TL;DR
In a dispute over a levied property, the Supreme Court ruled that a registered notice of levy takes precedence over a prior unregistered sale, even when the property is a liquidating dividend allocated to a foreign stockholder. This means creditors can legally seize assets, including equitable interests in land from corporate liquidation, to satisfy debts, as long as the levy is properly registered before the sale is officially recorded. This decision underscores the importance of registering property transactions to protect against prior claims and clarifies that equitable interests in property are also subject to levy in the Philippines.
Dividends in Dispute: When a Foreign Shareholder’s Land Becomes Fair Game for Creditors
This case revolves around a labor dispute where Khoo Boo Boon, a Malaysian national, successfully sued Legend International Resorts, Ltd. (LIRL) for illegal dismissal and won a substantial monetary award. When LIRL failed to fully satisfy the judgment, Khoo sought to levy a parcel of land in ParaƱaque, arguing it rightfully belonged to LIRL as liquidating dividends from a dissolved Philippine corporation, Belle Bay City Corporation (BBCC). Belle Corporation, claiming to have purchased the property from BBCC (with LIRL’s conformity) prior to the levy, filed a third-party claim to prevent the auction sale. The core legal question was whether Khooās registered notice of levy on the ParaƱaque property had priority over Belle Corporation’s earlier, but unregistered, purchase of the same property from LIRL/BBCC.
The Labor Arbiter (LA) initially sided with Khoo, upholding the levy. The National Labor Relations Commission (NLRC) affirmed the LA’s decision. However, the Court of Appeals (CA) reversed these rulings, arguing that LIRL, as a foreign stockholder, did not acquire a real right over the land and thus, it could not be validly levied. The Supreme Court disagreed with the CA’s interpretation. The Court clarified that while the Philippine Constitution restricts foreign ownership of private lands, it does not prohibit foreign entities from possessing equitable interests in such properties, especially as liquidating dividends. The Court emphasized that upon BBCC’s dissolution, LIRL, as a stockholder, became entitled to its share of the corporate assets, which included the ParaƱaque property. This entitlement, even if considered an equitable interest due to constitutional limitations on foreign land ownership, is still a leviable interest under Philippine law.
Building on this principle, the Supreme Court highlighted the significance of registration in property transactions. It reiterated the well-established doctrine that a registered notice of levy takes precedence over a prior unregistered sale. In this case, Khooās notice of levy was registered before Belle Corporation registered its purchase. Quoting the Property Registration Decree, the Court stated,
“The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned.”
Because Belle Corporation failed to register its purchase before the levy, its claim of ownership was deemed subordinate to Khoo’s registered lien. The Court dismissed Belle Corporation’s argument that it was a purchaser in good faith, stating that under the Torrens system, the registered levy effectively provided constructive notice, regardless of good faith.
Furthermore, the Supreme Court addressed the jurisdictional issue raised by Belle Corporation. While acknowledging that Labor Arbiters and the NLRC have limited jurisdiction, the Court clarified that in execution proceedings and third-party claims, they have the authority to determine whether the judgment debtor (LIRL in this case) retains a leviable interest in the property. This determination is crucial for enforcing labor judgments effectively. The Court emphasized that the NLRC’s role in third-party claims is not to definitively settle questions of title, which is a matter for regular courts, but to ascertain if the judgment debtor has any remaining interest in the levied property that can be subjected to execution.
In conclusion, the Supreme Court reversed the Court of Appeals’ decision, reinstating the Labor Arbiter’s order to proceed with the auction sale. The Court affirmed the validity of the levy on the ParaƱaque property and underscored the priority of registered levies over unregistered sales. This ruling reinforces the principle that equitable interests in property, even those held by foreign entities as liquidating dividends, are not exempt from levy and that timely registration is paramount in securing property rights against third-party claims.
FAQs
| What was the central legal issue in this case? | The key issue was determining the priority between a registered notice of levy and a prior unregistered sale of property, particularly when the property was a liquidating dividend of a foreign stockholder. |
| Who are the key parties involved in this case? | The petitioner is Khoo Boo Boon, the judgment creditor. The respondent is Belle Corporation, the third-party claimant asserting ownership over the levied property. Legend International Resorts, Ltd. (LIRL) is the judgment debtor. |
| What did the Supreme Court decide? | The Supreme Court ruled in favor of Khoo Boo Boon, upholding the validity of the registered notice of levy and setting aside the Court of Appeals’ decision. The Court reinstated the Labor Arbiter’s order to proceed with the auction sale of the property. |
| What is a liquidating dividend in the context of this case? | A liquidating dividend is a shareholder’s share of the remaining assets of a corporation after it is dissolved and its debts are paid. In this case, the ParaƱaque property was LIRL’s liquidating dividend from BBCC. |
| Why was the registration of the notice of levy so important? | Registration of the notice of levy created constructive notice to the world that the property was under legal hold. Under the Torrens system, a registered levy takes precedence over prior unregistered transactions, securing the creditor’s claim. |
| Can a foreign stockholder have leviable interest in land in the Philippines? | Yes, while foreign entities cannot own private land outright, they can have equitable interests, such as through liquidating dividends. The Supreme Court clarified that these equitable interests are considered ‘property’ and are subject to levy to satisfy debts. |
For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.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: Khoo Boo Boon v. Belle Corporation, G.R No. 204778, December 06, 2021