In the Philippines, a prior unregistered sale generally prevails over a subsequent registered levy on execution if ownership has already been transferred to the buyer before the levy. The Supreme Court ruled that the buyer in the unregistered sale has a better right of possession in this case. This means that simply registering a levy on a property doesn’t automatically defeat the rights of someone who bought it earlier but didn’t register the sale.

When a Handshake Deal Clashes with the Auctioneer’s Hammer: Who Gets the Land?

This case revolves around a dispute over a 7.3-hectare property in Nueva Ecija. Jun Miranda claimed ownership based on an unregistered Deed of Absolute Sale from 1996. Spouses Ernesto and Aida Mallari, on the other hand, asserted their right as the highest bidders in a 2003 execution sale. The central legal question is: who has the better right of possession – the prior unregistered buyer or the subsequent registered purchaser at an execution sale?

The legal battle started when Spouses Mallari won a damages case against Spouses Domiciano and Carmelita Reyes. When the Spouses Reyes failed to pay, the court ordered the levy of their property, which was subsequently sold at a public auction to Spouses Mallari. However, Miranda was already in possession of the property, claiming he bought it from the Spouses Reyes years before the levy. Miranda’s failure to register the sale led to this legal entanglement, highlighting the importance of proper registration in real estate transactions.

The Regional Trial Court (RTC) initially ruled in favor of Spouses Mallari, stating that Miranda was estopped from claiming ownership due to his failure to register his interest in the property. The Court of Appeals (CA) affirmed this decision, emphasizing the preference given to a duly registered levy over a prior unregistered sale. The CA also dismissed Miranda’s third-party complaint against Spouses Reyes, stating that the warranty against eviction no longer applied due to the lapse of time. Dissatisfied, Miranda elevated the case to the Supreme Court.

The Supreme Court, however, reversed the CA’s decision. The Court clarified the nature of an accion publiciana, which is a plenary action to recover the better right of possession. While ownership can be provisionally resolved in such actions, the Court emphasized that the main issue is who has the superior right to possess the property, regardless of title. In this context, the Court examined the claims of both parties.

To understand the concept of ownership transfer in sales, it is crucial to delve into the Civil Code provisions. Article 1458 states that a contract of sale obligates one party to transfer ownership and deliver a determinate thing, while the other pays a price. Article 1475 stipulates that a sale is perfected upon the meeting of minds on the object and the price. Meanwhile, Article 1477 dictates that ownership is transferred upon actual or constructive delivery, unless there’s a stipulation to the contrary, as per Article 1478.

The Supreme Court underscored that Miranda acquired ownership of the subject property in 1996 through the Deed of Absolute Sale, coupled with the transfer of possession. Citing Article 1498 of the Civil Code, the execution of a public instrument is equivalent to delivery, and Article 1497 provides that the thing sold is understood as delivered when placed in the vendee’s control and possession. As such, the non-registration of the deed did not invalidate the sale between Miranda and Spouses Reyes.

Quoting Sapto v. Fabiana, the Court reiterated that registration is not necessary to make a sale valid and effective between the parties. As stated in the decision:

“[A]s between the parties to a sale registration is not necessary to make it valid and effective, for actual notice is equivalent to registration… registration is intended to protect the buyer against claims of third persons arising from subsequent alienations by the vendor, and is certainly not necessary to give effect as between the parties to their deed of sale.”

Building on this principle, since Miranda owned the property since 1996, the Spouses Reyes no longer owned the property when the levy was made in 2003. Consequently, the property could not be made answerable for any judgment rendered against the Spouses Reyes. Section 9(b), Rule 39 of the Rules of Court authorizes a levy upon the properties of the judgment obligor, but only if the property belongs to the judgment debtor. According to Section 12, Rule 39, the effect of levy on execution as to third persons is to create a lien in favor of the judgment obligee over the right, title and interest of the judgment obligor in such property at the time of the levy. If the judgment obligor no longer has any right, title or interest in the property levied upon, then there can be no lien that may be created in favor of the judgment obligee by reason of the levy.

As the Court emphasized in Gagoomal v. Spouses Villacorta:

It is a basic principle of law that money judgments are enforceable only against property incontrovertibly belonging to the judgment debtor, and if property belonging to any third person is mistakenly levied upon to answer for another man’s indebtedness, such person has all the right to challenge the levy through any of the remedies provided for under the Rules of Court.

Furthermore, the Supreme Court underscored that a purchaser at an execution sale only acquires the identical interest possessed by the judgment debtor. As the Court held in Balbuena v. Sabay:

Nothing is more settled than that a judgment creditor (or more accurately, the purchaser at an auction sale) only acquires at an execution sale the identical interest possessed by the judgment debtor in the auctioned property; in other words, the purchaser takes the property subject to all existing equities applicable to the property in the hands of the debtor.

Consequently, Spouses Mallari acquired no rights over the property since Spouses Reyes had already sold it to Miranda seven years prior to the levy. Therefore, the high court ruled that Miranda had a better right to possess the subject property because he acquired ownership before the levy on execution.

While the Supreme Court’s decision settles the issue of possession, it clarified that this ruling is not a final determination of ownership. This means that the parties, or even third persons, can still file a separate action to definitively resolve the issue of ownership. This highlights the provisional nature of ownership determinations in accion publiciana cases.

The Court underscored that its ruling is confined to determining which party possesses a superior entitlement to possession and does not constitute an ultimate and conclusive pronouncement on the matter of ownership.

FAQs

What was the key issue in this case?	The central issue was determining who had the better right of possession over a property: the prior unregistered buyer (Miranda) or the subsequent registered purchaser at an execution sale (Spouses Mallari).
What is an accion publiciana?	An accion publiciana is a plenary action to recover the better right of possession, independent of title, which is typically brought when dispossession has lasted for more than one year.
Does an accion publiciana resolve ownership definitively?	No, an accion publiciana only provisionally resolves ownership to determine the right of possession, and it does not bar a separate action to determine ownership conclusively.
When does ownership transfer in a sale?	Ownership transfers to the buyer upon actual or constructive delivery of the property, as stipulated in the Civil Code.
Is registration necessary for a sale to be valid between the parties?	No, registration is not required for a sale to be valid and effective between the buyer and seller; actual notice is equivalent to registration.
Can a judgment creditor levy property that no longer belongs to the judgment debtor?	No, a judgment creditor can only levy property that incontrovertibly belongs to the judgment debtor. If the debtor has already sold the property, it cannot be levied.
What does a purchaser at an execution sale acquire?	A purchaser at an execution sale only acquires the rights and interests that the judgment debtor had in the property at the time of the sale.
Does the principle of caveat emptor apply to execution sales?	Yes, the principle of caveat emptor (buyer beware) applies to execution sales, meaning the purchaser assumes the risk of any existing defects or encumbrances on the property.
What is the effect of a prior unregistered sale on a subsequent levy?	A bona fide sale and transfer of real property, even if not recorded, is valid against a subsequent attempt to levy execution on the same property by a creditor of the vendor.
What was the Supreme Court’s final ruling in this case?	The Supreme Court ruled that Miranda had a better right of possession over the property because he acquired ownership prior to the levy on execution, reversing the Court of Appeals’ decision.

This case illustrates the importance of both registering property transactions and understanding the nuances of property law in the Philippines. While registration provides added protection against third parties, a prior unregistered sale can still prevail if ownership has already been transferred. For people in the Philippines, it shows that registering titles is not just a formality, but a crucial step in protecting ownership rights.

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: Jun Miranda v. Sps. Mallari, G.R. No. 218343, November 28, 2018