Rural Bank of Sta. Barbara [Pangasinan], Inc. vs. The Manila Mission of the Church of Jesus Christ of Latter Day Saints, Inc.

A levy on attachment, duly registered, takes preference over a prior unregistered sale, absent proof that the attaching creditor had knowledge of the unregistered interest at the time of attachment equivalent to registration.

Spouses Tomas and Maria Soliven were the registered owners under Transfer Certificate of Title No. T-125213 of a parcel of land in Barangay Maninding, Sta. Barbara, Pangasinan. Petitioner Rural Bank of Sta. Barbara (Pangasinan), Inc. was a creditor-claimant of the spouses, while respondent Manila Mission of the Church of Jesus Christ of Latter Day Saints, Inc. was a subsequent purchaser claiming ownership of the same land. The dispute turns on the Torrens-system rule that registration is the operative act binding third persons.

Spouses Tomas and Maria Soliven were the registered owners of a parcel of land in Barangay Maninding, Sta. Barbara, Pangasinan, covered by Transfer Certificate of Title No. T-125213. On 18 May 1992, the spouses sold the subject property to respondent Manila Mission of the Church of Jesus Christ of Latter Day Saints, Inc. under a notarized Deed of Sale. The sale was not immediately registered; TCT No. T-125213 in the spouses' names was cancelled only on 28 April 1994, when TCT No. 195616 was issued in respondent's name.

In the meantime, on 15 April 1993, petitioner Rural Bank of Sta. Barbara (Pangasinan), Inc. filed a Complaint for sum of money against the spouses Soliven, docketed as Civil Case No. D-10583 before the Regional Trial Court, Branch 43, Dagupan City, with a prayer for a writ of preliminary attachment. On 7 May 1993, the trial court ordered issuance of the writ against the spouses' properties to satisfy petitioner's principal claim of ₱338,000.00 upon filing of a ₱100,000.00 bond. Upon filing of the bond, the writ issued on 21 May 1993, and Sheriff Reynaldo C. Daray attached the subject property while still titled in the spouses' names, with the writ annotated on TCT No. T-125213 on 24 May 1993. When the spouses' title was later cancelled and respondent's TCT No. 195616 issued on 28 April 1994, the attachment annotation was carried over to the new title.

While the main case was pending, respondent executed an affidavit claiming title and ownership and asked the Ex-Officio Provincial and City Sheriff to release the property, but the sheriff advised filing a motion directly with the trial court. On 16 March 1995, respondent filed a Motion to Release Property from Attachment in Civil Case No. D-10583, opposed by petitioner. To support its ownership, respondent presented (a) the notarized Deed of Sale dated 18 May 1992, (b) BPI Manager's Check No. 010685 dated 8 May 1992 for ₱42,500.00 tendered for capital gains tax, (c) BIR Official Receipt No. 0431320 dated 18 May 1992 covering BPI Check No. 010625 for ₱8,5000.00, and (d) an 11 August 1992 letter of its former counsel to the Revenue District Officer concerning reconsideration/condonation of the capital gains tax assessment. Petitioner did not dispute the fact of the 18 May 1992 sale nor counter the documents with its own evidence, but relied on the priority of its registered attachment. Respondent further averred that construction of its church edifice was about to be finished when the writ was implemented and was completed by mid-1993, which petitioner allegedly tacitly recognized by not denying. After hearing, the trial court discharged the property from attachment.

• Priority of Registered Attachment: Petitioner argued that it had the better right because its attachment was effected and registered prior to registration of the sale to respondent, invoking jurisprudence that a subsequent but duly annotated attachment prevails over a previous yet unregistered sale since registration is the operative act binding third persons.
• Improper Remedy: Petitioner maintained that respondent's Motion to Release Property from Attachment was not a proper remedy under Section 14, Rule 57 of the Rules of Court, which limits a third-party claimant to (a) filing an affidavit of title with the sheriff, (b) intervening in the same action with leave of court, or (c) filing a separate independent action to vindicate the claim.

• Compliance Through Sheriff and Trial Court Supervision: Respondent countered that it did pursue a third-party claim by serving its Affidavit of Title and Ownership on the sheriff, and filed the motion directly with the trial court only upon the sheriff's advice, so the motion was a continuation of the Section 14 claim subject to the trial court's control over its officer.
• Constructive Registration Through Knowledge: Respondent argued that a special circumstance constituted constructive registration preceding attachment, namely the nearly completed church construction on the property at the time of levy, which petitioner tacitly recognized by failing to deny or rebut, giving petitioner notice equivalent to registration.

• Propriety of Remedy: Whether respondent's Motion to Release Property from Attachment filed in Civil Case No. D-10583 was a proper remedy for a third person claiming the attached property.
• Priority Between Unregistered Sale and Registered Attachment: Whether the prior yet unregistered sale to respondent prevails over petitioner's subsequent but duly registered levy on attachment, or vice versa, considering alleged knowledge of the sale.
• Effect of Alleged Knowledge of Construction: Whether petitioner's supposed knowledge of church construction on the property constituted notice of respondent's prior interest equivalent to registration.

• Propriety of Remedy: Yes, in effect. The motion was sustained as a continuation of the third-party affidavit claim under Section 14, Rule 57, alternatively as an allowed intervention, and in any event justified to render substantive justice over technicality.
• Priority Between Unregistered Sale and Registered Attachment: The registered attachment prevails. A duly registered levy on attachment takes preference over a prior unregistered sale under the Torrens system.
• Effect of Alleged Knowledge of Construction: No. No evidence proved petitioner's knowledge of respondent's interest at attachment, and mere existence of construction without such charge of knowledge could not defeat the prior lien.

• Propriety of Remedy: The filing was made on the sheriff's advice after respondent served its Affidavit of Title and Ownership, and the sheriff as an officer of the trial court could properly seek direction from that court; thus the motion was deemed a mere continuation of the first-paragraph Section 14, Rule 57 third-party claim. Alternatively, the motion was treatable as a motion for intervention under the second paragraph of Section 14 in relation to Rule 19, since respondent was so situated as to be adversely affected by disposition of property in court custody, and the grant of the motion amounted to allowance of intervention. Even if strict compliance was lacking, rules of procedure are tools to facilitate justice and may be suspended where their application would frustrate substantive rights.
• Priority Between Unregistered Sale and Registered Attachment: The property was covered by the Torrens system, under which registration is the operative act creating or affecting rights as to third persons; levy on attachment duly registered therefore takes preference over a prior unregistered sale, and the preference is not diminished by subsequent registration of the prior sale. Attachment is a proceeding in rem against the particular property, giving the attaching creditor a specific lien enforceable against the whole world until paid, satisfied, or discharged as provided by law, so that a purchaser recording title thereafter acquires only a limited right subject and subordinate to the prior registered lien. Applied here, the undisputed chronology showed sale on 18 May 1992, suit on 15 April 1993, writ ordered 7 May 1993 and enforced with annotation on 24 May 1993, while respondent's title issued only on 28 April 1994 with the lien carried over; hence the bank's lien was superior.
• Effect of Alleged Knowledge of Construction: Knowledge of a prior unregistered interest has the effect of registration as to the person with such knowledge and the Torrens system cannot shield fraud, but respondent offered only its bare allegation of church construction without evidence, and even assumed construction would not alone prove petitioner's knowledge of a conveyance. Unlike in Ruiz, Sr. vs. Court of Appeals where the attaching wife-vendor's spouse relationship and the vendee's overt improvements made knowledge probable, no special relationship charged the bank with implied knowledge, and an attaching creditor is not expected to inspect since the sheriff performs attachment. The motion's mere mention of construction, without charging the bank with knowledge, could operate as notice only from the motion's filing, after attachment, and could not retroactively defeat the lien.

• Preference of registered attachment over prior unregistered sale — A levy on attachment duly registered takes preference over a prior unregistered sale of Torrens-covered land, because registration is the operative act that gives validity to a transfer or creates a lien as against third persons; subsequent registration of the prior sale does not diminish the preference, the purchaser acquiring only a right subject to the prior registered lien.
• Attachment as proceeding in rem — Attachment is against the particular property enforceable against the whole world, creating a specific lien constituting a virtual condemnation of the property to pay the owner's debt, continuing until the debt is paid, sale is had under execution, judgment is satisfied, or the attachment is discharged or vacated as provided by law.
• Knowledge equivalent to registration — Where a party has knowledge of a prior existing unregistered interest at the time of acquiring a right to the same land, such knowledge has the effect of registration as to that party; knowledge of an unregistered sale is equivalent to registration, and the Torrens system cannot be used as a shield for fraud.
• Liberal construction of procedure to serve substantive justice — Rules of procedure are merely tools to facilitate justice; courts are not slaves to technical rules, and where strict application would frustrate rather than promote justice, the rules may be suspended or a case excepted to render substantive justice, technicalities taking a backseat to substantive rights.
• Third-party claim and intervention in attachment — Under Section 14, Rule 57, a third person claiming attached property may serve an affidavit of title on the sheriff while the sheriff has possession, may vindicate the claim in the same action through intervention under Rule 19 if so situated as to be adversely affected by disposition of property in court custody, or may vindicate it in a separate action.

• "The settled rule is that levy on attachment, duly registered, takes preference over a prior unregistered sale." — States the controlling priority rule applied to prefer the bank's registered lien over the earlier unregistered sale.
• "But where a party has knowledge of a prior existing interest which is unregistered at that time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him" — Defines the Ruiz qualification that could have defeated the attachment had knowledge been proved.
• "rules of procedure are merely tools designed to facilitate the attainment of justice." — Justifies treating respondent's motion as a continuation of the third-party claim or as intervention despite imperfect form.
• "registration is the operative act that binds or affects the land insofar as third persons are concerned." — Anchors the Torrens principle underlying preference for the registered attachment lien.

• Ruiz, Sr. vs. Court of Appeals, 414 Phil. 311 (2001) — Source of both the general rule preferring a registered attachment over a prior unregistered sale and the knowledge-equivalent-to-registration qualification; distinguished on knowledge because the attaching party there was the vendor's spouse while no such relationship existed here.
• Valdevieso vs. Damalerio, 492 Phil. 51 (2005) — Followed as expounding Ruiz that a registered writ of attachment is a superior real lien subordinating a later-registered purchase, with ownership acquired only from recording subject to the prior lien.
• Coronel vs. Desierto, 448 Phil. 894 (2003) — Cited for the principle that technicalities take a backseat to substantive rights and courts may suspend procedural rules to dispense justice.

• Section 14, Rule 57, Rules of Court — Governs proceedings where attached property is claimed by a third person through affidavit served on the sheriff and sheriff's bond requirement, while preserving vindication in the same or a separate action; applied to sustain respondent's motion as a continuation of the affidavit claim or as same-action intervention.
• Section 1, Rule 19, Rules of Court — Allows intervention by one so situated as to be adversely affected by disposition of property in court custody; applied to deem respondent's motion an allowed intervention in Civil Case No. D-10583.
• Section 12, Rule 57, Rules of Court — Provides discharge of attachment upon cash deposit or counter-bond equal to the order amount or property value; identified as respondent's remaining remedy to release the property, with redemption and reimbursement from the vendors if execution ensues.
• Section 50, Act No. 496 (now Section 51, P.D. No. 1529) — Provides registration as the operative act binding land as to third persons; applied to prefer the registered attachment, subject only to the knowledge-equivalent-to-registration exception.

Conchita Carpio Morales, J., Presbitero J. Velasco, Jr., J., Antonio Eduardo B. Nachura, J., Diosdado M. Peralta, J. No separate concurring reasoning is set out in the text.