De Barreto vs.

Villanueva
GR L-14938, 1961

Facts:
- On May 1948, Rosario Cruzado obtained from the defunct Rehabilitation Finance Corporation
(RFC) a loan of P11,000.
- To secure the payment, she mortgaged the land with TCT issued in her name and of her
deceased husband.
- She failed to pay her obligations, hence the mortgaged was foreclosed and RFC acquired the
property.
- On July 1951, the land was sold back to her conditionally payable in seven years.
- About 2 years after, Rosario, as guardian of her minor children, was authorized by the court, to
sell with the consent of RFC the land in question.
- The land was sold to Pura Villanueva. Having paid in advance, Pura Villanueva, executed in
favor of Rosario a PN undertaking to pay the balance of P17,500. She later on acquired in her
name the TCT covering the said land. She mortgaged the property to Magdalena Barreto as
security for a loan of P30,000.
- Villanueva failed to pay the remaining installments, a complaint for the recovery was filed by
Rosario Cruzado.
- Pending trial of the case, a lien was constituted upon the property in favor the Cruzados.
- After trial, decision was rendered ordering Villanueva to pay Cruzado.
- Villanueva also failed to pay her indebtedness to Madgalena Baretto, hence Baretto filed an
action for foreclosure of mortgage, impleading Cruzado.
- A decision was rendered absolving the Cruzados and sentencing Villanueva to pay the
Barrettos.
- The Barrettos filed a writ of execution which the court granted.
- The Cruzados filed their “Vendors Lien” over the real property subject of the foreclosure suit and
the Court ordered the same annotated to the TCT decreeing that should the land be sold at
public auction, the Cruzados shall be credited with their pro-rata share.
- The Barrettos filed MR but on same date the sheriff of Manila sold at public auction the property
in question. As highest bidder, the Barrettos acquired the properties for the same of P49,000.
- On October 4, 1958, the CFI issued an order confirming said sale and directing the RoD to issue
the Certificate of Title to the Barrettos. On same day, the MR of Barrettos seeking
reconsideration of the court giving due course to the said vendors lien was denied.
- Hence this appeal.

-Art 2242 of the NCC, enumerates the claims, mortgage and liens that constitute an encumbrance
on specific immovable property, and among them are:
(2) For the unpaid price of real property sold, upon the immovable sold; and
(5) Mortgage credits recorded in the Registry of Property.

-Art 2249 of the same code provides that “if there are 2 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 assessment upon the immovable property or real rights.

-Application of the above quoted provisions to the case at bar would mean that Cruzado as unpaid
vendor has the right to share pro-rata with the appellants the proceeds of the foreclosure sale.
-The appellants however argue that as the unpaid vendor’s lien was not registered. It should not
prejudice said appellants registered rights over the property. There is nothing to this argument.
Note must be taken of the fact that Art 2242 of the NCC specifically requires that unlike unpaid
price of real property sold, mortgage credits, in order to be given preference, should be recorded in
the Registry of Property. If the legislative intent was to impose the same requirement in the case of
the vendors lien, the lawmakers could have easily inserted such.
-Appellants also argue that to give the unrecorded vendors lien the same standing as registered
mortgage credit would nullify the principle in land registration system that prior unrecorded
interests cannot prejudice persons who subsequently acquire interests over the same property.
The Land Registration Act respects without reserve or qualification the paramount rights of lien
holders on real property. Sec 70 of said Act provides that.

-As to the point made that the articles of the CC on concurrence and preference of credits are
applicable only to the insolvent debtor, nothing in the law shows any such limitation.

RESOLUTION ON MOTION TO RECONSIDER

-Appellants Sps Barretto filed a motion to set aside the above decision and a new one entered
declaring that their right as mortgagees remain superior to the unrecorded claim of herein appellee.
-Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real
property under Art 1293 were to be resolved according to an order or priorities established by Art
1927 whereby one class of creditors could exclude the creditors of lower order until the claims of
the former were fully satisfied.
-Under the CC however, only taxes enjoy a similar absolute preference. All the remaining thirteen
classes of preferred creditors under Art 2242 enjoy no priority among themselves but must be paid
pro rata.
-Art 2249 provides: “If there are 2 or more credits with respect to the same specific real property or
real rights, they shall be satisfied pro-rata after the payment of taxes and assessments upon the
immovable property or real rights”.
-In order to make this fully effective, the preferred creditors must be convened and their claims
ascertained. Thus, it means that there must be first some proceedings where the claims of all the
preferred creditors may be adjudicated such as insolvency.
-In the absence of insolvency proceedings, the conflict between the parties must be decided to the
well established principle concerning registered lands; that a purchaser in good faith and for value
takes registered property free from liens and encumbrances.
-There being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not
require the character and rank of a lien co-equal to the mortgagee’s recorded encumbrance and
must remain subordinate to the latter.
- 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, all confidence in Torrens
titles would be destroyed and credit transactions on the faith of such titles would be hampered.
- More so, it does not appear as burdensome to require the privileged creditors to cause their
claims to be recorded should they desire to protect their rights.
- It is clear from the facts that ownership of the property had passed to RFC. The subsequent
resale in favor of the Cruzados did not revest ownership in them, since they failed to comply with
its terms and conditions and the contract itself provided that the title should remain in the name
of the RFC until the price was fully paid.
- Therefore, when after defaulting in their payments, the appellants Cruzados sold to Villanueva
“their rights, title, interest and dominion” to the property, they merely assigned their rights or
claims; ownership rested with the RFC.
- In view of the foregoing, the previous decision of the Court is set and aside; Barretto’s entitled to
full satisfaction of their mortgaged credit out of the proceeds of the foreclosure sale in the hands
of the Sheriff of Manila.