Bulaong vs. Gonzales

A levy on execution is invalid where the judgment debtor has no established beneficial interest in the property at the time of the levy, and an unregistered deed of sale of registered land cannot bind innocent third-party mortgagees under the Torrens system. The entry of a notice of levy in the Primary Entry Book suffices as notice to third persons even without annotation on the certificate of title, but the levy itself can attach only to whatever interest the judgment debtor actually possesses.

The Bulaongs are spouses who extended a ₱4,300,000 loan to Regina Christi Limpo, secured by a real estate mortgage over two parcels of land originally registered in the names of Regina's parents, Fortunato and Bertha Limpo. Veronica Gonzales is a judgment creditor who obtained an award of ₱275,000 in actual damages against Regina in a criminal estafa case before the RTC of Bulacan, Branch 12, in which Regina was acquitted but held civilly liable. The dispute centers on two parcels of land — one of 237 square meters (TCT No. T-249639) and another of 86 square meters (TCT No. T-249641) — over which both the Bulaongs (as mortgagees who foreclosed) and Veronica (as purchaser at an execution sale) claim ownership. The Register of Deeds of Bulacan's office had been destroyed by fire on March 7, 1987, necessitating reconstitution of titles, which complicates the sequence of registrations and annotations central to the conflict.

Two parcels of land in Bulacan form the subject of this dispute. The first, covering 237 square meters and originally registered under TCT No. T-249639, was in the name of Fortunato E. Limpo, married to Bertha Limpo. The second, covering 86 square meters and originally registered under TCT No. T-249641, was in the names of Pacifica E. Limpo, married to Nicanor C. Sincionco, and Fortunato E. Limpo, married to Bertha Limpo. These titles were among the records destroyed when fire razed the entire Office of the Register of Deeds of Bulacan on March 7, 1987.

Regina Christi Limpo, daughter of Fortunato and Bertha, mortgaged both properties to the Bulaongs to secure a loan of ₱4,300,000, pursuant to authority from her father. The Deed of Mortgage was executed on January 13, 1993. Prior to the mortgage, in early January 1993, Anselmo Bulaong and his counsel visited the Register of Deeds to verify the titles; the Register of Deeds, Atty. Elenita Corpus, allegedly assured them that the titles were clear of liens or encumbrances. Regina also delivered the owner's duplicate copies of the titles to the Bulaongs. After executing the mortgage, the Bulaongs returned to the Register of Deeds to register it, only to learn that the office's copies had been burned. Atty. Corpus convinced them to cause reconstitution of the originals and assured them that the mortgage would be protected since a copy of the Deed of Mortgage had been left for annotation. Reconstituted titles were issued on February 4, 1993 — TCT No. RT-29488 replacing TCT No. T-249639, and TCT No. RT-22489 replacing TCT No. T-249641 — still in the names of the original registered owners.

On February 24, 1993, new titles were again issued upon the extrajudicial settlement of the estate of Regina's parents. TCT No. RT-29488 was cancelled and TCT No. T-30395 issued with Regina as registered owner; TCT No. RT-22489 was cancelled and TCT No. T-30396 issued in the names of Pacifica Limpo and Regina Limpo. These new titles contained three material entries: Entry No. 5306 (condition subject to Section 4, Rule 74 of the Rules of Court), Entry No. 5484 (the Bulaongs' mortgage, inscribed March 1, 1993), and Entry No. 7808 (Notice of Levy on Execution in favor of Veronica Gonzales, with date of inscription January 4, 1993). The levy was based on a writ of execution issued December 29, 1992 in Criminal Case Nos. 9638 to 9646-M, where the RTC had acquitted Regina of estafa but ordered her to pay Veronica ₱275,000 in actual damages. The notice of levy was recorded in the Primary Entry Book on January 4, 1993, but was not annotated on the titles at that time because the properties were still registered in the names of Regina's parents. The levy purported to attach Regina's interest in the properties, which was anchored on a Deed of Absolute Sale allegedly executed by her parents in her favor on November 5, 1991 — a deed Regina never registered with the Register of Deeds.

To satisfy Regina's judgment debt, both lots were sold at public auction on June 8, 1993 to Veronica, the only bidder, for ₱640,354.14. After the one-year redemption period lapsed, Veronica's titles were consolidated and a final deed of sale was issued in her name on June 24, 1994. Meanwhile, the Bulaongs extrajudicially foreclosed their mortgage, with the sheriff conducting an auction sale on August 22, 1994, where the Bulaongs were the highest bidders at ₱4,300,000. They paid the corresponding capital gains tax and documentary stamp tax, and the Certificate of Sale was inscribed on the titles on August 23, 1994. Veronica then filed a petition with the RTC for surrender of the owner's copies of the titles, which was granted on December 16, 1994; the Register of Deeds cancelled the prior titles and issued clean TCT No. T-62002 in Veronica's name and TCT No. T-62003 in the names of Veronica and Pacifica Limpo.

The Bulaongs filed a petition for mandamus with the RTC of Bulacan against the incumbent Register of Deeds and Veronica, seeking cancellation of the new titles and issuance of titles in their names. On July 30, 1999, the RTC ruled in favor of the Bulaongs, annulling Veronica's titles and ordering the issuance of new titles in the Bulaongs' names upon reimbursement of ₱275,000 to Veronica with interest, plus ₱50,000 in attorney's fees. Both parties appealed to the Court of Appeals, which reversed the RTC on July 31, 2002, upholding the validity of the notice of levy and holding that the Bulaongs should have redeemed the properties within the redemption period.

• Validity of Entry No. 7808: Petitioner argued that Entry No. 7808 (Notice of Levy on Execution) is null and void for being a fraudulent entry, citing suspicious circumstances: although Entry No. 7808 has a higher number and appears after Entry No. 5484 (the Bulaongs' mortgage) on the titles, it appeared in an earlier volume of the Book of Entries; and although the Notice of Levy was purportedly presented on January 4, 1993, prior to the mortgage deed presented on January 13, 1993, it was numbered and placed after the mortgage on the titles.
• Superior Right Over the Properties: Petitioner maintained that Veronica has no superior right over the properties, as Regina had no established interest in the subject properties at the time of the levy. The Deed of Absolute Sale purportedly executed by Regina's parents in her favor on November 5, 1991 was never registered and could not bind third parties. The properties were registered in Regina's name not through the 1991 sale but through succession via adjudication under Section 1, Rule 74 of the Rules of Court.
• Validity of Foreclosure Sale: Petitioner contended that the execution sale in Veronica's favor was invalid because Regina's interest in both lots was sold together in violation of Sections 15 and 21, Rule 39 of the old Rules of Court, which require that distinct lots be sold separately and that only sufficient property be sold to satisfy the judgment.
• Redemption Not the Proper Remedy: Petitioner asserted that redemption was inconsistent with their claim of invalidity of the levy and sale, as redemption would constitute an implied admission of the sale's regularity and would estop them from later impugning its validity.

• Validity of the Notice of Levy: Respondent countered that the Notice of Levy on Execution was valid and created a lien in favor of the judgment creditor over the property, as it was properly entered in the Primary Entry Book on January 4, 1993.
• Constructive Notice to Mortgagees: Respondent argued that when the Bulaongs received the owner's copies of TCT Nos. T-30395 and T-30396, the Notice of Levy was already annotated on the titles and should have put them on guard.
• Failure to Redeem: Respondent maintained that as mortgagees, the Bulaongs had the option to redeem the properties within the redemption period provided by law, and their failure to avail of this remedy rendered the consolidation of titles in Veronica's name proper.

• Review of Facts: Whether the Supreme Court may review questions of fact in a petition for review on certiorari under Rule 45.
• Propriety of Redemption: Whether the Bulaongs were required to redeem the properties from Veronica before challenging the validity of the levy and execution sale.
• Validity of Entry No. 7808: Whether Entry No. 7808 (Notice of Levy on Execution) is valid despite the apparent discrepancy in numbering and the delayed annotation on the titles.
• Validity of the Levy: Whether the levy on execution was valid given the judgment debtor Regina Limpo's interest in the subject properties at the time of the levy.
• Effect of Unregistered Sale: Whether the unregistered Deed of Absolute Sale between Regina and her parents could bind the Bulaongs as third-party mortgagees.
• Validity of Execution Sale: Whether the execution sale was valid given that both lots were sold together when the sale of one lot would have sufficed to satisfy the judgment debt.
• Superior Right: Whether Veronica has a superior right over the properties as against the Bulaongs.

• Review of Facts: Yes. While Rule 45 generally limits review to questions of law, exceptions apply when the lower court makes inferences that are manifestly mistaken and when the CA judgment is based on a misapprehension of facts — both present here.
• Propriety of Redemption: No. Redemption is inconsistent with a claim of invalidity of the levy and sale; it constitutes an implied admission of the sale's regularity and would estop the party from later impugning its validity.
• Validity of Entry No. 7808: Yes. The entry in the Primary Entry Book on January 4, 1993 was sufficient notice to all persons, and the delayed annotation on the titles did not lessen its effectivity. The discrepancy in numbering is explained by Section 56 of P.D. No. 1529, which fixes the date of inscription to coincide with the date of reception in the Primary Entry Book.
• Validity of the Levy: No. Regina had no established beneficial interest in the subject properties at the time of the levy. The properties were registered in her name through succession, not through the 1991 Deed of Absolute Sale, and she dealt with the Bulaongs as her father's representative, not in her own capacity.
• Effect of Unregistered Sale: No. Under Section 51 of P.D. No. 1529, an unregistered deed of conveyance operates only as a contract between the parties and does not bind innocent third persons. The Bulaongs had no knowledge of the sale and cannot be bound by it or prejudiced by its consequences.
• Validity of Execution Sale: No. The sale of both lots together for ₱640,354.14 violated Sections 15 and 21, Rule 39 of the old Rules of Court, which require that distinct lots be sold separately and that only sufficient property be sold to satisfy the judgment. The sale of one lot would have sufficed.
• Superior Right: No. Veronica's levy and execution sale being invalid, the Bulaongs' mortgage and subsequent foreclosure confer the superior right.

• Review of Facts: The general rule under Section 1, Rule 45 of the Rules of Court is that petitions for review on certiorari shall raise only questions of law. The main issue of who has a better right over the disputed properties requires a thorough review of evidence, particularly in light of the Bulaongs' allegation of fraud attending the annotation of Entry No. 7808. However, recognized exceptions allow review of questions of fact when the lower court makes inferences that are manifestly mistaken and when the CA judgment is based on a misapprehension of facts. Both exceptional circumstances are present, making a review of evidence both allowed and necessary. Additionally, although the Bulaongs erroneously filed a petition for mandamus rather than an action to assail the validity of Veronica's titles, this lapse is not legally significant because the cause of action is determined by the allegations in the body of the complaint, not its title or designation.

• Propriety of Redemption: The CA erred in faulting the Bulaongs for not redeeming the properties. This is not a simple case of determining which lien came first, because the Bulaongs consistently maintained that the levy and execution sale were null and void. Pursuant to Cometa vs. Intermediate Appellate Court, redemption is inconsistent with a claim of invalidity of levy and sale, as it constitutes an implied admission of the regularity of the sale and would estop the party from later impugning its validity. The Bulaongs were thus justified in refusing to redeem.

• Validity of Entry No. 7808: The suspicious circumstances surrounding Entry No. 7808 — its higher number appearing after the mortgage entry despite being inscribed earlier in the Primary Entry Book — are sufficiently explained by the records. On January 4, 1993, Veronica presented the Notice of Levy to the Register of Deeds, who entered it in the Primary Entry Book but deferred registration pending a consulta to the LRA due to a question on registrability. The LRA Administrator responded on February 10, 1993, after the reconstituted titles were issued on February 4, 1993. The levy was annotated only when new titles were issued on February 24, 1993 reflecting the extrajudicial settlement. Under Section 56 of P.D. No. 1529, the order of entries in the Primary Entry Book determines priority, and the Register of Deeds correctly fixed the date of inscription as January 4, 1993 to coincide with the date of reception. The late annotation did not lessen its effectivity because entry of the notice of levy in the Primary Entry Book, even without annotation on the certificate of title, is sufficient notice to all persons that the land is subject to the levy, as established in Armed Forces and Police Mutual Benefit Association, Inc. vs. Santiago and Levin vs. Bass.

• Validity of the Levy: While the annotation of the levy was valid, the levy itself must attach to an actual interest of the judgment debtor. Under Reyes vs. Grey, the test is whether the judgment debtor holds a beneficial interest in the property that can be sold or disposed of for value. In Gotauco & Co. vs. Register of Deeds of Tayabas and Pacific Commercial Co. vs. Geaga, the Court upheld levies where the debtor's inchoate interest was established with reasonable certainty. Here, the evidence fails to prove Regina had any interest in the properties at the time of the levy. The properties were not registered in her name; the Deed of Absolute Sale on which her interest was based was never registered or annotated on the titles; the properties were registered in her name through succession via adjudication under Section 1, Rule 74, not through the 1991 sale; and she dealt with the Bulaongs as her father's representative, which she would not have done had she already acquired the properties in 1991. Since Regina had no established interest, Veronica's levy had nothing to attach to — "the spring cannot rise higher than its source."

• Effect of Unregistered Sale: Even assuming the Deed of Absolute Sale was valid, it could not bind the Bulaongs. Under Section 51 of P.D. No. 1529, no voluntary instrument purporting to convey registered land shall take effect as a conveyance or bind the land except as a contract between the parties; the act of registration is the operative act to convey or affect the land insofar as third persons are concerned. The Bulaongs received the owner's duplicate certificates showing the properties registered in the names of Regina's parents, and first learned of the sale only when the new titles in Regina's name were issued with the levy annotation. Under the Torrens system, a person dealing with registered land is not bound to go behind the certificate and inquire into transactions not intimated thereon. Since the Bulaongs had no knowledge of the unregistered sale, they can neither be bound by it nor prejudiced by its consequences.

• Validity of Execution Sale: The execution sale was invalid because Regina's interest in both lots was sold together, violating Sections 15 and 21, Rule 39 of the old Rules of Court. Section 15 requires the officer to levy only on such part of the property as is amply sufficient to satisfy the judgment and costs. Section 21 requires that when the sale is of real property consisting of several known lots, they must be sold separately. Where properties are sold together when the sale of less than the whole would have satisfied the judgment, the sale may be set aside. The two properties were mortgaged for ₱4,300,000, indicating a value of at least that amount; the sale of one lot would have been sufficient to satisfy the ₱275,000 judgment debt. No explanation was provided for why the sheriff sold both lots for ₱640,354.14, resulting in great prejudice to the Bulaongs.

• Superior Right: Because the levy and execution sale in Veronica's favor are invalid, the Bulaongs' registered mortgage and subsequent foreclosure confer the superior right. The RTC's decision annulling Veronica's titles and ordering issuance of new titles in the Bulaongs' names was proper, though the modification removing the reimbursement requirement was warranted since Veronica's lien was itself invalid.

• Involuntary Registration — Entry in Primary Entry Book as Sufficient Notice — The entry of a notice of levy on execution in the Primary Entry Book of the Register of Deeds, even without the corresponding annotation on the certificate of title, is sufficient notice to all persons that the land is already subject to the levy. This distinguishes involuntary registration (attachment, levy, lis pendens) from voluntary registration (sale, mortgage, lease), where the owner's duplicate must be surrendered and registration fees paid within fifteen days for the entry to operate to convey and affect the land. The Court applied this doctrine to uphold the validity of the annotation of Entry No. 7808 while separately invalidating the levy itself for lack of attachable interest.

• Beneficial Interest Test for Levy on Execution — The test for whether property can be attached and sold upon execution is whether the judgment debtor holds a beneficial interest in the property that can be sold or otherwise disposed of for value. Every interest — inchoate or complete, legal or equitable — that the judgment debtor may have in property may be subjected to levy, but the interest must be established with reasonable certainty. The Court applied this test and found that Regina had no established interest in the subject properties at the time of the levy, because the properties were registered in her name through succession, not through the unregistered 1991 Deed of Absolute Sale, and she acted as her father's representative in dealing with the Bulaongs.

• Torrens System — Unregistered Deed Does Not Bind Third Parties — Under Section 51 of P.D. No. 1529, the act of registration is the operative act to convey or affect registered land insofar as third persons are concerned. An unregistered deed of conveyance operates only as a contract between the parties and does not bind innocent third persons. A person dealing with registered land is not bound to go behind the certificate and inquire into transactions the existence of which is not intimated on the certificate. The Court applied this principle to hold that the Bulaongs, who had no knowledge of the unregistered sale between Regina and her parents, could not be bound by it or prejudiced by its consequences.

• Redemption as Implied Admission of Sale Validity — Redemption of property from an execution sale is inconsistent with a claim of invalidity of the levy and sale, as it constitutes an implied admission of the regularity of the sale and would estop the redeemer from later impugning its validity. The Court applied this doctrine to justify the Bulaongs' refusal to redeem the properties from Veronica.

• Separate Sale of Distinct Lots in Execution — Under Sections 15 and 21, Rule 39 of the old Rules of Court, where the property to be sold consists of distinct lots or parcels, they must be sold separately, and only sufficient property shall be sold to satisfy the judgment. A sale of additional property after enough has been sold is unauthorized and may be set aside where it results in prejudice based on fraud, mistake, or irregularity. The Court applied this rule to invalidate the execution sale where both lots were sold together for ₱640,354.14 when the sale of one lot would have satisfied the ₱275,000 judgment debt.

• "The spring cannot rise higher than its source." — This maxim encapsulates the Court's reasoning that since Regina had no established interest in the subject properties at the time of the levy, Veronica's levy had nothing to attach to, rendering the levy and execution sale invalid.

• "Redemption is an implied admission of the regularity of the sale and would estop the petitioner from later impugning its validity on that ground." — This passage, quoted from Cometa vs. Intermediate Appellate Court, establishes the doctrine that a party challenging the validity of a levy and execution sale cannot be required to first redeem the property, as doing so would forfeit the very right being asserted.

• "From the standpoint of third parties, a property registered under the Torrens system remains, for all legal purposes, the property of the person in whose name it is registered, notwithstanding the execution of any deed of conveyance, unless the corresponding deed is registered." — This formulation articulates the core principle of the Torrens system that registration is the operative act to bind third parties, and that unregistered conveyances have no effect against innocent third persons.

• "In involuntary registration, such as an attachment, levy upon execution, lis pendens and the like, entry thereof in the day book is a sufficient notice to all persons of such adverse claim." — This passage, quoted from Armed Forces and Police Mutual Benefit Association, Inc. vs. Santiago, defines the distinction between voluntary and involuntary registration and establishes that entry in the Primary Entry Book suffices as notice for involuntary registrations even without annotation on the certificate of title.

• Cometa vs. Intermediate Appellate Court, 235 Phil. 569 (1987) — Controlling authority for the doctrine that redemption is inconsistent with a claim of invalidity of levy and sale, as it constitutes an implied admission of the sale's regularity and would estop the party from later impugning its validity. Followed directly to justify the Bulaongs' refusal to redeem.

• Armed Forces and Police Mutual Benefit Association, Inc. vs. Santiago, G.R. No. 147559, June 27, 2008, 556 SCRA 46 — Followed for the distinction between voluntary and involuntary registration and the rule that entry of a notice of levy in the Primary Entry Book is sufficient notice to all persons even without annotation on the certificate of title.

• Levin vs. Bass, 91 Phil. 420 (1952) — Foundational authority distinguishing voluntary from involuntary registration, cited within Armed Forces and Police Mutual Benefit Association, Inc. vs. Santiago and relied upon to support the validity of the annotation of the notice of levy.

• Reyes vs. Grey, 21 Phil. 73 (1911) — Controlling authority for the beneficial interest test: property can be attached and sold upon execution if the judgment debtor holds a beneficial interest that can be sold or disposed of for value. Applied to determine whether Regina's interest in the properties could be subject to levy.

• Gotauco & Co. vs. Register of Deeds of Tayabas, 59 Phil. 756 (1934) — Followed for the proposition that a notice of levy may be validly inscribed on certificates of title even when not registered in the name of the judgment debtor, provided the debtor has a present or future interest in the property. Distinguished from the present case because Regina's interest was not established with reasonable certainty.

• Pacific Commercial Co. vs. Geaga, 69 Phil. 64 (1939) — Followed for the rule that the Register of Deeds may accept an attachment where evidence indicates the defendants have present or future interests in the property, even if titles stand in other persons' names. Distinguished because Regina's interest was not established.

• Caja vs. Nanquil, 481 Phil. 488 (2004) — Cited for the proposition that the value of property is usually greater than the amount for which it can be mortgaged, supporting the inference that the sale of one lot would have sufficed to satisfy the ₱275,000 judgment debt.

• Bass vs. Dela Rama, 73 Phil. 682 (1942) — Cited for the Torrens system principle that a person dealing with registered land is not bound to go behind the certificate and inquire into transactions not intimated thereon.

• Section 56, Presidential Decree No. 1529 (Property Registration Decree) — Requires the Register of Deeds to keep a Primary Entry Book in which all instruments are entered in the order of their reception, noting the date, hour, and minute of reception. Instruments are regarded as registered from the time so noted, and the memorandum on the certificate of title bears the same date. Applied to explain the apparent discrepancy in the numbering and dating of Entry No. 7808, confirming that the Register of Deeds correctly fixed the date of inscription as January 4, 1993.

• Section 51, Presidential Decree No. 1529 (Property Registration Decree) — Provides that no voluntary instrument purporting to convey registered land shall take effect as a conveyance or bind the land except as a contract between the parties; the act of registration is the operative act to convey or affect the land insofar as third persons are concerned. Applied to hold that the unregistered Deed of Absolute Sale between Regina and her parents could not bind the Bulaongs as innocent third-party mortgagees.

• Section 1, Rule 74, Rules of Court — Governs extrajudicial settlement by agreement between heirs, allowing a sole heir to adjudicate the entire estate to himself by means of an affidavit filed with the Register of Deeds. Applied to show that the properties were registered in Regina's name through succession, not through the 1991 Deed of Absolute Sale, thereby casting doubt on the validity of that deed and on Regina's interest at the time of the levy.

• Section 15, Rule 39, old Rules of Civil Procedure — Requires the officer enforcing execution of a money judgment to levy only on such part of the property as is amply sufficient to satisfy the judgment and costs. Applied to invalidate the execution sale where both lots were sold together when one would have sufficed.

• Section 21, Rule 39, old Rules of Civil Procedure — Requires that when the sale is of real property consisting of several known lots, they must be sold separately. Applied to invalidate the execution sale where the sheriff sold both parcels of land together.

• Section 1, Rule 45, Rules of Court — Limits petitions for review on certiorari to questions of law. Noted as the general rule, with exceptions applied to allow review of factual questions due to manifestly mistaken inferences and misapprehension of facts by the CA.

• Section 35, Rule 39, old Rules of Civil Procedure — Provides that upon execution and delivery of the deed of conveyance, the purchaser acquires all the right, title, interest, and claim of the judgment debtor to the property as of the time of the levy. Cited to underscore that the purchaser can acquire no more than whatever rights the judgment debtor had, which in this case was nothing.

Antonio T. Carpio (Chairperson), Jose Portugal Perez, Jose Catral Mendoza, and Maria Lourdes P. A. Sereno concurred. No separate concurring opinions were written.