G.R. No. 42278; March 25, 1936
MENZI & COMPANY, INC., plaintiff-appellee, vs. FRANCISCO BASTIDA ET AL., defendants. THE BANK OF THE PHILIPPINE ISLANDS, THE PHILIPPINE GUARANTY CO., INC., and MACONDRAY & CO., INC., appellants.

FACTS

Menzi & Co., Inc. owed Francisco Bastida a judgment debt of P29,774.49. Before paying, Menzi received notices from various creditors of Bastida claiming preferential rights to the judgment proceeds. To avoid multiple liabilities, Menzi filed an interpleader action, deposited the money with the court, and impleaded the creditors. The trial court ordered the distribution of the deposited funds according to a specific order of preference. Several creditors appealed, contesting the priority given to others. The key competing claims were: (1) Levy Hermanos, Inc., which held a prior assignment of part of the judgment from Bastida; (2) The Bank of the Philippine Islands (BPI), which held a later-registered mortgage on the same judgment; (3) Attorneys Claro M. Recto, Jose M. Casal (whose claim was assigned to Macondray & Co.), and Alberto Barretto, who claimed attorney’s liens for services in the original case; and (4) The Philippine Guaranty Co., Inc., which had attached the judgment via execution.

ISSUE

What is the order of preference among the various creditors claiming rights over the proceeds of a judgment debt?

RULING

The Supreme Court affirmed the trial court’s order of payment with modifications. It held that the order of preference is determined by the date of perfection of the respective liens or claims upon the judgment debtor (Menzi & Co.). The Court ruled:
1. The assignment to Levy Hermanos, Inc. was valid and constituted an equitable assignment that took effect upon notice to the judgment debtor (Menzi) on May 27, 1931. It thus enjoyed first priority.
2. An attorney’s lien under Section 37 of the Code of Civil Procedure is a charging lien. It does not automatically attach upon rendition of judgment but is perfected only from the time notice is given to the adverse party and filed in the case records. Therefore, the attorneys’ liens (Recto, Casal/Macondray, Barretto) only attached from the dates they filed their notices and served Menzi (September 1933), and they rank according to those dates.
3. The mortgage in favor of BPI, though registered in the Registry of Deeds, was only effective against the judgment debtor (Menzi) from the date it was notified of the mortgage (April 3, 1933). Since this date was later than the notice of Levy Hermanos’ assignment, BPI’s claim was subordinate to it.
4. The execution levy by Philippine Guaranty Co. through the sheriff attached the judgment on August 17, 1933. This created a lien on the judgment from that date.
5. Consequently, the order of preference, based on the dates of perfection of the liens/claims against the judgment debtor, is: (1) Levy Hermanos, Inc. (May 27, 1931); (2) Attorneys’ liens in order of their notice (Recto, Casal/Macondray, Barretto in September 1933); (3) BPI’s mortgage lien (April 3, 1933); and (4) Philippine Guaranty Co.’s execution lien (August 17, 1933). The claims of BPI and Philippine Guaranty are subordinate to the prior-perfected claims.

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