In Philippine property law, the Supreme Court clarified the priority between a registered attachment of property and a prior, unregistered sale. The Court ruled that a duly registered levy on attachment takes preference over a prior unregistered sale, unless the attaching creditor had knowledge of the prior sale. This decision underscores the importance of registering property transactions to protect one’s rights against third parties.

Navigating Ownership: When a Bank’s Claim Collides with a Church’s Unrecorded Purchase

The case revolves around a parcel of land in Pangasinan originally owned by spouses Tomas and Maria Soliven. On May 18, 1992, the Soliven spouses sold the land to the Manila Mission of the Church of Jesus Christ of Latter Day Saints, Inc. However, the sale was not immediately registered. Later, on April 15, 1993, the Rural Bank of Sta. Barbara (Pangasinan), Inc. filed a lawsuit against the Soliven spouses for a sum of money and obtained a Writ of Preliminary Attachment on May 7, 1993, which was annotated on the property’s title on May 24, 1993. The Church only registered the property under its name on April 28, 1994, carrying over the bank’s attachment lien. This situation raised a critical question: Does the bank’s registered attachment take precedence over the Church’s prior, but unregistered, purchase?

The Rural Bank argued that its attachment, being registered first, should have priority over the Church’s unregistered sale. The Church, on the other hand, contended that the bank was aware of the sale, thereby rendering the registration of the attachment inconsequential. Section 14, Rule 57 of the Rules of Court governs such disputes involving third-party claims on attached property. It outlines procedures for third parties to assert their rights, including filing an affidavit of title with the sheriff and potentially intervening in the main action.

SEC. 14. Proceedings where property claimed by third person.–If the property attached is claimed by any person other than the party against whom attachment had been issued or his agent, and such person makes an affidavit of his title thereto, or right to the possession thereof, stating the grounds of such right or title, and serves such affidavit upon the sheriff while the latter has possession of the attached property, and a copy thereof upon the attaching party, the sheriff shall not be bound to keep the property under attachment…

The Supreme Court acknowledged that the general rule favors a registered attachment over an unregistered sale, citing precedents like Valdevieso v. Damalerio, which underscores that registration is the operative act that binds or affects the land. The Court also reiterated the exception to the rule established in Ruiz, Sr. v. Court of Appeals, where knowledge of a prior existing unregistered interest has the effect of registration regarding the party with knowledge. However, the Court clarified that this exception applies only when the attaching creditor had actual knowledge of the prior sale.

In this case, the Church argued that the construction of a church building on the property prior to the attachment served as notice to the bank. The Court rejected this argument, stating that the Church failed to provide sufficient evidence of the construction or the bank’s knowledge of it. Unlike the circumstances in Ruiz where there was probable knowledge, there was no evidence presented to the court that shows special relationship between petitioner Rural Bank and the spouses Soliven sufficient to charge the former with an implied knowledge of the state of the latter’s properties.

Ultimately, the Supreme Court ruled in favor of the Rural Bank, emphasizing the importance of registration in protecting property rights. Because respondent Manila Mission presented no evidence of knowledge on the part of petitioner Rural Bank of the prior existing interest of the former at the time of the attachment, our decisions in Ruiz v. Court of Appeals and Valdevieso v. Damalerio oblige us to rule that the duly registered levy on attachment by petitioner Rural Bank takes preference over the prior but then unregistered sale of respondent Manila Mission.

The decision underscores the critical role of due diligence and timely registration in real estate transactions to protect the rights of the parties involved. This case shows how recording rights with the registry acts as notice to the whole world of those rights. Although Manila Mission lost in the case, the decision laid out some potential remedy: it could file a counter-bond to discharge the attachment or redeem the property if it is subjected to execution.

FAQs

What was the key issue in this case?	The central issue was determining the priority between a registered writ of attachment and a prior, unregistered sale of the same property.
What did the Court decide?	The Court ruled that a duly registered levy on attachment takes precedence over a prior unregistered sale, provided the attaching creditor had no knowledge of the prior sale.
What is a Writ of Preliminary Attachment?	A Writ of Preliminary Attachment is a court order to seize property to ensure payment of a debt if a judgment is won.
Why is registration of property sales important?	Registration serves as notice to the world of the transaction, protecting the buyer’s rights against third parties who may have claims against the seller.
What happens if the attaching creditor knows about the prior sale?	If the attaching creditor is aware of a prior unregistered sale, their knowledge is considered equivalent to registration, and the prior sale may take precedence.
What evidence did the Church present to show the bank’s knowledge?	The Church argued that the construction of a church building on the property served as notice, but the Court found this insufficient evidence of the bank’s knowledge.
What remedy does the Church have?	The Church can file a counter-bond to discharge the attachment.
What legal principle does this case highlight?	The case underscores the importance of the Torrens system, which gives primacy to registered interests in land.

This case provides valuable guidance on navigating the complexities of property rights in the Philippines. It highlights the necessity for buyers to promptly register their property transactions and reinforces the protection afforded to registered creditors.

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: Rural Bank of Sta. Barbara vs. Manila Mission, G.R. No. 130223, August 19, 2009