed in
the plant — it is plain, both under the provisions of the Porto Rican Law and of the
Code Napoleon, that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant. Such
result would not be accomplished, if the placing of machinery in a plant was made
by a tenant or a usufructuary or any person having only a temporary right.
It follows that abstractly speaking the machinery placed did not lose its character of
movable property and become immovable by destination. But in the concrete
immobilization took place because of the express provisions of the lease, since the
lease in substance required the putting in of improved machinery, deprived the
tenant of any right to charge against the lessor the cost of such machinery, and it
was expressly stipulated that the machinery so put in should become a part of the
plant belonging to the owner without compensation to the lessee. Under such
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conditions the tenant in putting in the machinery was acting but as the agent of
the owner in compliance with the obligations resting upon him, and the
immobilization of the machinery which resulted arose in legal effect from the act
of the owner in giving by contract a permanent destination to the machinery.
TORRES VS LIMJAP
FACTS:
The plaintiffs alleged that Jose B. Henson, in his lifetime, executed in their favor a
chattel mortgage on his drug store at Nos. 101-103 Calle Rosario, known as
Farmacia Henson, to secure a loan of P7,000, although it was made to appear in the
instrument that the loan was for P20,000.The plaintiffs alleged that the defendant
violated the terms of the mortgage and that, in consequence thereof they became
entitled to the possession of the chattels and to foreclose their mortgages thereon.
Upon the petition of the plaintiffs and after the filing of the necessary bonds, the
court issued in each case an order directing the sheriff of the City of Manila to take
immediate possession of said drug stores.
After hearing the evidence adduced during the trial and on July 17, 1930, the
Honorable Mariano Albert, judge, in a very carefully prepared opinion, arrived at
the conclusion (a) that the defendant defaulted in the payment of interest on the
loans secured by the mortgages, in violation of the terms thereof; (b) that by reason
of said failure said mortgages became due, and (c) that the plaintiffs, as
mortgagees, were entitled to the possession of the drug stores Farmacia Henson at
Nos. 101-103 Calle Rosario and Henson's Pharmacy at Nos. 71-73 Escolta.
Accordingly, a judgment was rendered in favor of the plaintiffs and against the
defendant, confirming the attachment of said drug stores by the sheriff of the City
of Manila and the delivery thereof to the plaintiffs. 
ISSUE:
Whether or not a Chattel Mortgage can cover after-acquired properties
HELD:
As a general rule, pursuant to Section 7 of Act No. 1508, a chattel mortgage shall be
deemed to cover only the property described therein and not like or substituted
property thereafter acquired by the mortgagor and placed in the same depository
as the property originally mortgage. However,  it could not have been the intention
of the Philippine Commission to apply the provision of section 7 above quoted to
stores open to the public for retail business, where the goods are constantly sold
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and substituted with new stock, such as drug stores, grocery stores, dry-goods
stores, etc. If said provision were intended to apply to this class of business, it
would be practically impossible to constitute a mortgage on such stores without
closing them, contrary to the very spirit about a handicap to trade and business,
would restrain the circulation of capital, and would defeat the purpose for which
the law was enacted, to wit, the promotion of business and the economic
development of the country.
Thus, a stipulation in the mortgage, extending its scope and effect to after-acquired
property, is valid and binding —
. . . where the after-acquired property is in renewal of, or in substitution
for, goods on hand when the mortgage was executed, or is purchased with
the proceeds of the sale of such goods, etc. (11 C.J., p. 436.)
TOLENTINO VS. BALTAZAR
FACTS:
1. Baltazar filed a homestead application which was approved by Director of Lands
on April 14,1940. On April 1, 1941, he mortgaged the present and future
improvements on said land toTolentino for the sum of 1500.
2. Stipulated that in case of default, Tolentino could elect, either to foreclose the
mortgage or tocompel the debtor to execute deed of absolute sale.
3. Baltazar died and his son Basilio took his place for the application of homestead,
which was soongranted and was issued Original Certificate of Title No. P-790.
4. BasilioBaltazar filed with the Bureau of Lands a petition praying that the
homestead application in his father's name be cancelled, and that, in lieu thereof,
his own (Basilio's)application be admitted. This petition was soon granted;
5. Tolentino filed an action against Basilio for the cancellation of the OCT upon the
ground thatBasilio had secured it by fraud.
6. CFI: Basilio had not been guilty of fraud in securing the homestead patent and
certificate of title in his own name and Director of Lands is estopped from saying
there is fraud since it is its duty toknow if there is fraud in the first place. And that
Tolentino has merely a money claim that shouldbe filed against the estate of the
deceased.
ISSUE:
WON Tolentino can still foreclose the mortgage?
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HELD:
Yes. A land acquired by homestead patent may neither be encumbered or
alienated from the date of theapproval of the corresponding homestead application
and for a period of five (5) years after theissuance of the patent, nor be held liable
for any debt contract within such period of time. However, said Section 118 of
Commonwealth Act No. 141 explicitly permits the encumbrance, by mortgage
or pledge ofthe improvements and crops on the land, without limitation in point
of time. At any rate, even if BasilioBaltazar had not been guilty of fraud in securing
the homestead patent and the certificate of title in his favor, it has been established
that when plaintiff saw the children of Angel Baltazar shortly after his death, they
promised to pay his debt in favor of Pastor Tolentino. In other words,
BasilioBaltazar knew, before he got said patent and the certificate of title, that the
present and future improvements on the land were subject to a valid and subsisting
mortgage in favor of Pastor Tolentino and acknowledged the same. Hence, he must
be deemed to have secured such patent and title subject to a subsisting trust,
insofar as plaintiff's mortgage is concerned, and, under plaintiff's prayer for such
relief as may be deemed just and equitable, this action may be considered as one to
compel the defendant to execute the instrument necessary for the registration of
said mortgage and its annotation on plaintiff's certificate of title.
DIZON vs. GABORRO
Facts:
Petitioner Jose P. Dizon was the owner of the three (3) parcels of land. He
constituted a first mortgage lien in favor of the Development Bank of the
Philippines in order to secure a loan in the sum of P38,000.00 trial a second
mortgage lien in favor of the Philippine National Bank to cure his indebtedness to
said bank in the amount of P93,831.91.Petitioner Dizon having defaulted in the
payment of his debt, the Development Bank of the Philippines foreclosed the
mortgage extra judicially. Sometime prior to October 6, 1959 Alfredo G. Gaborro
trial Jose P. Dizon met. Gaborro became interested in the lands of Dizon. Dizon
originally intended to lease to Gaborro the property which had been lying idle for
some time. But as the mortgage was already foreclosed by the DPB trial the bank in
fact purchased the lands at the foreclosure sale on May 26, 1959, they abandoned
the projected lease. Dizon and Alfredo Gaborro. on the same day, October 6, 1959,
constitute in truth and in fact an absolute sale of the three parcels of land therein
described or merely an equitable mortgage or conveyance thereof by way of
security for reimbursement or repayment by petitioner Jose P. Dizon of any and
all sums which may have been paid to the Development Bank of the Philippines and
7

the Philippine National Bank by Alfredo G. Gaborro Said documents were executed
by the parties and the payments were made by Gaborro for the debt of Dizon to
said banks after the Development Bank of the Philippines had foreclosed the
mortgage executed by Dizon and during the period of redemption after the
foreclosure sale of the mortgaged property to said creditor bank.
Gaborros contention;
Deed of Sale with Assumption of Mortgage trial Option to Purchase Real Estate
Dizon’s contention:
Merely an equitable mortgage or conveyance thereof by way of security
forreimbursement, refund or repayment by petitioner Jose P. Dizon
Issue
Whether or not the deed was of a Deed of Sale with Assumption of Mortgage', trial
Option to Purchase Real Estate or merely an equitable mortgage or conveyance
thereof by way of security for reimbursement, refund or repayment by petitioner
Jose P. Dizon?
Held:
In the light of the foreclosure proceedings and sale of the properties, a legal point
of primary importance here, as well as other relevant facts and circumstances, We
agree with the findings of the trial and appellate courts that the true intention of
the parties is that respondent Gaborro would assume and pay the indebtedness of
petitioner Dizon to DBP and PNB, and in consideration therefor, respondent
Gaborro was given the possession, the enjoyment and use of the lands until
petitioner can reimburse fully the respondent the amounts paid by the latter to DBP
and PNB, to accomplish the following ends: (a) payment of the bank obligations; (b)
make the lands productive for the benefit of the possessor, respondent Gaborro, (c)
assure the return of the land to the original owner, petitioner Dizon, thus rendering
equity and fairness to all parties concerned.In view of all these considerations, the
law and Jurisprudence, and the facts established. We find that the agreement
between petitioner Dizon and respondent Gaborro is one of those inanimate
contracts under Art.1307 of the New Civil Code whereby petitioner and respondent
agreed "to give and to do" certain rights and obligations respecting the lands and
the mortgage debts of petitioner which would be acceptable to the bank. But
partaking of the nature of the antichresis insofar as the principal parties, petitioner
Dizon and respondent Gaborro, are concerned.
DE BARRETO v VILLANUEVA
FACTS:
Aguilar |Chicano | Cruz | Garcia | Huan | Santos, B. | Santos, K.
Credit – Seňga 16-17
Rosario Cruzado sold all her right, title, and interest and that of her children in the
house and lot herein involved to Villanueva for P19K. The purchaser paid P1,500 in
advance, and executed a promissory note for the balance. However, the buyer
could only pay P5,500 On account of the note, for which reason the vendor
obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva
was able to secure a clean certificate of title and mortgaged the property to
appellant Barretto to secure a loan of P30K, said mortgage having been duly
recorded.
Villanueva defaulted on the mortgage loan in favor of Barretto. The latter
foreclosed the mortgage in her favor, obtained judgment, and upon its becoming
final asked for execution. Cruzado filed a motion for recognition for her "vendor's
lien" invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing,
the court below ordered the "lien" annotated on the back of the title, with the
proviso that in case of sale under the foreclosure decree the vendor's lien and the
mortgage credit of appellant Barretto should be paid pro rata from the proceeds.
ISSUE:
Whether or not RFC should be regarded as the true vendor of the property. - YES
HELD:
Pursuant to the former Code, conflicts among creditors entitled to preference as to
specific real property under Article 1923 were to be resolved according to an order
of priorities established by Article 1927, whereby one class of creditors could
exclude the creditors of lower order until the claims of the former were fully
satisfied out of the proceeds of the sale of the real property subject of the
preference, and could even exhaust proceeds if necessary.
Under the system of the Civil Code of the Philippines however, only taxes enjoy a
similar absolute preference. All the remaining thirteen classes of preferred creditors
under Article 2242 enjoy no priority among themselves, but must be paid pro-rata
i.e., in proportion to the amount of the respective credits. Thus, Article 2249
provides:
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 rights."
But in order to make this prorating fully effective, the preferred creditors
enumerated in Nos. 2 to 14 of Article 2242 (or such of their, as have credits
8

outstanding) must necessarily be convened, and the import of their claims
ascertained. It is thus apparent that the full, application (of Articles 2249 and 2242
demands that there must be first some proceedings where the claims of all the
preferred creditors may be bindingly adjudicated, such as insolvency, the
settlement of decedents estate under Rule 87 of the Rules of Court, or other
liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that —
The claims or credits enumerated in the two preceding articles" shall be
considered as mortgages or pledges of real or personal property, or liens within
the purview of legal provisions governing insolvency . . . (Emphasis supplied),
And the rule is further clarified in he Report of the Code Commission, as follows:
The question as to whether the Civil Code and the insolvency Law can be
harmonized is settled by this Article (2243). The preferences named in Articles
2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the
Insolvency Law." (Emphasis supplied) .
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 require the
Aguilar |Chicano | Cruz | Garcia | Huan | Santos, B. | Santos, K.
Credit – Seňga 16-17
character and rank of a statutory lien co-equal to the mortgagee's recorded
encumbrance, and must remain subordinate to the latter.
We are understandably loathed (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 enumerate 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 unforeseeable proportions that
could lead to economic disaster.
Upon the other hand, it does not appear excessively burdensome 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.
Therefore, when after defaulting in their payments due under the resale contract
with the RFC the appellants Cruzados sold to Villanueva "their rights, title, interest
and dominion" to the property, they merely assigned whatever rights or claims they
might still have thereto; the ownership of the property rested with the RFC. The
sale from Cruzado to Villanueva, therefore, was not so much a sale of the land
and its improvements as it was a quit-claim deed in favor of Villanueva. In law,
the operative sale was that from the RFC to the latter, and it was the RFC that
should be regarded as the true vendor of the property. At the most, the Cruzados
transferred to Villanueva an option to acquire the property, but not the property
itself, and their credit, therefore, can not legally constitute a vendor's lien on the
corpus of that property that should stand on an equal footing with the mortgaged
credit held by appellant Barretto.
Philippine Savings Bank vs Lantin
Duplex-apartment house on a lot in Sampaloc, Manila ownedby Filomeno and
Socorro Tabliganduplex built byCandido Ramos, a duly licensed architect and a
9

building contractor for32, 927spouses paid7,139only- hence the architect used his
own money to finish the construction of the duplex-apartment -25,788.50in Dec
1966 and Feb 1967 spousesTabligan obtained from Philippine Savings bank 3 loans
in the total amountof 35,000to complete the constructionof the duplex
apartmentto secure the payment of the loans, thespouses executed 3 PNs and 3
Deeds of REM over the property subjectall REM wereregistered with ROD
Manila, TCTs were free from all liens and encumbrances at that timespouses later
failed to pay their monthly amortizations so bank foreclosed on the mortgage and
was the highest bidder at the public auction. 
Lantin also filed an action against spouses to collect on unpaid cost of the
construction and later succeeded in obtaining a writ of preliminary attachment over
the property- later adverse claim annotated at the back of the
TCT
Trial court ruling: in favor of Architect but
writ of exec unsatisfied
Architect wrote letter to PSB for the delivery to him of his pro- rata share of the
property. PSB refused to pay. 
ISSUE:
WON architect is entitled to claimpro- rata share in the value of the property in
question
HELD
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, p. 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
Aguilar |Chicano | Cruz | Garcia | Huan | Santos, B. | Santos, K.
Credit – Seňga 16-17
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 Barreto 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.
Insolvency proceedings end settlement of a decedent’s estate are both proceedings
in rem which are binding 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.The proceedings in
the court below do not partake of the insure 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.
ANNOTATION OF CLAIMS AND CREDITS AS STATUTORY LIENS; RELEVANCE TO THE
STABILITY OF THE TORRENS SYSTEM:
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 cannot be
conclusive. It will not bar other creditors in the event they show up and present
their claims State 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 Barreto case sanction
such instability. In fact, an annotation, as suggested above, would insure 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).
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
10

settlement of the decedent’s estate proceeding, the well established principle must
be applied that a purchaser in good faith and for value takes register land free from
liens and encumbrances other than statutory liens and those recorded in the
Certificate of Title. It Is an limited 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 Tabligan was free from any recorded lien and encumbrances, so
that the only registered liens in the title were deeds in favor of the petitioner.
DBP vs. NLRC
FACTS:
November 14, 1986, private respondents filed with DOLE- Daet, Camarines Norte,
17 individual complaints against Republic Hardwood Inc. (RHI) for unpaid wages and
separation pay. These complaints were thereafter endorsed to Regional Arbitration
Branch of the NLRC since the petitioners had already been terminated from
employment.
RHI alleged that it had ceased to operate in 1983 due to the government ban
against tree-cutting and that in May 24, 1981, its sawmill was totally burned
resulting in enormous losses and that due to its financial setbacks, RHI failed to pay
its loan with the DBP. RHI contended that since DBP foreclosed its mortgaged assets
on September 24,1985, then any adjudication of monetary claims in favor of its
former employees must be satisfied against DBP. Private respondent impleaded
DBP.
Labor Arbiter  favored private respondents and held RHI and DBP jointly and
severally liable to private respondents. DBP appealed to the NLRC. NLRC affirmed
LA’s judgment. DBP filed M.R. but it was dismissed. Thus, this petition for certiorari.
ISSUE:
(1) Whether the private respondents are entitled to separation pay.
(2) Whether the private respondents’ separation pay should be preferred than the
DBP’s lien over the RHI’s mortgaged assets.
RULING:
(1) Yes. Despite the enormous losses incurred by RHI due to the fire that gutted the
sawmill in 1981 and despite the logging ban in 1953, the uncontroverted claims for
separation pay show that most of the private respondents still worked up to the
end of 1985. RHI would still have continued its business had not the petitioner
foreclosed all of its assets and properties on September 24, 1985. Thus, the closure
Aguilar |Chicano | Cruz | Garcia | Huan | Santos, B. | Santos, K.
Credit – Seňga 16-17
of RHI’s business was not primarily brought about by serious business losses. Such
closure was a consequence of DBP’s foreclosure of RHI’s assets. The Supreme Court
applied Article 283 which provides:
“. . . in cases of closures or cessation of operations of establishment or undertaking
not due to serious business losses or financial reverses, the separation pay shall be
equivalent to 1 month pay or at least 1/2 month pay for every year of service,
whichever is higher. . . .”
(2) No.NLRC committed grave abuse of discretion when it affirmed the LA’s ruling.
DBP’s lien on RHI’s mortgaged assets, being a mortgage credit, is a special
preferred credit under Article 2242 of the Civil Code while the workers’ preference
is an ordinary preferred credit under Article 2244.
A distinction should be made between a preference of credit and a lien. A
preference applies only to claims which do not attach to specific properties. A lien
creates a charge on a particular property. The right of first preference as regards
unpaid wages recognized by Article 110 does not constitute a lien on the property
of the insolvent debtor in favor of workers. It is but a preference of credit in their
favor, a preference in application. It is a method adopted to determine and specify
the order in which credits should be paid in the final distribution of the proceeds of
the insolvent’s assets. It is a right to a first preference in the discharge of the funds
of the judgment debtor.
Article 110 of the Labor Code does not create a lien in favor of workers or
employees for unpaid wages either upon all of the properties or upon any particular
property owned by their employer. Claims for unpaid wages do not therefore fall at
all within the category of specially preferred claims established under Articles 2241
and 2242 of the Civil Code, except to the extent that such claims for unpaid wages
are already covered by Article 2241, (6)- (claims for laborers’ wages, on the goods
manufactured or the work done); or by Article 2242,(3)- (claims of laborers and
other workers engaged in the construction, reconstruction or repair of buildings,
canals and other works, upon said buildings, canals and other works.
Since claims for unpaid wages fall outside the scope of Article 2241 (6) and 2242 (3),
and not attached to any specific property, they would come within the category of
ordinary preferred credits under Article 2244.
(Note: SC favored DBP kasi yung mortgage nila against RHI was executed prior to
the amendment of Article 110. The amendment can’t be given retroactive effect
daw. Pero sa present, 1st priority na talaga ang laborer’s unpaid wages regardless
kung may mortgage or wala ang ibang creditors ng employer)
11

Article 110 of the Labor Code has been amended by R.A. No. 6715 and now reads:
“Article 110. Worker preference in case of bankruptcy. – In the event of bankruptcy
or liquidation of an employers business, his workers shall enjoy first preference as
regards their unpaid wages and other monetary claims, any provision of law to the
contrary notwithstanding. Such unpaid wages, and monetary claims shall be paid in
full before the claims of the Government and other creditors may be paid.”
The amendment “expands worker preference to cover not only unpaid wages but
also other monetary claims to which even claims of the Government must be
deemed subordinate.” Hence, under the new law, even mortgage credits are
subordinate to workers’ claims.
R.A. No. 6715, however, took effect only on March 21, 1989. The amendment
cannot therefore be retroactively applied to, nor can it affect, the mortgage credit
which was secured by the petitioner several years prior to its effectivity.
Even if Article 110 and its Implementing Rule, as amended, should be interpreted to
mean `absolute preference,’ the same should be given only prospective effect in
line with the cardinal rule that laws shall have no retroactive effect, unless the
contrary is provided. To give Article 110 retroactive effect would be to wipe out the
mortgage in DBP’s favor and expose it to a risk which it sought to protect itself
against by requiring a collateral in the form of real property.
The public respondent, therefore, committed grave abuse of discretion when it
retroactively applied the amendment introduced by R.A. No. 6715 to the case at
bar.
AC Ransom Labor Union v. NLRC [G.R. No. L-69494. May 29, 1987]
Doctrine: The worker preference applies even if the employer's properties are
encumbered by means of a mortgage contract. Workers are to be paid in full
before other creditors may establish any claim to a share in the assets of the
employer.
Facts: In an earlier case, the Court held AC Ransom guilty of unfair labor practices
and discrimination and held them liable for backwages. The backwages due to the
22 employees having been computed at P199K.
Successive Motions for Execution were filed by the UNION, which RANSOM
opposed stressing its "precarious financial position if immediate execution of the
backwages would be ordered." Upon the UNION's Motion asking the CIR that
RANSOM be ordered to deposit with the Court the backwages due them. RANSOM
Aguilar |Chicano | Cruz | Garcia | Huan | Santos, B. | Santos, K.
Credit – Seňga 16-17
manifested that it did not have the necessary funds to deposit and asked that the
employees' earnings elsewhere during this suspension be deducted. After several
hearings, a recomputation was made and a reduction was made to P164K. The
reasons given by RANSOM for the clearance application were financial difficulties on
account of obligations incurred prior to 1966.
The UNION sought execution of the decision alleging that although RANSOM had
assumed a posture of suffering from business reverse, its officers and principal
stockholders had organized a new corporation, the Rosario Industrial Corporation,
using the same equipment, personnel, business stocks and the same place of
business. For its part, RANSOM declared that ROSARIO is a distinct and separate
corporation, which was organized long before these instant cases were decided
adversely against RANSOM.
It appears that sometime in 1969, ROSARIO in fact, was established and engaged in
the same line of business as RANSOM with the same the owners, officers, place of
business and used the same equipment.
Thus writs of execution issued against Ransom, but to no avail. Thus the UNION
sought the garnishment of the personal property and estate RANSOM's officers.
RANSOM claims that it can no longer be enforced since more than 5 years have
already lapsed.
During the pendency of the case, some of the original officers have died, thus a new
decision (the GENILO ORDER) was made ordering the living officers and the new
officers to be liable. The said officers however claim that they were never
impleaded as parties in the Trial Court, and that their personal liabilities were never
at issue, thus tantamount to a denial of due process.
UNION on the other hand seeks the piercing of the corporate veil of Ransom.
Issue: is it proper to pierce the corporate veil of RANSOM and hold the new officers
liable?
Held: Yes
Incontrovertible is the fact that RANSOM was found guilty of unfair labor practices.
The CIR Decision became final, conclusive, and executory after the Court denied the
RANSOM petition for review. In other words, this Court upheld that portion of the
judgment ordering the officers and agents of RANSOM to reinstate the laborers
concerned, with backwages. The inclusion of the officers and agents was but
proper since a corporation, as an artificial being, can act only through them.
12

The officers and agents listed in the Genilo Order except for those who have since
passed away, should, as affirmed by this Court, be held jointly and severally liable
for the payment of backwages to the 22 strikers.
This finding does not ignore the legal fiction that a corporation has a personality
separate and distinct from its stockholders and members, for, as the Court had held
"where the incorporators and directors belong to a single family, the corporation
and its members can be considered as one in order to avoid its being used as an
instrument to commit injustice," or to further an end subversive of justice.
The alleged bankruptcy of RANSOM furnishes no justification for non-payment of
backwages to the employees concerned taking into consideration Article 110 of the
NLRC, which provides — In the event of bankruptcy or liquidation of an
employer's business, his workers shall enjoy first preference as regards wages due
them for services rendered during the period prior to the bankruptcy or
liquidation.
The term "wages" refers to all remunerations, earnings and other benefits in terms
of money accruing to the employees or workers for services rendered. They are to
be paid in full before other creditors may establish any claim to a share in the assets
of the employer. The foregoing provisions are but in consonance with the principles
of social justice and protection to labor guaranteed by past and present
Constitutions and are not really being given any retroactive effect when applied
herein.
The decision of the CIR was rendered on August 19, 1972. Clearance to RANSOM to
cease operations and terminate employment granted by the Secretary of Labor was
made effective on May 1, 1973. The right of the employees concerned to
backwages awarded them, therefore, had already vested at the time and even
before clearance was granted. Note should also be taken of the fact that the
clearance was without prejudice to the right of subject employees to seek redress
of grievances under existing laws and decrees.
The worker preference applies even if the employer's properties are encumbered
by means of a mortgage contract, as in this case. So that, when machinery and
equipment of RANSOM were sold to Revelations Manufacturing Corporation for
P2M in 1975, the right of the 22 laborers to be paid from the proceeds should
have been recognized, even though it is claimed that those proceeds were turned
over to the Commercial Bank and Trust Company (Comtrust) in payment of
RANSOM obligations, since the workers' preference is over and above the claim of
other creditors.
Aguilar |Chicano | Cruz | Garcia | Huan | Santos, B. | Santos, K.
Credit – Seňga 16-17
The contention, therefore, of the heirs of the late Maximo C. Hernandez, Sr. that
since they paid from their own personal funds the balance of the amount owing by
RANSOM to Comtrust they are the "preferential creditors" of RANSOM, is clearly
without merit. Workers are to be paid in full before other creditors may establish
any claim to a share in the assets of the employer.
Philippine National Bank vs. Cruz, et al, G.R. No. 80593
FACTS:
Sometime in 1980, Aggregate Mining Exponents (AMEX) laid-off majority of its
employees because it was experiencing business reverses, but the remaining 30 %
of the employeeswere not paid their wages. This non-
payment went on until July 1982 when AMEX completely ceased operations and
instead entered into an operating agreement with T.M. San Andres Development
Corporation whereby the latter would be leasing the equipment and machineries
of AMEX. 
The unpaid employees sought redress from the Labor Arbiter who, on August 27,
1986, decided in their favour, and ordered AMEX to pay the unpaid wages and
separation pay of the employees. AMEX did not appeal from this decision.
ButPNB, in its capacity as mortgagee-creditor of AMEX interposed an appeal with th
erespondent NLRC, not being satisfied with the outcome of the case. PNB alleged
that the workers' lien does not cover the termination or severance pay which the
workers likewise claimed they were entitled to. In a resolution dated October 27,
1987, the NLRC affirmed the decision of Labor Arbiter.
ISSUE:
WHETHER ARTICLE 110 OF THE LABOR CODE MUST BE READ IN RELATIONTO
ARTICLES 2241, 2242, 2243, 2244 AND 2245 OF THE CIVIL CODE CONCERNINGTHE
CLASSIFICATION, CONCURRENCE AND PREFERENCE OF CREDITS
HELD:
NO, this Court must uphold the preference accorded to the private respondents in
view of the provisions of Article 110 of the Labor Code which are clear and which
admit of no other interpretation. The phrase "any provision of law to the contrary
notwithstanding" indicates that such preference shall prevail despite the order set
forth in Articles 2241 to2245 of the Civil Code. No exceptions were provided under
the said article, henceforth, none shall be considered. Furthermore, the Labor Code
13

was signed into Law decades after the Civil Code took effect. Article 110 of the
Labor Code provides that: Art. 110. Worker preference in case of bankruptcy. In the
event of bankruptcy or liquidation of an employer's business - his workers shall
enjoy first preference as regards their unpaid wages and other monetary claims,
any provision of law to the contrary notwithstanding. Such unpaid wages and
monetary claims, shall be paid in full before claims of the government and other
creditors may be paid. Moreover, in A.C. Ransom that the conflict between Article
110 of the Labor Code and Article 2241 to 2245 of the Civil Code must be resolved
in favor of the former. A contrary ruling would defeat the purpose for which Article
110 was intended; that is, for the protection of the working class, pursuant to  the
never-ending quest for social justice.
DBP VS. SANTOS
FACTS:
LIRAG was a mortgage debtor of DBP. LAND was the bargaining representative of
the more or less 800 former rank and file employees of LIRAG. LIRAG started
terminating the services of its employees on the ground of retrenchment. LIRAG has
since ceased operations presumably due to financial reverses. Joselito Albay, one of
the employees dismissed, filed a complaint before NLRC against LIRAG for illegal
dismissal. LAND also filed a Complaint against LIRAG seeking separation pay, 13th
month pay, gratuity pay, sick leave and vacation leave pay and emergency
allowance. These two cases were consolidated and jointly heard by the NLRC. Labor
Arbiter ordered LIRAG to pay the individual complainants. The NLRC affirmed. That
judgment became final and executory. A Writ of Execution was issued.DBP
extrajudicially foreclosed the mortgaged properties for failure of LIRAG to pay its
mortgage obligation. DBP acquired said mortgaged properties for P31,346,462.90.
Since DBP was the sole mortgagee, no actual payment was made, the amount of
the bid having been merely credited in partial satisfaction of LIRAG's indebtedness.
By reason of said foreclosure, the Writ of Execution issued in favor of the
complainants remained unsatisfied. LAND filed a "Motion for Writ of Execution and
Garnishment" of the proceeds of the foreclosure sale. Labor Arbiter granted the
Writ of Garnishment and directed DBP to remit to the NLRC the sum of
P6,292,380.00 out of the proceeds of the foreclosed properties of LIRAG sold at
public auction in order to satisfy the judgment previously rendered.DBP sought
reconsideration which was denied. DBP appealed that denial to the NLRC
which affirmed the appealed Order and dismissed the DBP appeal. The Asset
Privatization Trust (APT) became the transferee of the DBP foreclosed assets of
LIRAG. A partial Compromise Agreement was entered into between APT and LAND
whereby APT paid the complainants-employees, the sum of P750,000.00 "in full
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Credit – Seňga 16-17
settlement of their claims, past and present, with respect to all assets of LITEX
transferred by DBP to APT”. However LAND filed its opposition to the Compromise
Agreement for being contrary to law, morals and public policy.
ISSUE:
Whether or not the NLRCgravely abused its discretionin affirming the Order of the
Labor Arbiter granting theWrit of Garnishment out of the proceeds of LIRAG's
properties foreclosed by DBP to satisfy the judgment in these cases.
RULING:
We are constrained to rule in the affirmative. Article 110 of the Labor Code
provides:
Worker preference in case of bankruptcy 
In the event of bankruptcy or liquidation of an employer's business, his workers
shall enjoy first preference as regards wages due them for services rendered during
the period prior to the bankruptcy or liquidation, any provision to the contrary
notwithstanding. Unpai dwages shall be paid in full before other creditors may
establish any claim to a share in the assets of the employer. Because of its impact
on the entire system of credit, Article 110 of the Labor Code cannot be viewed in
isolation but must be read in relation to the Civil Code scheme on classification and
preference of credits. In the event of insolvency, a principal objective should be to
effect an equitable distribution of the insolvent's property among his creditors. To
accomplish this there must first be some proceeding where notice to all of the
insolvent creditors may be given and where the claims of preferred creditors may
be bindingly A distinction should be made between a preference of credit and a
lien. A preference applies only to claims which do not attach to specific properties.
A lien creates a charge on a particular property. The right of first preference as
regards unpaid wages recognized by Article 110 does not constitute a lien on the
property of the insolvent debtor in favor of workers. It is but a preference of credit
in their favor, a preference in application. It is a method adopted to determine and
specify the order in which credits should be paid in the final distribution of the
proceeds of the insolvent's assets. It is a right to a first preference in the discharge
of the funds of the judgment debtor.
ONG vs CA
FACTS:
 The RBO was the owner in fee simple of two parcels of land including the
improvements thereon situated in Tagaytay City x xx particularly described
in TCT Nos. 13769 and 13770
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 Said parcels of land were duly mortgaged by RBO in favor of petitioner on
December 29, 1983 to guarantee the payment of Omnibus Finance, Inc.,
which is likewise now undergoing liquidation proceedings of its money
market obligations to petitioner in the principal amount of P863,517.02 x
xx
 Omnibus Finance, Inc., not having seasonably settled its obligations to
petitioner, the latter proceeded to effect the extrajudicial foreclosure of
said mortgages, such that on March 23, 1984, the City Sheriff of Tagaytay
City issued a Certificate of Sale in favor of petitioner xxx
 Said Certificate of Sale x xx was duly registered with the Registry of Deeds
of Tagaytay City on July 16, 1985, as shown in the certified true copies of
the aforementioned titles x xx
 Respondents failed to seasonably redeem said parcels of land, for which
reason, petitioner has executed an Affidavit of Consolidation of Ownership
which, to date, has not been submitted to the Registry of Deeds of
Tagaytay City, in view of the fact that possession of the aforesaid titles or
owners duplicate certificates of title remains with the RBO.
 To date, petitioner has not been able to effect the registration of said
parcels of land in his name in view of the persistent refusal of respondents,
despite demand, to surrender RBOs copies of its owners certificates of title
for the parcels of land covered by TCT Nos. 13769 and 13770. [4]
 Respondent RBO filed a motion to dismiss on the ground of res
judicata alleging that petitioner had earlier sought a similar relief from Br.
18 of the Regional Trial Court of Tagaytay City, which case was dismissed
with finality on appeal before the Court of Appeals.
 In a supplemental motion to dismiss, respondent RBO contended that it
was undergoing liquidation and, pursuant to prevailing jurisprudence, it is
the liquidation court which has exclusive jurisdiction to take cognizance of
petitioners claim.
 On 7 May 1991 the trial court denied the motion to dismiss because it
found that the causes of action in the previous and present cases were
different although it was silent on the jurisdictional issue. Accordingly,
respondent RBO filed a motion for reconsideration but the same was
similarly rejected in the order of June 11, 1991 holding that: (a) subject
parcels of land were sold to petitioner through public bidding on 23 March
1984 and, consequently, said pieces of realty were no longer part of the
assets of respondent RBO; and, (b) in the same token, subject lots were no
longer considered assets of respondent RBO when its liquidation was
commenced by the Central Bank on 9 November 1984 and when the
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petition for assistance in its liquidation was approved by the Regional Trial
Court of Olongapo City on 30 May 1985.
 On 5 July 1991 respondent RBO filed a manifestation and urgent motion
for reconsideration arguing that the validity of the certificate of sale issued
to petitioner was still at issue in another case between them and therefore
the properties covered by said certificate were still part and parcel of its
assets.
 Still unpersuaded by respondent RBOs arguments, the trial court denied
reconsideration in its order of 18 September 1991 prompting the bank to
elevate the case to respondent Court of Appeals by way of a petition for
certiorari and prohibition. On 12 February 1992 respondent court rendered
a decision annulling the challenged order of the court a quo  dated 19 June
1991 which sustained the jurisdiction of the trial court as well as the order
of 18 September 1991 denying reconsideration thereof. Moreover, the trial
judge was ordered to dismiss Civil Case No. Q-91-8019 without prejudice to
the right of petitioner to file his claim in the liquidation proceedings (Sp.
Proc. No. 170-0-85) pending before Br. 73 of
the Regional Trial Court ofOlongapo City.[5]
ISSUE:
Is RBOs mortgage of TCT Nos. 13769 and 13770 in favor of petitioner and its
subsequent foreclosure are presumed valid and regular?
HELD:
 The fact that the insolvent bank is forbidden to do business, that its assets
are turned over to the Superintendent of Banks, as a receiver, for
conversion into cash, and that its liquidation is undertaken with judicial
intervention means that, as far as lawful and practicable, all claims against
the insolvent bank should be filed in the liquidation proceeding
 We explained therein the rationale behind the provision, i.e., the judicial
liquidation is intended to prevent multiplicity of actions against the
insolvent bank.  It is a pragmatic arrangement designed to establish due
process and orderliness in the liquidation of the bank, to obviate the
proliferation of litigations and to avoid injustice and arbitrariness.  The
lawmaking body contemplated that for convenience only one court, if
possible, should pass upon the claims against the insolvent bank and that
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the liquidation court should assist the Superintendent of Banks and
regulate his operations.
 The phrase (T)he court shall have jurisdiction in the same proceedings to
adjudicate disputed claims  against the bank appears to have misled
petitioner. He argues that to the best of his personal knowledge there is no
pending action filed before any court or agency which contests his right
over subject properties. Thus his petition before the Regional Trial Court of
Quezon City cannot be considered a disputed claim as contemplated by
law.
 It is not necessary that a claim be initially disputed in a court or agency
before it is filed with the liquidation court. As may be gleaned in
the Hernandez  case, the term disputed claim in the provision simply
connotes that
 [n] the course of the liquidation, contentious cases might arise wherein a
full-dress hearing would be required and legal issues would have to be
resolved. Hence, it would be necessary injustice to all concerned that a
Court of First Instance (now Regional Trial Court) x xx assist and supervise
the liquidation and x xx act as umpire or arbitrator in the allowance and
disallowance of claims.
 Petitioner must have overlooked the fact that since respondent RBO is
insolvent other claimants not privy to their transaction may be involved. As
far as those claimants are concerned, in the absence of certificates of title
in the name of petitioner, subject lots still form part of the assets of the
insolvent bank.
BANCO FILIPINO v NLRC
FACTS:
After BANCO FILIPINO SAVINGS AND MORTGAGE BANK was placed under
receivership, and later ordered liquidated by the Monetary Board of the Central
Bank, FORTUNATO M. DIZON. Jr., who was then holding the position of Executive
Vice President and Chief Operating Officer of the bank, received a letter from the
Central Bank appointed liquidator, MS. CARLOTA P. VALENZUELA, informing him
that all management authority in the bank had been assumed by the Central Bank
appointed liquidators and that his employment is being terminated.
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Credit – Seňga 16-17
Mr. Dizon filed with the liquidator a request for the payment to him of the cash
equivalent of his vacation and sick leave credits and unexpended/unused
reimbursable allowance. His claims were not paid by the liquidator upon counsel's
advice that Dizon's claim should be treated as a claim of a creditor and should
therefore be processed pursuant to the liquidation plan as approved by the
Monetary Board. Subsequent demands for payment having been denied, Dizon filed
on March 31, 1986 a complaint with the labor arbiter against the bank for recovery
of unpaid salary, the cash equivalent of his accumulated vacation and sick leaves,
termination pay under Article 283 of the Labor Code and moral damages and
attorney's fees.
Representing the bank, the liquidator moved for the dismissal of the complaint
refuting the legal and factual bases thereof as well as the jurisdiction of the labor
arbiter to entertain Dizon's money claims because such pertains to the Regional
Trial Court of Makati, Branch 146, acting as the liquidation court.
On November 14, 1986, the labor arbiter upheld her jurisdiction and promulgated a
decision in favor of Dizon but withheld his demand for payment of moral damages
and attorney's fees. Both parties appealed to the National Labor Relations
Commission which increased the award due Dizon and further ordered payment of
actual and moral damages and attorney's fees. The award of moral damages was
later deleted in the resolution of February 24, 1988 of the Commission.
ISSUE:
Whether or not Dizon's adjudicated claims should be submitted to the liquidators
for processing. - YES
HELD:
Under normal circumstances the decision of the NLRC is immediately executory
(See Article 223, Labor Code). The bank's liquidator, however, resists immediate
payment to Dizon of his adjudicated money claims on the ground that it would
amount to undue preference of credit. Dizon countered that under Article 110 of
the Labor Code unpaid wages of laborers are indeed preferred. Moreover, Dizon
reminded, this Court had temporarily enjoined the liquidation of the bank and,
therefore, there is no liquidation proceeding where his claims may be paid.
Article 110 of the Labor Code before its amendment by Republic Act No. 6715
(March 2, 1989) reads as follows:
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Credit – Seňga 16-17

ART. 110. Worker Preference in case of Bankruptcy — In the event of

bankruptcy or liquidation of an employer's business, his workers shall enjoy
first preference as regards wages due them for services rendered during the
period prior to the bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shall be paid in full before other
creditors may establish any claim to a share in the assets of the employer.

Not being an absolutely preferred credit, as taxes are under Articles 2241 (1) and
2242 (1), Dizon's claims cannot be paid ahead of other credits and outside of the
liquidation proceeding because the "free property" or the property left after the
creditors mentioned in Articles 2241 and 2242 are paid has not yet been
determined (See Barreto v. Villanueva, No. L-14938, December 29, 1962, 6 SCRA
928). In the words of Lipana v. Development Bank of Rizal, No. '73884, September
24, 1987, 154 SCRA 257, 261, "to execute the judgment would unduly deplete the
assets of respondent bank to the obvious prejudice of other [depositors and]
creditors."

Thus, Dizon's adjudicated claims should be submitted to the liquidators for

processing. If, of course, it is later determined that Banco Filipino's liquidation is
improper then the NLRC'S decision may be executed under normal procedure. If the
contrary is proven, however, and the bank's liquidation should proceed, Dizon's
established claims should be treated as an ordinary preferred credit enjoying first
preference under Art. 2244 of the Civil Code.

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