GR L 10193; (October, 1917) (Digest)
G.R. No. L-10193, October 12, 1917
J. McMicking, as sheriff of the city of Manila, plaintiff-appellee, vs. Padern, Moreno, Jimenez & Co. (Inc.) et al., defendants-appellants.
FACTS:
The sheriff of Manila held proceeds from the execution sale of goods belonging to Padern, Moreno, Jimenez & Co., S. en C. (the old partnership). Multiple creditors claimed priority over these funds:
1. J.J. Peterson obtained a judgment against the old partnership on April 3, 1913.
2. Natalia Pascual Casal obtained a judgment for unpaid rent against the old partnership on June 28, 1913.
3. D.L. Minnich and Manila Electric Railroad & Light Company held claims against Padern, Moreno, Jimenez & Co. (Inc.) (the new corporation), not the old partnership.
Prior to these judgments, the old partnership had transferred all its property to the newly formed corporation “Padern, Moreno, Jimenez & Co. (Inc.)” in September 1912, receiving shares worth P165,500 in exchange. At the time of transfer, the old partnership was insolvent. The corporation continued the old business at the same location. The sheriff’s sale yielded only P3,017.89, revealing a gross overvaluation of the transferred assets. The trial court found the transfer fraudulent and void for lack of consideration, intended to defraud creditors.
ISSUE:
Who among the creditors has priority over the proceeds held by the sheriff?
RULING:
The Supreme Court affirmed that the transfer of assets from the old partnership to the new corporation was fraudulent and void, as it was made without consideration while the old partnership was insolvent. Thus, the proceeds are properly applicable to the debts of the old partnership.
Regarding priority:
– Under Article 1922(7) of the Civil Code, Natalia Pascual Casal, as a landlord owed rent for the building occupied by the debtor, holds a special preferred credit over the proceeds, even though her judgment was rendered after Peterson’s.
– J.J. Peterson, as a judgment creditor, is entitled to the remaining balance after Casal’s claim is fully paid.
– The claims of D.L. Minnich and Manila Electric Railroad & Light Company against the new corporation are not chargeable against these proceeds, as they are not creditors of the old partnership.
The Court modified the lower court’s judgment, ordering the sheriff to pay Natalia Pascual Casal first, and the remainder to J.J. Peterson.
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