Crisologo vs. Hao

Neither the failure to pay the winning bid in cash nor the omission of an express mention of a third-party claim in the certificate of sale automatically renders an execution sale void, where the third-party claimant's interest is adequately protected by an indemnity bond and the statutory purpose behind the requirement is thereby satisfied.

The subject property, covered by TCT No. T-51636 and registered in the name of So Keng Koc, had been the target of multiple collection suits and levy proceedings due to So's unpaid obligations. Petitioner spouses Crisologo were among several creditors who filed collection cases against So and his co-defendant Robert Allan Limso, securing writs of preliminary attachment that were annotated on the title. Respondents Alicia Hao and Gregorio Hao, meanwhile, acquired the same property from So through a Deed of Absolute Sale executed on the same day the Crisologos' levy was recorded, thereby setting up a competing claim to the property that would later collide with the Crisologos' execution sale.

The subject property, a parcel of land in Davao City originally covered by TCT No. T-51636 and registered in the name of So Keng Koc, had been the target of numerous levy and attachment proceedings arising from multiple collection cases filed against its owner. Among these was Civil Case No. 26,513-98, a complaint for sum of money filed in 1998 by Sy Sen Ben against So and Robert Allan Limso before the RTC of Davao City, Branch 8, which resulted in the levy of the property and the recording of a writ of attachment on the title on September 8, 1998.

Petitioner spouses Jesus G. Crisologo and Nanette B. Crisologo likewise filed two collection suits against So and Limso on September 30, 1998, docketed as Civil Case Nos. 26,810-98 and 26,811-98, and raffled to the RTC of Davao City, Branch 15. A writ of preliminary attachment was issued, and the subject property was levied on October 7, 1998, with the Crisologos' claim recorded on TCT No. T-51636 the following day, October 8, 1998. On the same date as the levy, October 7, 1998, respondents Alicia Hao and Gregorio Hao negotiated with Sy and other attaching creditors of So, resulting in the execution of a Deed of Absolute Sale over the subject property by So in favor of the respondents. TCT No. T-51636 was thereafter cancelled and TCT No. T-303026 was issued in the respondents' name, who then subdivided the lot, resulting in derivative titles TCT No. T-344592 and TCT No. T-344593.

Meanwhile, in the collection case filed by Sy, a compromise agreement was reached whereby So bound himself to transfer ownership of his properties to satisfy Sy's monetary claims; the agreement was approved by the RTC of Davao City, Branch 8, in its Decision dated October 19, 1998, which became final on November 18, 1998. In the Crisologos' cases, the RTC of Davao City, Branch 15, rendered its Decision on July 1, 1999, ordering So and Limso solidarily liable to pay the Crisologos the amount of obligation, interest, damages, and costs of suit. The CA Mindanao Station affirmed this decision on July 22, 2008, with a Resolution dated May 25, 2009 denying reconsideration, and the Supreme Court denied the petition for review and the motion for reconsideration in its Resolutions dated August 17, 2009 and January 27, 2010, respectively.

With the entry of judgment, the case was remanded to the RTC for execution. By virtue of a writ of execution, the sheriff scheduled the auction sale on August 26, 2010. Notified of the sale, the respondents filed an urgent motion to exclude TCT Nos. T-344592 and T-344593 from the auction sale, but the RTC denied the motion. After the petitioner spouses Crisologo filed an indemnity bond in the amount of ₱20,159,800.00, the execution sale was reset to October 7, 2010. Despite the respondents' opposition, the auction sale proceeded, with the petitioner spouses Crisologo emerging as the highest and sole bidder for the parcel covered by TCT No. T-344593, and petitioners James Ian Yeung and Marlina T. Sheng for that covered by TCT No. T-344592. Certificates of sale dated October 10, 2010 were issued by Sheriff Robert M. Medialdea.

On November 18, 2010, the respondents filed a Complaint for the annulment of the Certificates of Sale on TCT Nos. T-344592 and T-344593, docketed as Civil Case No. 33,581-10 and raffled to the RTC of Davao City, Branch 16. The RTC found that Sheriff Medialdea should have required the Crisologos to pay the winning bid in cash and should have expressly mentioned in the Certificate of Sale the existence of the third-party claim, as mandated by Sections 21 and 26, Rule 39 of the Rules of Court, and that non-compliance with these mandatory requirements rendered the certificates of sale void. The RTC's motion for reconsideration was denied on January 9, 2015, prompting the instant petition.

• Cash Payment Not Required: Petitioners argued that Section 21, Rule 39, as interpreted in Villavicencio vs. Mojares, does not require payment of the bid in cash even when a third-party claim exists; the rule merely provides that if a third-party claim is present, the purchaser should pay the amount of the bid without specifying the mode of payment.
• Sy vs. Catajan Inapplicable: Petitioners maintained that Sy vs. Catajan, cited by the respondents, is an administrative case penalizing a sheriff for non-compliance with Rule 39 and does not state that non-compliance renders the execution sale void; it is therefore not on all fours with the instant case.
• Ruiz vs. CA Distinguishable: Petitioners contended that unlike in Ruiz, Sr. vs. Court of Appeals, where levy came four months after the sale was consummated and the certificate of sale was cancelled in favor of a person with a better right, in the instant case there was a prior levy on attachment on October 8, 1998, before the execution sale.
• Proper Levy and In Rem Proceeding: Petitioners argued that there was a proper levy as evidenced by Entries Nos. 1127625, 1127626, 1127627, and 1127629 annotated on TCT No. 51636, and that the levy proceeding from an attachment is a proceeding in rem enforceable against the whole world, requiring no need to implead the respondents.

• Strict Compliance Required: Respondents echoed the RTC's reasoning, positing that Rule 39 strictly requires payment of the bid amount in cash and that the certificate of sale must contain an express declaration of the existing third-party claim.
• Fatal Non-Compliance: Respondents argued that failure to comply with these requirements, as occurred in this case, is fatal and renders the execution sale invalid.

• Validity of Execution Sale (Cash Payment): Whether Section 21, Rule 39 of the Rules of Court requires the winning bidder in an execution sale to pay the bid in cash, such that non-compliance voids the sale.
• Validity of Execution Sale (Third-Party Claim Annotation): Whether the failure of the certificate of sale to expressly state the existence of a third-party claim under Section 26, Rule 39 renders the execution sale void.
• Counterclaim for Damages: Whether the petitioners' counterclaim for damages should be granted.

• Validity of Execution Sale (Cash Payment): No. Section 21, Rule 39 does not require payment of the bid in cash; the mode of payment does not affect the validity of the execution sale.
• Validity of Execution Sale (Third-Party Claim Annotation): No. While Section 26 requires express mention of a third-party claim, its purpose — protecting the third-party claimant's interest — was satisfied by the indemnity bond posted by the petitioners, so the omission does not void the sale.
• Counterclaim for Damages: No. The counterclaim was denied because the respondents' claim is not entirely baseless, having pursued the subject property through an approved compromise agreement that is itself the result of a legal process.

• Validity of Execution Sale (Cash Payment): The Court applied the plain-meaning rule in statutory construction: where the words of a law or rule are clear, plain, and free from ambiguity, they must be given their literal meaning. Section 21, Rule 39 provides that when the purchaser is the judgment obligee and no third-party claim has been filed, the purchaser need not pay the bid if it does not exceed the judgment amount; if it does, the purchaser pays only the excess. By implication, if a third-party claim exists, the purchaser should pay the amount of the bid, but the rule does not specify that payment must be made in cash. The Court relied on its prior interpretation in Villavicencio vs. Mojares, which categorically stated that there is no requirement to pay the bid in cash. The mode of payment therefore does not affect the validity of the execution sale.

• Validity of Execution Sale (Third-Party Claim Annotation): Unlike Section 21, the Court found that a literal application of Section 26 would fall under the exception to the plain-meaning rule, because strict compliance would defeat the very purpose for which the rule was created. Citing Republic vs. NLRC, the Court explained that the raison d'être behind Section 26 is to protect the interest of the third-party claimant. Where the third-party claim has been dismissed or the claim is adequately protected, the failure to expressly state the third-party claim in the certificate of sale does not affect the validity of the sale. In this case, the petitioner spouses Crisologo had filed an indemnity bond in the amount of ₱20,159,800.00 to answer for damages the respondents might suffer, thereby amply protecting the respondents' interest. Since the purpose of the requirement was satisfied, nullification was unwarranted. The Court further emphasized that rules of procedure are created to promote the ends of justice and that their strict and rigid application must be eschewed when it would subvert that primary objective, and that the general policy is to sustain the validity of execution sales, which should not be frustrated except for serious reasons demanded by justice and equity. The Court directed, however, that the existence of the third-party claim must be annotated on the certificates of sale and on the titles, so as to protect the respondents' interest should their claim prosper, as registration is the operative act that creates a lien upon the land.

• Counterclaim for Damages: The Court denied the petitioners' counterclaim for damages, finding that the respondents' claim is not entirely baseless. The respondents pursued the subject property in accordance with an approved compromise agreement, which is similarly a result of a legal process. This factual context precluded a finding that the respondents acted in bad faith or without basis in filing their complaint.

• Plain-Meaning Rule in Statutory Construction — Where the words of a law or rule are clear, plain, and free from ambiguity, they must be given their literal meaning and applied without attempted interpretation. Interpretation is resorted to only where a literal interpretation would be absurd, impossible, or would lead to injustice. The Court applied this doctrine to Section 21, Rule 39, finding the provision clear on its face and requiring no interpretation beyond its express terms.

• Purpose-Oriented Construction of Procedural Rules — Where strict and literal compliance with a procedural requirement would defeat the very purpose for which the rule was created, the exception to the plain-meaning rule applies. The Court applied this to Section 26, Rule 39, holding that the requirement to annotate a third-party claim in the certificate of sale exists to protect the third-party claimant's interest; where that interest is adequately protected by an indemnity bond, the omission does not void the sale.

• Presumption of Validity of Execution Sales — The general policy of the law is to sustain the validity of execution sales. As the final stage in litigation, execution should not be frustrated except for serious reasons demanded by justice and equity. The Court relied on this principle to reverse the RTC's nullification of the certificates of sale.

• "A closer examination of Section 21, Rule 39, would reveal that there is no requirement to pay the bid in cash. What the Rule emphasizes is that in the absence of a third party claim, the purchaser in an execution sale need not pay his bid if it does not exceed the amount of the judgment, otherwise, he shall only pay the excess. By implication, if there is a third party claim, the purchaser should pay the amount of his bid without, however, requiring that it be made in cash." — This passage, quoting Villavicencio vs. Mojares, articulates the definitive interpretation of Section 21, Rule 39 and forms the ratio decidendi on the cash-payment issue.

• "The raison d'etre behind Section 26 (then Section 28), Rule 39 of the Rules of Court is to protect the interest of a third-party claimant. Thus, where the third-party claim has been dismissed or when such claim is adequately protected, the failure of the certificate of sale to expressly state the existence of third-party claim shall not affect the validity of the sale." — This passage, citing Republic vs. NLRC, defines the controlling doctrine on Section 26 and explains why adequate protection of the claimant's interest substitutes for literal compliance.

• "Rules of procedure are created to promote the ends of justice, as such, their strict and rigid application must always be eschewed when it would subvert its primary objective." — This formulation articulates the Court's guiding principle in relaxing procedural requirements where strict application would defeat the rule's purpose.

• Villavicencio vs. Mojares, 446 Phil. 421 (2003) — Controlling precedent on the interpretation of Section 21, Rule 39. The Court followed its holding that there is no requirement to pay the bid in cash, and relied on it to clarify that Sy vs. Catajan does not state that an execution sale is void for non-payment in cash.
• Republic vs. NLRC, 314 Phil. 507 (1995) — Controlling precedent on the purpose of Section 26 (then Section 28), Rule 39. The Court followed its holding that the requirement to annotate a third-party claim exists to protect the claimant's interest, and that adequate protection dispenses with the need for literal compliance.
• Sy vs. Catajan, 247 Phil. 262 (1988) — Distinguished. The Court clarified that Sy is an administrative case against a sheriff for failure to comply with Rule 39, not a precedent on the validity of execution sales, and that the marked difference in the quantum of evidence between administrative and civil cases precludes automatic application of its ruling.
• Ruiz, Sr. vs. Court of Appeals, 414 Phil. 310 (2001) — Distinguished. In Ruiz, levy came four months after the sale was consummated and the certificate of sale was cancelled in favor of a person with a better right, whereas in the instant case there was a prior levy before the sale.

• Section 21, Rule 39, Rules of Court — Governs the situation where the judgment obligee is the purchaser in an execution sale. The Court held that the provision does not require cash payment of the bid; it merely provides that without a third-party claim, the purchaser need not pay if the bid does not exceed the judgment, and by implication, with a third-party claim, the purchaser must pay the bid amount regardless of mode of payment.
• Section 26, Rule 39, Rules of Court — Requires the certificate of sale to make express mention of the existence of a third-party claim. The Court held that while the provision is mandatory in purpose, its non-compliance does not void the sale where the third-party claimant's interest is adequately protected, as by an indemnity bond.
• Section 52, Presidential Decree No. 1529 (Property Registration Decree) — Cited for the principle that registration is the operative act that creates a lien upon the land and affords protection to the rights of third-party claimants. The Court directed annotation of the third-party claim on the certificates of title pursuant to this provision.

Peralta, C.J., Caguioa, Carandang, and Zalameda, JJ., concurred.