288

SUPREMECOURTREPORTSANNOTATED
Barrettovs.Villanueva

No.L14938.January28,1961.
MAGDALENAC.DEBARRETO,ETAL.,plaintiffsappellants,vs.JOSE
G.VILLANUEVA,ETAL.,defendantsappellees.
Concurrenceandpreferenceofcredits;Sales;Vendor'slienThepromissory
notefortheunpaidbalanceofthesellingpriceofrealpropertymaybethebasisofa
vendor'slien.
Same.Theunpaidvendorofrealpropertyandthemortgageehavetherightto
shareproratatheproceedsoftheforeclosuresaleofsaidrealty.
Same;Vendor'slienneednotberegistered.Article2242oftheNewCivil
Code expressly requires that the mortgage credit should be registered. No such
requirementismadewithrespecttothevendor'slienfortheunpaidpriceofreal
property sold. The law does not make any distinction between a registered and
unregisteredvendor'slien.Anylienofthatkindenjoysthepreferredcreditstatus.
Same;Torrenssystem;Paramountrightoflienholders.Section70ofAct496
respectswithoutreserveorqualificationtheparamountrightsoflienholdersonreal
property,includingtheunpaidvendor.
Same;Insolvency;CivilCode.NothingintheNewCivilCodeindicatesthat
itsprovisionsonconcurrenceandpreferenceofcreditsareapplicableonlytothe
insolventdebtor.Ifthoseprovisionsareintendedonlytoinsolvencycases,thenother
creditordebtorrelationshipwherethereareconcurrenceandpreferenceofcredits,
wouldbeleftwithoutanygoverningrules,aviewthatwouldrenderpurposelessthe
lawsoninsolvency.
MotiontoReconsider:
Concurrenceandpreferenceofcredits;ProvisionsofOldandNewCivilCodes
compared.Under the old Civil Code, one class of creditors could exclude the
creditorsofthelowerorderuntiltheclaimsoftheformerwerefullysatisfiedoutof
theproceedsofthesaleoftherealpropertysubjectofthepreferenceandcouldeven
exhausttheproceedsifnecessary.Incontrast,underthesystemofprioritiesofthe
NewCivilCode,onlytaxesenjoyasimilarabsolutepreference.Alltheremaining
thirteenclassesof preferredcreditorsunderarticle2242enjoynopriorityamong
themselves, but must be paid pro rata, or in proportion to the amount of the
respectivecredits.

Same;Necessityofproceedingforproratingpreferredcredits.Inorderthat
thepaymentprorataofpreferredcreditorsunderarticles2242and2249oftheNew
CivilCodemaybeeffected,theremustbesomeproceeding,wheretheclaimsofall
the preferred creditors may be bindingly adjudicated, such as insolvency, the
settlementofadecedent'sestateorothersimilarliquidationproceeding.Thecreditors
willbeconvenedinthat
289

VOL.1,JANUARY28,1961
289
Barrettovs.Villanueva,

proceedingandtheimportoftheirclaimsascertained.
Same.In the absence of the proper liquidation proceeding, wherein thepro
ratadividendcorrespondingtoeachofthecreditorspreferredwithrespecttospecific
realpropertymaybedetermined,theorderofacourtinanordinaryactiondecreeing
thattheproceedsofaforeclosuresaleshouldbeapportionedbetweentheunpaid
vendorandthemortgageeoftherealtysoldisincorrect.
Same;Whenrecordedmortgagecreditissuperiortounpaidvendor'slien.A
recordedmortgagelienissuperiortoavendor'slienoverrealproperty,followingthe
ruleconcerningregisteredlandsthatapurchaseringoodfaithandforvaluetakes
registeredlands freefrom liens andencumbrances, other thanstatutoryliensand
thoserecordedinthecertificateoftitle.Wherethereisnoinsolvencyorliquidation
proceeding,theunpaidvendor'sliendoesnotacquirethecharacterandrankofa
statutoryliencoequaltotherecordedmortgagelien.Itmustremainsubordinatetothe
latter.
Concurrence and preference of credits; Necessity of recording.It is not
excessivelyburdensometorequirepreferredcreditorswithrespecttospecificreal
propertytocausetheirclaimstoberecordedintheRegistryofDeedsshouldthey
desiretoprojecttheirrightsevenoutsideofinsolvencyorliquidationproceedings.
Same;Vendor'slien.Wherethevendorsoldtotheallegedvendeeanoptionto
acquirethelandfromtheDevelopmentBank,theregisteredownerthereof,andthe
banksoldthepropertytotheallegedvendeetheunpaidpriceinthefirstsaleisnot
thevendor'sliencontemplatedinarticle2242oftheNewCivilCode.

APPEALfromanorderoftheCourtofFirstInstanceofManila.
ThefactsarestatedintheopinionoftheCourt.
Bausa,Ampil&Suarezforplaintiffsappellants.

EstebanOcampofordefendantsappellees.
GUTIERREZDAVID,J.:
OnMay10,1948,RosarioCruzado,forherselfandasadministratrixof
the intestate estate of her deceased husband Pedro Cruzado in Special
ProceedingsNo.4959oftheCourtofFirstInstanceofManila,obtained
fromthedefunctRehabilitationFinanceCorporation(hereinafterreferred
toastheRFC)aloanintheamountofP11,000.00.Tosecurepayment
thereof,shemortgagedthelandthen
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SUPREMECOURTREPORTSANNOTATED
Barrettovs.Villanueva

coveredbyTransferCertificateofTitleNo.61358issuedinhernameand
thatofherdeceasedhusband.Asshefailedtopaycertaininstallmentson
theloan,themortgagewasforeclosedandtheRFCacquiredtheproperty
forP11,000.00,subjecttoherrightsasmortgagortorepurchasethesame.
OnJuly26,1951,uponherapplication,thelandwassoldbacktoher
conditionallyfortheamountofP14,269.03,payableinsevenyears.
Abouttwoyearsthereafter,oronFebruary13,1953,RosarioCruzado,
asguardianofherminorchildreninSpecialProceedingsNo.14198ofthe
CourtofFirstInstanceofManila,wasauthorizedbythecourttosellwith
thepreviousconsentoftheRFCthelandinquestiontogetherwiththe
improvementsthereonforasumnotlessthanP19,000.Pursuanttosuch
authorityandwiththeconsentoftheRFC,shesoldtoPuraL.Villanueva
forP19.000.00"alltheirrights,interest,titleanddominiononandoverthe
hereindescribedparceloflandtogetherwiththeexistingimprovements
thereon,includingonehouseandanannexthereon;freefromallcharges
and encumbrances, with the exception of the sum of P11,009.52, plus
stipulatedinterestthereonwhichthevendorisstillpresentlyobligatedto
theRFCandwhichthevendeehereinnowassumestopaytotheRFC
underthesametermsandconditionsspecifiedinthatdeedofsaledated
July26,1951."HavingpaidinadvancethesumofP1,500.00,PuraL.
Villanueva,thevendee,inconsiderationoftheaforesaidsale,executedin
favorofthevendorRosarioCruzadoapromissorynotedatedMarch9,
1953, undertaking to pay the balance of P17,500.00 in monthly
installments. On April 22, 1953, she made an additional payment of

P5,500.00onthepromissorynote.Shewas,subsequently,abletosecurein
hernameTransferCertificateofTitleNo.32526coveringthehouseand
lot above referred to, and on July 10, 1953, she mortgaged the said
propertytoMagdalenaC.Barrettoassecurityforaloanintheamountof
P30,000.00.
AssaidPuraL.Villanuevahadfailedtopaytheremaininginstallments
ontheunpaidbalanceofP12,000.00onherpromissorynoteforthesaleof
thepropertyinquestion,acomplaintfortherecoveryofthesamefrom
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Barrettovs.Villanueva

herandherhusbandwasfiledonSeptember21,1953byRosarioCruzado
inherownrightandinhercapacityasjudicialguardianofherminor
children.Pendingtrialofthecase,alienwasconstitutedupontheproperty
inthenatureofalevyinattachmentinfavoroftheCruzados,saidlien
beingannotatedatthebackofTransferCertificateofTitleNo.32626.
After trial, decision was rendered ordering Pura Villanueva and her
husband, jointly and aeveraHy, to pay Rosario Cruzado the sum of
P2,000.00,withlegalinterestthereonfromthedateofthefilingofthe
complaintuntilfullypaidplusthesumofPl,500.00asattorney'sfees.
Pura Villanueva having, likewise, failed to pay her indebtedness of
P30,000.00toMagdalenaC.Barretto,thelatter,jointlywithherhusband,
instituted against the Villanueva spouses an action for foreclosure of
mortgage, impleading Rosario Cruzado and her children as parties
defendants.OnNovember11,1956,decisionwasrenderedinthecase
absolvingtheCruzadosfromthecomplaintandsentencingtheVillanuevas
topaytheBarrettos,jointlyandseverally,thesumofP30,000.00,with
interestthereonattherateof12%perannumfromJanuary11,1954,plus
thesumofP4,000.00asattorney'sfees.Uponthefinalityofthisdecision,
theBarrettosfiledamotionfortheissuanceofawritofexecutionwhich
wasgrantedbythelowercourtonJuly31,1958.OnAugust14,1958,the
Cruzadosfiledtheir"Vendor'sLien"intheamountofP12,000.00,plus
legalinterest,overtherealpropertysubjectoftheforeclosuresuit,thesaid
amountrepresentingtheunpaidbalanceofthepurchasepriceofthesaid
property. Giving due course to the lien, the court on August 18, 1958
orderedthesameannotatedinTransferCertificateofTitleNo.32526of

the Registry of Deeds of Manila, decreeing that should the realty in

question be sold at public auction in the foreclosure proceedings, the
Cruzadosshallbecreditedwiththeirproratashareintheproceedsthereof,
"pursuanttotheprovisionofarticles2248and2249ofthenewCivilCode
inrelationtoArticle2242,paragraph2ofthesameCode."TheBarrettos
filedamotionforreconsiderationonSeptember12,1958,butonthatsame
date,thesheriffoftheCityofManila,
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SUPREMECOURTREPORTSANNOTATED
Barrettovs.Villanueva

actinginpursuanceoftheorderofthecourtgrantingthewritofexecution,
sold at public auction the property in question. As highest bidder, the
BarrettosthemselvesacquiredthepropertiesforthesumofP49,000.00.
On October 4, 1958, the Court of First Instance issued an order
confirmingtheaforesaidsaleanddirectingtheRegisterofDeedsofthe
CityofManilatoissuetotheBarrettosthecorrespondingcertificateof
title,subject,however,totheorderofAugust18,1958concerningthe
vendor's lien. On the same date, the motion of the Barrettos seeking
reconsideration of the order of the court giving due course to the said
vendor's lien was denied. From this last order, the Barretto spouses
interposedthepresentappeal.
Theappealisdevoidofmerit.
InclaimingthatthedecisionoftheCourtofFirstinstanceofManilain
CivilCaseNo.20075awarSingtheamountofP12,000.00infavorof
RosarioCruzadoandherminorchildrencannotconstituteabasisforthe
vendor'slienfiledbytheappelleeRosarioCruzado,appellantsallegethat
the action in said civil case was merely to recover the balance of a
promissory note. But while, apparently, the action was to recover the
remainingobligationofpromissorPuraVillanuevaonthenote,thefact
remainsthatRosarioP.Cruzadoasguardianofherminorchildrenwasan
unpaid vendor of the realty in question, and the promissory note was,
precisely, for the unpaid balance of the purchase price of the property
boughtbysaidPuraVillanueva.
Article2242ofthenewCivilCodeenumeratestheclaims,mortgages
andliensthatconstituteanencumbranceonspecificimmovableproperty,
andamongthemare:

"(2)Fortheunpaidpriceofrealpropertysold,upontheimmovablesold";and
"(5)MortgagecreditsrecordedintheRegistryofProperty."

Article2249ofthesameCodeprovidesthat"iftherearetwoormore
creditswithrespecttothesamespecificrealpropertyorrealrights,they
shallbesatisfiedprorata,afterthepaymentofthetaxesand'assessments
upontheimmovablepropertyorrealrights."
VOL.1,JANUARY28,1961

293
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Barrettovs.Villanueva

Applicationoftheabovequotedprovisionstothecaseatbarwouldmean
that the herein appellee Rosario Cruzado as an unpaid vendor of the
propertyinquestionhastherighttoshareproratawith.theappellants,the
proceedsoftheforeclosuresale.
Theappellants,however,arguethatinasmuchastheunpaidvendor's
lien in this case was not registered, it should not prejudice the said
appellants' registered rights over the property. There is nothing to this
argument.Notemustbetakenofthefactthatarticle2242ofthenewCivil
Code enumerating the preferred claims, mortgages and liens on
immovables, specifically requires thatunlike the unpaid price of real
propertysoldmortgagecredits,inordertobegivenpreference,should
berecordedintheRegistryofProperty.Ifthelegislativeintentwasto
imposethesamerequirementinthecaseofthevendor'slien,ortheunpaid
priceofrealpropertysold,thelawmakerscouldhaveeasilyinsertedthe
same qualification which now modifies the mortgage credits. The law,
however, does not make any distinction between registered and
unregisteredvendor'slien,whichonlygoestoshowthatanylienofthat
kindenjoysthepreferredcreditstatus.
Appellantsalsoarguethattogivetheunrecordedvendor'slienthesame
standingastheregisteredmortgagecreditwouldbetonullifytheprinciple
inlandregistrationsystemthatpriorunrecordedinterestscannotprejudice
personswhosubsequentlyacquireinterestsoverthesameproperty.The
Land Registration Act itself, however, respects without reserve or
qualificationtheparamountrightsoflienholdersonrealproperty.Thus,
section70ofthatActprovidesthat
"Registeredland,andownershipthereinshallinallrespectsbesubjecttothesame
burdensandincidentsattachedbylawtounregisteredland.Nothingcontainedinthis

Actshallinanywaybeconstruedtorelieveregisteredlandortheownersthereof
fromanyrightsincidenttotherelationofhusbandandwife,orfromliabilityto
attachmentonmesneprocessorlevyonexecution,orfromliabilitytoanylienofany
descriptionestablishedbylawonlandandthebuildingsthereon, ortheinterestof
theownersofsuchlandorbuildings,ortochangethelawsofdescent,ortherightsof
partitionbetweencoowners,jointtenantsandothercotenants,ortherightto
294

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SUPREMECOURTREPORTSANNOTATED
Barrettovs.Villanueva

takethesamebyeminentdomain,ortorelievesuchlandfromliabilityto
be appropriated in any lawful manner for the payment of debts, or to
changeoraffectinanyotherwayanyotherrightsorliabilitiescreatedby
law and applicable to unregistered land, except as otherwise expressly
providedinthisActorintheamendmentsthereof."(Italicssupplied)
AstothepointmadethatthearticlesoftheCivilCodeonconcurrenceand
preferenceofcreditsareapplicableonlytotheinsolventdebtor,sufficeit
tosaythatnothinginthelaw showsanysuchlimitation.Ifweareto
interpretthisportionoftheCodeasintendedonlyforinsolvencycases,
then other creditordebtor relationships where there are concurrence of
creditswouldbeleftwithoutanyrulestogovernthem,anditwouldrender
purposelessthespeciallawsoninsolvency.
Premisesconsidered,theorderappealedfromisherebyaffirmed.Costs
againsttheappellants.
Bengzon,Padilla,BautistaAngelo,Labrador,ParedesandDizon,
JJ.,concur.
Concepcion,Reyes,J.B.L.andBarrera,JJ.,concurintheresult.
Orderaffirmed.
RESOLUTIONON
MOTIONTORECONSIDER
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9
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REYES,J.B.L.,J.:
Appellants,spousesBarretto,havefiledamotionvigorouslyurging,for
reasontobediscussedinthecourseofthisresolution,thatourdecisionof
28January1981bereconsideredandsetaside,andanewoneentered
declaringthattheirrightasmortgageesremainsuperiortotheunrecorded
claimofhereinappelleeforthebalanceofthepurchasepriceofherrights,
title,andinterestsinthemortgagedproperty.
Itwillberecalledthat,withCourtauthority,RosarioCruzadosoldall
herright,title,andinterestandthatofherchildreninthehouseandlot
hereininvolvedtoPuraL.VillanuevaforP19,000.00.Thepurchaserpaid
P1,500
VOL.1,JANUARY28,1961

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295

Barrettovs.Villanueva

inadvance,andexecutedapromissorynoteforthebalanceofP17,500.00.
However,thebuyercouldonlypayP5,500onaccountofthenote,for
whichreasonthevendorobtainedjudgmentfortheunpaidbalance.Inthe
meantime,thebuyerVillanuevawasabletosecureacleancertificateof
title(No.32626),andmortgagedthepropertytoappellantMagdalenaC.
Barretto,marriedtoJoseC.Barretto,tosecurealoanofP30.000.03,said
mortgagehavingbeendulyrecorded.
PuraVillanuevadefaultedonthemortgageloaninfavorofBarretto.
Thelatterforeclosedthemortgageinherfavor,obtainedjudgment,and

upon its becoming final asked for execution on 31 July 1958. On 14

August 1958, Cruzado filed a motion for recognition for her "vendor's
lien"intheamountof?12,000.00,pluslegalinterest,invokingArticles
2242, 2243,and 2249of the new Civil Code.After hearing, the court
beloworderedthe"lien"annotatedonthebackofCertificateofTitleNo.
32526,withtheprovisothatincaseofsaleundertheforeclosuredecree
thevendor'slienandthemortgagecreditofappellantBarrettoshouldbe
paidproratafromtheproceeds.Ouroriginaldecisionaffirmedthisorder
oftheCourtofFirstInstanceofManila.
Appellantsinsistthat:
1. (1)
Thevendor'slien,underArticles2242and2243ofthenewCivilCode
ofthePhilippines,canonlybecomeeffectiveintheeventof
insolvencyofthevendee,whichhasnotbeenprovedtoexistinthe
instantcase;and
2. (2)
ThattheappelleeCruzadoisnotatruevendoroftheforeclosedproperty.
Wehavegivenprotractedandmatureconsiderationtothefactsandlawof
thiscase,andhavereachedtheconclusionthatouroriginaldecisionmust
bereconsideredandsetaside,forthefollowingreasons:
A.Thepreviousdecisionfailedtotakefullyintoaccounttheradical
changesintroducedbytheCivilCodeofthePhilippinesintothesystemof
prioritiesamongcreditorsordainedbytheCivilCodeof1889.
Pursuant to the former Code, conflicts among creditors entitled to
preferenceastospecificrealpropertyunder
296

296
SUPREMECOURTREPORTSANNOTATED
Barrettovs.Villanueva

Article 1923 were to be resolved according to an order of priorities

establishedbyArticle1927,wherebyoneclassofcreditorscouldexclude
the creditors of lower order until the claims of the former were fully
satisfiedoutoftheproceedsofthesaleoftherealpropertysubjectofthe
preference,andcouldevenexhaustproceedsifnecessary.
UnderthesystemoftheCivilCodeofthePhilippineshowever,only
taxes enjoy a similar absolute preference. All the remaining thirteen
classesofpreferredcreditorsunderArticle2242enjoynopriorityamong

themselves,butmustbepaidprorata,i.e.,inproportiontotheamountof
therespectivecredits.Thus,Article2249provides:
"Iftherearetwoormorecreditswithrespecttothesamespecificrealpropertyorreal
rights,theyshallbesatisfiedprorata,afterthepaymentofthetaxesandassessments
upontheimmovablepropertyorrealrights."

Butinordertomakethisproratingfullyeffective,thepreferredcreditors
enumerated in Nos.2 to 14of Article 2242(or such of them as have
creditsoutstanding)mustnecessarilybeconvened,andtheimportoftheir
claimsascertained.ItisthusapparentthatthefullapplicationofArticles
2249and2242demandsthattheremustbefirstsomeproceedingwhere
theclaimsofallthepreferredcreditorsmaybebindinglyadjudicated,such
asinsolvency,thesettlementofdecedent'sestateunderRule87ofthe
RulesofCourt,orotherliquidationproceedingsofsimilarimport.
ThisexplainstheruleofArticle2243ofthenewCivilCodethat
"Theclaimsorcreditsenumeratedinthetwoprecedingarticles1shallbeconsidered
asmortgagesorpledgesofrealorpersonalproperty,orlienswithinthepurviewof
legalprovisionsgoverninginsolvencyxxx(Italicssupplied).

AndtheruleisfurtherclarifiedintheReportoftheCodeCommission,as
follows:
"The question as to whether the Civil Code and the Insolvency Law can be
harmonizedissettledbythisArticle(2243).ThepreferencesnamedinArticles2261
and2262(now2241and2242)aretobeenforcedinaccordancewiththeInsolvency
_______________
1Articles2241and2242.

VOL.1,JANUARY28,1961

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Barrettovs.Villanueva

Law."(Italicssupplied)

Thus,itbecomesevidentthatonepreferredcreditor'sthirdpartyclaimto
theproceedsofaforeclosuresale(asinthecasenowbeforeus)isnotthe
proceedingcontemplatedbylawfortheenforcementofpreferencesunder
Article2242,unlesstheclaimantwereenforcingacreditfortaxesthat
enjoy absolute priority. If none of the claims is for taxes, a dispute
betweentwocreditorswillnotenabletheCourttoascertainthe prorata
dividendcorrespondingtoeach,becausetherightsoftheothercreditors

likewiseenjoyingpreferenceunderArticle2242cannotbeascertained.
Wherefore, the order of the Court of First Instance of Manila now
appealed from, decreeingthat the proceeds of the foreclosure sale be
apportionedonlybetweenappellantandappellee,isincorrect,andmustbe
reversed.
Intheabsenceofinsolvencyproceedings(orotherequivalentgeneral
liquidation of the debtor's estate), the conflict betweenthe parties now
before us must be decided pursuant to the well established principle
concerningregisteredlands;thatapurchaseringoodfaithandforvalue
(astheappellantconcededlyis)takesregisteredpropertyfreefromliens
and encumbrances other than statutory liens and those recorded in the
certificateoftitle.Therebeingnoinsolvencyorliquidation,theclaimof
theappellee,asunpaidvendor,didnotrequirethecharacterandrankofa
statutoryliencoequaltothemortgagee'srecordedencumbrance,andmust
remainsubordinatetothelatter.
We are understandably loathed (absent a clear precept of law so
commanding)toadoptarulethatwouldunderminethefaithandcreditto
be accorded to registered Torrens titles and nullify the beneficient
objectives sought to be obtained by the Land Registration Act. No
argumentisneededtostressthatifapersondealingwithregisteredland
weretobeheldtotakeitineveryinstancesubjecttoallthefourteen
preferredclaimsenumeratedinArticle2242ofthenewCivilCode,evenif
theexistenceandimportthereofcannotbeascertainedfromtherecords.
allconfidenceinTorrenstitleswouldbedestroyed,andcredittransactions
onthefaithofsuchtitJteswouldbe
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SUPREMECOURTREPORTSANNOTATED
Barrettovs.Villanueva

hampered,ifnotprevented,withincalculableresults.Loansonrealestate
securitywouldbecomealeatoryandriskytransactions,fornoprospective
lendercouldaccuratelyestimatethehiddenliensonthepropertyofferedas
security,unlessheindulgedincomplicated,tediousinvestigations.The
logical result might well be a contraction of credit unforeseeable
proportionsthatcouldleadtoeconomicdisaster.
Upon the other hand, it does not appear excessively burdensome to
requiretheprivilegedcreditorstocausetheirclaimstoberecordedinthe

booksoftheRegisterofDeedsshouldtheydesiretoprotecttheirrights
evenoutsideofinsolvencyorliquidationproceedings.
B.Theclosestudyofthefactsdisclosedbytherecordscastsstrong
doubtonthepropositionthatappelleesCruzadosshouldberegardedas
unpaid vendors of the property (land, buildings, and improvements)
involvedinthecaseatbarsoastobeentitledtopreferenceunderArticle
2242.Therecordonappeal,speciallythefinaldecisionoftheCourtof
FirstInstanceof'ManilainthesuitoftheCruzadosagainstVillanueva,
clearly establishes that after her husband's death, and with due court
authority, Rosario Cruzado, for herself and as administratrix of her
husband's estate, mortgaged the property to the Rehabilitation Finance
Corporation (RFC) to secure payment of a loan ofFl 1,000, in
installmentSi,butthatthedebtorfailedtopaysomeoftheinstallments;
wherefore the RFC, on 24 August 1949, foreclosed the mortgage, and
acquiredtheproperty,subjecttothedebtor'srighttoredeemorrepurchase
thesaidproperty;andthaton25September1950,theRFCconsolidatedits
ownership,andthecertificateoftitleoftheCruzadoswascancelledanda
newcertificateissuedinthenameoftheRFC.
Whileon26July1951theRFCdidexecuteadeedsellingbackthe
property to the erstwhile mortgagors and former owners Cruzados in
installments,subjecttothecondition(amongothers)thatthetitletothe
propertyanditsimprovements"shallremaininthenameofCorporation
(RFC)untilaftersaidpurchaseprice,advancesandinterestsshallhave
beenfullypaid",asof27September1952,Cruzadohadonlypaidatotal
ofPl,360,andhad
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Barrettovs.Villanueva

defaulted on six monthly amortizations; for which reason the RFC

rescindedthesale,andforfeitedthepaymentsmade,inaccordancewith
thetermsofthecontractof26July1951.
It was only on 10 March 1953 that the Cruzados sold to Pura L.
Villanuevaall"theirrights,title,interestanddominiononandover"the
property, lot, house, and improvements for P19.000.00, the buyer
undertaking to assume payment of the obligation to the RFC, and by
resolutionof30April1953,theRFCapproved"thetransferoftherights

andinterestofRosarioP.Cruzadoandherchildrenintheirpropertyherein
abovedescribedinfavorofPuraL.Villanueva";andon7May1953the
RFCexecutedadeedofabsolutesaleofthepropertytosaidparty,who
hadfullypaidthepriceofP14,269.03.Thereupon,thespousesVillanueva
obtainedanewTransferCertificateofTitleNo.32526intheirname.
On 10 July 1953, the Villanuevas mortgaged the property to the
spousesBarretto,appellantsherein.
Itisclearfromthefactsabovestatedthatownershipoftheproperty
hadpassedtotheRehabilitationFinanceCorporationsince1950,whenit
consolidateditspurchaseattheforeclosuresaleandobtainedacertificate
oftitleinitscorporatename.Thesubsequentcontractofresaleinfavorof
theCruzadosdidnotrevestownershipinthem,sincetheyfailedtocomply
withitstermsandconditions,andthecontractitselfprovidedthatthetitle
shouldremaininthenameoftheRFCuntilthepricewasfullypaid.
Therefore,whenafterdefaultingintheirpaymentsdueundertheresale
contractwiththeRFCtheappellantsCruzadossoldtoVillanueva"their
rights,title,interestanddominion"totheproperty,theymerelyassigned
whateverrightsorclaimstheymightstillhavethereto;theownershipof
thepropertyrestedwiththeRFC.ThesalefromCruzadotoVillanueva,
therefore,wasnotsomuchasaleofthelandanditsimprovementsasit
wasaquitclaimdeedinfavorofVillanueva.Inlaw,theoperativesalewas
thatfromtheRFCtothelatter,anditwastheRFCthatshouldberegarded
asthetruevendorofthe
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Barrettovs.Villanueva

property.Atthemost,theCruzadostransferredtoVillanuevaanoptionto
acquiretheproperty,butnotthepropertyitself,andtheircredit,therefore,
cannotlegallyconstituteavendor'slienonthecorpusofthatpropertythat
should stand on an equal footing with the mortgaged credit held by
appellantBarretto.
In view of the foregoing, the previous decision of this Court,
promulgatedon28January1961,isherebyreconsideredandsetaside,and
anewoneenteredreversingthejudgmentappealedfromanddeclaringthe
appellantsBarrettoentitledtofullsatisfactionoftheirmortgagedcreditout

oftheproceedsoftheforeclosuresaleinthehandsoftheSheriffofthe
CityofManila.Nocosts.
Padilla, Bautista Angelo, Concepcion, Barrera, Paredes,Regala
andMakalintal,JJ.,concur.
Bengzon,LabradorandDizon,JJ.,didnottakepart.
Motionforreconsiderationgranted;judgmentoflowercourtreversed.
Notes.The prorata ruledoesnotapplyto"creditsannotatedinthe
Registry of Property, in virtue of a judicial order. by attachments and
executions"whicharepreferredasto"latercredits"(Art.2242(7),New
Civil Code). In satisfying several credits annotated by attachments or
executions, the rule is still preference according to the priority of the
creditsintheorderoftime(Manabatvs.LagunaFederationofFacomas,
Inc., L23888, March 18, 1967, 19 Supreme Court Reports Annotated
621).
Preference of mortgage credits is determined by the priority of
registrationofthemortgages,followingthemaximpriortempore,potior
jure. (Reyes vs. De Leon, L22331, June 6, 1967, 20 Supreme Court
ReportsAnnotated369).
Wherethepersonsclaimingtobethe"unpaidsuppliers"ofmortgaged
properties were merely "financiers" who advanced the money for the
purchasethereofandoneofthemactedasbuyingagentintheirpurchase,
andtheyknewthatsaidpropertieswerecoveredbythemortgage,they
havenovendor'slienonsaidproperties,superiortothemortgagelien.
(People'sBankandTrustCompany
VOL.1,JANUARY28,1961

301
301

TanChiuvs.CollectorofInternalRevenue

vs.DahicanLumberCompany,L17500,May16,1967,20SupremeCourt
ReportsAnnotated84).

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