G.R. No. 175481 - Auza, Jr. vs. MOL Philippines, Inc.

On July 2, 1924, the plaintiff, Hi Caiji, initiated an action in the Court of First Instance of Manila against Martiniano Eugenio and his wife Angela Carrillo for the recovery of P9,579.75.
At the commencement of this action, the plaintiff prayed for and obtained an attachment on the property of the defendants.

At the time the attachment was issued, the property was already encumbered by a first mortgage in favor of "La Sagrada Orden de Predicadores de la Provincia del Santisimo Rosario de Filipinas" for the sum of P22,000.

On July 8, 1924, after obtaining the attachment, Martiniano Eugenio and his wife executed a second mortgage for P19,500 in favor of The Philippine Sugar Estates Development Company, Ltd.
This second mortgage was duly registered on July 9, 1924, thereby giving it formal legal effect.

Martiniano Eugenio died on September 9, 1924, necessitating the appointment of an administrator to settle his estate.
Commissioners were appointed to hear claims against his estate.
In accordance with Section 700 of the Code of Civil Procedure, the action initiated by Hi Caiji was dismissed, and the claim (No. 26517) was presented to the commissioners, with an approved allowance of P8,529.75.

On December 7, 1925, The Philippine Sugar Estates Development Company, Ltd. commenced an action (cause No. 29080) in the Court of First Instance of Manila to foreclose the second mortgage.
A judgment was obtained against the mortgage, and the property was subsequently sold at a public auction for P2,000.

The plaintiff now contends that, because his attachment was obtained prior to the execution of the second mortgage, he is entitled to receive P8,529.75 from any surplus realized from the sale of the property, over and above the amount secured by the first mortgage.
The plaintiff argues that his earlier attachment should afford him a preferential right over the second mortgage holder.

The defendant, by way of demurrer, argued that the facts stated in the complaint were insufficient to constitute a cause of action.
It was contended that the dismissal of the original action (and consequently of the complaint) had the effect of dissolving the attachment, thereby releasing the property from the lien created by it.
Judge George R. Harvey rendered a judgment sustaining the defendant’s demurrer, holding that the dismissal of the action extinguished any preference the plaintiff might have acquired, and directed the plaintiff to amend or dismiss his complaint within five days.
The plaintiff subsequently appealed the decision.

Whether the facts as stated in the complaint are sufficient to constitute a valid cause of action for enforcing the attachment’s preferential right.

Whether the dismissal of the underlying action automatically dissolves the attachment obtained thereunder.
Whether such a dismissal releases the property from the lien and nullifies any preference that might have been accorded to the plaintiff’s claim in relation to the second mortgage.

Whether the plaintiff’s prior attachment, executed before the second mortgage, can override or secure a preference over the later mortgage in satisfying the claim out of the sale proceeds.