G.R. No. 160236; October 16, 2009
“G” HOLDINGS, INC., Petitioner, vs. NATIONAL MINES AND ALLIED WORKERS UNION LOCAL 103 (NAMAWU); SHERIFFS RICHARD H. APROSTA and ALBERTO MUNOZ, all acting Sheriffs; DEPARTMENT OF LABOR AND EMPLOYMENT, Region VI, Bacolod District Office, Bacolod City, Respondents.

FACTS

Petitioner “G” Holdings, Inc. (GHI) is a holding company that purchased 90% of Maricalum Mining Corporation’s (MMC) shares and financial claims from the Asset Privatization Trust in 1992. The financial claims were converted into promissory notes totaling ₱500 million, secured by mortgages over MMC’s real and personal properties. GHI took control of MMC’s management and operations. A labor dispute later arose between MMC and respondent union, NAMAWU. The Secretary of Labor found MMC guilty of unfair labor practice and illegal layoffs, ordering reinstatement with backwages. This order became final. To satisfy the monetary award, the Department of Labor issued writs of execution. Acting on an alias writ, sheriffs levied upon properties within the MMC compound in Sipalay, Negros Occidental.
GHI filed a third-party claim with the sheriff, asserting ownership of the levied properties as mortgagee. It argued the properties were not owned by the judgment debtor, MMC, but were held by GHI as collateral. The sheriff denied the claim. GHI then filed a complaint for injunction with the Regional Trial Court (RTC) to prohibit enforcement of the writ against the mortgaged properties. The RTC dismissed the complaint, ruling that GHI’s remedy was an independent action to vindicate its claim, not an injunction. The Court of Appeals affirmed this dismissal.

ISSUE

Whether the RTC correctly dismissed GHI’s complaint for injunction, holding that GHI’s proper remedy against the levy of mortgaged properties was an independent action, not an injunction.

RULING

No. The Supreme Court reversed the lower courts. The legal logic is that a mortgagee has a superior right to the mortgaged property, and a sheriff’s levy on such property to satisfy the personal debt of the mortgagor is improper. The Court held that GHI, as a chattel mortgagee, had a valid third-party claim. A mortgage creates a real right over the property. While the mortgagor retains a redeemable interest, this is the only interest that can be levied upon by a judgment creditor. The sheriff can only sell the mortgagor’s equity of redemption. Levying upon the property itself, as if the mortgagor owned it free of encumbrance, wrongfully disregards the mortgagee’s paramount lien.
Consequently, GHI’s complaint for injunction was a proper remedy to prevent the sheriff from selling the property in a manner that would violate its vested rights. An independent action to recover the property after a wrongful sale would be inadequate, as it would force the mortgagee into unnecessary litigation and could not restore its position if the property were sold to an innocent purchaser. The sheriff’s duty, upon a valid third-party claim supported by evidence like the mortgage contracts, is to indemnify the judgment creditor or require a bond, not to proceed with the levy. The lower courts erred in dismissing the complaint, as injunction is precisely available to prevent an illegal execution that infringes upon the rights of a third party.