G.R. No. 113578 - Sulpicio Lines, Inc. vs. Court of Appeals

This is a petition for review of a decision by the Court of First Instance (CFI) of Manila, Branch VII, in Civil Case No. 79914.
The disputed matter involves the adjudication of claims over a duplex-apartment house built on a lot covered by Transfer Certificate of Title (TCT) No. 86195 located at San Diego Street, Sampaloc, Manila.
The parties are Philippine Savings Bank (petitioner) and Candido Ramos (private respondent), a duly licensed architect and building contractor.

The duplex-apartment house was constructed for the spouses Filomeno and Socorro Tabligan.
The house, built at a total cost of P32,927.00, was partially financed by the spouses through a payment of P7,139.00 to the private respondent.
The balance of P25,788.50 was funded by the private respondent’s own money.
The spouses obtained three separate loans from Philippine Savings Bank—on December 16, 1966, February 1, 1967, and February 28, 1967—for a combined amount of P35,000.00 to complete the construction.

To secure these loans, the spouses executed three promissory notes along with three deeds of real estate mortgage in favor of the petitioner bank.
The mortgages were duly registered: the first on December 19, 1966, the second on February 2, 1967, and the third on March 1, 1967.
Initially, TCT No. 86195 was free from liens and encumbrances when the mortgages were registered.
Due to the spouses’ failure to pay the monthly amortizations, the bank foreclosed the mortgages.
The bank, having been the highest bidder at the public auction held on July 23, 1969, consolidated its ownership over the property, resulting in the issuance of TCT No. 101864 in its name on August 9, 1970.

Prior to the foreclosure, the private respondent filed an action (Civil Case No. 69228) against the spouses to collect the unpaid cost of constructing the duplex-apartment.
Through this action, a writ of preliminary attachment was secured, leading to a notice of adverse claim annotated on TCT No. 86195.
A decision in Civil Case No. 69228, rendered on August 26, 1968, favored the private respondent, thereby awarding him a pro-rata share in the value of the property under Article 2242 of the Civil Code.
Following the unsuccessful execution of the judgment due to the spouses’ lack of other properties, the private respondent sought to collect his pro-rata share directly from the petitioner bank, which led to the current petition.

The central issue pivots on whether the private respondent’s claim as an unpaid contractor qualifies as a statutory lien with the same rank as the bank’s registered mortgage under Article 2242 of the Civil Code.
Both parties invoke the case of De Barretto v. Villanueva to support their positions regarding the nature and effect of preferred claims under Article 2242.
The petitioner bank contends that for Article 2242 to operate, there must be an insolvency or a liquidation proceeding binding on all creditors—a condition not met in this case.
The private respondent argues that the proceedings before the CFI amount to a general liquidation of the spouses’ estate, thereby binding all creditors even if limited in number.

Whether the proceedings before the Court of First Instance can be deemed an insolvency or liquidation proceeding (or an equivalent general liquidation) that is binding on all creditors, which would be necessary for the application of Article 2242 and 2249 of the Civil Code.

Does the mere adjudication of two creditors’ claims, in the absence of a formal insolvency or decedent estate settlement proceeding, satisfy the requirements for enforcing statutory liens under Article 2242?
Should a dispute between the bank and the private respondent be resolved by apportioning the proceeds of the foreclosure sale on a pro-rata basis, or should the registered mortgage of the bank take precedence?

Whether the private respondent’s claim as an unpaid contractor, despite being recognized in a separate suit, acquired the status of a statutory lien equivalent in priority to the bank’s recorded mortgage.