LA PAZ HOUSING AND DEVELOPMENT CORPORATION, PETITIONER, VS. BANK OF COMMERCE, RESPONDENT.

La Paz Housing versus Bank of Commerce

The Case

This is a petition for review on certiorari under Rule 45 brought by La Paz Housing and Development Corporation against Bank of Commerce, the surviving entity after its merger with Traders Royal Bank. La Paz Housing asks the Supreme Court to annul the public auction sale of four parcels of registered land in San Pedro, Laguna, which were sold to Traders Royal Bank to satisfy a judgment debt rendered against a different corporation, La Paz Investment and Realty Corporation, in a collection suit to which La Paz Housing was never a party. The case matters because it fixes the standing of a third-party claimant whose property is attached or levied in a suit where it was never impleaded, and because it measures how far a Torrens title shields a transferee who takes while an attachment lien is temporarily cancelled but later reinstated.

Procedural History

The controversy began in a collection suit filed by Traders Royal Bank against La Paz Investment and others before the Regional Trial Court of Pasay City. That court issued a writ of preliminary attachment, later discharged, then reinstated upon the bank's motion for reconsideration, and the reinstatement was affirmed with finality by the then Intermediate Appellate Court. Judgment was eventually rendered in the bank's favor, and the attached properties were set for public auction. La Paz Housing, as a third-party claimant, moved to set aside the notice of sheriff's sale, but the Pasay court denied the motion in its order of March 4, 2002, and the properties were sold to Traders Royal Bank as highest bidder.

La Paz Housing then filed a separate complaint for declaration of nullity of the auction sale and damages before the Regional Trial Court of San Pedro, Laguna. That court dismissed the complaint for lack of merit, holding that the properties had been validly sold because the notice of levy on attachment, annotated on the La Paz Investment titles, was carried over to the La Paz Housing titles. On appeal, the Court of Appeals affirmed both the admission of the bank's documentary evidence and the validity of the sale, ruling that a registered writ of attachment is a superior lien and that the sale retroacts to the date of levy. La Paz Housing's motion for reconsideration was denied, hence this petition.

Facts

Four parcels of land in San Pedro, Laguna were originally registered in the name of La Paz Investment. In a collection suit before the Pasay court, Traders Royal Bank obtained a writ of preliminary attachment, and on January 24, 1983, a notice of levy on attachment was annotated on the La Paz Investment titles. La Paz Investment moved to discharge the attachment, and the Pasay court initially granted the motion. While the bank's motion for reconsideration was pending, the notice of levy was cancelled and the cancellation was annotated on the titles on September 21, 1983.

On that very day, La Paz Investment sold one parcel to La Paz Housing; two days later it sold a second parcel to La Paz Housing; and on the same date it transferred the remaining two parcels to Federico Campos and others. In December 1984, La Paz Housing acquired those remaining parcels from the Campos group, so that all four properties ended up registered in the name of La Paz Housing.

Meanwhile, on September 26, 1983, the Pasay court granted the bank's motion for reconsideration and reinstated the writ of attachment, a ruling affirmed with finality by the Intermediate Appellate Court. On April 5, 1989, the notice of levy on attachment was reinstated and annotated on the La Paz Housing titles. After judgment was rendered against La Paz Investment, the properties were sold at public auction to Traders Royal Bank, which later merged into Bank of Commerce.

Issues

• Whether or not Bank of Commerce has the legal personality to enforce the levy on attachment as successor-in-interest of Traders Royal Bank.
• Whether or not the petition is barred by res judicata because of the Pasay court's order denying La Paz Housing's motion to cancel the sheriff's sale.
• Whether or not the auction sale is valid, particularly whether La Paz Housing is bound by the notice of levy on attachment despite having acquired the properties between the cancellation of the levy and its reinstatement.

Applicable Provisions

Section 16 of Rule 39 of the Rules of Court provides:

Nothing herein contained shall prevent such claimant or any third person from vindicating his claim to the property in a separate action, or prevent the judgment obligee from claiming damages in the same or a separate action against a third-party claimant who filed a frivolous or plainly spurious claim.

This provision preserves the third-party claimant's right to bring an independent action, which is why the Pasay court's denial of the motion did not bar the complaint before the San Pedro court.

Section 14 of Rule 57 of the Rules of Court provides:

Nothing herein contained shall prevent such claimant or any third person from vindicating his claim to the property, or prevent the attaching party from claiming damages against a third-party claimant who filed a frivolous or plainly spurious claim, in the same or a separate action.

This parallel provision confirms that the remedies of a third-party claimant are cumulative and not exclusive.

Section 44 of Presidential Decree Number 1529 provides:

Every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted in said certificate and other statutory liens.

This is the rule on the protection of an innocent purchaser for value, which La Paz Housing invoked but failed to establish.

Ruling

On the first issue, the Court refused to take cognizance of the question of Bank of Commerce's legal personality, because it was not raised as an assigned error before the Court of Appeals. An error not raised in the lower courts cannot be raised for the first time on appeal to the Supreme Court.

On the second issue, the Court ruled in favor of La Paz Housing. Because it was never impleaded in the Pasay collection suit, the remedies under Rule 39, Section 16 and Rule 57, Section 14 are cumulative, not alternative or exclusive. A third-party claimant is not a party in the proceedings and cannot appeal the denial of its claim; its remedy is a separate independent action, which is not barred by res judicata.

On the third issue, however, the Court ruled against La Paz Housing on the merits. The cancellation entry was facially deficient, and circumstances should have alerted any person dealing with the properties that they were involved in litigation and that the attachment lien was not dissolved with finality. Inquiry beyond the certificates of title was necessary to be considered an innocent purchaser for value, and La Paz Housing failed to establish it. It is therefore bound by the notice of levy on attachment reinstated by the Pasay court and the Intermediate Appellate Court.

Doctrine

A third-party claimant whose property is attached or levied in a case where it was not impleaded may serve an affidavit of title, claim damages against the bond, or file any proper action to vindicate its claim. These remedies are cumulative, not alternative or exclusive, and the denial of a third-party claim does not bar a subsequent independent action, even if no appeal was taken, because the claimant is not a party and cannot appeal.

Under Section 44 of Presidential Decree Number 1529, a purchaser in good faith for value takes the land free from encumbrances not noted on the certificate. But good faith requires inquiry beyond the title where circumstances, such as a facially deficient cancellation entry and the timing of transfers during pending litigation, should have alerted the buyer that an attachment lien subsists.

Disposition

The petition was denied for lack of merit, and the rulings of the Court of Appeals and the San Pedro trial court upholding the auction sale were affirmed.

Remember This

The one line to memorize: the remedies of a third-party claimant are cumulative, but a transferee who takes while an attachment lien is temporarily cancelled and later reinstated is not an innocent purchaser for value without notice. Examiners use this case on third-party claims under Rule 39 and Rule 57, on res judicata against non-parties, and on the duty of inquiry of a buyer of registered land.