DBP vs.

CA (DIGEST)
September 19, 2019 by CaseDigestsPh

G.R. No. 126200 (2001)

PARTIES:
Petitioner Development Bank of the Philippines (DBP)
Respondents Court of Appeals
Remington Industrial Sales Corporation

SUMMARY:

MMIC ordered construction materials from private respondent Remington. MMIC was unable to pay.
On the other hand, PNB and DBP, creditors of MMIC, foreclosed on the mortgage executed by MMIC.
The foreclosure covered all properties of MMIC including the construction materials. Remington
instituted this collection suit against PNB and DBP, the new owner of MMIC’s properties. RTC and CA
decided in favor of Remington holding that under Art. 2241, an unpaid seller has a lien over the
movable properties it sold to MMIC. SC reversed.

DOCTRINES:

Only taxes enjoy absolute preference. All the remaining classes of preferred creditors under Article
2241 and 2242 enjoy no priority among themselves, but must be paid pro rata. However, in order to
make this prorating fully effective, the preferred creditors must necessarily be convened, and the import
of their claims ascertained. As the extra-judicial foreclosure instituted by PNB and DBP is not the
liquidation proceeding contemplated by the Civil Code, Remington cannot claim its pro rata share from
DBP.

FACTS:

Marinduque Mining Industrial Corporation (MMIC) obtained from the Philippine National Bank
(PNB) various loan accommodations. To secure the loans, MMIC executed in favor of PNB and the
Development Bank of the Philippines (DBP) a Mortgage Trust Agreement. MMIC failed to pay its
loans hence, PNB and DMB foreclosed. In the ensuing public auction sale PNB and DBP emerged and
were declared the highest bidders over the foreclosed real properties.

In the meantime, between July 16, 1982 to October 4, 1983, MMIC purchased and caused to be
delivered construction materials and other merchandise from Remington Industrial Sales Corporation
(Remington) worth P921,755.95. The purchases remained unpaid as of August 1, 1984 when
Remington filed a complaint for a sum of money and damages against MMIC for the value of the
unpaid construction materials and other merchandise it purchased. On September 7, 1984, Remington’s
original complaint was amended to include PNB and DBP as co-defendants in view of the foreclosure
by the latter.

RTC rendered a decision in favor of Remington. Upon appeal, the Court of Appeals affirmed the
decision of the RTC. The CA held that there exists in Remington’s favor a “lien” on the unpaid
purchases of MMIC and as transferee of these purchases, DBP should be held liable for the value
thereof.

ISSUE:

WON Remington can collect from PNB and DBP? (NO, there must be another proceeding where the
claims of all preferential creditors can be ascertained)

RATIO:

Article 2241. With reference to specific movable property of the debtor, the following claims or liens
shall be preferred:

(3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the
possession of the debtor xxx

In Barretto vs. Villanueva, the Court had occasion to construe Article 2242, governing claims or liens
over specific immovable property:

Article 2242 of the new Civil Code enumerates the claims, mortgages 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
(5) Mortgage credits recorded in the Registry of Property.

Article 2249 of the same Code provides that 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.

Upon motion by appellants in the Barreto case however, the Court reconsidered its decision. Justice
J.B.L. Reyes, speaking for the Court, explained the reasons for the reversal:

Pursuant to the former Code (1889), 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 new Civil Code (1950), 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:

But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of
Article 2242 (or such of them as have credits 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 proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as
insolvency, the settlement of decedent’s estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import.

Although Barretto involved specific immovable property, the ruling therein should apply equally in this
case where specific movable property is involved.

As the extra-judicial foreclosure instituted by PNB and DBP is not the liquidation proceeding
contemplated by the Civil Code, Remington cannot claim its pro-rata share from DBP.

DISPOSITIVE:

WHEREFORE, the petition is GRANTED. The decision of the Court of is REVERSED and SET
ASIDE. The original complaint filed in the Regional Trial Court is dismissed.