Sampaguita Pictures, Inc. vs. Jalwindor Manufacturers, Inc.

Ownership of property sold on credit passes to the vendee upon delivery, actual or constructive, even if the purchase price remains unpaid; where a lease provides that permanent improvements belong to the lessor, those improvements become the lessor's property, and a sheriff may not levy on property not belonging to the judgment debtor.

Sampaguita Pictures, Inc. owned the Sampaguita Pictures Building in Cubao, Quezon City, and leased its roofdeck and existing improvements to Capitol "300", Inc. for the club's social purposes. Their lease provided that all permanent improvements made by the lessee would belong to the lessor without reimbursement and were considered part of the monthly rental. Jalwindor Manufacturers, Inc. was a supplier of glass and wooden jalousies to Capitol. The dispute implicated Section 17, Rule 39 of the Rules of Court, which governs third-party claims to property levied upon by a sheriff.

Sampaguita Pictures, Inc. owned the Sampaguita Pictures Building located at the corner of General Araneta and General Roxas Streets, Cubao, Quezon City. It leased the roofdeck of the building and all existing improvements thereon to Capitol "300", Inc. for a monthly rental of P650.00. The lease provided that the premises were to be used by the club for social purposes exclusively for its members and guests; that all permanent improvements made by the lessee on the leased premises would belong to the lessor without any obligation on the lessor to reimburse the lessee for the amount spent; that the improvements made by the lessee had been considered part of the consideration of the monthly rental and belonged to the lessor; and that any remodelling, alterations, or additions to the premises would be at the lessee's expense and would belong to the lessor without reimbursement.

Capitol purchased on credit from Jalwindor Manufacturers, Inc. glass and wooden jalousies, which Jalwindor delivered and installed in the leased premises, replacing the existing windows. On June 1, 1964, Jalwindor filed with the Court of First Instance of Rizal, Quezon City, Civil Case No. Q-8040, an action for collection of a sum of money with a petition for preliminary attachment against Capitol for its failure to pay for its purchases. The parties submitted a Compromise Agreement in which Capitol acknowledged its indebtedness to Jalwindor in the amount of P9,531.09, exclusive of attorney's fees and interest, payable in monthly installments of at least P300.00 beginning December 15, 1964; pending liquidation of the obligation, all the materials purchased by Capitol would be considered as security for the undertaking.

Meanwhile, Capitol failed to pay rentals to Sampaguita from March 1, 1964 to April 30, 1965, as well as water, electric, and telephone services amounting to P10,772.90. Sampaguita filed with the City Court of Quezon City, Civil Case No. 11-13161, a complaint for ejectment and collection of a sum of money against Capitol, and on June 8, 1965, the City Court rendered judgment ordering Capitol to vacate the premises and to pay Sampaguita. Capitol likewise failed to comply with the terms of the Compromise Agreement, and on July 31, 1965, the Sheriff of Quezon City levied on the glass and wooden jalousies in question. Sampaguita filed a third-party claim alleging that it owned the materials and that Capitol had no right or title to their possession. Jalwindor filed an indemnity bond in favor of the Sheriff, and the items were sold at public auction on August 30, 1965, with Jalwindor as the highest bidder for P6,000.00.

Sampaguita filed with the Court of First Instance of Rizal, Branch IV, Quezon City, an action to nullify the Sheriff's Sale and for the issuance of a writ of preliminary injunction against Jalwindor from detaching the glass and wooden jalousies. Jalwindor was ordered to maintain the status quo pending final determination of the case. No actual hearing was held, and the parties submitted a stipulation of facts for the consideration of the court. The stipulation covered the corporate status of the parties, the lease and its terms, Capitol's alterations and purchase of the jalousies on credit, Jalwindor's collection case and the Compromise Agreement, the ejectment case, the levy and auction sale, Sampaguita's third-party claim, Jalwindor's indemnity bond, and the parties' agreement that attorney's fees be left to the court's discretion in an amount not less than P500.00.

The case was submitted for decision on the parties' stipulation of facts, which supplied the lower court with the factual basis for resolving Sampaguita's action to nullify the Sheriff's Sale.

• Transfer of Ownership: Sampaguita argued that the lower court erred in holding that Capitol "300", Inc. could not legally transfer or assign the glass and wooden jalousies to Sampaguita.
• Ownership at Auction: Sampaguita maintained that the lower court erred in not holding that Sampaguita was the rightful owner of the jalousies when they were sold by the Sheriff at public auction.
• Validity of Levy and Sheriff's Sale: Sampaguita argued that the lower court erred in not declaring the levy on execution and the Sheriff's sale at public auction null and void.
• Jalwindor's Claimed Ownership: Sampaguita contended that the lower court erred in holding that Jalwindor became the rightful owner of the jalousies.

• Transfer of Ownership: Whether Capitol "300", Inc. could legally transfer or assign the glass and wooden jalousies to Sampaguita.
• Ownership at the Time of Auction: Whether Sampaguita was the rightful owner of the glass and wooden jalousies when they were sold by the Sheriff at public auction.
• Validity of Levy and Sheriff's Sale: Whether the levy on execution and the Sheriff's sale at public auction of the glass and wooden jalousies should be declared null and void.
• Jalwindor's Ownership: Whether Jalwindor became the rightful owner of the glass and wooden jalousies.

• Transfer of Ownership: Yes. Capitol acquired ownership of the jalousies upon delivery despite the purchase on credit, and the lease transferred ownership of permanent improvements to Sampaguita; payment of the price was not essential.
• Ownership at the Time of Auction: Yes. When the levy was made on July 31, 1965, Capitol was no longer the owner, and Sampaguita was the rightful owner of the jalousies.
• Validity of Levy and Sheriff's Sale: Yes, the levy and auction sale were null and void. A sheriff may not attach property not belonging to the judgment debtor, and an execution sale conveys only the rights the debtor had at the time of sale.
• Jalwindor's Ownership: No. Jalwindor acquired no ownership through the auction because the judgment debtor, Capitol, had no title to the jalousies at the time of the sale.

• Transfer of Ownership: Under Articles 1477, 1496, and 1497 of the Civil Code, ownership is not transferred by perfection of the contract but by delivery, actual or constructive. Payment of the purchase price is not essential to transfer ownership as long as the property sold has been delivered. Ownership is acquired from the moment the thing sold is delivered to the vendee, as when placed in his control and possession. Thus, when Jalwindor delivered and installed the glass and wooden jalousies in the leased premises, Capitol became the owner thereof despite having purchased them on credit and not having paid Jalwindor. Capitol then entered into a lease contract with Sampaguita in 1964, under which all permanent improvements made by the lessee belonged to the lessor and were considered part of the monthly rentals. By virtue of that agreement, Sampaguita became the owner of the items. When the levy was made on July 31, 1965, Capitol, the judgment debtor, was no longer the owner.
• Ownership at the Time of Auction: The action taken by Sampaguita to protect its interest was sanctioned by Section 17, Rule 39 of the Rules of Court, which allows a third-party claimant to vindicate his claim to the property by any action. Bayer Phil., Inc. vs. Agana, et al. recognized that the rights of third-party claimants over properties levied upon by the sheriff may be taken up in a separate and independent action, and that when property levied upon is claimed by a third person in a sworn statement of ownership, an entirely different matter calling for a new adjudication arises. Since the jalousies belonged to Sampaguita and not to Capitol, Sampaguita was the rightful owner at the time of the auction.
• Validity of Levy and Sheriff's Sale: The items were illegally levied upon because they did not belong to the judgment debtor. The power of the court in execution of judgment extends only to properties unquestionably belonging to the judgment debtor. The fact that Capitol failed to pay Jalwindor the purchase price did not prevent the transfer of ownership to Capitol. Execution sales affect the rights of the judgment debtor only, and the purchaser in the auction sale acquires only the right the debtor had at the time of sale. Since the items already belonged to Sampaguita, the levy and auction sale were null and void. The sheriff is not authorized to attach property not belonging to the judgment debtor, as held in Arabay, Inc. vs. Salvador, et al. and Herald Publishing vs. Ramos.
• Jalwindor's Ownership: Because the levy and auction sale were void, Jalwindor could not acquire ownership of the jalousies through the auction. The purchaser at an execution sale acquires only the rights of the judgment debtor, and Capitol had no right or title to the jalousies at the time of the sale. Jalwindor's claim as highest bidder and execution creditor did not vest it with ownership.

• Ownership by delivery in sale on credit — Under Articles 1477, 1496, and 1497 of the Civil Code, ownership of a thing sold is acquired from the moment it is delivered to the vendee, actually or constructively, and payment of the purchase price is not essential to the transfer. Applied here, Capitol became the owner of the glass and wooden jalousies when Jalwindor delivered and installed them, despite Capitol's unpaid account.
• Lease stipulation transferring permanent improvements — A lease may validly provide that all permanent improvements made by the lessee belong to the lessor without reimbursement and are considered part of the monthly rental. Applied here, the installed jalousies, as permanent improvements, became Sampaguita's property under its lease with Capitol.
• Execution limited to property of the judgment debtor — A sheriff is not authorized to attach property not belonging to the judgment debtor, and the power of the court in execution extends only to properties unquestionably belonging to the judgment debtor. Applied here, the levy and auction sale of the jalousies were void because the jalousies belonged to Sampaguita.
• Execution sale conveys only the debtor's rights — A purchaser in an execution sale acquires only the right or interest the judgment debtor had at the time of the sale. Because Capitol had no ownership of the jalousies when they were sold, Jalwindor acquired no title through the auction.
• Third-party claim under Section 17, Rule 39 — A third-party claimant whose property is levied upon may vindicate the claim in a separate and independent action, and the claim calls for a new adjudication. This rule supported Sampaguita's action to nullify the Sheriff's Sale.

• "Ownership is not transferred by perfection of the contract but by delivery, either actual or constructive. This is true even if the purchase has been made on credit, as in the case at bar. Payment of the purchase price is not essential to the transfer of ownership as long as the property sold has been delivered. Ownership is acquired from the moment the thing sold was delivered to vendee, as when it is placed in his control and possession. (Arts. 1477, 1496 and 1497, Civil Code of the Phil.)" — This passage states the ratio decidendi on how Capitol acquired ownership despite buying on credit, which in turn allowed Sampaguita to acquire the jalousies under the lease.
• "The items in question were illegally levied upon since they do not belong to the judgemnt debtor. The power of the Court in execution of judgment extends only to properties unquestionably belonging to the judgment debtor." — This passage defines the limitation on execution and supplies the ground for invalidating the levy on the jalousies.
• "Execution sales affect the rights of judgment debtor only, and the purchaser in the auction sale acquires only the right as the debtor has at the time of sale. Since the items already belong to Sampaguita and not to Capitol, the judgment debtor, the levy and auction sale are, accordingly, null and void." — This passage applies the execution-sale rule to the facts and states the conclusion that the auction sale did not transfer ownership to Jalwindor.
• "It is well-settled in this jurisdiction that the sheriff is not authorized to attach property not belonging to the judgment debtor. (Arabay, Inc. vs. Salvador, et al., 3 PHILAJUR, 413 [1978], Herald Publishing vs. Ramos, 88 Phil. 94, 100)." — This passage cites settled authority for the rule that execution may not reach property owned by a third person.

• Bayer Phil., Inc. vs. Agana, et al., 63 SCRA 358 — Cited for the rule that third-party claims over properties levied upon by the sheriff may be taken up in a separate and independent action, and that a third-party claim to levied property calls for a new adjudication.
• Arabay, Inc. vs. Salvador, et al., 3 PHILAJUR, 413 [1978] — Cited for the rule that a sheriff is not authorized to attach property not belonging to the judgment debtor.
• Herald Publishing vs. Ramos, 88 Phil. 94, 100 — Cited together with Arabay for the same limitation on execution against property not owned by the judgment debtor.

• Articles 1477, 1496, and 1497, Civil Code of the Philippines — Cited to establish that ownership is transferred by delivery, actual or constructive, and that payment of the purchase price is not essential to the transfer; applied to hold that Capitol became owner of the jalousies upon delivery and installation.
• Section 17, Rule 39, Rules of Court — Cited for the remedy of a third-party claimant whose property is levied upon; the provision states that the officer is not liable for damages unless a claim is made and an action for damages is brought within 120 days from the filing of the bond, but nothing prevents the claimant from vindicating his claim by any action. Applied to uphold Sampaguita's action to nullify the Sheriff's Sale.
• Section 17, paragraph (6), in relation to Section 31, Judiciary Act of 1948 — Cited as the basis for the Court of Appeals' certification of the case to the Supreme Court.

Teehankee, Acting Chief Justice (Chairman); Makasiar; Fernan; Guerrero; and Melencio-Herrera, JJ.