BARRETTO V.

VILLANUEVA

Facts:
Rosario Cruzado, for herself and as administratrix of the intestate estate of her
deceased husband Pedro Cruzado in a special proceeding in the CFI Manila,
obtained from the Rehabilitation Finance Corp. a loan in the amount of Php
11,000.
To secure the loan, she mortgaged a land issued in her and her husbands name.
When she dialed to pay certain installments on the loan, the mortgaged was
foreclosed and the RFC acquired the property for Php 11,000, subject to her
rights as mortgagor to repurchase it.
Upon her application, the land was sold back to her conditionally for the amount
of Php 14, 269, payable in 7 years.
After 2 years, Cruzado, as guardian of her minor children in a special proceeding
in CFI Manila, was authorized by the court to sell with the previous consent of
RFC the land in question together with the improvements thereon for a sum not
less than Php 19,000.
With such authority, she sold the land and the improvements on it, including one
house and an annex thereon, to Pura Villanueva for Php 19,000. The sale was
stipulated to be free from all charges and encumbrances, except Php 11,009.52
plus interest, which Cruzado is still obligated to pay to RFC, and which Villanueva
now assumes to pay to RFC under the same terms and conditions specified in
the deed of sale.
Having paid in advance the sum of Php 1,500, Villanueva, in consideration of the
sale, executed in favor of Cruzado a promissory note undertaking to pay the
balance of Php 17,500 in monthly installments. She made an additional payment
of Php 5,500 on the promissory note.
Subsequently, she was able to secure inher name the TCT covering the house
and lot referred to above, and mortgaged the same to Magdalena Barretto as
security for a Php 30,000 loan.
Villanueva failed to pay the remaining installments on the unpaid balance of Php
12,000 on her promissory note for the sale of the property. Cruzado filed a
complaint for the recovery of the same.
Pending trial, a lien was constituted upon the property in the nature of a levy in
attachment in favor of the Cruzados, which was annotated at the back of the title.
The court ordered Villanueva and her husband to pay, jointly and severally, the
sum of Php 12,000, with legal interest from the date of filing, plus attorneys fees.
Since Villanueva also failed to pay her debt to Barretto, a case for foreclosure of
mortgage was also filed by the latter against the former. Cruzado and her
children were impleaded as party defendants.
Judgment was rendered absolving the Cruzados from the complaint and
sentencing the Villanuevas to pay, jointly and severally, the amount of the debt,
with interest and attorneys fees.
Upon finality of the decision, Barretto filed a motion for the issuance of a writ of
execution, which was granted by the lower court.
The Cruzados filed their vendors lien in the amount of Php 12,000 plus interest,
over the real property in question, representing the unpaid balance of the
purchase price of the property.
 The court gave due course thereto, ordering the same to be annotated in the
TCT, and decreeing that should the property be sold at public auction in the
foreclosure proceedings, Cruzado will be credited with her prorate share in the
proceeds pursuant to the Civil Code.
Barrettos filed an MR, but on the same date, the sheriff sold the property at
auction.
As highest bidder, the Barrettos themselves acquired the properties for Php
49,000.00
CFI affirmed the sale and ordered the issuance of the TCT, subject to the order
regarding the vendors lien.
On the same date, the Barrettos MR regarding the vendors lien was denied.
Hence, the present petition.

Issues and Held:

WoN the award of the vendors lien is proper- YES.
o Barrettos: Awarding the Php 12,000 in favor of Cruzado and her minor
childen cannot constitute a basis for the vendors lien because the action
in said civil case was merely to recover the balance of a promissory note.
o SC: While the action was to recover the remaining obligation of Villanueva
on the note, the fact remains that Cruzado as guardian of her minor
children was an unpaid vendor of the realty in question, and that the
promissory note was, precisely, for the unpaid balance of the purchase
price of the property bought by Villanueva.
o CC: Being an unpaid vendor, Cruzado had the right to share pro-rate with
the appellants the proceeds of the foreclosure sale.
o Barettos: Since the unpaid vendors lien was not registered, it should not
prejudice the said appellants registered rights over the property.
o SC: While 2242 of the CC requires that mortgages and liens on
immovable, in order to be given preference, should be recorded in the
Registry of Property, there is no mention of such requirement in the case
of vendors lien. The law does not make any distinction between
registered and unregistered vendors lien, which only goes to show that
any lien of the kind enjoys the preferred credit status.
o Barrettos: To give the unrecorded vendors lien the same standing as the
registered mortgage credit would be to nullify the principle in land
registration system that prior unrecorded interest cannot prejudice
persons who subsequently acquire interests over the same property.
o SC: Nothing in the law shows such limitation.

Ruling:
Petition denied.

Motion for Reconsideration:

The court decided that the original decision must be reversed.
Argument 1: The vendors lien under Art. 2242 and 2243 of the NCC can only
become effective in the event of insolvency of the vendee, which has not been
proved in the present case.
 o The previous decision failed to take fully into account the radical changes
introduced by the new CC into the system of priorities among creditors
ordained by the old CC.
o Applying 2243 and 2249, it becomes evident that one creditors third party
claim to the proceeds of a foreclosure sale is not the proceeding
contemplated by law for the enforcement of preferences under 2242,
unless the claimant were enforcing a credit for taxes that enjoy absolute
priority. If none of the claims is for taxes, a dispute between the 2
creditors will not enable the court to ascertain the prorate dividend
corresponding to each, because the rights of the other creditors likewise
enjoying preference under 2242 cannot be ascertained.
o In the absence of insolvency proceedings, the conflict between the 2
parties must be decided pursuant 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 other than
statutory liens and those recorded in the certificate of title.
o There being no insolvency or liquidation, the claim of the appellee as an
unpaid vendor did not require the character and rank of a statutory lien
co-equal to the mortgagees recorded encumbrance, and must remain
subordinate to the latter.
Argument 2: Cruzado is not a true vendor of the foreclosed property.
o It is clear from the facts of the case that ownership of the property had
passed to the RFC since 1950, when it consolidated its purchase at the
foreclosure sale and obtained a title in its corporate name.
o The subsequent contract of 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.
o Therefore, when after defaulting in their payments due under the resale
contract with the RFC, the Cruzados sold to Villanueva their rights, title,
interest, and dominion to the property, they merely assigned whatever
rights or claims they might still have thereto; the ownership of the property
rested with the RFC. The sale from Cruzado to Villanueva, therefore, was
not so much a sale of the land and its improvements, but a quitclaim deed
in favor of Villanueva.

Ruling:
Previous decision is reconsidered and set aside.