Below is a comprehensive discussion under Philippine law on Rule 39 of the Rules of Court, particularly focusing on how a judgment is executed and the specific effect of levy on third persons. While this overview is detailed and meticulous, always note that factual nuances or recent jurisprudential developments may affect actual cases. It is thus prudent to consult primary sources (the Rules of Court, relevant statutes, and the latest Supreme Court decisions) and seek personalized legal counsel for specific circumstances.

I. Introduction to Levy Under Rule 39

A. Nature of Execution and Levy

Execution of Judgments
- After a court’s judgment becomes final and executory, the prevailing party may move for a writ of execution to enforce or satisfy the judgment.
- Rule 39 of the Rules of Court governs the procedures on how to enforce judgments, including levy upon properties of the judgment debtor.
Definition of Levy
- “Levy” is the act by which the sheriff or other proper execution officer sets aside or appropriates certain properties of the judgment debtor to answer for the judgment obligation.
- It places the property under the custody (custodia legis) of the court, preventing the debtor or any other party from disposing of it to the prejudice of the judgment creditor.
Kinds of Levy
- Real Property Levy. Accomplished by recording a notice of levy with the Register of Deeds and posting or serving copies of such notice in accordance with the Rules.
- Personal Property Levy. Accomplished by physical seizure or constructive taking of personal property.
- Garnishment of Debts or Credits. Where the property consists of debts (e.g., bank deposits, shares of stock, or other intangible rights), the sheriff serves notice upon the person or entity holding these to hold them for the satisfaction of the judgment.

II. Provisions of Rule 39 Relevant to Levy and Its Effects

While several sections of Rule 39 deal with various aspects of execution, the following are the core provisions typically consulted regarding the effect of levy on third persons:

Section 9 (Execution of judgments for money)
- This section authorizes the officer to collect the judgment debt or levy on property of the judgment debtor if the judgment remains unsatisfied.
Sections 12 & 13 (Sheriff’s duties in levy and sale of real or personal property)
- Establishes the procedural requirements for how the sheriff shall levy on personal or real property, including the necessity of notice, posting, and—especially for real property—recording at the Register of Deeds.
Section 16 (Proceedings where property claimed by third person)
- Provides that if property levied upon is claimed by a person other than the judgment debtor (a “third-party claim”), such third person may file an affidavit of ownership/claim, along with proof, to the sheriff. If the sheriff does not release the property, the third person’s remedy is to file a separate action to vindicate the claim of ownership or possession.
Section 19 (Examination of judgment obligor when judgment is unsatisfied)
- Although not directly on the effect of levy, this provision allows creditors to examine the judgment debtor on his property to assist in locating assets for levy or garnishment.

Throughout these sections runs the principle that proper levy places the property under judicial custody and thereby preserves it for the satisfaction of the judgment in favor of the creditor.

III. Effect of Levy on Third Persons

A. General Rule: Levy as Notice to the World

Once property is validly levied upon and the sheriff has complied with the procedural and statutory requirements (including registration or annotation for real property, or actual or constructive seizure for personal property), the levy serves as constructive notice to all third persons.
Any subsequent purchaser, mortgagee, or person acquiring an interest in the property takes it subject to the levy and cannot defeat the rights of the judgment creditor.

B. Real Property: Recording with the Register of Deeds

Annotation on the Title
- Levy on real property is typically effected by recording a notice of levy with the Register of Deeds of the province or city where the property is situated.
- The annotation of the levy on the back of the transfer certificate of title (TCT) or original certificate of title (OCT) is crucial. Once annotated, it operates as notice of the encumbrance to all persons.
Priority and Preference
- Generally, the principle of “whoever first records, in good faith, prevails” applies in land registration. A duly registered levy has priority over unrecorded or subsequently recorded interests.
- Thus, a buyer or creditor dealing with the property after annotation of levy cannot claim ignorance of the levy’s existence and will be bound by it.
Subsequent Sale or Encumbrance
- If the judgment debtor or any party attempts to sell, mortgage, or otherwise encumber the property after the levy has been annotated, such subsequent transaction is subject to the prior levy.
- In effect, a levy is “carried” by the property into the hands of subsequent transferees, except in special circumstances where the levy might be invalid or improperly annotated.

C. Personal Property: Physical or Constructive Seizure

Actual or Constructive Possession
- For tangible personal properties (e.g., vehicles, inventory, equipment), the sheriff’s actual seizure or symbolic possession (e.g., by placing them under guard, marking them, or issuing an inventory) gives notice to third parties that the property is in custodia legis.
Effect on Third Persons
- Any transfer or encumbrance of personal property after valid levy is typically void against the levy, subject only to claims of prior existing interests or ownership by bona fide third persons that predate the levy.

D. Garnishment of Debts or Credits

Nature of Garnishment
- Garnishment is a type of levy that applies to intangible properties such as bank accounts, debts owed by another person to the judgment debtor, or other incorporeal rights.
Effect of Garnishment
- Upon service of the garnishment order (e.g., to a bank), the garnishee (the party holding the debtor’s funds or owing an obligation to the debtor) is required to hold those funds or refrain from paying the debtor, under pain of liability if they disobey.
- From the moment of service, those funds or credits are effectively “frozen” for the satisfaction of the judgment. Any subsequent transaction over those funds, without court approval, is typically void as against the judgment creditor.

E. Third-Party Claims or Adverse Claims

Filing of a Third-Party Claim (Rule 39, Section 16)
- A person not a party to the case who claims ownership or a superior right of possession over the levied property may file a third-party claim with the sheriff, under oath, presenting proof of title.
- If the sheriff refuses to release the property from levy, the third person’s remedy is to file a separate action (often called a “terceria” or a “complaint for recovery of property”) in a court of competent jurisdiction.
Sheriff’s Indemnity Bond
- If the judgment creditor files a bond in favor of the sheriff to indemnify against potential liability, the sheriff can proceed with the levy despite the third-party claim.
- Ultimately, the court will decide in the separate action whether the third party’s claim is valid.

F. Existing Liens and Mortgages

If the property is already subject to a registered mortgage or lien prior to levy, that mortgagee or lienholder usually retains a superior right to the proceeds from a subsequent execution sale, to the extent of the mortgage or lien amount.
In other words, the execution sale is conducted subject to prior liens, and the purchaser at the execution sale acquires the property in the same condition – encumbered, if that lien is valid and prior in right.

IV. Illustrative Supreme Court Doctrines

Effectivity Against the World
- The Supreme Court has repeatedly held that a duly recorded levy on execution binds not only the debtor but also persons who subsequently acquire interests in the property. Once recorded, a levy serves as constructive notice.
Good Faith Purchasers Post-Levy
- A buyer who acquires property after the annotation of a levy cannot be considered an “innocent purchaser for value.” The levy is a matter of public record, and the buyer must be deemed to have had constructive notice.
Third-Party Claims
- The Court consistently rules that the third-party claimant must institute a proper action to vindicate ownership. A mere affidavit of third-party claim filed with the sheriff does not conclusively defeat the levy. The sheriff or the executing party may insist on selling the property if a bond is posted unless restrained by the court in a separate action.
Nullification of Levy for Defective Procedures
- If the sheriff fails to comply with procedural requirements (e.g., fails to record or annotate for real property, or fails to effect actual/constructive seizure for personal property), the levy may be declared void. A void levy does not affect third parties.
Liens Prior to Levy
- Mortgages or other liens (e.g., chattel mortgage on personal property, real estate mortgage on land or buildings) that predate and are duly registered before the levy generally enjoy priority over claims arising from the levy.

V. Practical Implications and Conclusion

Protection of Judgment Creditor
- Levy is a powerful remedy that ensures the judgment creditor can secure the debtor’s property to satisfy the final judgment. Once properly effected, it prevents the debtor from frustrating the judgment by clandestine transfers.
Due Diligence for Third Parties
- Any person intending to purchase or deal with property must perform careful due diligence, verifying whether there is an existing lien, mortgage, notice of levy, or any pending action that could affect ownership.
- In real property transactions, checking the Register of Deeds and the latest certificate of title is crucial. For personal properties, physical inspection, verifying the chain of ownership, and checking relevant registrations (e.g., chattel mortgage registry for vehicles) are advisable.
Remedies of Third Persons
- Third parties who truly own or have prior legitimate claims to property levied upon should assert their rights promptly. Filing a third-party claim or a separate reivindicatory action can protect their interests.
- Delays or inaction can allow execution to proceed, jeopardizing the rights of legitimate owners.
Compliance and Proper Procedure
- Sheriffs and litigants must meticulously follow the Rules of Court in conducting levies:
  - For real property, record the levy with the Register of Deeds and provide the required notices.
  - For personal property, effect actual or constructive seizure and document it properly.
  - For garnishments, serve proper notices on the garnishee.
- Any procedural misstep could void the levy and derail the execution process.

In sum, the effect of levy on third persons is that a properly perfected levy operates as constructive notice to the world, binding subsequent purchasers, mortgagees, and other transferees. It protects the judgment creditor’s interest in ensuring satisfaction of the judgment from the subject property. Third persons who claim superior rights must move quickly and follow the rules for third-party claims or separate actions to prevent the sale or release of the property, but they face an uphill battle if they acquired their interest after the levy’s annotation or had notice of the levy.

Disclaimer: This discussion is for general legal information under Philippine law and does not constitute legal advice. For case-specific inquiries or the latest jurisprudential rulings, consult the full text of Rule 39 of the Rules of Court, pertinent Supreme Court decisions, and seek professional counsel if necessary.