PSALM vs. Maunlad Homes, Inc.

A third-party claimant whose claim of ownership over levied property is denied under Section 16, Rule 39 of the Rules of Court may not challenge the denial through a petition for certiorari under Rule 65; the proper remedy is a separate and independent action to vindicate his title, and certiorari lies only where no other plain, speedy, and adequate remedy exists.

NPC was the judgment debtor in an unlawful detainer action brought by Maunlad Homes. To satisfy the judgment, the sheriff levied various items found in an NPC warehouse. PSALM, a corporation created under the Electric Power Industry Reform Act of 2001 (R.A. No. 9136) to manage the privatization of NPC’s assets, claimed that the levied properties belonged to it by operation of law, having been transferred from NPC upon the effectivity of the EPIRA law. PSALM intervened as a third-party claimant, but the trial court denied its claim, prompting PSALM to seek recourse before the higher courts.

• The Unlawful Detainer Case: Respondent Maunlad Homes, Inc. filed an unlawful detainer suit against National Power Corporation (NPC) before the MTCC of Malolos City. The MTCC rendered a decision ordering NPC to vacate the subject 25,896-sq. m. property, pay compensation of Php20.00 per square meter per month from the date of demand on 6 October 2008 until complete surrender, and pay Php20,000.00 as attorney’s fees and costs. NPC’s appeal to the RTC was dismissed; the RTC affirmed the MTCC ruling in its entirety.

• Execution and Levy: After the RTC denied NPC’s motion for reconsideration and granted Maunlad Homes’ motion for execution, a writ of execution pending appeal was issued. On 6 September 2010, the sheriff served a Notice of Demand, and later issued a Notice of Levy on execution pending appeal covering seven units of transformer radiator fins, one unit power transformer (Serial No. 77740395), and four pieces of angle bars. The sale was set for 12 November 2010.

• PSALM’s Third-Party Claim: On 9 November 2010, PSALM filed an Affidavit of Third-Party Claim with the sheriff under Section 16, Rule 39 of the Rules of Court, asserting ownership over the levied properties by operation of the EPIRA law (R.A. No. 9136). The following day, PSALM filed a Manifestation with Urgent Ex Parte Motion for Issuance of Status Quo Order before the RTC, alleging it was the owner of the properties, was not a party to the case, and that the obligation to pay Maunlad Homes had not been transferred to it. PSALM prayed for nullification of the levy and restoration of possession.

• RTC Denial of the Third-Party Claim: The RTC denied PSALM’s motion and third-party claim. It found that PSALM had not presented sufficient proof of ownership—no documents evidencing title or showing that the levied properties were included in the inventory of transferred assets. The court also held that under Sections 49, 50, 51, and 56 of the EPIRA law, in relation to Rule 21, Section 1 of its IRR, ownership did not transfer ipso jure but required the execution of documents evidencing transfer. Even assuming transfer by operation of law, the RTC considered it inequitable to transfer only assets without NPC’s corresponding liabilities, noting that Section 49 provides PSALM shall assume NPC’s liabilities. The sheriff was directed to proceed with the execution sale.

• Proceedings before the Court of Appeals: PSALM filed a petition for certiorari under Rule 65 with the CA, arguing there was no plain, speedy, and adequate remedy available. The CA dismissed the petition, holding that Section 16, Rule 39 provides the more expeditious remedy of a separate independent action for a third-party claimant to vindicate title. The CA’s denial of reconsideration led to the present petition for review.

• Overlooking of Previously Filed Third-Party Claim: PSALM contended that the CA erred in dismissing its certiorari petition on procedural grounds because it had already lodged a third-party claim under Section 16, Rule 39, which the RTC erroneously denied.

• Ownership of Levied Properties: PSALM maintained that upon the effectivity of the EPIRA law on 26 June 2001, ownership of all existing generation assets, IPP contracts, real estate, and all other disposable assets of NPC were transferred to it by operation of law, and thus the levied items belonged to PSALM.

• Non-Assumption of Liability: PSALM argued that the judgment obligation owed to Maunlad Homes was not among the existing liabilities and outstanding financial obligations of NPC that were transferred to it under the EPIRA law, and thus it could not be held liable.

• Lack of Party Status: PSALM stressed that it was never a party to the unlawful detainer case and therefore could not be bound by the judgment rendered therein, warranting the annulment of the levy and sale.

• Insufficient Proof of Ownership: Maunlad Homes asserted that PSALM failed to establish its claim of ownership with concrete evidence; PSALM submitted no documents showing that the specific levied properties were part of the assets transferred under EPIRA or included in any official inventory.

• Transfer Not Automatic: Respondent argued that the EPIRA law and its implementing rules require the execution of specific documents to effect the transfer of ownership and possession, meaning the transfer was not ipso jure.

• Inequity of Selective Transfer: Maunlad Homes contended that it would be unjust to interpret the EPIRA law as transferring only NPC’s assets to PSALM while leaving liabilities behind; Section 49 of EPIRA explicitly provides that PSALM shall also assume NPC’s liabilities.

• Availability of Certiorari: Whether a petition for certiorari under Rule 65 of the Rules of Court is the proper remedy to challenge the denial of a third-party claim filed under Section 16, Rule 39, notwithstanding the existence of a separate and independent action to vindicate the claimant’s ownership.

• Availability of Certiorari: The petition for certiorari was properly dismissed. Section 16, Rule 39 expressly allows a third-party claimant to vindicate his claim to the property “in a separate action.” This separate and independent action—entirely distinct from the original suit—is an adequate remedy because it resolves the issue of title with finality and, pending its resolution, the court may issue a writ of preliminary injunction to stop the execution sale. An adequate remedy is one that is equally beneficial, speedy, and sufficient to promptly relieve the petitioner from the injurious effects of the lower court’s action. Because such a remedy exists, the essential requirement for certiorari—absence of a plain, speedy, and adequate remedy in the ordinary course of law—was not satisfied. Moreover, a third-party claimant is not a party to the original action; hence, an appeal from the denial of the claim is not available. The denial of a third-party claim is not appealable; the only proper course is the separate action. Consequently, the CA did not err in dismissing PSALM’s Rule 65 petition, and the Supreme Court did not need to rule on the substantive claims of ownership.

• Terceria and Separate Action under Rule 39, Section 16 — A third-party claimant whose property is levied upon may avail of two cumulative remedies: (a) serve upon the sheriff an affidavit of title/right to possession and demand that the judgment creditor post an indemnity bond (terceria), and (b) file a separate and independent action to vindicate his claim to the property. The separate action is entirely distinct from the original suit and may be brought against the sheriff, the judgment creditor, or the purchaser at the auction sale. It is in this separate action that the question of title is resolved with finality.

• No Appeal from Denial of Third-Party Claim — An order denying a third-party claim is not appealable by the third-party claimant because the claimant is not a party to the principal action. The remedy is to institute a separate reinvindicatory action or a complaint for damages chargeable against the indemnity bond.

• Certiorari Requires Absence of Adequate Remedy — A petition for certiorari under Rule 65 is available only when there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law. The existence of a separate independent action to vindicate title constitutes such an adequate remedy and precludes resort to certiorari.

• Limited Scope of Summary Hearing on Third-Party Claim — When a court summarily rules on a third-party claim, its inquiry is limited to determining whether the sheriff acted correctly in levying on properties not belonging to the judgment debtor. The court cannot pass upon the question of title with finality; it may only order the release of the property if the claimant’s evidence warrants it.

• “The power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor alone. An execution can be issued only against a party and not against one who did not have his day in court. The duty of the sheriff is to levy the property of the judgment debtor not that of a third person. For, as the saying goes, one man’s goods shall not be sold for another man’s debts.” — This passage states the fundamental limitation on execution and the protection afforded to third parties.

• “We have held that neither an appeal nor a petition for certiorari is the proper remedy from the denial of a third-party claim. … The rights of a third-party claimant should be decided in a separate action to be instituted by the third person.” — The ratio decidendi that certiorari is impermissible because a separate action is the exclusive proper recourse.

• “The proper action mentioned in Section 16 would have for its object the recovery of ownership or possession of the property seized by the sheriff, as well as damages … [and] should be a totally separate and distinct action from the former suit.” — This clarifies the nature and purpose of the independent action afforded to the third-party claimant.

• Solidum v. CA, G.R. No. 161647, 22 June 2006, 492 SCRA 261 — Followed. Held squarely that neither appeal nor certiorari lies from the denial of a third-party claim; the remedy is a separate independent action. The Supreme Court applied this ruling to dismiss PSALM’s petition.

• Queblar v. Garduno, 67 Phil. 316 (1939) — Cited. Established the long-standing rule that a third-party claimant cannot appeal the denial of his claim because he is not a party to the original action; the proper remedy is a separate action.

• Spouses Sy v. Hon. Discaya, G.R. No. 86301, 23 January 1990, 181 SCRA 378 — Cited. Clarified that the summary hearing on a third-party claim is limited to determining whether the sheriff acted correctly, without deciding title with finality.

• Villasi v. Garcia, G.R. No. 190106, 15 January 2014, 713 SCRA 629 — Cited for the principle that execution can only reach properties unquestionably belonging to the judgment debtor.

• Section 16, Rule 39, 1997 Rules of Civil Procedure — This provision governs proceedings where property levied on is claimed by a third person. It allows the third-party claimant to serve an affidavit of title, triggers the judgment creditor’s option to post an indemnity bond, and expressly preserves the claimant’s right to vindicate his claim in a separate action. The Court held that this separate action is the adequate remedy that bars certiorari.

• Section 49, R.A. No. 9136 (EPIRA Law) — Cited by the RTC in denying PSALM’s claim, as it provides that PSALM shall assume not only NPC’s assets but also its outstanding liabilities. The Supreme Court did not rule on this provision’s application, having dismissed the petition on procedural grounds.

Associate Justice Antonio T. Carpio (Chairperson), Associate Justice Jose Catral Mendoza, Associate Justice Marvic M.V.F. Leonen, and Associate Justice Francis H. Jardeleza (designated additional member) concurred.