1. STATUTES; REPEALS BY IMPLICATION NOT FAVORED. — Repeals by implication are not favored and will not be decreed, unless it is manifest that the legislator so intended.

2. ID; PRESUMPTION OF KNOWLEDGE BY LEGISLATOR OF EXISTING LAWS ON CERTAIN SUBJECT. — All laws are presumed to be passed with deliberation and with full knowledge of all existing ones on the subject, and it is but reasonable to conclude that in passing a statute it was not intended to interfere with or abrogate any former law relating to the same matter, unless the repugnancy between the two is not only irreconcilable, but also clear and convincing, and following necessarily from the language used, or unless the latter Act fully embraces the subject matter of the earlier or the reason for the earlier Act is beyond peradventure removed.

3. EXECUTORS AND ADMINISTRATORS; STATUTORY PREFERENCES; DEATH OF OWNER DOES NOT DESTROY LIENS OR PREFERENCES. — There is nothing in the language of section 735 of the Code of Civil Procedure which should justify us in holding that it was the intention of the legislator to provide that, upon the death of the owner of an insolvent estate, the mere fact of his death has the effect of destroying all liens or preferences (except those mentioned in that section) created by statute or by act of the parties, and already in existence and affecting all or any part of his property at the time of his death.

4. ID.; ID.; DEATH OF DEBTOR DOES NOT DEPRIVE CREDIT OF EXISTING SECURITY. — The classification and order of payment of debts of deceased persons set out in section 735 was intended to include merely debts against the estate not otherwise accrued, and not to include debts otherwise secured, except perhaps in so far as the security proves to be insufficient to secure payment in full; and it was not the legislative intent to prescribe that the death of a debtor will deprive his creditor of any existing security he may have had by way of lien or preference.

5. ID.; ID.; SUBSECTIONS 1 AND 2, ARTICLE 1924, CIVIL CODE, REPEALED. — The enactment of sections 735 and 736 of the new Code of Civil Procedure treating of the order of payment of the debts of a deceased person if his estate is insolvent was not intended to destroy or affect, and it does not destroy or affect any recorded or statutory liens or preferences affecting property at the time of the death of the owner; save only that the statutory preferences, which formerly attached to such property on the death of the owner in the order set out in subsections 1 and 2 of article 1924 of the Civil Code, are abolished and replaced by the statutory preferences created in subsections 1, 2, 3, 4, and 5 of section 735 of the Code of Civil Procedure.

6. ID.; ID.; MORTGAGE LIENS. — Mortgage liens and the like and the statutory preferences which have attached to the specific property of a debtor at the time of his death are in no wise affected by the classification in section 735 of the Code of Civil Procedure of "assets which can be appropriated for the payment of debts in the event of the insolvency of the estate of the deceased person," and may be asserted and enforced without reference to that classification.

7. ID.; ID.; SUBSECTION 3, ARTICLE 1924, CIVIL CODE, IN FORCE. — Statutory preferences securing the payment of debts evidenced by "public instruments" and "final judgments" affecting the property of the deceased at the time of his death under the provisions of subsection 3 of article 1924 of the Civil Code continue in full force and effect notwithstanding the enactment of section 735 of the Code of Civil Procedure; but subordinated, in the order of classification for payment, to the preferences established in subdivisions 1, 2, 3, 4, and 5 of that section, in like manner to that in which they were subordinated to the preferences arising at the death of the debtor, established in subsections 1 and 2 of article 1924 of the Civil Code, before those latter statutory preferences were abolished and the preferences mentioned in 1, 2, 3, 4, and 5 of the Code of Civil Procedure substituted in their place.

8. ID.; ID.; PETERSON VS. NEWBERRY, EXAMINED AND DISTINGUISHED. — The comment in the case of Peterson v. Newberry (6 Phil., 262), which is set out at length in this opinion, examined and distinguished.

Appellant is a creditor of the estate of Mariano Maronilla who died in the year 1908, in the sum of P36,475.55; the appellee. Venancio Cavada Diaz is also a creditor, in the sum of P8,985.48; both claims were allowed in the court below, but the administrator of the estate was ordered to give appellee’s claim a preference over that of the appellant in the distribution of the funds of the estate, on the ground that the claim of the appellee is evidenced by a public document bearing date of August 29, 1904, and thus entitled to a preference in the distribution of the assets of decedent’s estate while that of the appellant is merely a general claim against the estate, unsecured by any lien or mortgage, as to which no claim of preference is advanced under the provisions of the Civil Code or otherwise.

The ruling of the court below was based on the provisions of articles 1921, 1924, and 1925 of the Civil Code. These articles are as follows:jgc:chanrobles.com.ph

"Credits shall be classified for their graduation and payment according to the order and manner specified in this chapter."cralaw virtua1aw library

"With regard to the other personal and real property of the debtor, the following credits are preferred:jgc:chanrobles.com.ph

"1. Credits in favor of the province or municipality for the taxes of the last year, due and unpaid, not included in No. 1 of article 1923.

"2. Those due:jgc:chanrobles.com.ph

"A. For judicial expenses and those of administration of the bankruptcy for the common interest of the creditors, made with the proper authorization or approval.

"B. For the funeral expenses of the debtor, according to the customs of the place, and also those of his wife and of his children, under their parental authority should they have no property of their own.

"C. For expenses of the last illness of said persons, incurred during the last year, counted up to the day of their death.

"D. For daily wages and salaries of employees and domestic servants for the last year.

"E. For advances made to the debtor for himself and his family, constituted under his authority, in provisions, clothing or shoes, for the same period of time.

"F. For income for support during the proceedings in bankruptcy unless they are based on mere beneficence.

"3. Credits which without a special privilege appear:jgc:chanrobles.com.ph

"A. In a public instrument.

"B. In a final judgment, should they have been the object of litigation.

"These credits shall have preference among themselves, according to the priority of dates of the instruments and of the judgments.

"Credits of any other kind or for any other consideration not included in the preceding article shall have no preference."cralaw virtua1aw library

The contention of the appellant is that article 1924 of the Civil Code was repealed by the enactment of sections 735 and 736 of the new Code of Civil Procedure and that, under the terms of these latter sections, appellant and appellee, as well as all other creditors of the estate not included in subsections 1, 2, 3, 4, and 5 of section 735 should be placed upon an equal footing as to preferences, and that the claims of all alike should be paid pro rata to the extent of the assets of the estate.

Articles 735 and 736 of the Code of Civil Procedure are as follows:jgc:chanrobles.com.ph

"SEC. 735. Order of Payment if Estate Insolvent. — If the assets which can be appropriated for the payment of debts are not sufficient for that purpose, the executor or administrator shall, after paying the necessary expenses of administration; pay the debts against the estate in the following order:jgc:chanrobles.com.ph

"1. The necessary funeral expenses;

"2. The expenses of the last sickness;

"3. Debts due to the United States;

"4. Taxes and assessments due to the Government, or any branch or subdivision thereof;

"5. Debts due to the province;

"6. Debts due to other creditors.

"SEC. 736. Dividends to be paid in proportion to claim. — If there are not assets sufficient to pay the debts of any one of the aforesaid classes, after paying the preceding ones, each creditor within the class for which there are not sufficient assets for payment in full, shall be paid a dividend in proportion to his claim. No creditor of any one class shall receive any payment until those of the preceding class are paid."cralaw virtua1aw library

Counsel for appellant contend that "The section just quoted provides that after the debts of the first five classes are paid, the appellant and the appellee, and others embraced in the sixth class, shall be paid each a dividend in proportion to his claim. This provision is obviously inconsistent with the preference established in article 1924 of the Civil Code, and therefore repeals the Civil Code provision in so far as the estates of deceased persons are concerned."cralaw virtua1aw library

We cannot agree with this contention in so far as it relates to the preferences established in subsection 3 of article 1924 of the Civil Code.

It is undoubtedly true that in so far as the provisions of that article are in necessary convict with the provisions of section 735 of the new Code of Civil Procedure, they must be held to have been repealed by implication; and there can be no doubt that with relation to the distribution of the assets of insolvent estates of deceased persons, the classification and preferences set out in subsections one and two of article 1924 have been repealed by the enactment of section 735 of the later Act. From a comparative analysis of these statutes, it is impossible to escape the conclusion that it was the intention of the lawmaker to provide a new and a substantially different classification of the credits and the preferences mentioned in these subsections (1 and 2) of the earlier statute; but we find nothing in the later statute which is necessarily in conflict with the provisions of subsection 3 of the earlier statute, except that under the later statute these preferences must be held to be subordinated in the distribution of the assets of the estates of deceased persons, to classes 1, 2, 3, 4, and 5 of section 735 of the Code of Civil Procedure, instead of classes 1 and 2 as set forth in article 1924 of the Civil Code.

"Repeal by implication are not favored and will not be indulged, unless it is manifest that the legislature so intended. As laws are presumed to be passed with deliberation and with full knowledge of all existing laws on the subject, it is but reasonable to conclude that in passing a statute it was not intended to interfere with or abrogate any former law relating to the same matter, unless the later act is either repugnant to the earlier one, or fully embraces the subject-matter thereof, or unless the reason for the earlier act is beyond peradventure removed.



"Hence every effort must be used to make all acts stand, and the later act will not operate as a repeal of the earlier one, if by any reasonable construction, they can be reconciled." (26 Am. and Eng. Encyc. of Law, pp. 721, 726, and cases there cited.)

There is nothing in the language of section 735 of the Code of Civil Procedure which would justify us in holding that it was the intention of the legislator to provide that upon the death of the owner of an insolvent estate, the mere fact of his death has the effect of destroying all liens or preferences (except those mentioned in that section), created by statute or by act of the parties, and already in existence and affecting all or any part of his property at the time of his death.

It is urged that the language of the statute, prescribing that creditors within each of the classes mentioned in section 735 shall be paid a dividend in proportion to his claim must be held to have this effect, since, as it is said, class 6 includes all debts due to creditors other than those mentioned in the first five classes, whether such debts are secured or not.

We are of opinion, however, that the classification and order of payment set out in section 735 was intended to include merely debts against the estate not otherwise secured and not to include debts otherwise secured, except perhaps in so far as the security proves to be insufficient to secure payment in full; and that it was not the legislative intent to prescribe that the death of a debtor will deprive his creditor of any existing security he may have had by way of lien or preference.

But it is said that the language of the statute contains no exception in favor of debts secured by lien or preference, and that the court should not read such an exception into the statute.

To this we answer: First, that the language of the statute must be construed with relation to the subject-matter with which it deals, and it is evident that it was intended only to deal with assets of the estate which (in the opening language of section 735) "can be appropriated for the payment of debts;" and assets affected by liens or duly asserted preferences cannot properly be said to be "available" for the payment of debts, at least so far as a particular creditor has a right to have them applied to the payment of a particular claim against the estate; second, that it is very clear that the sixth class of debts does not include all the debts due by the deceased, for provision is expressly made elsewhere in the Code for the enforcement of mortgage debts, wholly independent of the classification of the debts mentioned in section 735; and third, that, by extending the meaning of the word debts, as used in sections 735 and 736 of the Code, so as to include all debts secured by liens of asserted preferences, and thus destroy all such liens or preferences, we would impute to the legislator the wholly unreasonable, unjust, and oppressive intent to deprive the creditors of the deceased of acquired rights in and to their debtor’s property by virtue of the mere fact of the death of the debtor.

No valid or sufficient reason has been suggested which would justify or necessitate the enactment of a statutory rule, depriving a creditor by the mere death of his debtor of an acquired statutory preference securing a duly recorded judgment; or a mechanic’s claim for service rendered; or the claim of a vendor of specific property for the purchase price; or a credit for transportation; or a credit for agricultural advances; for rents; or the like. On the contrary, to expose the security upon which such credits are made to the risk of the debtor’s death would tend very substantially to destroy the very purpose for which the law authorizes or prescribes the creation of such preferences.

We conclude therefore that the enactment of sections 735, and 736 of the new Code of Civil Procedure was not intended to destroy or affect, and that it does not destroy or affect any recorded or statutory liens or preferences affecting property at the time of the death of the owner, save only that the statutory preferences, which formerly attached to such property on the death of the owner in the order set out in subsections 1 and" of article 1924 of the Civil Code, are abolished and replaced by the statutory preferences created in subsections 1, 2, 3, 4, and 5 of section 735 of the Code of Civil Procedure.

It follows that mortgage liens and the like, and the statutory preferences which have attached to specific property of a debtor at the time of his death, are in no wise affected by the classification in section 735 of the Code of Civil Procedure of "assets which can be appropriated for the payment of debts" in the event of the insolvency of the estate of a deceased person, and may be asserted and enforced without reference to that classification; and that statutory preferences securing the payment of debts evidenced by "public instruments" and "final judgments" affecting the property of the deceased at the time of his death under the provisions of subsection 3 of article 1924 of the Civil Code, continue in full force and effect; but subordinated, in the order of classification for payment, to the preferences established in subdivisions 1, 2, 3, 4, and 5 of section 735 of the Code of Civil Procedure, in like manner to that in which they were subordinated to the preferences arising at the death of the debtor established in subsections 1 and 2 of article 1924 of the Civil Code, before those later statutory preferences were abolished and the preferences mentioned in 1, 2, 3, 4, and 5 of the Code of Civil Procedure substituted in their place.

Articles 735 and 736 of the Code of Civil Procedure were borrowed from American statutory law (of sections 2503 and 2504 of the Vermont Statutes 1894), and the conclusions at which we have arrived, as to their force and effect with relation to liens and statutory preferences affecting property at the time of the death of the owner, are supported by both textbook and judicial authority in the United States.

In the case of Milward v. Shields [(Ky., 1897) 39 L. R. A., 506], in which it was held that a mortgage lien was entitled to priority over funeral expenses, the court said:jgc:chanrobles.com.ph

"The statute has no reference to, nor any effect upon, bona fide liens secured to creditors of the decedent under the general law, such as liens by mortgage, or liens acquired — like attachment liens — by operation of law but regulates priorities in reference only to unsecured liabilities, gives certain liabilities and expenses priority, and then puts all other debts and liabilities on equal footing . . . ."cralaw virtua1aw library

In Ryker, administrator, vs Vawter (117 Indiana, 425), it was held that a mortgage lien has preference over a claim for costs of administration, funeral expenses, and expenses of last sickness.

In Pennsylvania, where judgment liens are not expressly subordinated to the statutory liens for funeral expenses and the like, as is the case in this jurisdiction, the court said in Wade’s Appeal (29 Pa. St., 328):jgc:chanrobles.com.ph

"It has been the uniform policy of our law to encourage the public ascertainment of liens, and to give him the preference who first spreads his claim on the record, without regard to the date or the quality of the debt. Accordingly those preferences created by our intestate laws in favor of funeral expenses, medical attendance, &c., have never been permitted to postpone record liens . . . . It has been correctly said, and the observation illustrates the policy of our lien laws, that a man dying the owner of ample real estate might have to be buried at public expense as a pauper, if he had no personal property, and his realty was encumbered by liens to its full value."cralaw virtua1aw library

For a general discussion of the doctrine see also 18 Cyc., 557, 558, 559, and cases there cited; Black on Judgments, pp. 399, 401, 419, 443; Black on Insolvency, chaps. 20 and 30; The American Law of Administration, Woerner, pp. 369, 371, 404, and 408.

Counsel for the appellant; in support of contentions contrary to these rulings, cites us to the following remark made in the course of our opinion in the case of Peterson v. Newberry. (6 Phil., 260.)

"It has been said that the provisions of this article were wholly repealed by the enactment of the Code of Civil Procedure, and it would appear that ’so far as this article is applicable to cases of bankruptcy and estates of deceased persons it has been rendered obsolete as to the former by section 524, which repeals bankruptcy laws; and repealed as to the latter by section 735, which gets forth the order of payment in the settlement of such estates,’ but we are of opinion that its provisions- are not limited to such cases and that it remains in full force and effect when by intervention or otherwise a judgment creditor is a proper party to distribution proceedings of the funds or estate of his judgment debtor and duly asserts his right as a preferred creditor."cralaw virtua1aw library

But it will be observed, first, that the language used clearly discloses that the court did not intend to make an express holding o