G.R. No. L-1178, November 17, 1903
CARMEN OLIVARES Y TELLO, plaintiff-appellee, vs. HOSKYN & CO., ET AL., defendants-appellants.

FACTS:
Don Eduardo Olivares was the registered owner of a parcel of real estate. On March 31, 1900, he executed a public instrument in favor of the plaintiff, Carmen Olivares y Tello, which the lower court construed as a mortgage securing a debt of 6,000 pesos. This instrument was never recorded. Subsequently, on November 22, 1900, the defendants, Hoslyn & Co., initiated an executive action against Eduardo Olivares to recover on a promissory note, and the same property was seized under a writ of execution, which was also never recorded in the registry of property. The defendants obtained a judgment of remate (auction sale) on February 15, 1901. When they proceeded to sell the property, the plaintiff filed a complaint in intervention, claiming a superior right to the proceeds of the sale over the defendants. The lower court ruled in favor of the plaintiff, ordering that her debt be paid first from the sale proceeds. The defendants appealed.

ISSUE:
Whether the plaintiff, as an unrecorded mortgage creditor whose claim is evidenced by a public document, is entitled to preference in payment over the defendants, who are judgment creditors with an unrecorded levy on the same property, in the distribution of the proceeds from the execution sale.

RULING:
Yes. The Supreme Court affirmed the lower court’s decision, holding that the plaintiff is entitled to preference over the defendants.

The Court assumed, for the purpose of the appeal, that the unrecorded document of March 31, 1900, did not constitute a valid mortgage due to non-registration. However, it found that the instrument properly evidenced a personal debt of Eduardo Olivares to the plaintiff for 6,000 pesos, which he intended to secure with a mortgage on the property.

Since neither the plaintiff’s mortgage nor the defendants’ levy was recorded, their competing rights are not governed by the rules on registered liens (Articles 1923 and 1927 of the Civil Code) but by the rules on concurrence and preference of credits (Articles 1924 and 1929 of the Civil Code). Under Article 1924, paragraph 3, credits evidenced by a public document enjoy preference over those evidenced by a final judgment. The plaintiff’s debt was evidenced by a public document dated March 31, 1900, while the defendants’ claim was based on a final judgment dated February 15, 1901. Therefore, the plaintiff’s credit is preferred.

The Court rejected the argument that Article 1924 applies only in bankruptcy or estate settlement proceedings. It held, following Spanish jurisprudence and its prior ruling in Martinez vs. Holiday, Wise & Co., that a general creditor may intervene in an executive action to assert a right of preference under Article 1924 in the distribution of the proceeds from the sale of a debtor’s property. The fact that the defendants’ levy was unrecorded did not alter this conclusion. The judgment of the lower court was affirmed.