G.R. No. L-58319 - Paciente vs. Dacuycuy

On 9 May 1978, Sta. Clara Lumber Co., Inc. (SCLC) secured a loan of P18,514,357.56 from the Development Bank of the Philippines (DBP).
As collateral, SCLC mortgaged several properties, including the vessel MV Sta. Clara I.
When SCLC defaulted on its loan, the mortgage, including the vessel, was foreclosed.
On 18 August 1982, a foreclosure sale was conducted by the Clerk of Court and Provincial Sheriff Ex-Officio of Sultan Kudarat, Aurelio M. Rendon, which resulted in the sale of the vessel to DBP for P3,600,000.00.
A certificate of sale dated 18 August 1982 was issued in favor of DBP; however, DBP failed to register the mortgage, foreclosure, or auction sale with the Philippine Coast Guard.

In December 1983, DBP entered into a Lease/Purchase Agreement with Sta. Clara Housing Industries, Inc. (SCHI), which involved leasing some former SCLC properties, including MV Sta. Clara I, with an agreement to transfer ownership upon completion of the lease/purchase payments.
On 10 July 1986, petitioner Tay Chun Suy levied and attached MV Sta. Clara I in an execution proceeding to satisfy a judgment from the Regional Trial Court, Branch XII, Davao City.
At the time of the levy, the vessel’s coastwise license was still in the name of SCLC.
During the scheduled execution sale on 16 July 1986, counsel for SCHI informed Deputy Sheriff Manases M. Reyes, Jr. (responsible for the sale) that DBP was the actual owner of the vessel pursuant to the prior extrajudicial foreclosure.
Despite this information, and the pending request for postponement by SCHI’s counsel, Sheriff Reyes, Jr. proceeded to conduct the auction sale and awarded the vessel to petitioner for P317,000.00.
On 23 July 1986, the vessel was again levied and attached pursuant to a writ issued from the Regional Trial Court, Branch XI, Cebu City, with subsequent temporary custody assigned to Philippine Trigon Shipyard Shipping Corporation.

DBP filed a complaint for annulment of the execution sale, recovery of possession, damages, and attorney’s fees, as well as for a writ of preliminary injunction.
Petitioner moved to dismiss the complaint on grounds of lack of jurisdiction, cause of action, and legal personality.
The trial court denied the petitioner's motion to dismiss and granted DBP’s prayer for a writ of preliminary injunction on 28 October 1986, a decision which was later reaffirmed on a motion for reconsideration on 19 November 1986.
Petitioner then filed with the Court of Appeals a petition for certiorari and mandamus with prohibition challenging the trial court’s orders, which was ultimately dismissed on 11 March 1987.
On appeal to the Supreme Court (via petition for review on certiorari, docketed as G.R. No. 78383), the Third Division in its resolution of 28 September 1987 denied the petition for lack of merit.
Subsequent proceedings showed that on 4 December 1987 the trial court declared DBP as the lawful owner of MV Sta. Clara I and ruled the auction sale (and its certificate of sale) as null and void.
Further appeals and motions by petitioner were dismissed by the Court of Appeals, leading to the present petition for review.

The minutes of the auction sale, prepared by Sheriff Reyes, Jr., were ambiguous and contained inexplicable entries.
The minutes failed to clearly identify the successful bidder by name; instead, they used initials (e.g., “AL”) and included vague bid entries.
Testimonies revealed discrepancies between the certificate of sale (which named petitioner as the successful bidder) and the minutes (which indicated only “AL” without clear identification).
The procedure followed by Sheriff Reyes, Jr. was marked by haste and informal practices such as not delaying the sale despite indications that the vessel belonged to DBP.
The irregular conduct in preparing the auction documents led to the trial court’s finding that the proceedings were contrived to benefit petitioner.

Petitioner contended that DBP’s failure to register the vessel with the Philippine Coast Guard should undermine its claim of ownership.
The petitioner further argued that the auction sale should be presumed regular and that he was a bona fide purchaser unaware of DBP’s prior claim.
DBP and the lower courts maintained that registration is only presumptive evidence of title and that petitioner, aware of the cloud over SCLC’s title, assumed the associated risks.
The courts held that petitioner’s claims were barred by principles such as caveat emptor and judicial admission of DBP’s prior acquisition.

Who holds the superior right of dominion over MV Sta. Clara I: the buyer from the prior extrajudicial foreclosure (DBP) or the buyer from the subsequent execution auction sale (petitioner)?

Whether DBP’s failure to register its acquisition of the vessel with the Philippine Coast Guard is fatal to its claim of ownership.
Whether the non-registration similarly affects petitioner’s claim arising from the execution sale.

Whether the auction sale conducted by Sheriff Reyes, Jr., with its noted irregularities (ambiguous minutes, discrepancies with the certificate of sale, and haste in proceedings), can be presumed valid and regular.

Whether the trial court had proper jurisdiction to issue the writ of preliminary injunction when a third-party claim (DBP’s claim over the vessel) was involved.
Whether petitioner’s challenge on jurisdiction and the subsequent nullity of the auction sale was properly addressed by the lower courts.