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EN BANC

G.R. No. L-48925 August 30, 1943

LUCITA Y. MATIAS, Petitioner-Appellant, vs. THE PROVINCIAL SHERIFF OF NUEVA ECIJA, Respondent-Appellee.

Mariano Sta. Romana for appellant.
Office of the Solicitor-General De la Costa and Solicitor Torres for appellee.

OZAETA, J.:

This is a direct appeal from the Court of First Instance of Nueva Ecija to which the case was submitted for decision upon a stipulation of facts and which dismissed the complaint without costs. the undisputed facts are as follows:chanrobles virtual law library

In civil case No. 6043 of the Court of First Instance of Nueva Ecija entitled "Lucia Y. Matias et al, plaintiffs, vs. Gonzalo H. Cotoco et al., defendants," the plaintiffs procured a writ of preliminary attachment by virtue of which on August 26, 1931, they attached the shares of stock belonging to the defendant Gonzalo H. Cotoco in the corporation known as Samahang Magsasaka, Inc. The attachment was duly noted on the books of the corporation. Final judgment was subsequently entered in said case in favor of the plaintiff Lucia Y. Matias against the defendant Gonzalo H. Cotoco for the sum of P11,023.80, with legal interest thereon from August 22, 1931, and by virtue on the writ of execution issued thereon the sheriff levied upon and advertised for sale at public auction 5,894 shares of stock belonging to the judgment debtor Gonzalo H. Cotoco in the Samahang Magsasaka, Inc., which had been previously attached as aforesaid. On September 30, 1932, the provincial fiscal of Nueva Ecija, in representation of the Collector of Internal Revenue, wrote to the provincial sheriff as follows:

Septiembre 30, 1932

Sr. SHERIFF PROVINCIAL
Cabanatuan, Nueva Ecijachanrobles virtual law library

En relacion con las propiedades embargadas por Vd. en virtud de una orden de ejecucion expedida en la causa civil No. 6043 del Juzgado de Primera Instancia de Nueva Ecija, titulada 'Lucia Y. Matias y otros contra Gonzalo H. Co Toco y otros,' cuya venta en publica subasta esta anunciada por Vd. para el dia 3 de octubre, 1932, tengo el honor de reclamar todas y cada una de dichas propiedades en nombre y representacion del Administrador de Rentas Internas en virtud del gravamen preferente que el Gobierno de las Islas Filipinas tiene sobre las mismas por impuestos de comercio e ingreso que Gonzalo H. Co Toco debe a este, segun relacion que aparece en el 'proof of debt' suscrito y jurado por el Administrador de Rentas Internal en 22 de junio ultimo, cuyo original esta unido al expediente de la causa civil No. 6041 de dicho Juzgado de Primera Instancia de Nueva Ecija, copia de la cual he remitido a la oficina de Vd. antes de ahora.chanroblesvirtualawlibrary chanrobles virtual law library

Nuestra reclamacion se funda en las disposiciones del articulo 1588 del Codigo Administrativo tal como esta enmendado.chanroblesvirtualawlibrary chanrobles virtual law library

Esta reclamacion hacemos extensiva al producto de dichas propiedades en caso de venta de las mismas.

Respetuosamente,

(Sgd.) ALFONSO SANTOS Fiscal Provincial

There was another third-party claimant named Guan Suy (alias Gonzalo Chua Guan), and the execution creditor filed an indemnity bond of P58,000 in favor of the sheriff "in view of the said claim of Guan Suy ( alias Gonzalo Chua Guan), . . . for which reason the provincial sheriff of Nueva Ecija on October 3, 1932, sold as schedule in the publication, the said stocks of Gonzalo H. Cotoco in the Samahang Magsasaka, Inc., consisting of 5,894 shares of stock in favor of Lucia Y. Matias, [she] being the highest bidder for the amount of P2,947."chanrobles virtual law library

The provincial sheriff demanded of the plaintiff the payment in cash of the amount of her bid in view of the claims of the Collector of Internal Revenue over the proceeds of the sale, but the plaintiff refused to pay it on the ground that being the execution creditor she was "not obliged to give a cash payment of the said bid." The sheriff refused to issue a certificate of sale to the plaintiff, and the latter on April 25, 1938, brought the present action to compel him to do so.chanroblesvirtualawlibrary chanrobles virtual law library

The claim of the Collector of Internal Revenue against the judgment debtor Gonzalo H. Cotoco consisted of the following: P10,479.73 for sales tax and penalties due from the limited copartnership Gonzalo H. Cotoco & Co. for the year 1931 and deficiency income taxes (whether on the income of the partnership of Gonzalo H. Cotoco personally was not specified) for the years 1928, 1929, 1930, and 1931 amounting to more than P18,000.chanroblesvirtualawlibrary chanrobles virtual law library

The trial court held that Gonzalo H. Cotoco, as general and managing partner of Gonzalo H. Cotoco & Co., was personally liable for the Government's claim against the partnership, and that under section 1588 of the Administrative Code, said claim constituted a lien on the property of the debtor superior to the claim of the plaintiff herein. Hence the judgment of dismissal.chanroblesvirtualawlibrary chanrobles virtual law library

In her first assignment of error, appellant contends that being the judgment creditor and having filed a bond in favor of the sheriff, she was not obligated to pay in cash the mount of her bid at the public sale of the property of the judgment debtor. The Solicitor-General, representing the sheriff appellee in this Court, on the other hand contends that all bids in a public sale should be paid in cash regardless of whether or not the successful bidder be the judgment creditor himself.chanroblesvirtualawlibrary chanrobles virtual law library

Section 19 of Rule 39 (formerly section 457 of Act No. 190) provides that all sales of property under execution must be made to the highest bidder, and that after sufficient property has been sold to satisfy the execution, no more property shall be sold. Section 20 of Rule 33 (formerly section 458 of Act No. 190) provides as follows:

SEC. 20. Refusal of purchaser to pay - If a purchaser refuses to pay the amount bid by him for property struck off to him at a sale under execution, the officer may again sell the property to the highest bidder and shall not be responsible for any loss occasioned thereby; but the court may order the refusing purchaser to pay into court the amount of such loss with costs, and may punish him for contempt if he disobeys the order. The amount of such payment shall be for the benefit of the person entitled to the proceeds of the execution, unless the execution has been fully satisfied, in which event such proceeds shall be for the benefit of the judgment debtor. When a purchaser refuses to pay, the officer may thereafter reject any subsequent bid of such person.

It will be seen that the law is silent as to the manner of payment in case the successful bidder is the execution creditor himself. In the absence of a third-party claimant to the proceeds of the sale, the execution creditor need not pay down the amount of the bid if it does not exceed the amount of his judgment; and if it does, he should only be required to pay the excess. That has been the invariable practice, dictated by common sense, the correctness of which is too obvious for argument.chanroblesvirtualawlibrary chanrobles virtual law library

In the present case, however, the Collector of Internal Revenue claimed the proceeds of the sale on the ground that the Government had a lien for taxes on the property sold superior to the claim of the appellant. That claim was converted by the appellant. The sheriff had no authority to decide the controversy; so in order to protect himself against the conflicting claims he had the right to demand of the herein appellant as successful bidder the payment in cash of the amount of her bid as a condition precedent to the issuance by him of the certificate of sale, in order that he might hold the amount subject to the order of the court, which alone has jurisdiction to decide said controversy. If the court should decide it in favor of the execution creditor, it would and should order the sheriff to issue the certificate of sale, and the sheriff would thereby be relieved of any responsibility to the other claimant. If the court should find that the claim of the third party over the proceeds of the sale was superior to that of the execution creditor, the latter should be ordered to pay the amount of his bid to the sheriff within a reasonable time (which should be specified by the court) as a condition precedent to the issuance of the certificate of sale by the sheriff. Failure of the execution creditor to make the payment would automatically annul the sale.chanroblesvirtualawlibrary chanrobles virtual law library

It is true that in this case the appellant gave the sheriff an indemnity bond of P58,000 in order that the latter might proceed with the sale; but we believe that sail bond did not cover the claim of the Government over the proceeds of the sale, since in paragraph 5 of the stipulation of facts it appears that appellant filed said bond "in view of the said claim of Guan Suy ( alias Gonzalo Chua Guan)." The bond is not attached to the record.chanroblesvirtualawlibrary chanrobles virtual law library

In view of the foregoing considerations, we overrule appellant's firs assignment of error.chanroblesvirtualawlibrary chanrobles virtual law library

Appellant's second and last assignment of error is, that "the lower court erred in holding that the Collector of Internal Revenue has a preferential right over the stocks of Gonzalo Cotoco in the Samahang Magsasaka, Inc." That is the controversy between the appellant and the Collector of Internal Revenue. It cannot be decided without hearing both parties. Since the Collector of Internal Revenue was not made a party respondent in this case, any decision adverse to his claim would not be binding on him for lack of jurisdiction over his person. The provincial fiscal in the lower court and the Solicitor General in this Court appeared for the sheriff, but the latter is not the Collector of Internal Revenue. For this reason, the trial court did not have, and this Court does not have, jurisdiction to pass upon the merit of the controversy discussed in appellant's second assignment of error.chanroblesvirtualawlibrary chanrobles virtual law library

For this reasons above stated, the dispositive part of the decision appealed from is affirmed, without any finding as to costs. So ordered.chanroblesvirtualawlibrary chanrobles virtual law library

Yulo, C.J., Moran and Paras, JJ., concur.

RESOLUTION ON MOTION FOR RECONSIDERATION chanrobles virtual law library

OZAETA, J.:

Appellant, while recognizing the correctness of the decision rendered by us on August 30, 1943, pleads nevertheless that conformably to the findings of law made therein she be permitted within ten days to pay the amount of her bid to the sheriff or to file a bond to answer for the claim of the Collector of Internal Revenue in order to avoid the necessity of her having to commence a new action for that purpose, considering that the judgment sought to be executed in civil case No. 6043 of the Court of First Instance of Nueva Ecija became executory as long ago as about the year 1932.chanroblesvirtualawlibrary chanrobles virtual law library

Considering all the facts and circumstances set forth in our decision and the conclusions of law therein arrived at we see no legal obstacle but on the contrary find it just and equitable to permit appellant to pay the amount of her bid or file a bond in instead to answer for the claim. of the Collector of Internal Revenue.chanroblesvirtualawlibrary chanrobles virtual law library

Wherefore, the dispositive part of our decision of August 30, 1943, is hereby amended so as to read as follows:

The dispositive part of the decision appealed from is affirmed; provided, however, that if the plaintiff-appellant shall, within ten days from the date the record of this case is received in the trial court, pay to the defendant sheriff the full amount of her bid plus the expenses of the sale or in lieu thereof, file such bond as the trial court may fix to answer fully for the claim of the Collector of Internal Revenue then the trial court shall authorize and order said sheriff to execute the certificate of sale in question in favor of the plaintiff. No finding as to costs.

Yulo, C.J., Moran and Paras, JJ., concur.

Separate Opinions chanrobles virtual law library

BOCOBO, J., concurring:chanrobles virtual law library

I concur in the result. I do not believe it is necessary to declare that in the absence of a third-party claimant to the proceeds of the sale, the execution creditor need not pay down the amount of the bid if it does not exceed the amount of his judgment. In the instant case, there is a third party claimant to the proceeds of the sale, so the foregoing statement is obiter dictum.chanroblesvirtualawlibrary chanrobles virtual law library

Moreover, the soundness of the above pronouncement may well be doubted for these reasons:chanrobles virtual law library

1. Execution sales should be strictly competitive. All bidders, without exception should, therefore, stand on the same footing, and none should have any advantage over the others. But exempting the judgment creditor, who is a bidder, from paying cash, when other bidders are required to do so, would be repugnant to the competitive character of judicial sales.chanroblesvirtualawlibrary chanrobles virtual law library

2. The judgment debtor has a right to redeem the property within the statutory period. That right of redemption may be rendered unjustly difficult by the judgment creditor by outbidding all the other bidders who are willing to pay cash though their offer is small than the judgment creditor's. And the latter may easily defeat the other bidders because he does not have to pay down the amount of his bid. On this other hand, the judgment debtor would have to pay a smaller amount in the redemption, if one of the other bidders, ready to pay cash had not been kept our by the judgment creditor.chanroblesvirtualawlibrary chanrobles virtual law library

3. In some cases, the execution sale would become a mockery. For example, in a foreclosure of mortgage, the mortgage creditor, who has won his suit, could easily become the owner of the property by outbidding other bidders. The foreclosure sale would be a useless formality because from the time of the judgment the mortgage creditor has practically become the owner of the real property. Such a state of affairs flies in the face of the principle which frowns upon the automatic forfeiture of the property in favor of the mortgage creditor.chanroblesvirtualawlibrary chanrobles virtual law library

4. The rule would keep away and discourage prospective bidders other than the judgment creditor. Consequently, the latter would control the price at the sale, to the prejudice of the judgment debtor whose property should be sold at the highest possible price. This can not happen if only the judgment creditor appears at the sale because all other persons are at a disadvantage.chanroblesvirtualawlibrary chanrobles virtual law library

Lastly, there are decisions contrary to the ruling referred to. Thus, in Kelly vs. Barnet (24 Cal, App. 119, 140 Pac., 605), it was held:

The plain intendment of these sections is that sales of property under execution shall be conducted of cash, and that successful bidders shall be prepared to pay the amount of their bids in cash at the time of the sale. No distinction is made between purchases who are also judgment creditors and those who are not.

See also Camden vs. Mayhew (129 U.S., 73; 32 Law ed., 608).