G.R. No. 127830 - Lavides vs. Pre

Case Summary (G.R. No. 127830)

Factual Background

Lavides’ claimed title originated from two pacto de retro sale documents executed by the Castro spouses: (a) the deed dated March 8, 1975 relating to land under Transfer Certificate of Title (TCT) No. T-34702, and (b) the deed dated April 1, 1975 covering parcels under TCT Nos. T-88030, T-104900, T-75611, T-83936, and T-97768. These deeds were not registered nor annotated on the corresponding Torrens titles.

On May 10, 1976, Vimarco, Inc. filed with the Court of First Instance (CFI) of Rizal, Pasay City, Branch XXXVIII a complaint for sum of money with damages and with a petition for preliminary attachment, docketed as Civil Case No. 5122-P. On May 28, 1976, the CFI issued an ex parte order for a writ of preliminary attachment. Pursuant to the writ, Vimarco caused the registration of the attachment on the certificates of title with the Register of Deeds of Quezon Province.

On June 25, 1976, the Castro spouses moved to dissolve the writ. The record showed no resolution was issued on that motion. On October 13, 1976, the CFI rendered judgment in Civil Case No. 5122-P, favoring Vimarco and against the Castro spouses, acting on Vimarco’s motion for judgment on the pleadings. The decision was appealed by the Castro spouses, but on June 3, 1977, the Court of Appeals promulgated its decision upholding Vimarco. The Castro spouses then sought relief from the Supreme Court through a petition for certiorari and mandamus, and on July 29, 1983, the Supreme Court dismissed that petition, thereby rendering the Civil Case No. 5122-P judgment final and executory.

After finality, the RTC of Pasay City, upon Vimarco’s application, issued an order of execution dated November 29, 1983. Deputy Sheriff Ernesto B. Pre, representing the City Sheriff of Pasay City, caused the issuance and publication of a Sheriff’s Notice of Auction Sale on Execution Upon Real Properties, published on December 16, 23, and 30, 1983. An auction sale on the attached properties was initially set for January 10, 1984, but Lavides served a third-party claim with the deputy sheriff, covering the six parcels intended for sale. The auction sale was postponed to January 17, 1984.

Before the auction sale could proceed as to the claimed properties, Lavides filed a separate action, Civil Case No. 1719-6, before the RTC of Gumaca, Quezon, Branch 61, seeking to assert his claim and praying for a preliminary injunctive writ to maintain the status quo. A restraining order dated January 16, 1984 was issued and served on the deputy sheriff on January 17, 1984, prior to the scheduled auction sale. The auction proceeded only as to properties not covered by the third-party claim.

On March 20, 1984, the RTC issued a writ of preliminary injunction. The trial court then received evidence to resolve which held legal precedence: (1) the levy by virtue of a duly registered writ of attachment, or (2) the unregistered pacto de retro deeds executed by Lavides’ predecessors-in-interest before the levy.

Trial Court Proceedings and Outcome

On August 31, 1984, the RTC of Gumaca, Quezon, Branch 61 rendered judgment against Lavides. It dissolved the preliminary injunction, directed that the City Sheriff of Pasay City or any deputy could proceed with the auction sale of the subject properties, and dismissed the complaint as well as the counterclaim.

Lavides appealed to the Court of Appeals, docketed as CA-G.R. CV No. 47710. On October 10, 1996, the Court of Appeals affirmed the RTC in toto and dismissed the appeal. Lavides’ motion for reconsideration was denied in a resolution dated January 21, 1997.

The Parties’ Contentions and Issues Raised

In the present petition, Lavides assigned four errors, attacking the appellate court’s rulings on: (i) the conclusion that Vimarco had a superior right of claim; (ii) the finding that Vimarco’s alleged actual knowledge was not equivalent to registration and thus did not establish bad faith; (iii) the proposition that the prior attachment order in Civil Case No. 5122-P had become final with finality; and (iv) the failure to award damages and attorney’s fees.

The Court treated the controversy as pivoting on whether a levy on execution, pursuant to a decision that had been affirmed up to the Supreme Court, was superior to a prior unregistered pacto de retro sale over the same properties.

Legal Basis and Reasoning of the Court

The Court found four material facts undisputed: the deeds on which Lavides relied were unregistered; the properties were registered lands under the Torrens System; the writ of attachment was duly recorded and annotated; and the Supreme Court decision dated July 29, 1983 in G.R. No. L-47410 had become final and executory.

The Court applied Section 50 of the Land Registration Act (Act No. 496), substantially reproduced in Section 51 of Presidential Decree No. 1529. Under Section 50, although an owner may convey registered land as fully as if it were not registered, no voluntary instrument purporting to convey or affect registered land takes effect as a conveyance or binds the land with respect to third persons unless it is registered; instead, such unregistered instrument operates only as a contract between the parties and as authority to the register of deeds.

Applying these provisions, the Court held that the pacto de retro deeds in Lavides’ favor did not bind Vimarco because they were neither registered nor annotated. Since the parcels were Torrens lands, the Court emphasized that registration is the operative act that validates transfers or creates liens on such property.

The Court relied on controlling doctrine, including Villasor v. Camon, Calalang v. Register of Deeds of Quezon City, and Sajonas v. Court of Appeals, all affirming that validity against third parties in the Torrens system turns on the act of registration with the Register of Deeds. It acknowledged an exception recognized in Fernandez v. Court of Appeals: where a party had actual knowledge of the claimant’s actual, open, and notorious possession at the time the levy or attachment was registered, actual notice could be treated as equivalent to registration to prevent the Torrens system from being used to shield fraud.

Lavides invoked that exception by asserting Vimarco’s actual knowledge. The Court rejected the assertion for lack of evidentiary support. It found that Vimarco’s knowledge of Lavides’ claim arose only when Lavides filed the third-party claim with the deputy sheriff on January 10, 1984. In contrast, the attachment and levy had been not only recorded but also annotated on the titles as early as 1976.

The Court further explained the legal consequence of prior registration. It held that a prior registration of a lien creates a preference. It also stated that subsequent registration of the prior sale cannot defeat this preference, which retroacts to the date of the levy. The Court reasoned that otherwise the preference would be rendered nugatory and meaningless, citing Defensor v. Brillo. It added that the attachment or levy creates a lien, which cannot later be destroyed except by the very dissolution of the attachment or levy.

Consequently, because Lavides’ pacto de retro deeds were unregistered, his rights were held subordinate to the duly recorded and annotated attachment and levy. The Court also rejected Lavides’ contention that the CFI’s order of preliminary attachment in Civil Case No. 5122-P had not become final. It held that when a decision had been rendered, the court in effect denied all pending motions. It also noted that the attachment remained effective. The Court added that treating the attachment otherwise would lead to undue delay in the payment of a debt already admitted and ov

Case Syllabus (G.R. No. 127830)

The case arose from a petition for review of the Court of Appeals decision dated October 10, 1996 in CA-G.R. CV No. 47710, which affirmed the Regional Trial Court (RTC) of Gumaca, Quezon, Branch 61 judgment in Civil Case No. 1719-G, and the Court of Appeals resolution dated January 21, 1997 denying reconsideration.
The petitioner, Manolet Lavides, challenged the appellate court’s rulings on the priority between a levy on execution and an earlier unregistered pacto de retro sale.
The respondents were Ernesto B. Pre, in his personal and official capacity as Deputy Sheriff of Pasay City, the City Sheriff of Pasay City, Vimarco, Inc., and the Court of Appeals.

Parties and Procedural Posture

Lavides sued in RTC of Gumaca, Quezon, Branch 61 in Civil Case No. 1719-6 to assert his claim over properties proposed for auction, and he sought a preliminary injunctive writ to maintain the status quo.
The case proceeded before the RTC on the issue of which act had legal precedence: the registered levy arising from attachment and execution, or unregistered pacto de retro documents.
The RTC rendered judgment dismissing the complaint, dissolving the preliminary injunction, and allowing auction to proceed.
The Court of Appeals affirmed the RTC in toto and denied the motion for reconsideration.
The Supreme Court reviewed the Court of Appeals affirmance through the present petition, with petitioner assigning four errors.

Key Factual Allegations

Lavides purchased six (6) properties from spouses Policarpio Castro and Natalia Dy Castro through two deeds of pacto de retro sale: Kasulatan ng Biling Mabibiling Muli dated March 8, 1975 (Exh. A) and dated April 1, 1975 (Exh. B).
The deeds covered properties under multiple Transfer Certificates of Title, specifically TCT No. T-34702 and TCT Nos. T-88030, T-104900, T-75611, T-83936, and T-97768.
The two deeds of pacto de retro were not registered nor annotated on the subject titles.
On May 10, 1976, Vimarco, Inc. filed a complaint with the CFI of Rizal, Pasay City, Branch XXXVIII for sum of money with damages with petition for preliminary attachment in Civil Case No. 5122-P.
On May 28, 1976, the CFI issued an ex parte order for a writ of preliminary attachment, and Vimarco, Inc. caused registration of the writ on the certificates of titles with the Register of Deeds of Quezon Province.
On June 25, 1976, the defendants in Civil Case No. 5122-P filed a motion to dissolve the writ of attachment, but the record showed no resolution was rendered on that motion.
On October 13, 1976, the CFI rendered decision in favor of Vimarco, Inc., which was affirmed by the Court of Appeals on June 3, 1977.
The spouses Castro sought relief via a petition for certiorari and mandamus, and on July 29, 1983, the Supreme Court dismissed the petition, making the decision in Civil Case No. 5122-P final and executory.
After finality, the RTC of Pasay City issued an order of execution dated November 29, 1983.
In execution, Deputy Sheriff Ernesto B. Pre caused publication and issuance of a Sheriff’s Notice of Auction Sale on Execution Upon Real Properties in “Mabuhay News” on December 16, 23, and 30, 1983, and the first auction date was January 10, 1984.
On January 10, 1984, before the scheduled auction, Lavides served a third-party claim over the properties, and the auction was postponed to January 17, 1984.
Before the postponed auction could proceed, Lavides filed Civil Case No. 1719-6 in the RTC of Gumaca, seeking a restraining order.
The RTC issued a restraining order dated January 16, 1984 and served it on Deputy Sheriff Pre on January 17, 1984 before the auction sale could be executed on the claimed properties.
The RTC ultimately received evidence to decide which took legal precedence: the registered levy versus the unregistered pacto de retro documents.
The RTC dissolved the injunction, dismissed the complaint, and dismissed the counterclaim, and the Court of Appeals affirmed these rulings.

Issues Raised on Review

The Supreme Court treated the pivotal issue as whether the courts erred in holding that a levy on execution pursuant to a decision affirmed by the Supreme Court had priority over a prior unregistered pacto de retro sale.
The petition also raised subsidiary matters through its assigned errors, including whether actual knowledge could substitute for registration, whether the attachment order had become final, and whether damages and attorney’s fees should have been awarded.

Statutory Framework

The Court applied Section 50 of the Land Registration Act (Act No. 496), as substantially reproduced in Section 51 of Presidential Decree No. 1529, the Property Registration Decree.
Section 50, Act No. 496 provided that an owner of registered land may deal with it as if not registered, but that no voluntary instrument purporting to convey or affect registered land takes effect as a conveyance or binds the land unless registered, and such instrument operates only as a contract between the parties and as evidence for registration.
The Court empha