In J.L. Bernardo Construction v. Court of Appeals, the Supreme Court clarified the application of a contractor’s lien under Article 2242 of the Civil Code, holding that it cannot be enforced in an ordinary action for specific performance and damages but requires insolvency proceedings where all preferred creditors’ claims can be adjudicated. The Court also addressed the propriety of a writ of preliminary attachment, emphasizing the availability of remedies like counter-bonds before resorting to certiorari. This ruling distinguishes between enforcing a contractor’s lien and utilizing preliminary attachment to secure a claim, impacting how contractors can protect their interests in payment disputes.

Market Construction and Legal Deconstruction: When Can a Contractor Enforce a Lien?

The case revolves around a construction agreement between J.L. Bernardo Construction and the Municipality of San Antonio, Nueva Ecija, for the construction of a public market. Disputes arose over unpaid cash equity and reimbursement for expenses, leading the contractor to file a case for breach of contract, specific performance, and collection of a sum of money. They also sought a preliminary attachment and enforcement of a contractor’s lien. The trial court initially granted these remedies, but the Court of Appeals reversed, prompting the Supreme Court to weigh in on the matter. This legal battle highlights the complexities contractors face when seeking payment and the specific legal avenues available to them.

The central issue before the Supreme Court was whether the Court of Appeals correctly assumed jurisdiction over the petition for certiorari questioning the trial court’s orders granting the writ of attachment and the contractor’s lien. Additionally, the Court examined whether the appellate court erred in its decision regarding the enforceability of the contractor’s lien and the propriety of the writ of attachment. A petition for certiorari is appropriate only when a lower court acts without or in excess of its jurisdiction, or with grave abuse of discretion, and when there is no other adequate remedy available. Certiorari is reserved for extraordinary cases where the lower court’s actions are wholly void, reflecting a patent and gross abuse of discretion.

The Court emphasized that as a general rule, an interlocutory order is not immediately appealable. This is to prevent delays in the administration of justice. However, the Court also acknowledged exceptions, such as when the order is issued without or in excess of jurisdiction or with grave abuse of discretion, or when the order is patently erroneous and an appeal would not provide adequate relief. Here, the Supreme Court found that the Court of Appeals should not have given due course to the petition for certiorari regarding the writ of attachment, as the Municipality and Salonga had other available remedies. These included filing a motion to fix a counter-bond and a motion to discharge the attachment, making the certiorari petition premature.

However, the Supreme Court agreed with the Court of Appeals’ ruling on the contractor’s lien. The Court clarified that Articles 2241 and 2242 of the Civil Code, which enumerate credits enjoying preference concerning specific property, apply only when there is a concurrence of credits. This means the same property is subject to claims from multiple creditors, and its value is insufficient to pay all claims in full. In such a situation, the question of preference arises, requiring a determination of which creditors should be paid first. The Court emphasized the importance of due process in these situations, asserting that a statutory lien should be enforced within a proceeding where all preferred creditors’ claims can be adjudicated, such as insolvency proceedings.

Article 2243 of the Civil Code explicitly states that the claims and liens in Articles 2241 and 2242 are considered mortgages, pledges, or liens within the context of insolvency laws. This reinforces the idea that these preferences are best resolved in a comprehensive proceeding where all creditors can assert their claims. The Supreme Court found that the action filed by the contractor was for specific performance and damages, not an insolvency proceeding. Therefore, even if the contractor was entitled to a lien under Article 2242, it could not be enforced in the current action because there was no way to determine if other preferred creditors had claims over the public market. The absence of third-party claims in the trial court did not prevent other creditors from later asserting their preferred liens.

This is made explicit by Article 2243 which states that the claims and liens enumerated in articles 2241 and 2242 shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency.

Building on this principle, the Court cited Philippine Savings Bank v. Lantin, where it disallowed a contractor from enforcing a lien under Article 2242 in an action solely for collecting unpaid construction costs. The Supreme Court clarified that without alleging any rights as a mortgagee, the contractor could only obtain possession and use of the public market through a preliminary attachment if they obtained a favorable judgment. This attachment would need to follow the procedure outlined in the Rules of Court. A writ of attachment on registered real property is enforced by the sheriff filing a copy of the order with the registry of deeds, along with a description of the property and a notice of attachment. The sheriff must also leave a copy of these documents with the property’s occupant.

If the contractor wins the case and obtains a judgment, the sheriff may sell the property to satisfy the judgment. Only by purchasing the property would the contractor acquire possession and use of it. The Court found that the trial court’s order granting immediate possession and use of the public market to the contractor did not follow the proper procedure for attachment under the Rules of Court. This constituted a grave abuse of discretion, justifying the appellate court’s nullification of the order.

Under our rules of procedure, a writ of attachment over registered real property is enforced by the sheriff by filing with the registry of deeds a copy of the order of attachment, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order, description, and notice with the occupant of the property, if any.

Thus, the Supreme Court upheld the Court of Appeals’ decision nullifying the contractor’s lien and the order approving the guidelines for operating the public market. However, it reversed the appellate court’s nullification of the writ of attachment. The Supreme Court also stated that there was no need to decide whether the contractors were the real parties-in-interest at this stage of the case. This issue could be raised in an appeal if judgment were rendered against the Municipality and Salonga. This decision clarifies the circumstances under which a contractor’s lien can be enforced and emphasizes the importance of following proper procedures for preliminary attachments. It also highlights the distinction between these two remedies and their applicability in construction disputes.

FAQs

What was the key issue in this case?	The central issue was whether a contractor’s lien under Article 2242 of the Civil Code can be enforced in an ordinary action for specific performance and damages, or if it requires insolvency proceedings. The Court also addressed the propriety of issuing a writ of preliminary attachment.
What is a contractor’s lien?	A contractor’s lien is a legal claim granted to contractors, laborers, and suppliers for the value of work done or materials furnished in constructing or repairing a property. It serves as security for payment of their services or supplies.
When can a contractor’s lien be enforced?	According to this case, a contractor’s lien can only be properly enforced within the context of insolvency proceedings. This ensures all creditors with claims against the property can have their rights adjudicated.
What is a writ of preliminary attachment?	A writ of preliminary attachment is a provisional remedy where a court orders the seizure of a defendant’s property to ensure the satisfaction of a judgment if the plaintiff wins the case. It is typically used when there is a risk that the defendant may dispose of their assets.
What remedies are available to a defendant when a writ of attachment is issued?	A defendant can file a motion to fix a counter-bond to dissolve the attachment, or a motion to discharge the attachment if it was improperly issued or enforced. These remedies must be exhausted before seeking certiorari.
What is the significance of Article 2243 of the Civil Code?	Article 2243 clarifies that the preferences outlined in Articles 2241 and 2242 (including contractor’s liens) are considered mortgages or pledges within the context of insolvency laws. This underscores that these liens are best resolved within insolvency proceedings.
What was the Court’s ruling on the trial court’s order granting possession of the public market?	The Court upheld the appellate court’s nullification of the trial court’s order. The trial court had improperly granted possession and use of the public market to the contractor without following the proper procedure for attachment under the Rules of Court.
Why was the contractor not allowed to take immediate possession of the public market?	The court emphasized that the proper procedure for attachment, as outlined in the Rules of Court, was not followed. The contractor could only obtain possession and use of the property if they purchased it at a sale following a favorable judgment and execution.
What is the practical implication of this ruling for contractors?	Contractors should be aware that simply having a contractor’s lien does not automatically grant them the right to possess or operate a property. They must pursue proper legal channels, such as preliminary attachment and subsequent execution, or seek resolution within insolvency proceedings.

This case underscores the importance of understanding the nuances of construction law and the proper procedures for enforcing legal rights. Contractors must be diligent in protecting their interests and seeking appropriate legal remedies when disputes arise. This decision serves as a reminder that proper legal channels must be followed to ensure the validity and enforceability of claims.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: J.L. Bernardo Construction, G.R. No. 105827, January 31, 2000