Factual Background

Golden Sun Finance Corporation filed a civil action on January 7, 2009 in the Regional Trial Court, Quezon City, Branch 81, docketed as Civil Case No. 0964026, for the recovery of a Honda Civic Sedan registered in the name of Lucila S. Reyes and shown in the Certificate of Registration as encumbered in favor of the complainant. The RTC issued a writ of replevin. Independently, a writ of execution issued by the MeTC, Makati City, Branch 62 in Criminal Case Nos. 353822-23 against Reyes was enforced by Ricardo R. Albano on March 27, 2009. The sheriff levied upon the motor vehicle and conducted a public auction on April 29, 2009, at which Royal Makati Credit Resource was the highest bidder and a Certificate of Sale was issued that same day.

Administrative Complaint and Allegations

In a verified complaint dated September 1, 2009, Golden Sun Finance Corporation charged Ricardo R. Albano with negligence and grave misconduct. The complainant alleged that the respondent levied upon and sold an encumbered motor vehicle without consulting the Certificate of Registration, thereby ignoring the preexisting encumbrance which, the complainant asserted, gave it priority and rendered the levy and sale illegal and futile insofar as satisfying the judgment debt.

Respondent’s Explanation

Ricardo R. Albano responded to the Office of the Court Administrator that he had no knowledge of any encumbrance because the Certificate of Registration was not presented to him. He also denied knowledge of the writ of replevin in Civil Case No. 0964026. He insisted that he acted within the scope of his ministerial duty in enforcing the writ of execution and moved for dismissal of the administrative complaint.

OCA Investigation and Recommendation

The Office of the Court Administrator, in a Memorandum Report dated November 3, 2010, found that the encumbrance on the vehicle was duly recorded in the Land Transportation Office and in the Register of Deeds of Rizal Province, constituting constructive notice. The OCA concluded that the respondent was charged with knowledge of the encumbrance and was negligent for levying and selling the encumbered vehicle, invoking the Court’s decision in Caja v. Nanquil. The OCA recommended that the matter be redocketed as a regular administrative case, that the respondent be held administratively liable for simple neglect of duty, and that he be suspended without pay for one month and one day with a stern warning.

Submission on the Records

The Supreme Court, acting on the OCA recommendation, directed that the complaint be redocketed and required the parties to state whether they would submit the case for decision on the pleadings and records. Both Golden Sun Finance Corporation and Ricardo R. Albano manifested their willingness to submit the case for decision based on the records on file.

Legal Analysis on Levy of Encumbered Property

The Court disagreed with the OCA and found insufficient basis to hold Ricardo R. Albano administratively liable. The Court analyzed Section 9(b), Rule 39 of the Rules of Court, which permits levy upon properties of the judgment obligor "of every kind and nature whatsoever which may be disposed of for value and not otherwise exempt from execution" and requires the sheriff to levy on properties of the judgment debtor sufficient to satisfy the judgment. The Court observed that under a contract of mortgage the debtor retains a beneficial interest in the property, citing CIVIL CODE, Article 2085(1), and that the creditor does not acquire ownership of the mortgaged property upon default, citing CIVIL CODE, Article 2088. Consequently, a mortgaged property may be levied upon to satisfy a judgment because the mortgagor maintains an interest that may be sold or otherwise disposed of for value.

On Notice, Replevin Proceedings, and the Effect of Encumbrance

The Court held that the presence of an encumbrance recorded in public registries did not, until foreclosure, remove the property from the category of assets subject to levy. The Court further held that the pendency of the replevin action instituted by Golden Sun Finance Corporation did not prevent the sheriff from levying on the vehicle because the mortgagor's default and the mortgagee’s right to foreclose remained matters for determination in the appropriate proceedings. The Court cited Fort Bonifacio Development Corporation v. Yllas Lending Corporation for the proposition that foreclosure and mortgagor default bear upon the right to replevy.

Distinction from Caja v. Nanquil and the Sheriff’s Ministerial Duty

The Court found that the OCA had read Caja v. Nanquil out of context. In Caja, the sheriff was held liable primarily because he levied real property without first exhausting personal properties as required under Section 9(b), Rule 39, and because he levied properties far in excess of the judgment debt. By contrast, the respondent in the present case levied an

Parties and Procedural Posture

Golden Sun Finance Corporation filed an administrative complaint represented by Rachelle L. Marmito against Ricardo R. Albano, Sheriff III, Metropolitan Trial Court (MeTC), Branch 62, Makati City.
The complaint charged the respondent with negligence and grave misconduct for levying upon and selling an allegedly encumbered motor vehicle.
The complaint was initially processed by the Office of the Court Administrator which prepared a Memorandum Report and recommendation.
The Court directed the matter to be redocketed as a regular administrative case and required parties to state whether they would submit the case for decision on the records.
Both parties manifested their willingness to submit the case for decision based on the pleadings and records on file.

Key Factual Allegations

Golden Sun Finance Corporation alleged that on January 7, 2009 it filed Civil Case No. 0964026 before the Regional Trial Court, Quezon City, Branch 81, for recovery of a Honda Civic Sedan registered in the name of Lucila S. Reyes.
The complainant alleged that the vehicle was encumbered in its favor as shown in the Certificate of Registration issued by the Land Transportation Office.
The RTC decided in favor of the complainant and issued a writ of replevin in Civil Case No. 0964026.
The respondent levied upon the same vehicle pursuant to a writ of execution issued on March 27, 2009 by MeTC, Makati City, Branch 62 in Criminal Case Nos. 353822-23 for violation of Batas Pambansa Blg. 22 against Reyes.
The vehicle was sold at public auction on April 29, 2009 to Royal Makati Credit Resource, and a Certificate of Sale was issued on the same day.
The respondent contended that he had no knowledge of the encumbrance because the Certificate of Registration was not produced to him and that he had no knowledge of the pending replevin action.

Issues

Whether the respondent was negligent or guilty of grave misconduct for levying upon and selling a vehicle that was allegedly encumbered in favor of the complainant.
Whether the sheriff had a duty to ascertain encumbrances recorded in public registries before levying upon and selling the property.
Whether levying on a mortgaged or encumbered chattel without foreclosing the encumbrance renders the levy and sale unlawful or administratively culpable.

OCA Findings and Recommendation

The OCA found that the encumbrance was properly recorded in the Land Transportation Office and in the Register of Deeds of Rizal Province, which constituted constructive notice of the encumbrance.
The OCA concluded that the respondent was charged with knowledge of the duly registered encumbrance and that levying and selling the encumbered vehicle was tantamount to negligence.
The OCA relied on Caja v. Nanquil in support of its conclusion that a sheriff who levies on mortgaged property may be administratively liable.
Th