JL Bernardo Construction v CA 2000 1990, San Antonio municipal Government (of Nueva Ecija) approved the construction of the

San Antonio Public Market. It was supposed to be funded by the Economic Support Fund Secretariat (ESFS). Under the ESFS grant-loan-equity program, the market would be funded by a grant from ESFS, loan extended by ESFS and equity (or counterpart funds) from the municipality. Petitioners claimed they entered into a business venture to participate in the bidding of the public market. So, JL Construction (sole proprietorship owned by Bernardo) thru Santiago Sugay submitted its bid together with other qualified bidders. They won and were awarded the contract. A construction agreement was then entered into by the municipality (thru respondent Salonga, then the incumbent mayor) and JL Bernardo Construction. Petitioners claim that under the contract, the municipality agreed to assume the expenses for the demolition, clearing and site filling of the construction site worth 1.15 million pesos and to give cash equity of 767 thousand pesos, both amounts to be remitted directly to petitioners. Petitioners then allege that these amounts became due but the municipality refused to pay despite repeated demands and despite the market being 98% complete. They say that Salonga induced them to advance expenses by making representations that the municipality had the financial capability to reimburse them. 1991, petitioners filed for breach of contract, specific performance and collection of sum of money, with prayer of preliminary attachment and enforcement of contractors lien against the municipality and Salonga in his official and personal capacity. 1995, RTC granted the preliminary attachment. It also granted JL Bernardo Construction the right to possession of the market and operate the same. It gave credence to the alleged fraud. With regard to the contractors lien, the RTC said that since petitioners have not been reimbursed for the cash equity and for the demolition, clearing and site expenses, they stand in the position of an unpaid contractor, then they are an unpaid contractor which entitles them to Articles 2242 and 2243 of the CC, to a lien worth 2.6 million pesos (as of Aug 1, 1991), excluding other damages. It explained that although the usual way is to enforce a lien is by a decree for the sale of the property and the application of the proceeds to the debt, it is more practical to permit petitioners to operate the market and apply their claims the income (rentals and goodwill of prospective stallholders) derived therefrom. MR was denied so petitioners certioraried to CA which favoured them. CA said Article 2242 is applicable in the context of insolvency proceedings, as expressly stated in Article 2243. Even if petitioners are entitled to possession, the same right cannot be expanded to the right to use the building. The grant for petitioners to operate the market amounts to GAD.

Petitioners now in SC assailing CAs decision with regard to the contractors lien. Issue: W/N petitioners can operate the market and apply the proceeds to their credit. No. Held and Ratio: 1. 2241 and 2242 enumerates certain credits which enjoy preference with respect to specific personal or real property of the debtor. a. Petitioners claimed contractor lien is granted under 3rd paragraph of 2242 which provides that the claims of contractors engaged in the construction, reconstruction or repair of buildings or other works shall be preferred with respect to the specific building or other immovable property constructed; b. BUT, 2242 applies only when there is a concurrence of credits; i.e. when the same specific property of the debtor is subjected to the claims of several creditors and the value of such is insufficient to pay in full all creditors; In such case, the question of preference will arise, that is, to whom of the creditors shall be first; c. Due process dictates that this statutory lien should be enforced only in the context of a proceeding where the claims of all preferred creditors may be bindingly adjudicated; such as insolvency proceedings; d. 2243 explicitly states this; that the claims and liens in 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; 2. Petitioners suit is not in the nature of insolvency proceedings: Its basically specific performance and damages; Thus, although they are unpaid contractors and are entitled to contractors lien, such lien cannot be invoked in the present action for it cannot be determined whether there are other preferred creditors with claims over the market; The allegations do not show that petitioners are the only creditors with respect to such property; Although no third party claims have been filed, it will not bar other creditors from filing subsequent actions and claim they have preferred liens; 3. Since it is not alleged that petitioners have rights as mortgagee under the contract, they could only obtain possession and use of the market by means of preliminary attachment upon such property, in the event that they obtain favourable judgment from the trial court: a. Under the rules, 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, and by leaving a copy of such

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order, description and notice with the occupant, if any; If a favourable judgment is obtained by the attaching party and an execution is issued, the sheriff may satisfy the judgment by selling so much of the property to satisfy the judgment; Only in the event that petitioners are able to purchase the property will they then acquire the possession and use of the same; Trial courts decision clearly was not in line with procedure so it committed grave abuse of discretion.

CA AFFIRMED in so far as it nullifies the contractors lien. CA REVERSED in nullifying the writ of attachment by the trial court.