[ G. R. No. 10345. February 05, 1916 ] 41 Phil. 611
[ G. R. No. 10345. February 05, 1916 ]
KUENZLE & STREIFF (LTD.), PLAINTIFF AND APPELLANT, VS. JUAN VILLANUEVA, DEFENDANT AND APPELLEE; AND ED. A. KELLER & CO., PLAINTIFF, VS. JUAN VILLANUEVA, DEFENDANT. D E C I S I O N
CARSON, J.:
On April 28, 1914, Kuenzle & Streiff (Ltd.) began an action against Juan Villanueva in the Court of First Instance of Manila and on April 29, 1914, procured the levy of an attachment by the sheriff upon a motor truck, the property of Villanueva, for the satisfaction of any judgment which might be recovered against him. Sometime in the latter part of August, 1914, a money judgment was rendered in that action in favor of Kuenzle & Streiff and against Villanueva for P1,456 and interest thereon from the date of the institution of the action. On May 22, 1914, after the date of the levy of the attachment but prior to the date of the judgment in that action, a judgment for P7,268 with interest and costs was rendered in favor of Ed. A. Keller & Co. (Ltd.) and against Villanueva, in another action in the same court. Execution for the enforcement of Keller & Co.’s judgment issued forthwith, and was levied on the motor truck which had already been attached by Kuenzle & Streiff. The truck was sold at public auction on June 14, 1914, the net proceeds of the sale amounting to P189.88. Both parties laid claim to the proceeds of the sale of the truck in the hands of the sheriff, who filed a motion praying the court to advise and direct him as to the disposition which he should make of the funds. After hearing the parties, the court directed the sheriff to pay over the net proceeds of the sale of the truck to the judgment creditor, Ed. A. Keller & Co. From this order Kuenzle & Streiff appealed to this court, and the record is now before us on appellant’s bill of exceptions. The only question submitted for our consideration is whether the statutory preference in favor of a creditor who obtains a judgment on an unsecured debt, gives the judgment creditor a right to the proceeds of an execution sale of the property of the judgment debtor, superior to the right of another judgment creditor of the same debtor, whose judgment is of a later date, but who had procured the levy of an attachment on the property sold at execution sale prior to the date of the judgment in favor of the other claimant. In other words, the question for consideration is whether an attachment levied on specific property gives to the attaching creditor a lien or a right to a preference in the nature of a lien, superior to the statutory right to a preference which is recognized in article 1924 of the Civil Code in favor of the owner of an after acquired judgment. In a long and unbroken line of decisions, running through our reports from the first volume down to the last, we have uniformly and steadfastly sustained and recognized the statutory preferences created by the provisions of title 17 of the Civil Code, save only in so far as they have been expressly or by necessary implication repealed or modified by Acts of the Commission or the Legislature. In the course of these decisions we have had frequent occasion to consider the nature, force and effect of the preferences established in subsection 3 of article 1924 of the code in favor of “credits that without special privilege appear” in public instruments and final judgments. Construing these provisions we have carefully indicated that these preferences do not constitute a lien upon the property of the debtor in the ordinary sense of the word as used in English and American jurisprudence, the statutory right secured to the creditor being merely a right to a preference in the distribution of the funds of the estate of the judgment or record debtor, in those cases wherein by intervention or otherwise, he is a proper party to the distribution proceedings and duly asserts his rights as a preferred creditor. We have had occasion also to indicate that these statutory preferences in favor of record and judgment creditors attach to the proceeds of the sale of all or any part of the property of the debtor, both personal and real, which may be the subject of distribution proceedings—it always being understood, however, that by the express terms of the various provisions of chapter 3, of title 17 of the Civil Code, these preferences are subordinated to credits which, under the provisions of that chapter, enjoy special preferences with regard to specific personal or real property, and also to the different classes of credits mentioned in subsections 1 and 2 of art. 1924. It is urged, nevertheless, that the issuance and levy of attachments and executions under the provisions of the new Code of Civil Procedure should be given the effect plainly contemplated by the American authors of that Code—that is to say, the effect of liens upon the specific property levied upon; and that these liens should be held to be superior to all or any of the statutory preferences recognized in title 17 of the Civil Code. Upon full consideration of the provisions of the new Code of Civil Procedure by virtue of which levies of attachments are authorized, and of the circumstances under which that Code was enacted by a commission the majority of whose members were American lawyers, we are satisfied that it was the intention of the legislature to give an attaching creditor a lien or at least a right in the nature of a lien in the attached property; but we see no reason whatever for holding that this lien, or right in the nature of a lien, rises superior to any statutory preferences with which the property is affected at the time of its attachment. There is no express provision of the statute to that effect; and we are not aware of anything in the nature of attachment proceedings as authorized in the Code of Civil Procedure which necessitates a holding that it was the intention of the legislator that the mere levy of an attachment should have the effect of destroying or dislodging the acquired rights of a creditor with a statutory preference for the purchase price of the property, or for the cost of repairs on the property, or the like. Nor can any sound reasons be advanced for holding the right of an attachment creditor superior to the statutory right of preference in favor of a judgment creditor who had obtained judgment against the debtor prior to the date of the levy of the attachment. In the absence of the most explicit language in the statute we should not and we will not read into the code provisions touching attachments an intent to emasculate or destroy these very salutary preferences; and such would be the effect of a holding that any unsecured creditor could oust or dislodge preferred creditors by the mere levy of an attachment upon the filing of his action against the debtor. It is said that under the general doctrine recognized in the courts of the United States, the lien of an attachment gives the attaching creditor a right which is superior, with relation to the specific property attached, to the right of all other creditors whatsoever, except those who hold a prior recorded lien upon this property. And it is urged that since the statutory preferences recognized in subsection 3 of article 1924 give the judgment creditor no lien upon the property of the debtor, such preferences, even though they antedate the levy of the attachment, should not be permitted to defeat the right of the attachment creditor to enforce his lien on the specific property attached. But, while we recognized, from the very nature of the proceedings authorizing the levy of attachments, that it necessarily follows that the levy of the attachment creates a lien upon the specific property attached, it does not necessarily follow that the above-mentioned American doctrine as to the effect of the lien thus created has also been imported into this jurisdiction. That doctrine finds its justification in the jurisdictions in which it is recognized, in a system whereby creditors entitled to preferences are furnished with a method whereby rights of preferences may be converted into liens by their entry of record. In this jurisdiction however, no method is prescribed whereby a creditor with a right to a statutory preference can convert such right into a lien. Under the old Spanish system of procedure there was no necessity therefor, since no door was left open whereby unsecured creditors could, at will, oust or dislodge preferred creditors of any right to a preference which had already affected the property of the debtor, provided the preferred creditor duly asserted his right to a preference. As we have said already, we do not believe that in enacting the new Code of Civil Procedure it was the intention of the legislator to emasculate and destroy the statutory preferences recognized and created in the Civil Code; and certain it is that there is nothing in the statute which has that effect, unless we import into this jurisdiction a general doctrine touching the effect of levies of attachment which has no justification or reason for being when considered with relation to the substantive laws in force in these Islands when the Code of Civil Procedure was enacted. We are of opinion that while it is true that a judgment creditor has no lien on his debtor’s property, which will permit him to follow the property into the hands of a purchaser for value and subject it to the payment of the judgment indebtedness; nevertheless, the property of the debtor is affected by the right of preference of his judgment creditor to such an extent that his right of preference in the distribution of the funds of the estate of his debtor should be and will be recognized, as of the date of the judgment, in any legal proceeding which has for its object the subjection of the property of the debtor to the payment of his debts or other lawful obligation. Attachments are invariably issued in the course of such proceedings, and attach rent creditors trust be held to have secured the levy of other attachment subject to the right of preferred creditors to assert their statutory right of preference in the proceeds of the sale of the attached property. On the other hand, it is very clear that the code provisions whereby specific property is attached “for the satisfaction of any judgment which may be obtained against” the debtor, and limiting the amount of such property subject to attachment to an amount sufficient to satisfy such judgment, was intended not’ only to prevent the debtor from disposing of the property, but to prevent other creditors from acquiring liens or preferences in the nature of liens, after the date of the attachment, which might make it impossible for the attachment creditor to satisfy his judgment out of the property attached by him. Though an attaching creditor has no right by the mere levy of an attachment to dislodge other creditors who have already acquired rights of preference affecting the property, he is clearly entitled to have the property held, in custodia legis, pending his action and for the satisfaction of any judgment he may obtain, free of all after acquired liens and preferences. Otherwise prudent creditors would rarely assume the risk and expense of attachment proceedings. It appears that many of the members of the bar have become convinced that in some of our former decisions, and especially in the cases of Peterson vs. Newberry (6 Phil., 260, 263), and McMicking vs. Kimura (12 Phil., 98), we have denied the existence in this jurisdiction of liens or preferences in the nature of a lien in favor of attaching creditors. Indeed, the trial judge in the case at bar, in declining to recognize the existence of a lien or a statutory preference in the nature of a lien in favor of the attaching creditor, said that “In the case of McMicking vs. Kimura (12 Phil., 98), the Supreme Court of these Islands held squarely that an attachment gives no special preference over a judgment though such judgment may be of a later date than the attachment, and that case is decisive of this controversy.” But while some of the language used in the case of McMicking vs. Kimura (12 Phil., 98) appears to justify the comment of the trial judge, an examination of the facts in that case discloses that the real question submitted was whether an attaching creditor acquired a lien, or a preference in the nature of a lien superior to the statutory preference in favor of another judgment creditor whose debt was evidenced by a public document of earlier date than the levy of the attachment. The opinion discloses that the attaching creditor sued out his writ of attachment on the 7th of June, 1907, and obtained judgment on the 28th of June, 1907; while the date of the public instrument evidencing the debt of the record creditor was the 1st of May, 1907, and the date of his. judgment sometime in the following month of June. Expressly holding that the document evidencing the claim of the creditor, dated May 1, 1907, was a public document within the meaning of article 1924 of the Civil Code, we held that he had a right of preference in the distribution of the funds, of the debtor superior to those of the judgment creditor whose attachment and judgment bore dates subsequent to May 1, 1907. This ruling is in exact accord with the doctrine hereinbefore announced. It amounts to no more than a holding that the attaching creditor in levying his attachment on the 7th day of June, 1907 on the property of his debtor could not thereby destroy the preference with which the property was already affected in favor of the creditor whose indebtedness was recognized in a public instrument of an earlier date. Any language in the former opinion which tends to sustain a contention that the attaching creditor is not entitled by virtue of the levy of the attachment to a lien, or preference in the nature of a lien, superior to any statutory preference under article 1924 of the Code in favor of a judgment creditor whose judgment bears a date later than that of the levy of the attachment, was obiter dicta, not necessary to the disposition of the former case, and as such, of no binding force in the disposition of the present case. No question as to the effect of the levy of an attachment arose in the case of Peterson vs. Newberry (supra). It is contended, however, that the language in which we held that the judgment creditor took nothing by virtue of a lien or preference in the nature of a lien, arising out of the levy of an, execution on his judgment, is equally applicable in all cases of levies of attachments under the provisions, of the new Code of Civil Procedure. This contention, however, wholly overlooks the fact that execution levies are always subsequent to the date of the judgment while levies of attachment precede the entry of judgment. It will readily be seen that the right to a preference to which a judgment creditor is entitled, as of the date of his judgment, rises superior in all cases to his right arising under the levy of an execution thereon, which must necessarily be of a later date than the judgment. Speaking broadly therefore, we may, and did, in the Peterson vs. Newberry case, treat liens or preferences in the nature of liens which otherwise would arise out of the issuance and levy of judgment executions, as nonexistent and of no practical force or effect. But this cannot be said of liens or preferences in the nature of liens arising out of the levy of attachments which may long antedate the entry of final judgment. Some other cases have been cited in which it is said that this court has declined to recognize the doctrine announced with relation to the levy of attachments, but upon examination it appears either that our rulings in those cases were made with reference to the levy of attachments under the old Spanish Code of Civil Procedure, or that the comment contained in those opinions with reference to the nature and effect of the rights arising from the levies of attachments under the new Code of Civil Procedure had no controlling effect upon the disposition of the cases then under review. But, be this as it may, the question having been squarely submitted to us on this appeal, we are of opinion and so hold upon full consideration of the law as we understand it, that we should not be bound by anything in the former decisions which seems to set forth a doctrine in this regard contrary to that herein announced. We conclude that the issuance and levy of an attachment on specific property, real or personal, gives to the attaching creditor a lien, or a right to a preference in the nature of a lien with relation to such property, subject to all liens or statutory preferences by which such property is affected at the date of the levy, but superior to all liens and statutory preferences by which the property may be affected subsequent to the date of the levy. Before finally disposing of this case it may not be amiss to indicate that we are not unaware of the arguments based on the grounds of convenience and expedience which may be advanced against the maintenance, with reference to the proceeds of the sale of attached property, of preferential rights of creditors whose claims of indebtedness are recognized in public documents of earlier date than that of the levy of the attachment. Much can be said, and has been said to the menace of fraud and sharp practice involved in the maintenance of this statutory preference when it is claimed by a, creditor with reference to an indebtedness acknowledged in a notarial instrument, as those instruments are executed under existing law. But this court, with full knowledge of the force of these arguments has steadfastly maintained the view that notarial instruments are and must be held to be public instruments in the sense in which that term is used in subsection 3 of article 1924 of the Civil Code, and that ruling has long since become a fixed rule of property, which we are not at liberty to overthrow. If any change or modification of the rule appears to be required under existing conditions, such change or modification must have the sanction of legislative authority. (Peterson vs. Newberry, 6 Phil., 260; Pena vs. Mitchell, 9 Phil., 587; Macke and Macke vs. Rubert, 11 Phil., 480; Martinez vs. Holliday, Wise & Co., 1 Phil., 194; Quison vs. Salud, 12 Phil., 109.) It is to be observed, however, that since the discussion first arose as to the apparent inexpedience of the treatment of notarial instruments as public documents, the legislature has, in fact, thrown a number of additional safeguards around the execution of notarial instruments, which obviate some of the principal objections against their recognition as public documents. And it is to be presumed that such other and further safeguards will be erected in the future as may be found necessary as a result of experience in the operation of the notarial law now in force. What has been said necessitates the reversal of the judgment appealed from in this case, without costs in this instance, and the entry of an order directing that the net proceeds of the sale of the auto truck in the hands of the sheriff be turned over to the attaching creditor, the appellant in these proceedings, whose judgment claim is far in excess of !he total amount of the funds available for distribution. So ordered. Arellano, C. J., Torres, Trent, and Araullo, JJ., concur.