In the case of Lavides v. Pre, the Supreme Court affirmed that a registered attachment lien on a property takes precedence over an unregistered pacto de retro sale. This means that if a creditor registers a writ of attachment on a property to secure a debt, their claim is superior to that of someone who previously bought the property under an unrecorded sale agreement. This decision underscores the importance of registering property transactions to protect one’s rights against third parties.

The Tale of Two Claims: Registered Debt vs. Unregistered Sale

Manolet Lavides purchased several properties from the spouses Policarpio and Natalia Castro through deeds of pacto de retro sale, a type of sale with a repurchase agreement. However, these sales were never registered with the Register of Deeds. Later, Vimarco, Inc., filed a case against the Castro spouses and obtained a writ of preliminary attachment on the same properties, which was duly registered. When Vimarco sought to execute the judgment against the properties, Lavides filed a separate action to assert his claim based on the prior, albeit unregistered, sales. The central legal question was: Which claim had priority – the registered attachment or the prior unregistered sale?

The Supreme Court, siding with Vimarco, Inc., emphasized the importance of registration in the Torrens System, where the act of registration is the operative act to convey and affect the land. Section 50 of the Land Registration Act (Act No. 496) stipulates that unregistered deeds only operate as contracts between the parties involved but do not bind third parties. This principle is echoed in Section 51 of Presidential Decree No. 1529, also known as the Property Registration Decree. The Court quoted Section 50 of Act No. 496, stating:

An owner of registered land may convey, mortgage, lease, charge, or otherwise deal with the same as fully as if it had not been registered. x x x But no deed, mortgage, lease, or other voluntary instrument, except a will, purporting to convey or affect registered land, shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the clerk or register of deeds to make registration. The act of registration shall be the operative act to convey and affect the land, and in all cases under this Act the registration shall be made in the office of the register of deeds of the province or city where the land lies.

Because Lavides failed to register his pacto de retro sales, they remained a private agreement between him and the Castro spouses, and were not binding on Vimarco, Inc., a third party who had a registered claim on the properties. The Court underscored that under the Torrens System, registration serves as the cornerstone of validity in land transactions. As such, the registered attachment took precedence. The Supreme Court has consistently held that registration is the operative act that binds or affects the land insofar as third persons are concerned, a principle that validates dealings with properties registered under the Torrens System.

An exception exists when a party has actual knowledge of another’s claim. The Court acknowledged that actual knowledge of a claimant’s actual, open, and notorious possession of the property at the time of registration is equivalent to registration, as per Fernandez v. Court of Appeals, 189 SCRA 780, 789 (1990). However, the Court found no evidence that Vimarco, Inc., had prior knowledge of Lavides’ ownership or possession of the properties before the levy on execution. The records only indicated that Vimarco became aware of Lavides’ claim when he filed a third-party claim with the Deputy Sheriff of Pasay City, which was insufficient to establish prior knowledge.

The Court also emphasized that the levy on execution was recorded with the Register of Deeds and annotated on the certificates of title as early as 1976. Jurisprudence establishes that prior registration of a lien creates a preference. Even subsequent registration of a prior sale does not diminish this preference, which retroacts to the date of the levy. As the Court highlighted, the attachment or levy of property of a judgment debtor creates a lien, which nothing can subsequently destroy except the dissolution of the attachment or levy itself, citing Santos v. Aquino, Jr, G.R. No. 86181-82, 205 SCRA 127, 133 (1992).

Issue	Court’s Ruling
Priority of claims between unregistered sale and registered attachment	Registered attachment takes precedence over unregistered sale.
Effect of registration under the Torrens System	Registration is the operative act to bind or affect the land.
Exception for actual knowledge	Actual knowledge of possession is equivalent to registration, but must be proven.

Petitioner’s contention that the preliminary attachment had been abandoned was also dismissed by the Court, noting that when a decision has been rendered, the court effectively denies all pending motions, citing Ong v. Fonacier, G.R. No. L-20887, 17 SCRA 617, 622 (1966). Therefore, the attachment remained effective, serving the purpose of securing an admitted debt and protecting the legitimate claim of creditors.

FAQs

What was the key issue in this case?	The main issue was determining which claim had priority over the properties: the registered writ of attachment in favor of Vimarco, Inc., or the prior unregistered pacto de retro sale to Manolet Lavides.
What is a pacto de retro sale?	A pacto de retro sale is a sale with a right of repurchase, meaning the seller has the option to buy back the property within a specified period.
Why was the registration of the attachment so important?	Registration under the Torrens System is the operative act that binds or affects the land concerning third parties. It provides notice to the world of the encumbrance on the property.
What happens if a sale is not registered?	An unregistered sale only operates as a contract between the parties involved and does not bind third parties who may have a registered claim on the property.
What is a writ of attachment?	A writ of attachment is a court order that allows a creditor to seize a debtor’s property to secure a debt, pending the outcome of a lawsuit.
Is there an exception to the registration rule?	Yes, actual knowledge of a claimant’s open and notorious possession of the property can be equivalent to registration, but this must be proven.
What did the Supreme Court ultimately decide?	The Supreme Court ruled in favor of Vimarco, Inc., holding that the registered attachment had priority over the unregistered pacto de retro sale to Lavides.
What is the significance of the Torrens System?	The Torrens System is a land registration system that aims to provide security and stability in land ownership through a centralized registry of land titles.

This case serves as a crucial reminder of the importance of registering property transactions to ensure legal protection against third-party claims. Failure to register can result in the loss of rights over the property, especially when a creditor has a registered attachment.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: MANOLET LAVIDES, VS. ERNESTO B. PRE, G.R. No. 127830, October 17, 2001