LAND TITLES Cases
Buyers in Good Faith
LEGARDA VS. CA
VICTORIA LEGARDA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, NEW CATHAY HOUSE,
INC., THE HONORABLE REGIONAL TRIAL COURT OF QUEZON
CITY, Branch 94, respondents.
RESOLUTION
ROMERO, J.:
For our resolution is the motion for reconsideration of the March 18,
1991, decision of the Court's First Division, filed by private respondent
New Cathay House, Inc. (Cathay). A brief narration of the facts is in
order.
The parties hereto entered into a lease agreement over a certain
Quezon City property owned by petitioner Victoria Legarda. For some
reason or another, she refused to sign the contract although
respondent lessee, Cathay, made a deposit and a down payment of
rentals, prompting the latter to file before the Regional Trial Court of
Quezon City, Branch 94 a complaint1 against the former for specific
performance with preliminary injunction and damages. The court a
quo issued the injunction. In the meantime, Legarda's counsel, noted
lawyer Dean Antonio Coronel, requested a 10-day extension of time to
file an answer which the court granted. Atty. Coronel, however, failed
to file an answer within the extended period. His client was eventually
declared in default, Cathay was allowed to present evidence ex-parte,
and on March 25, 1985, a judgment by default was reached by the trial
court ordering Legarda to execute the lease contract in favor of, and to
pay damages to, Cathay.
On April 9, 1985, a copy of said decision was served on Atty. Coronel
but he took no action until the judgment became final and executory. A
month later, the trial court issued a writ of execution and a public
auction was held where Cathay's manager, Roberto V. Cabrera Jr., as
highest bidder, was awarded the property of P367,500.00 in
satisfaction of the judgment debt. Consequently, a Certificate of Sale
was issued by the sheriff on June 27, 1985. Upon failure of Legarda to
redeem her property within the one-year redemption period, a Final
Deed of Sale was issued by the sheriff on July 8, 1986, which was
registered by Cabrera with the Register of Deeds three days later.
Hence, Legarda's Transfer Certificate of Title (TCT) No. 270814 was
cancelled with the issuance of TCT No. 350892 in the name of
Cabrera.
Despite the lapse of over a year since the judgment by default became
final and executory, Atty. Coronel made no move on behalf of his
client. He did not even inform her of all these developments. When
Legarda did learn of the adverse decision, "she nevertheless did not
lose faith in her counsel" 2 and prevailed upon him to seek appropriate
relief. Thus, on October 23, 1986, he filed a petition for annulment of
judgment with prayer for the issuance of a writ of preliminary
mandatory injunction before the Court of Appeals.3
On November 29, 1989, the appellate court rendered a decision
affirming the March 25, 1985, decision of the trial court, dismissing the
petition for annulment of judgment, and holding Legarda bound by the
negligence of her counsel. It considered her allegation of fraud by
Cathay to be "improbable," and added that there was "pure and simple
negligence" on the part of petitioner's counsel who failed to file an
answer and, later, petition for relief from judgment default. Upon notice
of the Court of Appeals decision, Atty. Coronel again neglected to
protect his client's interest by failing to file a motion for reconsideration
or to appeal therefrom until said decision became final on December
21, 1989.
Sometime in March 1990, Legarda learned of the adverse decision of
the Court of Appeals dated November 29, 1989, not from Atty. Coronel
but from his secretary. She then hired a new counsel for the purpose of
elevating her case to this Court. The new lawyer filed a petition
for certiorari praying for the annulment of the decision of the trial and
appellate courts and of the sheriff's sale, alleging, among other things,
that Legarda lost in the courts below because her previous lawyer was
grossly negligent and inefficient, whose omissions cannot possibly bind
her because this amounted to violation of her right to due process of
law. She, therefore, asked Cathay (not Cabrera) to reconvey the
subject property to her.
On March 18, 1991, a decision4 was rendered in this case by Mr.
Justice Gancayco, ruling, inter alia, as follows: (a) granting the petition;
(b) nullifying the trial court's decision dated March 25, 1985, the Court
of Appeals decision dated November 29, 1989, the Sheriff's Certificate
of Sale dated June 27, 1985, of the property in question, and the
subsequent final deed of sale covering the same property; and (c)
ordering Cathay to reconvey said property to Legarda, and the
Register of Deeds to cancel the registration of said property in the
name of Cathay (not Cabrera) and to issue a new one in Legarda's
name.
The Court then declared that Atty. Coronel committed, not just ordinary
or simple negligence, but reckless, inexcusable and gross negligence,
which deprived his client of her property without due process of law.
His acts, or the lack of it, should not be allowed to bind Legarda who
has been "consigned to penury" because "her lawyer appeared to have
abandoned her case not once but repeatedly." Thus, the Court ruled
against tolerating "such unjust enrichment" of Cathay at Legarda's
expense, and noted that counsel's "lack of devotion to duty is so gross
and palpable that this Court must come to the aid of his distraught
client."
Aggrieved by this development, Cathay filed the instant motion for
reconsideration, alleging, inter alia, that reconveyance is not possible
because the subject property had already been sold by its owner,
Cabrera, even prior to the promulgation of said decision.
By virtue of the Gancayco decision, Cathay was duty bound to return
the subject property to Legarda. The impossibility of this directive is
immediately apparent, for two reasons: First, Cathay neither
possessed nor owned the property so it is in no position to reconvey
the same; second, even if it did, ownership over the property had
already been validly transferred to innocent third parties at the time of
promulgation of said judgment.
There is no question that the highest bidder at the public auction was
Cathay's manager. It has not been shown nor even alleged, however,
that Roberto Cabrera had all the time been acting for or in behalf of
Cathay. For all intents and purposes, Cabrera was simply a vendee
whose payment effectively extinguished Legarda's liability to Cathay as
the judgment creditor. No proof was ever presented which would reveal
that the sale occurred only on paper, with Cabrera acting as a mere
conduit for Cathay. What is clear from the records is that the auction
sale was conducted regularly, that a certificate of sale and,
subsequently, a final deed of sale were issued to Cabrera which
allowed him to consolidate his ownership over the subject property,
register it and obtain a title in his own name, and sell it to Nancy Saw,
an innocent purchaser for value, at a premium price. Nothing on record
would demonstrate that Cathay was the beneficiary of the sale
between Cabrera and Saw. Cabrera himself maintained that he was
"acting in his private (as distinct from his corporate) capacity" 5 when
he participated in the bidding.
Since the decision of the Court of Appeals gained finality on December
21, 1989, the subject property has been sold and ownership thereof
transferred no less than three times, viz.: (a) from Cabrera to Nancy
Saw on March 21, 1990, four months after the decision of the Court of
Appeals became final and executory and one year before the
promulgation of the March 18, 1991, decision under reconsideration;
(b) from Nancy Saw to Lily Tanlo Sy Chua on August 7, 1990, more
than one year before the Court issued a temporary restraining order in
connection with this case; and (c) from the spouses Victor and Lily Sy
Chua to Janet Chong Luminlun on April 3, 1992. With these transfers,
Cabrera's TCT No. 350892 gave way to Saw's TCT No. 31672, then to
Chua's TCT No. 31673, and finally to Luminlun's TCT No. 99143, all
issued by the Register of Deeds of Quezon City on April 3, 1990,
August 8, 1990, and November 24, 1993, respectively.
1
We do not have to belabor the fact that all the successors-in-interest of
Cabrera to the subject lot were transferees for value and in good faith,
having relied as they did on the clean titles of their predecessors. The
successive owners were each armed with their own indefeasible titles
which automatically brought them under the eagis of the Torrens
System. As the Court declared in Sandoval v. Court of Appeals, 6 "(i)t
is settled doctrine that one who deals with property registered under
the Torrens system need not go beyond the same, but only has to rely
on the title. He is charged with notice only such burdens and claims as
are annotated on the title." 7 In the case at bar, it is not disputed that no
notice of lis pendens was ever annotated on any of the titles of the
subsequent owners. And even if there were such a notice, it would not
have created a lien over the property because the main office of a lien
is to a warn prospective buyers that the property they intend to
purchase is the subject of a pending litigation. Therefore, since the
property is already in the hands of Luminlun, an innocent purchaser for
value, it can no longer be returned to its original owner by Cabrera,
much less by Cathay itself.
Another point to consider, though not raised as an issue in this case, is
the fact that Cabrera was impleaded as a party-respondent only on
August 12, 1991, after the promulgation of
the Gancayco decision. 8 The dispositive portion itself ordered Cathay,
instead of Cabrera, to reconvey the property to Legarda. Cabrera was
never a party to this case, either as plaintiff-appellee below or as
respondent in the present action. Neither did he ever act as Cathay's
representative. As we held in the recent case of National Power
Corporation v. NLRC, et al.,9 "(j)urisdiction over a party is acquired by
his voluntary appearance or submission to the court or by the coercive
process issued by the court to him, generally by service of
summons." 10 In other words, until Cabrera was impleaded as party
respondent and ordered to file a comment in the August 12, 1991,
resolution, the Court never obtained jurisdiction over him, and to
command his principal to reconvey a piece of property which used to
be HIS would not only be inappropriate but would also constitute a real
deprivation of one's property without due process of law.
Assuming arguendo that reconveyance is possible, that Cathay and
Cabrera are one and the same and that Cabrera's payment redounded
to the benefit of his principal, reconveyance, under the facts and
evidence obtaining in this case, would still not address the issues
raised herein.
The application of the sale price to Legarda's judgment debt
constituted a payment which extinguished her liability to Cathay as the
party in whose favor the obligation to pay damages was
established. 11 It was a payment in the sense that Cathay had to resort
to a court-supervised auction sale in order to execute the
judgment. 12 With the fulfillment of the judgment debtor's obligation,
nothing else was required to be done.
Under the Gancayco ruling, the order of reconveyance was premised
on the alleged gross negligence of Legarda's counsel which should not
be allowed to bind her as she was deprived of her property "without
due process of law."
It is, however, basic that as long as a party was given the opportunity
to defend her interests in due course, she cannot be said to have been
denied due process of law, for this opportunity to be heard is the very
essence of due process. The chronology of events shows that the case
took its regular course in the trial and appellate courts but Legarda's
counsel failed to act as any ordinary counsel should have acted, his
negligence every step of the way amounting to "abandonment," in the
words of the Gancayco decision. Yet, it cannot be denied that the
proceedings which led to the filing of this case were not attended by
any irregularity. The judgment by default was valid, so was the ensuing
sale at public auction. If Cabrera was adjudged highest bidder in said
auction sale, it was not through any machination on his part. All of his
actuations that led to the final registration of the title in his name were
aboveboard, untainted by any irregularity.
The fact that Cabrera is an officer of Cathay does not make him a
purchaser in bad faith. His act in representing the company was never
questioned nor disputed by Legarda. And while it is true that he won in
the bidding, it is likewise true that said bidding was conducted by the
book. There is no call to be alarmed in case an official of the company
emerges as the winning bidder since in some cases, the judgment
creditor himself personally participates in the bidding.
There is no gainsaying that Legarda is the judgment debtor here. Her
property was sold at public auction to satisfy the judgment debt. She
cannot claim that she was illegally deprived of her property because
such deprivation was done in accordance with the riles on execution of
judgments. Whether the money used to pay for said property came
from the judgment creditor or its representative is not relevant. What is
important is that it was purchase for value. Cabrera parted with real
money at the auction. In his "Sheriff's Certificate of Sale" dated June
27, 1985, 13Deputy Sheriff Angelito R. Mendoza certified, inter alia, that
the "highest bidder paid to the Deputy Sheriff the said amount of
P376,500.00, the sale price of the levied property." If this does not
constitute payment, what then is it? Had there been no real purchase
and payment below, the subject property would never have been
awarded to Cabrera and registered in his name, and the judgment debt
would never have been satisfied. Thus, to require either Cathay or
Cabrera to reconvey the property would be an unlawful intrusion into
the lawful exercise of the latter's proprietary rights over the land in
question, an act which would constitute an actual denial of property
without due process of law.
It may be true that the subject lot could have fetched a higher price
during the public auction, as Legarda claims, but the records fail to
betray any hint of a bid higher than Cabrera's which was bypassed in
his favor. Certainly, he could not help it if his bid of P376,500.00 was
the highest. Moreover, in spite of this allegedly low selling price,
Legarda still failed to redeem her property within the one-year
redemption period. She could not feign ignorance of said sale on
account of her counsel's failure to so inform her, because such auction
sales comply with requirements of notice and publication under the
Rules of Court. In the absence of any clear and convincing proof that
such requisites were not followed, the presumption of regularity stands.
Legarda also maintains that she was in the United States during the
redemption period, but she admits the she left the Philippines only on
July 13, 1985, or sixteen days after the auction sale of June 27, 1985.
Finally, she admits that her mother Ligaya represented her during her
absence. 14 In short, she was not totally in the dark as to the fate of her
property and she could have exercised her right of redemption if she
chose to, but she did not.
Neither Cathay nor Cabrera should be made to suffer for the gross
negligence of Legarda's counsel. If she may be said to be "innocent"
because she was ignorant of the acts of negligence of her counsel,
with more reason are respondents truly "innocent." As between two
parties who may lose due to the negligence or incompetence of the
counsel of one, the party who was responsible for making it happen
should suffer the consequences. This reflects the basic common law
maxim, so succinctly stated by Justice J.B.L. Reyes, that ". .
. (B)etween two innocent parties, the one who made it possible for the
wrong to be done should be the one to bear the resulting loss." 15 In
this case, it was not respondents, but Legarda, who misjudged and
hired the services of the lawyer who practically abandoned her case
and who continued to retain him even after his proven apathy and
negligence.
The Gancayco decision makes much of the fact that Legarda is now
"consigned to penury" and, therefore, this Court "must come to the aid
of the distraught client." It must be remembered that this Court renders
decisions, not on the basis of emotions but on its sound judgment,
applying the relevant, appropriate law. Much as it may pity Legarda, or
any losing litigant for that matter, it cannot play the role of a "knight in
shining armor" coming to the aid of someone, who through her
weakness, ignorance or misjudgment may have been bested in a legal
joust which complied with all the rules of legal proceedings.
In Vales v. Villa, 16 this Court warned against the danger of jumping to
the aid of a litigant who commits serious error of judgment resulting in
his own loss:
. . . Courts operate not because one person has been
defeated or overcome by another, but because he has been
defeated or overcome illegally. Men may do foolish things,
2
 make ridiculous contracts, use miserable judgment, and lose
money by them — indeed, all they have in the world; but not
for that alone can the law intervene and restore. There must
be, in addition, a violation of law, the commission of what the
law knows as an actionable of law, the commission of what
the law knows as an actionable wrong, before the courts are
authorized to lay hold of the situation and remedy it.
Respondents should not be penalized for Legarda's mistake. If the
subject property was at all sold, it was only after the decisions of the
trial and appellate courts had gained finality. These twin judgments,
which were nullified by the Gancayco decision, should be respected
and allowed to stand by this Court for having become final and
executory.
"A judgment may be broadly defined as the decision or sentence of the
law given by a court or other tribunal as the result of proceedings
instituted therein." 17 It is "a judicial act which settles the issues, fixes
the rights and liabilities of the parties, and determines the proceeding,
and it is regarded as the sentence of the law pronounced by the court
on the action or question before
it." 18
In the case at bar, the trial court's judgment was based on Cathay's
evidence after Legarda was declared in default. Damages were duly
awarded to Cathay, not whimsically, but upon proof of its entitlement
thereto. The issue of whether the plaintiff (Cathay) deserved to recover
damages because of the defendant's (Legarda's) refusal to honor their
lease agreement was resolved. Consequently, the right of Cathay to be
vindicated for such breach and the liability incurred by Legarda in the
process were determined.
This judgment became final when she failed to avail of remedies
available to her, such as filing a motion for reconsideration or
appealing the case. At the time, the issues raised in the complaint had
already been determined and disposed of by the trial court. 19 This is
the stage of finality which judgments must at one point or another
reach. In our jurisdiction, a judgment becomes ipso facto final when no
appeal is perfected or the reglementary period to appeal therefrom
expires. "The necessity of giving finality to judgments that are not void
is self-evident. The interests of society impose it. The opposite view
might make litigations more unendurable than the wrongs (they are)
intended to redress. It would create doubt, real or imaginary, and
controversy would constantly arise as to what the judgment or order
was. Public policy and sound practice demand that, at the risk of
occasional errors, judgments of courts should become final at some
definite date fixed by law. The very object for which courts were
instituted was to put an end to controversies." 20 When judgments of
lower courts gain finality, "they, too, become inviolable, impervious to
modification. They may, then, no longer be reviewed, or in any way
modified directly or indirectly, by a higher court, not even by the
Supreme Court." 21 In other words, once a judgment becomes final, the
only errors that may be corrected are those which are
clerical.22
From the foregoing precedents, it is readily apparent that the real issue
that must be resolved in this motion for reconsideration is the alleged
illegality of the final judgments of the trial and appellate courts.
Void judgments may be classified into two groups: those rendered by a
court without jurisdiction to do so and those obtained by fraud or
collusion. 23 This case must be tested in light of the guidelines
governing the latter class of judgments. "In this regard, an action to
annul a judgment on the ground of fraud will not lie unless the fraud is
extrinsic or collateral and facts upon which it is based (have) not been
controverted or resolved in the case where (the) judgment was
rendered." 24 Where is the fraud in the case at bar? Was Legarda
unlawfully barred from the proceedings below? Did her counsel sell her
out to the opponent?
It must be noted that, aside from the fact that no extrinsic fraud
attended the trial and resolution of this case, the jurisdiction of the
court a quo over the parties and the subject matter was never raised as
an issue by Legarda. Such being the case, the decision of the trial
court cannot be nullified. Errors of judgment, if any, can only be
reviewed on appeal, failing which the decision becomes final and
executory, "valid and binding upon the parties in the case and their
successors in interest." 25
At this juncture, it must be pointed out that while Legarda went to the
Court of Appeals claiming precisely that the trial court's decision was
fraudulently obtained, she grounded her petition before the Supreme
Court upon her estranged counsel's negligence. This could only imply
that at the time she filed her petition for annulment of judgment, she
entertained no notion that Atty. Coronel was being remiss in his duties.
It was only after the appellate court's decision had become final and
executory, a writ of execution issued, the property auctioned off then
sold to an innocent purchaser for value, that she began to protest the
alleged negligence of her attorney. In most cases, this would have
been dismissed outright for being dilatory and appearing as an act of
desperation on the part of a vanquished litigant. The Gancayco ruling,
unfortunately, ruled otherwise.
Fortunately, we now have an opportunity to rectify a grave error of the
past.
WHEREFORE, the Motion for Reconsideration of respondent New
Cathay House, Inc. is hereby GRANTED. Consequently, the decision
dated March 18, 1991, of the Court's First Division is VACATED and
SET ASIDE. A new judgment is hereby entered DISMISSING the
instant petition for review and AFFIRMING the November 29, 1989,
decision of the Court of Appeals in CA-G.R. No. SP-10487. Costs
against petitioner Victoria Legarda.
SO ORDERED.
GABUTAN VS. NACALABAN
TRIFONIA D. GABUTAN, deceased, herein represented by her
heirs, namely: Erlinda Llames, Elisa Asok, Primitivo Gabutan,
Valentina Yane; BUNA D. ACTUB, FELISIA TROCIO, CRISANTA D.
UBAUB, and TIRSO DALONDONAN, deceased, herein represented
by his heirs, namely: Madelyn D. Reposar and Jerry Dalondonan,
MARY JANE GILIG, ALLAN UBAUB, and SPOUSES NICOLAS &
EVELYN DAILO, Petitioners,
vs.
DANTE D. NACALABAN, HELEN N. MAANDIG, SUSAN N. SIAO,
and CAGAYAN CAPITOL COLLEGE, Respondents.
x-----------------------x
G.R. Nos. 194314-15
DANTE D. NACALABAN, HELEN N. MAANDIG, and SUSAN N.
SIAO, as HEIRS OF BALDOMERA D. VDA. DE
NACALABAN, Petitioners,
vs.
TRIFONIA D. GABUTAN, BUNA D. ACTUB, FELISIA D. TROCIO,
CRISANTA D. UBAUB, and TIRSO DALONDONAN, deceased,
herein represented by his heirs, namely: Madelyn D. Reposar and
Jerry Dalondonan, MARY JANE GILIG, ALLAN UBAUB, and
SPOUSES NICOLAS & EVELYN DAILO, CAGAYAN CAPITOL
COLLEGE, represented by its President, Atty. Casimiro B. Suarez,
Jr., Private Respondent;
HON. LEONCIA R. DIMAGIBA (Associate Justice), HON. PAUL L.
HERNANDO (Associate Justice), HON. NINA G. ANTONIOV
ALENZUELA (Associate Justice), HON. EDGARDO T. LLOREN
(Associate Justice), HON. MICHAEL P. ELBINIAS (Associate
Justice), and HON. JANE AURORA C. LANTION (Associate
Justice, Acting Chairman), COURT OF APPEALS, CAGA YAN DE
ORO CITY (Former Special Twenty-Second Division), Public
Respondents.
DECISION
3
JARDELEZA, J.:
Before us are consolidated petitions questioning the Court of Appeals'
(CA) Decision1 dated December 11, 2008 and Resolution2 dated
August 17, 2010 in CA-G.R. CV No. 68960-MIN and CA-G.R. SP No.
53598-MlN.3 In G.R. Nos. 185857-58, the heirs of Trifonia D. Gabutan
and Tirso Dalondonan, Buna D. Actub, Felisia Trocio and Crisanta D.
Ubaub (Gabutan, et al.) filed a partial appeal by way of a petition for
review on certiorari, 4 seeking to reverse the portion of the CA Decision
declaring Cagayan Capital College (the College) as a buyer in good
faith. The other petition, G .R. Nos. 194 314-] 5, is one
for certiorari5filed by Dante D. Nacalaban, Helen N. Maandig, and
Susan N. Siao as heirs of Baldomera D. Vda. De Nacalaban
(Nacalaban, et al.). It seeks to annul the CA Decision and Resolution
which sustained the action for reconveyance filed by Gabutan, et al.
The Antecedents
On January 25, 1957, Godofredo Nacalaban (Godofredo) purchased
an 800-square meter parcel of prime land (property) in Poblacion,
Cagayan de Oro City from Petra, F ortunata, Francisco and Dolores, all
surnamed Daamo.6Pursuant to the sale, Transfer Certificate of Title
(TCT) No. T-2259 7 covering the property was issued in the name of
Godofredo. He thereafter built a house on it.8
Godofredo died on January 7, 1974.9 He was survived by his wife,
Baldomera, and their children, Dante, Helen, and Susan. On March 19,
1979, Baldomera issued a Certification 10 in favor of her mother,
Melecia. It provided, in effect, that Baldomera was allowing her mother
to build and occupy a house on the portion of the
property. 11 Accordingly, the house was declared for taxation purposes.
The tax declaration 12 presented in evidence showed that Melecia
owned the building on the land owned by Godofredo. 13
Baldomera died on September 11, 1994. 14 On July 3, 1996, her
children executed an Extrajudicial Settlement of Estate of Deceased
Person with Sale15 (Extrajudicial Settlement with Sale) where they
adjudicated unto themselves the property and sold it to the College. On
August 22, 1996, TCT No. T-2259 was cancelled and TCT No. T-
111846 16 covering the property was issued in the name of the
College. 17
18
Melecia died on April 20, 1997 and was survived by her children,
Trifonia, Buna, Felisia, Crisanta, and Tirso.
In a letter 19 dated May 5, 1997, the College demanded Trifonia D.
Gabutan, Mary Jane Gilig, Allan Ubaub, and Evelyn Dailo, the heirs of
Melecia who were occupying the house on the property, to vacate the
premises. 20
On July 7, 1997, Gabutan, et al. filed a Complaint for Reconveyance of
Real Property, Declaration of Nullity of Contracts, Partition and
Damages with Writ of Preliminary Attachment and Injunction21 against
Nacalaban, et al. and the College. They alleged that: (1) Melecia
bought the property using her own money but Godofredo had the Deed
of Absolute Sale executed in his name instead of his mother-in-
law;22 (2) Godofredo and Baldomera were only trustees of the property
in favor of the real owner and beneficiary, Melecia;23 (3) they only knew
about the Extrajudicial Settlement with Sale upon verification with the
Registry of Deeds;24 and (4) the College was a buyer in bad faith,
being aware they were co-owners of the property. 25
In its Answer with Affirmative Defenses,26 the College claimed that it is
a buyer in good faith and for value, having "made exhaustive
investigations and verifications from all reliable sources" that Melecia
and her heirs were staying in the property by mere tolerance. 27 It
alleged that: (l) in the tax declaration28 of the residential house, Melecia
admitted that the lot owner is Godofredo;29 (2) the occupancy permit of
Melecia was issued only after Godofredo issued a certification30 to the
effect that Melecia was allowed to occupy a portion of the
property;31 and (3) the Extrajudicial Settlement with Sale was published
in three consecutive issues of Mindanao Post, a newspaper of general
circulation.32
In their Answer with Counterclaim, 33 Nacalaban, et al. denied the
allegations of Gabutan, et al. They claimed to have acquired the
property by intestate succession from their parents, who in their
lifetime, exercised unequivocal and absolute ownership over the
property.34 Nacalaban, et al. also set up the defenses of laches and
prescription, and asserted that the action for reconveyance was
improper because the property had already been sold to an innocent
purchaser for value.35
On September 10, 1997, the College filed a separate Complaint for
Unlawful Detainer and Damages36 with the Municipal Trial Court in
Cities (MTCC) against Trifonia, Mary Jane, Allan, Evelyn and Nicolas
Dailo (Heirs of Melecia). In their Answer with Affirmative and/or
Negative Defenses with Compulsory Counterclaim, 37 the Heirs of
Melecia claimed that they own and possess the property in co-
ownership with Nacalaban, et al. and Gabutan, et al. because it was
purchased by Melecia, their common predecessor. 38 They also
claimed that the house in which they reside was constructed at her
expense.39 The College had prior knowledge of this co-ownership, and
hence, was a purchaser in bad faith. 40 The Heirs of Melecia also
raised the defense of forum-shopping in view of the pendency of the
action for reconveyance. 41 They then concluded that in view of the
issues and the value of the property, as well, the MTCC had no
jurisdiction over the case.42
The MTCC found it had jurisdiction to hear the case and ruled in favor
of the College:43
WHEREFORE, JUDGMENT is hereby rendered ordering each of the
defendants to:
a.) Immediately vacate the property of the plaintiff;
b.) Pay the plaintiff the monthly use compensation for the continued
use of the property at the rate of P500.00 per month from MAY 5, 1997
until the property is actually vacated;
c.) Pay the plaintiff Attorney's fees amounting to P5,000.00 per
defendant;
d.) Pay for litigation expenses at the rate of P1,000.00 per defendant.
SO ORDERED.44
On appeal, the Regional Trial Court (RTC) affirmed the MTCC's
Decision46 in all respects, except that the Heirs of Melecia were given
30 days from notice to vacate the property.47 They filed a motion for
reconsideration, but it was denied.49 Thus, the Heirs of Melecia filed a
petition for review50 before the CA, docketed as CA-G.R. SP No.
53598.51
Meanwhile, in the reconveyance case, the RTC rendered a
Decision52 in favor of Gabutan, et al. The RTC found the testimonies of
their witnesses credible, in that the money of Melecia was used in
buying the property but the name of Godofredo was used when the title
was obtained because Godofredo lived in Cagayan de Oro City while
Melecia lived in Bornay, Gitagum, Misamis Oriental.53 Thus, the RTC
held that a trust was established by operation of law pursuant to Article
1448 of the Civil Code.54 The dispositive portion of the RTC's Decision
reads:
WHEREFORE, judgment is hereby rendered, and this Court hereby:
1. Declares that the Spouses Godofredo and Baldomera Nacalaban
held the land covered by Transfer Certificate of Title No. T-2259 issued
in the name of Godofredo Nacalaban married to Baldomera
Dalondonan issued on January 13, 1959 in trust for Melecia V da. de
Dalondonan with the Spouses as the trustees and Melecia V da. de
Dalondonan as the cestui que trust;
2. Declares that upon the death of Melecia V da. de Dalondonan on
August 20, 1997, the ownership and beneficial interest of the foregoing
Land passed to the plaintiffs and individual defendants by operation of
law as legal heirs of Melecia V da. de Dalondonan;
4
3. Nullifies the Extrajudicial Settlement of Estate of Deceased Person
with Sale executed by the individual defendants on July 30, 1996 and
known as Doc. No. 326; Page No. 67; Book No. XX; Series of 1996 in
the Notarial Register of Notary Public Victoriano M. Jacot with respect
to the Extrajudicial settlement by the individual defendants of the land
referred to above;
4. Declares that defendant Cagayan Capitol College was a buyer in
good faith and for value of the land referred to above, and, accordingly,
declares that said defendant now owns the land;
5. Orders defendant Cagayan Capitol College to inform this Court in
writing within thirty (30) days from receipt of this decision the amount of
the purchase price of the land referred to above bought by it from the
individual defendants the amount of which should approximate the
prevailing market value of the land at the time of the purchase;
6. Orders the individual defendants namely, Dante D. Nacalaban,
Helen N. Maandig, and Susan N. Siao, jointly and severally, to deliver
and turn over to the plaintiffs, within thirty (30) days from receipt of this
decision, plaintiffs' shares of the proceeds of the sale of the land
referred to above the amount of which is equivalent to five-sixth (5/6) of
said proceeds with the remaining one-sixth (1/6) to be retained by the
individual defendants as their share by virtue of their being the legal
heirs of Baldomera D. Nacalaban;
55
SO ORDERED.
Both parties filed separate appeals from this Decision before the
CA. 57 In a Resolution58 dated October 7, 2004, the CA consolidated
both appeals.
The CA rendered its Decision59 on December 11, 2008 dismissing the
consolidated appeals and affirming in toto the RTC Decisions in the
unlawful detainer case and the action for reconveyance. The CA held
that: (1) the defense of co-ownership based on an implied trust by a
defendant in an unlawful detainer case shall not divest the MTCC of
jurisdiction over the case;60 (2) the dead man's statute does not apply
because Gabutan, et al.'s counsel did not interpose any objection
when the testimony of Crisanta Ubaub was offered and Gabutan, et
al.'s counsel even examined her;61 (3) Nacalaban, et al.'s claim that
Gabutan, et al.'s witnesses are not competent to testify on matters
which took place before the death of Godofredo and Melecia is without
merit because Gabutan, et al. have not specified these witnesses and
such hearsay evidence alluded to;62 (4) the parole evidence rule does
not apply because Melecia and Nacalaban, et al. were not parties to
the Deed of Conditional Sale;63 (5) the action for reconveyance has not
yet prescribed because Gabutan, et al. are in possession of the
property;64 and (6) the College is a buyer in good faith. 65
Nacalaban, et al. filed their motion for reconsideration of the CA
Decision, but it was denied in a Resolution 66 dated August 1 7, 2010.
Hence, they filed the present petition for certiorari67under Rule 65,
where they allege that: (1) the action for reconveyance already
expired;68 (2) for an action for reconveyance to prosper, the property
should not have passed into the hands of another who bought the
property in good faith and for value;69 and (3) the title of Godofredo
under TCT No. T-2259 which was issued on January 13, 1959 could
not be attacked collaterally.70
On the other hand, Gabutan, et al. filed the present petition for review
on certiorari71under Rule 45, seeking a partial appeal of the CA
Decision. In their petition, Gabutan, et al. allege that the College is not
a buyer in good faith because it did not buy the property from the
registered owner. 72 Since Godofredo was the registered owner of the
property and not Nacalaban, et al., the College should have exercised
a higher degree of prudence in establishing their capacity to sell
it. 73 Further, despite knowing that other persons possessed the
property, the College did not inquire with Gabutan, et al. the nature of
their stay on the property.74 Under Section 1, paragraph 2, Rule 7 4 of
the Rules of Court, the publication of the Extrajudicial Settlement with
Sale was also without prejudice to claims of other persons who had no
notice or participation thereof. 75 Finally, Gabutan, et al. argue that they
cannot be ejected from the property because there is no evidence to
show that their stay was by mere tolerance, and that Melecia was a
builder in good faith. 76
Considering that the petitions assail the same CA Decision and involve
the same parties, we issued a Resolution77dated December 13, 2010
consolidating them.
The Issues
The issues for resolution are:
1. Whether the petition for certiorari of Nacalaban, et al. shall
prosper;
2. Whether the action for reconveyance was proper; and
3. Whether the College is a buyer in good faith.
Our Ruling
I. The petition for certiorari of
Nacalaban, et al. is a wrong
remedy
Pursuant to Section 1, Rule 45 of the Rules of Court,78 the proper
remedy to obtain a reversal of judgment on the merits, final order or
resolution is an appeal. The Resolution dated August 17, 2010 of the
CA, which affirmed its Decision dated December 11, 2008, was a final
resolution that disposed of the appeal by Nacalaban, et al. and left
nothing more to be done by the CA in respect to the said case. Thus,
Nacalaban, et al. should have filed an appeal in the form of a petition
for review on certiorari and not a petition for certiorari under Rule 65,
which is a special civil action.
Rule 65 is a limited form of review and is a remedy of last recourse.
This extraordinary action lies only where there is no appeal nor plain,
speedy and adequate remedy in the ordinary course of
law. 79 In Malayang Manggagawa ng Stayfast Phils., Inc. v. National
Labor Relations Comission, 80 we held that appeal would still be the
proper remedy from a judgment on the merits, final order or resolution
even if the error ascribed to the court rendering the judgment is its lack
of jurisdiction over the subject matter, or the exercise of power in
excess thereof, or grave abuse of discretion in the findings of fact or of
law set out in the decision, order or resolution. The existence and
availability of the right of appeal prohibits the resort
to certiorari because one of the requirements for the latter remedy is
that there should be no appeal. 81 We have always declared that a
petition for certiorari is not a substitute for an appeal where the latter
remedy is available but was lost through fault or negligence. 82
Here, Nacalaban, et al. received the assailed Resolution dated August
17, 2010 on September 7, 2010.83 Under the Rules of Court, they had
15 days or until September 22, 2010 to file an appeal before us.
Nacalaban, et al. allowed this period to lapse without doing so and,
instead, filed a petition for certiorari on November 5, 2010. 84 Being the
wrong remedy, the petition of Nacalaban, et al. is, therefore,
dismissible. Although there are exceptions85 to this general rule, none
applies in this case.
In spite of the consolidation we have ordered, we cannot treat the
petition of Nacalaban, et al. as one under Rule 45. We have the
discretion to treat a Rule 65 petition for certiorari as a Rule 45 petition
for review on certiorari if (1) the petition is filed within the reglementary
period for filing a petition for review; (2) when errors of judgment are
averred; and (3) when there is sufficient reason to justify the relaxation
of the rules. 86 The first and third requisites are absent in this case. To
reiterate, the petition was filed beyond the 15-day reglementary period
of filing a petition for review on certiorari. As will be discussed, we also
find no compelling reason to relax the rules.
II. The action for reconveyance filed by Gabutan, et al. is proper
a. An implied resulting trust was created
between Melecia and Godofredo
5
We stress at the outset that the question of existence of an implied
trust is factual, hence, ordinarily outside the purview of Rule 45. 87 The
resolution of factual issues is the function of the lower courts whose
findings, when aptly supported by evidence, bind us. This is especially
true when the CA affirms the lower court's findings, as in this case.
While we, under established exceptional circumstances, had deviated
from this rule, we do not find this case to be under any of the
exceptions. 88 Even if we were to disregard these established doctrinal
rules, we would still affirm the assailed CA rulings.
Article 1448 of the Civil Code provides in part that there is an implied
trust when property is sold, and the legal estate is granted to one party
but the price is paid by another for the purpose of having the beneficial
interest of the property. The former is the trustee, while the latter is the
beneficiary. The trust created here, which is also referred to as a
purchase money resulting trust, 89 occurs when there is (l) an actual
payment of money, property or services, or an equivalent, constituting
valuable consideration; (2) and such consideration must be furnished
by the alleged beneficiary of a resulting trust.90 These two elements are
present here.
Gabutan, et al., through the testimonies of Felisia, Crisanta, and
Trifonia, established that Melecia's money was used in buying the
property, but its title was placed in Godofredo's name. She purchased
the property because Felisia wanted to build a pharmacy on it. 91 On
one occasion in Melecia' s house, and when the entire family was
present, Melecia gave Godofredo the money to purchase the
property.92 Melecia entrusted the money to Godofredo because he was
in Cagayan de Oro, and per Melecia' s instruction, the deed of sale
covering the property was placed in his name. 93 It was allegedly her
practice to buy properties and place them in her children's name, but it
was understood that she and her children co-own the properties. 94
Melecia built a residential building on the property, where her daughter
Crisanta and some of her grandchildren resided. 95 Godofredo also
thereafter built a house on the property. Twice, he also mortgaged the
property to secure loans. Melecia allowed him to do so because she
trusted him. 96 After Godofredo' s death, and when Baldomera fell ill,
there were family discussions to transfer the title in Melecia's name so
Melecia's children can divide it together with the rest of Melecia's
properties. The plans, however, always fell through.97
Both the RTC and CA found credence on these pieces of testimonial
evidence that an implied resulting trust exists. Reliance on these
testimonies will not violate the parol evidence rule, as Nacalaban, et
al. once raised. In Tong v. Go Tiat Kun,98we ruled that since an implied
trust is neither dependent upon an express agreement nor required to
be evidenced by writing, Article 1457 of our Civil Code authorizes the
admission of parol evidence to prove their existence. What is crucial is
the intention to create a trust.99 We cautioned, however, that the parol
evidence that is required to establish the existence of an implied trust
necessarily has to be trustworthy and it cannot rest on loose, equivocal
or indefinite declarations. 100 The testimonies of Felisia, Crisanta, and
Trifonia satisfy these requirements. They are consistent and agree in
all material points in reference to the circumstances behind the
arrangement between Melecia and Godofredo. We agree with the RTC
when it said that this arrangement among family members is not
unusual, especially in the 1950s. 101
Nacalaban, et al., on the other hand, denied the arrangement between
Melecia and Godofredo, and maintained that it was really the latter who
purchased the property from its original owners, as evidenced by their
possession of the Deed of Conditional Sale and the title being in
Godofredo's name. 102 It is telling, however, that Nacalaban, et al. failed
to provide the details of the sale, specifically with regard to how
Godofredo could have been able to afford the purchase price himself,
which would have directly refuted the allegation that Melecia's money
was used in the purchase. As the RTC aptly observed, if Godofredo
really bought the property with his own money, it was surprising that
Baldomera did not transfer the title of the property to her name when
Godofredo died in 1974. Baldomera did not do so until her death in
1994 despite being pressed by her siblings to partition the property.
The RTC correctly deduced that this only meant that Baldomera
acknowledged that the property belongs to Melecia. 103
Having established the creation of an implied resulting trust, the action
for reconveyance filed by Gabutan, et al., the heirs of Melecia in whose
benefit the trust was created, is proper. An action for reconveyance is a
legal and equitable remedy granted to the rightful landowner, whose
land was wrongfully or erroneously registered in the name of another,
to compel the registered owner to transfer or reconvey the land to
him. 104 It will not amount to a collateral attack on the title, contrary to
the allegation of Nacalaban, et al. 105We explained
in Hortizuela v. Tagufa: 106
x x x As a matter of fact, an action for reconveyance is a recognized
remedy, an action in personam, available to a person whose property
has been wrongfully registered under the Torrens system in another's
name. In an action for reconveyance, the decree is not sought to be set
aside. It does not seek to set aside the decree but, respecting it as
incontrovertible and no longer open to review, seeks to transfer or
reconvey the land from the registered owner to the rightful owner.
Reconveyance is always available as long as the property has not
passed to an innocent third person for value.
There is no quibble that a certificate of title, like in the case at bench,
can only be questioned through a direct proceeding. The MCTC and
the CA, however, failed to take into account that in a complaint for
reconveyance, the decree of registration is respected as
incontrovertible and is not being questioned. What is being sought is
the transfer of the property wrongfully or erroneously registered in
another's name to its rightful owner or to the one with a better right. If
the registration of the land is fraudulent, the person in whose name the
land is registered holds it as a mere trustee, and the real owner is
entitled to file an action for reconveyance of the property. 107
The fact that the property was already titled in Godofredo's name, and
later transferred to the College, is not a hindrance to an action for
reconveyance based on an implied trust. The title did not operate to
vest ownership upon the property in favor of the College. As held
in Naval v. 108
x x x Registration of a piece of land under the Torrens System does not
create or vest title, because it is not a mode of acquiring ownership. A
certificate of title is merely an evidence of ownership or title over the
particular property described therein. It cannot be used to protect a
usurper from the true owner; nor can it be used as a shield for the
commission of fraud; neither does it permit one to enrich himself at the
expense of others. Its issuance in favor of a particular person does not
foreclose the possibility that the real property may be co-owned with
persons not named in the certificate, or that it may be held in trust for
another.109
Moreover, the body of the Complaint filed by Gabutan, et al. shows that
it is not only for the reconveyance of the property but also for the
annulment of TCT No. T-111846 issued in the name of the
College. 110 Gabutan, et al. questioned the validity of the sale to the
College and claimed co-ownership over the property. Thus, we can
rule on the validity of TCT No. T-111846 since the Complaint is a direct
attack on the title of the College.
b. The action for reconveyance is
imprescriptible because the
plaintiffs are in possession of
the property
An action for reconveyance based on an implied or a constructive trust
prescribes 10 years from the alleged fraudulent registration or date of
issuance of the certificate of title over the property. However, an action
for reconveyance based on implied or constructive trust is
imprescriptible if the plaintiff or the person enforcing the trust is in
possession of the property. In effect, the action for reconveyance is an
action to quiet the property title, which does not prescribe. 111 The
reason is that the one who is in actual possession of the land claiming
to be its owner may wait until his possession is disturbed or his title is
attacked before taking steps to vindicate his right. His undisturbed
possession gives him a continuing right to seek the aid of a court of
equity to ascertain and determine the nature of the adverse claim of a
third party and its effect on his own title, which right can be claimed
only by one who is in possession. 112
6
The fact of actual possession of Gabutan, et al. of the property, during
the lifetime of Melecia and even after her death, is an undisputed and
established fact. The College has even filed an ejectment case against
the Heirs of Melecia for this reason. 113 Thus, their complaint for
reconveyance is imprescriptible. It follows, with more reason, that
Gabutan, et al. cannot be held guilty of !aches as the said doctrine,
which is one in equity, cannot be set up to resist the enforcement of an
imprescriptible legal right. 114
III. The property shall be
reconveyed to the estate of
Melecia
a. The Extrajudicial Settlement with Sale
executed between Nacalaban, et al.
and the College is void
Having established the creation of an implied resulting trust between
Melecia and Godofredo, the law thereby creates the obligation of the
trustee to reconvey the property and its title in favor of the true
owner. 115 The true owner, Melecia, died in 1997 and was succeeded
by her children and grandchildren. The property, therefore, must be
reconveyed to her estate.
The execution of the Extrajudicial Settlement with Sale between
Godofredo's heirs and the College will not defeat the legal obligation to
reconvey the property because at the time of its execution in 1996,
Melecia was still alive. Hence, Nacalaban, et al. did not have the right
or authority to sell the property. Nemo dat quad non habet. One can
sell only what one owns or is authorized to sell, and the buyer can
acquire no more right than what the seller can transfer
legally. 116 Nacalaban, et al. cannot find refuge in their argument that
the property was registered in their father's name and that after his
death, his rights passed to them as his legal heirs. To repeat, title to
property does not vest ownership but is a mere proof that such
property has been registered. 117
b. The College is a buyer in bad
faith
Despite the finding that the property was owned by Melecia and upon
her death, by her heirs, the lower courts still sustained the ownership of
the College of the property on the ground that it is an innocent
purchaser for value. 118The lower courts' findings are grounded on the
following: (i) Gabutan, et al.'s claim was never annotated on
Godofredo's title; (ii) the Extrajudicial Settlement with Sale was duly
published and the College was able to effect the transfer of the title in
its name; (iii) Baldomera issued a certification in favor of Melecia
allowing her to occupy a portion of the lot; and (iv) the tax declaration
showed that Melecia owned only the building on the land owned by
Godofredo. 119
The RTC reiterated the rule that the buyer of a land registered under
the Torrens System may rely upon the face of the certificate of title and
does not have to look beyond it. 120 The CA, on the other hand, held
that when taken together, these facts would reasonably constitute
enough reason for the College or any buyer to conclude that the
property is free from any adverse claim, thereby making any further
investigation unnecessary. Absent any showing that the College knew
of the actual arrangement between Godofredo and Melecia, it must be
deemed a buyer in good faith. 121
Gabutan, et al. alleged that the lower courts erred in ruling that the
College is a buyer in good faith, raising the following: (1) Nacalaban, et
al. are not the registered owners of the property; Godofredo is the
registered owner who died on January 7, 1974; 122 (2) not being the
registered owners, the College, as buyer, is expected to examine not
only the certificate of title but all factual circumstances necessary for
him to determine if there are any flaws in the title of the transferor, or in
his capacity to transfer the property; 123 and (3) the College knew that
other persons possessed the property so it should have first
established the capacity of the Nacalaban children to sell the
property. 124
Whether one is a buyer in good faith and whether due diligence and
prudence were exercised are questions of fact. 125 As we have already
mentioned, only questions of law may be raised in a petition for review
on certiorari under Rule 45 of the Rules of Court. We see an exception,
however, to this general rule relative to the finding that the College is a
buyer in good faith. We hold that the RTC's finding that the College is a
buyer in good faith, which finding was upheld by the CA, was based on
an obvious misapprehension of facts and was clearly not supported by
law and jurisprudence.
In Bautista v. Silva,126 we reiterated the requisites for one to be
considered a purchaser in good faith:
A buyer for value in good faith is one who buys property of another,
without notice that some other person has a right to, or interest in, such
property and pays full and fair price for the same, at the time of such
purchase, or before he has notice of the claim or interest of some other
persons in the property. He buys the property with the well-founded
belief that the person from whom he receives the thing had title to the
property and capacity to convey it.
To prove good faith, a buyer of registered and titled land need only
show that he relied on the face of the title to the property. He need not
prove that he made further inquiry for he is not obliged to explore
beyond the four comers of the title. Such degree of proof of good
faith, however, is sufficient only when the following conditions
concur: first, the seller is the registered owner of the
land; second, the latter is in possession thereof; and third, at the
time of the sale, the buyer was not aware of any claim or interest
of some other person in the property, or of any defect or
restriction in the title of the seller or in his capacity to convey title
to the property.
Absent one or two of the foregoing conditions, then the law itself puts
the buyer on notice and obliges the latter to exercise a higher degree
of diligence by scrutinizing the certificate of title and examining all
factual circumstances in order to determine the seller's title and
capacity to transfer any interest in the property. Under such
circumstance, it is no longer sufficient for said buyer to merely show
that he relied on the face of the title; he must now also show that he
exercised reasonable precaution by inquiring beyond the title. Failure
to exercise such degree of precaution makes him a buyer in bad
faith. 127(Emphasis supplied.)
Thus, the College, which has the burden to prove the status of being a
purchaser in good faith, is required to prove the concurrence of the
above conditions. This onus probandi cannot be discharged by mere
invocation of the legal presumption of good faith. 128 We find that the
College failed to discharge this burden.
Firstly, as correctly pointed out by Gabutan, et al., Nacalaban, et al. are
not the registered owners of the property, but Godofredo. In Bautista
v. 129 Court of Appeals, we held:
However, it is important to note that petitioners did not buy the land
from the registered owner, Dionisio Santiago. They bought it from his
heirs, Maria dela Cruz and Jose Santiago.
Where a purchaser buys from one who is not the registered owner
himself: the law requires a higher degree of prudence even if the land
object of the transaction is registered. One who buys from one who is
not the registered owner is expected to examine not only the certificate
of title but all factual circumstances necessary for him to determine if
there are any flaws in the title of the transferor, or in his capacity to
transfer the land. 130
Secondly, the College was aware that aside from Nacalaban, et al., the
Heirs of Melecia, were also in possession of the property. The College
cited the tax declaration which bore an annotation that Melecia owned
a residential building and Godofredo owned the lot. 131 Also, apart from
filing an ejectment case against the Heirs of Melecia, the College
retained part of the purchase price for the demolition of Melecia's
building as well. 132
7
In Occeña v. Esponilla, 133 we held that petitioner-spouses were not
purchasers in good faith when they merely relied on the representation
of the seller regarding the nature of possession of the occupants of the
land:
In the case at bar, we find that petitioner-spouses failed to prove good
faith in their purchase and registration of the land. x x x At the trial,
Tomas Occeña admitted that he found houses built on the land during
its ocular inspection prior to his purchase. He relied on the
representation of vendor Arnold that these houses were owned by
squatters and that he was merely tolerating their presence on the
land. Tomas should have verified from the occupants of the land
the nature and authority of their possession instead of merely
relying on the representation of the vendor that they were
squatters, having seen for himself that the land was occupied by
persons other than the vendor who was not in possession of the
land at that time. x x x 134 (Emphasis supplied.)
Although the College in its Answer alleged that it made an exhaustive
investigation and verification from all reliable sources and found that
the possession of Melecia and her heirs was merely tolerated, 135 it
failed to specify who or what these sources were. There is no evidence
that the College did inquire from Melecia or her heirs themselves, who
were occupying the property, the nature and authority of their
possession. It is not far-fetched to conclude, therefore, that the College
merely relied on the representations of the sellers and the documents
they presented. In this regard, the College is not a buyer in good faith.
The "honesty of intention" which constitutes good faith implies
a freedom from knowledge of circumstances which ought to put a
person on inquiry. 136 If the land purchased is in the possession of a
person other than the vendor, the purchaser must be wary and must
investigate the rights of the actual possessor. 137 Without such inquiry,
the purchaser cannot be said to be in good faith and cannot have any
right over the property. 138
We are aware that in the ejectment case, the MTCC and RTC ruled in
favor of the College.1âwphi1 We emphasize, though, that the ruling on
the College's better right of possession was without prejudice to the
eventual outcome of the reconveyance case where the issue of
ownership was fully threshed out. We have held that the sole issue for
resolution in an unlawful detainer case is physical or material
possession of the property involved, independent of any claim of
ownership by any of the parties. When the defendant, however, raises
the defense of ownership in his pleadings and the question of
possession cannot be resolved without deciding the issue of
ownership, the issue of ownership shall be resolved only to determine
the issue of possession. 139 Thus, the ruling on the ejectment case is
not conclusive as to the issue of ownership. 140
WHEREFORE, in view of the foregoing, the petition for certiorari in
G.R. Nos. 194314-14 is DENIED and the petition for review
on certiorari in G.R. Nos. 185857-58 is GRANTED. The Decision of the
Court of Appeals dated December 11, 2008 and its Resolution dated
August 17, 2010 are AFFIRMED with the following MODIFICATIONS:
1. Cagayan Capitol College is hereby declared a buyer in
bad faith, who has no right to possession and ownership of
the property;
2. Nacalaban, et al. are ordered to return the purchase price
paid on the property to the College, plus interest at the rate
of six percent (6%) per annum computed from July 23,
1997 141 until the date of finality of this judgment. The total
amount shall thereafter earn interest at the rate of six
percent (6%) per annum from the finality of judgment until its
satisfaction; 142 and
3. The Register of Deeds is ordered to cancel TCT No. T-
111846 in the name of the College.
4. The property should be reconveyed to the Estate of the
late Melecia Dalondonan with the institution of the proper
proceedings for its partition and titling.
SO ORDERED.
NUBLEZA VS. NUEGA
JOSEFINA V. NOBLEZA, Petitioner, v. SHIRLEY B.
NUEGA, Respondent.
DECISION
VILLARAMA, JR., J.:
At bar is a petition for review on certiorari of the Decision1 dated May
14, 2010 and the Resolution2 dated July 21, 2010 of the Court of
Appeals (CA) in CA-G.R. CV No. 70235, which affirmed with
modification the assailed Decision3 dated February 14, 2001 of the
Regional Trial Court (RTC) of Marikina City, Branch 273, in Civil Case
No. 96-274-MK.
The following facts are found by the trial court and affirmed by the
appellate court:
Respondent Shirley B. Nuega (Shirley) was married to Rogelio A.
Nuega (Rogelio) on September 1, 1990.4 Sometime in 1988 when the
parties were still engaged, Shirley was working as a domestic helper in
Israel. Upon the request of Rogelio, Shirley sent him money5 for the
purchase of a residential lot in Marikina where they had planned to
eventually build their home. Rogelio was then also working abroad as a
seaman. The following year, or on September 13, 1989, Rogelio
purchased the subject house and lot for One Hundred Two Thousand
Pesos (P102,000.00)6 from Rodeanna Realty Corporation. The subject
property has an aggregate area of one hundred eleven square meters
(111 sq. m.) covered by Transfer Certificate of Title (TCT) No. N-
133844.7 Shirley claims that upon her arrival in the Philippines
sometime in 1989, she settled the balance for the equity over the
subject property with the developer through SSS8financing. She
likewise paid for the succeeding monthly amortizations. On October 19,
1989, TCT No. 1719639 over the subject property was issued by the
Registry of Deeds of Marikina, Rizal solely under the name of Rogelio.
On September 1, 1990, Shirley and Rogelio got married and lived in
the subject property. The following year, Shirley returned to Israel for
work. While overseas, she received information that Rogelio had
brought home another woman, Monica Escobar, into the family home.
She also learned, and was able to confirm upon her return to the
Philippines in May 1992, that Rogelio had been introducing Escobar as
his wife.
In June 1992, Shirley filed two cases against Rogelio: one for
Concubinage before the Provincial Prosecution Office of Rizal, and
another for Legal Separation and Liquidation of Property before the
RTC of Pasig City. Shirley later withdrew the complaint for legal
separation and liquidation of property, but re-filed10 the same on
January 29, 1993. In between the filing of these cases, Shirley learned
that Rogelio had the intention of selling the subject property. Shirley
then advised the interested buyers - one of whom was their neighbor
and petitioner Josefina V. Nobleza (petitioner) - of the existence of the
cases that she had filed against Rogelio and cautioned them against
buying the subject property until the cases are closed and terminated.
Nonetheless, under a Deed of Absolute Sale11 dated December 29,
1992, Rogelio sold the subject property to petitioner without Shirley's
consent in the amount of Three Hundred Eighty Thousand Pesos
(P380,000.00), including petitioner's undertaking to assume the
existing mortgage on the property with the National Home Mortgage
Finance Corporation and to pay the real property taxes due thereon.
Meanwhile, in a Decision12 dated May 16, 1994, the RTC of Pasig City,
Branch 70, granted the petition for legal separation and ordered the
dissolution and liquidation of the regime of absolute community of
property between Shirley and Rogelio, viz.:
WHEREFORE, in view of the foregoing, the Court hereby grants the
instant petition for legal separation between the subject spouses with
all its legal effects as provided for in Art. 63 of the Family Code. Their
community property is consequently dissolved and must be liquidated
in accordance with Art. 102 of the New Family Code. The respondent
8
is thus hereby enjoined from selling, encumbering or in any way
disposing or alienating any of their community property including the
subject house and lot before the required liquidation. Moreover, he,
being the guilty spouse, must forfeit the net profits of the community
property in favor of the petitioner who is the innocent spouse pursuant
to Art. 43 of the aforesaid law. Finally, in the light of the claim of
ownership by the present occupants who have not been impleaded in
the instant case, a separate action must be instituted by the petitioner
against the alleged buyer or buyers thereof to determine their
respective rights thereon.
Let a copy of this decision be furnished the Local Civil Registrar of
Manila, the Register of Deeds of Marikina, Metro Manila and the
National Statistics Office (NSO), sta. Mesa, Manila.
SO ORDERED.13
Rogelio appealed the above-quoted ruling before the CA which denied
due course and dismissed the petition. It became final and executory
and a writ of execution was issued in August 1995. 14
On August 27, 1996, Shirley instituted a Complaint15 for Rescission of
Sale and Recoveiy of Property against petitioner and Rogelio before
the RTC of Marikina City, Branch 273. After trial on the merits, the trial
court rendered its decision on February 14, 2001, viz.:
WHEREFORE, foregoing premises considered, judgment is hereby
rendered in favor of plaintiff Shirley Nuega and against defendant
Josefina Nobleza, as follows:
1) the Deed of Absolute Sale dated December 29, 1992 insofar as the
55.05 square meters representing the one half (1/2) portion of
plaintiff Shirley Nuega is concerned, is hereby ordered rescinded,
the same being null and void;
2) defendant Josefina Nobleza is ordered to reconvey said 55.05
square meters to plaintiff Shirley Nuega, or in the alternative to pay
plaintiff Shirley Nuega the present market value of said 55.05
square meters; and
3) to pay plaintiff Shirley Nuega attorney's fees in the sum of Twenty
Thousand Pesos (P20,000.00).
For lack of merit, defendant's counterclaim is hereby DENIED.
SO ORDERED.16
Petitioner sought recourse with the CA, while Rogelio did not appeal
the ruling of the trial court. In its assailed Decision promulgated on May
14, 2010, the appellate court affirmed with modification the trial court's
ruling, viz.:
WHEREFORE, subject to the foregoing disquisition, the appeal
is DENIED. The Decision dated 14 February 2001 of the Regional Trial
Court of Marikina City, Branch 273 in Civil Case No. 96-274-
MK is AFFIRMED with MODIFICATION in that the Deed of Absolute
Sale dated 29 December 1992 is hereby declared null and void in its
entirety, and defendant-appellant Josefina V. Nobleza is ordered to
reconvey the entire subject property to plaintiff-appellee Shirley B.
Nuega and defendant Rogelio Nuega, without prejudice to said
defendant-appellant's right to recover from defendant Rogelio whatever
amount she paid for the subject property. Costs against defendant-
appellant Nobleza.
SO ORDERED.17
Petitioner moved for reconsideration. In a Resolution dated July 21,
2010, the appellate court denied the motion for lack of merit. Hence,
this petition raising the following assignment of errors:
[I.] THE HONORABLE COURT OF APPEALS ERRED WHEN IT
AFFIRMED THE DECISION OF THE REGIONAL TRIAL COURT
BY SUSTAINING THE FINDING THAT PETITIONER WAS NOT A
PURCHASER IN GOOD FAITH.
[II.] THE HONORABLE COURT OF APPEALS ERRED WHEN IT
MODIFIED THE DECISION OF THE REGIONAL TRIAL COURT
BY DECLARING AS NULL AND VOID THE DEED OF ABSOLUTE
SALE DATED 29 DECEMBER 1992 IN ITS ENTIRETY.18
We deny the petition.
Petitioner is not a buyer in good faith.
An innocent purchaser for value is one who buys the property of
another, without notice that some other person has a right or
interest in the property, for which a full and fair price is paid by the
buyer at the time of the purchase or before receipt of any notice of
claims or interest of some other person in the property.19 It is the party
who claims to be an innocent purchaser for value who has the burden
of proving such assertion, and it is not enough to invoke the ordinary
presumption of good faith.20 To successfully invoke and be considered
as a buyer in good faith, the presumption is that first and foremost, the
"buyer in good faith" must have shown prudence and due diligence in
the exercise of his/her rights. It presupposes that the buyer did
everything that an ordinary person would do for the protection and
defense of his/her rights and interests against prejudicial or injurious
concerns when placed in such a situation. The prudence required of a
buyer in good faith is "not that of a person with training in law, but
rather that of an average man who 'weighs facts and circumstances
without resorting to the calibration of our technical rules of evidence of
which his knowledge is nil.'"21 A buyer in good faith does his homework
and verifies that the particulars are in order such as the title, the
parties, the mode of transfer and the provisions in the deed/contract of
sale, to name a few. To be more specific, such prudence can be shown
by making an ocular inspection of the property, checking the
title/ownership with the proper Register of Deeds alongside the
payment of taxes therefor, or inquiring into the minutiae such as the
parameters or lot area, the type of ownership, and the capacity of the
seller to dispose of the property, which capacity necessarily includes
an inquiry into the civil status of the seller to ensure that if married,
marital consent is secured when necessary. In fine, for a purchaser of
a property in the possession of another to be in good faith, he must
exercise due diligence, conduct an investigation, and weigh the
surrounding facts and circumstances like what any prudent man in a
similar situation would do.22
In the case at bar, petitioner claims that she is a buyer in good faith of
the subject property which is titled under the name of the seller Rogelio
A. Nuega alone as evidenced by TCT No. 171963 and Tax Declaration
Nos. D-012-04723 and D-012-04724.23 Petitioner argues, among
others, that since she has examined the TCT over the subject property
and found the property to have been registered under the name of
seller Rogelio alone, she is an innocent purchaser for value and "she is
not required to go beyond the face of the title in verifying the status of
the subject property at the time of the consummation of the sale and at
the date of the sale."24
We disagree with petitioner.
A buyer cannot claim to be an innocent purchaser for value by merely
relying on the TCT of the seller while ignoring all the other surrounding
circumstances relevant to the sale.
In the case of Spouses Raymundo v. Spouses Bandong,25 petitioners
therein - as does petitioner herein - were also harping that due to the
indefeasibility of a Torrens title, there was nothing in the TCT of the
property in litigation that should have aroused the buyer's suspicion as
to put her on guard that there was a defect in the title of therein seller.
The Court held in the Spouses Raymundo case that the buyer therein
could not hide behind the cloak of being an innocent purchaser for
value by merely relying on the TCT which showed that the registered
owner of the land purchased is the seller. The Court ruled in this case
9
that the buyer was not an innocent purchaser for value due to the
following attendant circumstances, viz.:
In the present case, we are not convinced by the petitioners' incessant
assertion that Jocelyn is an innocent purchaser for value. To begin
with, she is a grandniece of Eulalia and resides in the same locality
where the latter lives and conducts her principal business. It is
therefore impossible for her not to acquire knowledge of her grand
aunt's business practice of requiring her biyaheros to surrender the
titles to their properties and to sign the corresponding deeds of sale
over said properties in her favor, as security. This alone should have
put Jocelyn on guard for any possible abuses that Eulalia may commit
with the titles and the deeds of sale in her possession. 26
Similarly, in the case of Arrofo v. Quiño,27 the Court held that while "the
law does not require a person dealing with registered land to inquire
further than what the Torrens Title on its face indicates," the rule is not
absolute.28 Thus, finding that the buyer therein failed to take the
necessary precaution required of a prudent man, the Court held that
Arrofo was not an innocent purchaser for value, viz.:
In the present case, the records show that Arrofo failed to act as a
prudent buyer. True, she asked her daughter to verify from the
Register of Deeds if the title to the Property is free from encumbrances.
However, Arrofo admitted that the Property is within the neighborhood
and that she conducted an ocular inspection of the Property. She saw
the house constructed on the Property. Yet, Arrofo did not even bother
to inquire about the occupants of the house. Arrofo also admitted that
at the time of the sale, Myrna was occupying a room in her house as
her lessee. The fact that Myrna was renting a room from Arrofo yet
selling a land with a house should have put Arrofo on her guard. She
knew that Myrna was not occupying the house. Hence, someone else
must have been occupying the house.
Thus, Arrofo should have inquired who occupied the house, and if a
lessee, who received the rentals from such lessee. Such inquiry would
have led Arrofo to discover that the lessee was paying rentals to
Quino, not to Renato and Myrna, who claimed to own the Property.29
An analogous situation obtains in the case at bar.
The TCT of the subject property states that its sole owner is the seller
Rogelio himself who was therein also described as "single". However,
as in the cases of Spouses Raymundo and Arrofo, there are
circumstances critical to the case at bar which convince us to affirm the
ruling of both the appellate and lower courts that herein petitioner is not
a buyer in good faith.
First, petitioner's sister Hilda Bautista, at the time of the sale, was
residing near Rogelio and Shirley's house - the subject property - in
Ladislao Diwa Village, Marikina City. Had petitioner been more prudent
as a buyer, she could have easily checked if Rogelio had the capacity
to dispose of the subject property. Had petitioner been more vigilant,
she could have inquired with such facility - considering that her sister
lived in the same Ladislao Diwa Village where the property is located -
if there was any person other than Rogelio who had any right or
interest in the subject property.
To be sure, respondent even testified that she had warned their
neighbors at Ladislao Diwa Village - including petitioner's sister - not to
engage in any deal with Rogelio relative to the purchase of the subject
property because of the cases she had filed against Rogelio. Petitioner
denies that respondent had given such warning to her neighbors,
which includes her sister, therefore arguing that such warning could not
be construed as "notice" on her part that there is a person other than
the seller himself who has any right or interest in the subject property.
Nonetheless, despite petitioner's adamant denial, both courts a
quo gave probative value to the testimony of respondent, and the
instant petition failed to present any convincing evidence for this Court
to reverse such factual finding. To be sure, it is not within our province
to second-guess the courts a quo, and the re-determination of this
factual issue is beyond the reach of a petition for review on certiorari
where only questions of law may be reviewed.30
Second, issues surrounding the execution of the Deed of Absolute
Sale also pose question on the claim of petitioner that she is a buyer in
good faith. As correctly observed by both courts a quo, the Deed of
Absolute Sale was executed and dated on December 29, 1992.
However, the Community Tax Certificates of the witnesses therein
were dated January 2 and 20, 1993.31 While this irregularity is not a
direct proof of the intent of the parties to the sale to make it appear that
the Deed of Absolute Sale was executed on December 29, 1992 - or
before Shirley filed the petition for legal separation on January 29,
1993 - it is circumstantial and relevant to the claim of herein petitioner
as an innocent purchaser for value.
That is not all.
In the Deed of Absolute Sale dated December 29, 1992, the civil status
of Rogelio as seller was not stated, while petitioner as buyer was
indicated as "single," viz.:
ROGELIO A. NUEGA, of legal age, Filipino citizen and with postal
address at 2-A-2 Ladislao Diwa St., Concepcion, Marikina, Metro
Manila, hereinafter referred to as the VENDOR
And
JOSEFINA V. NOBLEZA, of legal age, Filipino citizen, single and with
postal address at No. L-2-A-3 Ladislao Diwa St., Concepcion, Marikina,
Metro Manila, hereinafter referred to as the VENDEE.32
It puzzles the Court that while petitioner has repeatedly claimed that
Rogelio is "single" under TCT No. 171963 and Tax Declaration Nos. D-
012-04723 and D-012-04724, his civil status as seller was not stated in
the Deed of Absolute Sale - further creating a cloud on the claim of
petitioner that she is an innocent purchaser for value.
As to the second issue, we rule that the appellate court did not err
when it modified the decision of the trial court and declared that the
Deed of Absolute Sale dated December 29, 1992 is void in its entirety.
The trial court held that while the TCT shows that the owner of the
subject property is Rogelio alone, respondent was able to prove at the
trial court that she contributed in the payment of the purchase price of
the subject property. This fact was also settled with finality by the RTC
of Pasig City, Branch 70, and affirmed by the CA, in the case for legal
separation and liquidation of property docketed as JDRC Case No.
2510. The pertinent portion of the decision reads:
xxx Clearly, the house and lot jointly acquired by the parties prior to
their marriage forms part of their community property regime, xxx
From the foregoing, Shirley sufficiently proved her financial contribution
for the purchase of the house and lot covered by TCT 171963. Thus,
the present lot which forms part of their community property should be
divided equally between them upon the grant of the instant petition for
legal separation. Having established by preponderance of evidence the
fact of her husband's guilt in contracting a subsequent marriage xxx,
Shirley alone should be entitled to the net profits earned by the
absolute community property.33
However, the nullity of the sale made by Rogelio is not premised on
proof of respondent's financial contribution in the purchase of the
subject property. Actual contribution is not relevant in determining
whether a piece of property is community property for the law itself
defines what constitutes community property.
Article 91 of the Family Code thus provides:
Art. 91. Unless otherwise provided in this Chapter or in the marriage
settlements, the community property shall consist of all the property
owned by the spouses at the time of the celebration of the marriage or
acquired thereafter.
The only exceptions from the above rule are: (1) those excluded from
the absolute community by the Family Code; and (2) those excluded by
the marriage settlement.
10
Under the first exception are properties enumerated in Article 92 of
the Family Code, which states:
Art. 92. The following shall be excluded from the community property:
(1) Property acquired during the marriage by gratuitous title by either
spouse, and the fruits as well as the income thereof, if any, unless it is
expressly provided by the donor, testator or grantor that they shall form
part of the community property;
(2) Property for personal and exclusive use of either spouse; however,
jewelry shall form part of the community property;
(3) Property acquired before the marriage by either spouse who has
legitimate descendants by a former marriage, and the fruits as well as
the income, if any, of such property.
As held in Quiao v. Quiao:34
When a couple enters into a regime of absolute community, the
husband and the wife becomes joint owners of all the properties of the
marriage. Whatever property each spouse brings into the marriage,
and those acquired during the marriage (except those excluded under
Article 92 of the Family Code) form the common mass of the couple's
properties. And when the couple's marriage or community is dissolved,
that common mass is divided between the spouses, or their respective
heirs, equally or in the proportion the parties have established,
irrespective of the value each one may have originally owned.
Since the subject property does not fall under any of the exclusions
provided in Article 92, it therefore forms part of the absolute community
property of Shirley and Rogelio. Regardless of their respective
contribution to its acquisition before their marriage, and despite the fact
that only Rogelio's name appears in the TCT as owner, the property is
owned jointly by the spouses Shirley and Rogelio.
Respondent and Rogelio were married on September 1, 1990. Rogelio,
on his own and without the consent of herein respondent as his
spouse, sold the subject property via a Deed of Absolute Sale dated
December 29, 1992 - or during the subsistence of a valid contract of
marriage. Under Article 96 of Executive Order No. 209, otherwise
known as The Family Code of the Philippines, the said disposition of a
communal property is void, viz.:
Art. 96. The administration and enjoyment of the community property
shall belong to both spouses jointly. In case of disagreement, the
husband's decision shall prevail, subject to recourse to the court by the
wife for a proper remedy, which must be availed of within five years
from the date of the contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to
participate in the administration of the common properties, the other
spouse may assume sole powers of administration. These powers do
not include the powers of disposition or encumbrance without the
authority of the court or the written consent of the other spouse.
In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be
construed as a continuing offer on the part of the consenting spouse
and the third person, and may be perfected as a binding contract upon
the acceptance by the other spouse or authorization by the court
before the offer is withdrawn by either or both offerors. 35
It is clear under the foregoing provision of the Family Code that Rogelio
could not sell the subject property without the written consent of
respondent or the authority of the court. Without such consent or
authority, the entire sale is void. As correctly explained by the appellate
court:
In the instant case, defendant Rogelio sold the entire subject property
to defendant-appellant Josefina on 29 December 1992 or during the
existence of Rogelio's marriage to plaintiff-appellee Shirley, without the
consent of the latter. The subject property forms part of Rogelio and
Shirley's absolute community of property. Thus, the trial court erred in
declaring the deed of sale null and void only insofar as the 55.05
square meters representing the one-half (1/2) portion of plaintiff-
appellee Shirley. In absolute community of property, if the husband,
without knowledge and consent of the wife, sells (their) property, such
sale is void. The consent of both the husband Rogelio and the wife
Shirley is required and the absence of the consent of one renders the
entire sale null and void including the portion of the subject property
pertaining to defendant Rogelio who contracted the sale with
defendant-appellant Josefina. Since the Deed of Absolute Sale x x x
entered into by and between defendant-appellant Josefina and
defendant Rogelio dated 29 December 1992, during the subsisting
marriage between plaintiff-appellee Shirley and Rogelio, was without
the written consent of Shirley, the said Deed of Absolute Sale is void in
its entirety. Hence, the trial court erred in declaring the said Deed of
Absolute Sale as void only insofar as the 1/2 portion pertaining to the
share of Shirley is concerned.36
Finally, consistent with our ruling that Rogelio solely entered into the
contract of sale with petitioner and acknowledged receiving the entire
consideration of the contract under the Deed of Absolute Sale, Shirley
could not be held accountable to petitioner for the reimbursement of
her payment for the purchase of the subject property. Under Article 94
of the Family Code, the absolute community of property shall only be
"liable for x x x [d]ebts and obligations contracted by either spouse
without the consent of the other to the extent that the family may have
been benefited x x x." As correctly stated by the appellate court, there
being no evidence on record that the amount received by Rogelio
redounded to the benefit of the family, respondent cannot be made to
reimburse any amount to petitioner.37
WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed Decision and Resolution of the Court of Appeals dated May
14, 2010 and July 21, 2010, respectively, in CA-G.R. CV No. 70235
are AFFIRMED.
Costs against petitioner.
SO ORDERED.
CUSI VS. DOMINGO
SPOUSES ALFONSO AND MARIA ANGELES CUSI, Petitioners,
vs.
LILIA V. DOMINGO, Respondent.
x-----------------------x
G.R. No. 195871
RAMONA LIZA L. DE VERA, Petitioner,
vs
LILIA V. DOMINGO AND SPOUSES RADELIA AND ALFRED
SY, Respondents.
DECISION
BERSAMIN, J.:
Under the Torrens system of land registration, the registered owner of
realty cannot be deprived of her property through fraud, unless a
transferee acquires the property as an innocent purchaser for value. A
transferee who acquires the property covered by a reissued owner's
copy of the certificate of title without taking the ordinary precautions of
honest persons in doing business and examining the records of the
proper Registry of Deeds, or who fails to pay the full market value of
the property is not considered an innocent purchaser for value.
Under review in these consolidated appeals is the Decision
promulgated on July 16, 2010,1 whereby the Court of Appeals (CA) in
CA-G.R. CV No. 90452 affirmed the revised decision rendered on
March 1, 2007 by the Regional Trial Court in Quezon City (RTC)
against the petitioners and their seller.2
Antecedents
The property in dispute was a vacant unfenced lot situated in White
Plains, Quezon City and covered by Transfer Certificate of Title (TCT)
11
No. N-165606 issued in the name of respondent Lilia V. Domingo by
the Registry of Deeds of Quezon City. It had an area of 658 square
meters.3 In July 1999, Domingo learned that construction activities
were being undertaken on her property without her consent. She soon
unearthed the series of anomalous transactions affecting her property.
On July 18, 1997, one Radelia Sy (Sy),4 representing herself as the
owner of the property, petitioned the RTC for the issuance of a new
owner’s copy of Domingo’s TCT No. N-165606, appending to her
petition a deed of absolute sale dated July 14, 1997 purportedly
executed in her favor by Domingo;5 and an affidavit of loss dated July
17, 1997,6 whereby she claimed that her bag containing the owner’s
copy of TCT No. N-165606 had been snatched from her on July 13,
1997 while she was at the SM City in North EDSA, Quezon City. The
RTC granted Sy’s petition on August 26, 1997.7 The Registry of Deeds
of Quezon City then issued a new owner’s duplicate copy of TCT No.
N-165606, which was later cancelled by virtue of the deed of absolute
sale dated July 14, 1997, and in its stead the Registry of Deeds of
Quezon City issued TCT No. 186142 in Sy’s name.8
Sy subsequently subdivided the property into two, and sold each half
by way of contract to sell to Spouses Edgardo and Ramona Liza De
Vera and to Spouses Alfonso and Maria Angeles Cusi. The existence
of the individual contracts to sell was annotated on the dorsal portion of
Sy’s TCT No. 186142 as Entry No. PE-8907/N-186142,9stating that the
consideration of the sale was ₱1,000,000.00 for each set of buyers, or
for a total of ₱2,000,000.00 for the entire property that had an actual
worth of not less than ₱14,000,000.00. TCT No. 186142 in the name of
Sy was then cancelled by virtue of the deeds of sale executed between
Sy and Spouses De Vera, and between Sy and Spouses Cusi, to
whom were respectively issued TCT No. 18956810 and TCT No.
189569.11 All the while, the transactions between Sy and the De Veras,
and between Sy and the Cusis were unknown to Domingo, whose TCT
No. N-165606 remained in her undisturbed possession.12
It turned out that the construction activities taking place on the property
that Domingo learned about were upon the initiative of the De Veras in
the exercise of their dominical and possessory rights.
Domingo commenced this action against Sy and her spouse, the De
Veras and the Cusis in the RTC, the complaint being docketed as Civil
Case No. Q-99-39312 and entitled Lilia V. Domingo v. Spouses
Radelia and Alfred Sy, Spouses Alfonso G. and Maria Angeles S. Cusi,
Spouses Edgardo M. and Ramona Liza L. De Vera, BPI Family
Savings Bank and The Register of Deeds of Quezon City, seeking the
annulment or cancellation of titles, injunction and damages. Domingo
applied for the issuance of a writ of preliminary prohibitory and
mandatory injunction, and a temporary restraining order (TRO).13 The
RTC granted Domingo’s application for the TRO enjoining the
defendants from proceeding with the construction activities on the
property. The RTC later granted her application for the writ of
preliminary injunction.
Ruling of the RTC
On September 30, 2003, the RTC rendered a decision,14 disposing:
WHEREFORE, in view of all the foregoing judgment is hereby
rendered:
(a) declaring the sale between Lilia V. Domingo and Radella
Sy void and of (sic) effect;
(b) declaring the Sps. Edgardo and Ramona Liza De Vera
and Sps. Alfonso and Maria Angeles Cusi to be purchasers
in good faith and for value;
(c) lifting the writ of preliminary injunction;
(d) finding defendant Radella Sy liable to the plaintiff Lilia
Domingo liable (sic) for damages, as follows:
1. Fourteen Million Pesos (₱14,000,000.00)
representing the value of the property covered by
TCT No. 165606 plus legal rate of interest until
fully paid;
2. One Million Pesos (₱1,000,000.00) representing
moral damages;
3. Five Hundred Thousand Pesos (₱500,000.00)
representing exemplary damages;
4. Five Hundred Thousand Pesos (₱500,000.00)
representing attorney’s fees;
5. Two Hundred Thousand Pesos (₱200,000.00)
representing litigation expenses; and
6. Costs of Suit.
IT IS SO ORDERED.
Acting on the motions for reconsideration separately filed by Sy and
Domingo,15 the RTC reconsidered and set aside its September 30,
2003 decision, and allowed the presentation of rebuttal and sur-rebuttal
evidence.
On March 1, 2007, the RTC rendered a new decision,16 ruling:
WHEREFORE, in view of the foregoing, Judgment is hereby rendered:
(a) Declaring the sale between Lilia Domingo and Radelia Sy
void and of no effect;
(b) Declaring the Sps. Edgardo and Ramona Liza De Vera
and Sps. Alfonso and Maria Angeles Cusi not purchasers in
good faith and for value;
(c) TCT Nos. 189568 and 189569 are hereby cancelled and
declared Null and Void Ab Initio;
(d) Directing the Register of Deeds of Quezon City to
annotate this Order on TCT No. 189568 and 189569;
(e) TCT No. 165606 in the name of Lilia Domingo is hereby
revalidated; and,
(f) Finding defendant Radelia Sy liable to the plaintiff Lilia V.
Domingo liable (sic) for damages, as follows:
1. One Million Pesos (₱1,000,000.00) representing
moral damages;
2. Five Hundred Thousand Pesos (₱500,000.00)
representing exemplary damages;
3. Five Hundred Thousand Pesos (₱500,000.00)
representing attorney’s fees;
4. Two Hundred Thousand Pesos (₱200,000.00)
representing litigation expenses; and,
5. Costs of suit.
This Decision is without prejudice to whatever civil action for recovery
and damages, the defendants Sps. De Vera and Sps. Cusi may have
against defendant Spouses Radelia and Alfred Sy.
SO ORDERED.
Ruling of the CA
On appeal, the assignment of errors each set of appellants made was
as follows:
Spouses Cusi
12
 a) THE REGIONAL TRIAL COURT GRAVELY ERRED IN
FINDING THAT DEFENDANTS SPOUSES ALFONSO AND
MARIA ANGELES CUSI ARE NOT PURCHASERS IN
GOOD FAITH AND FOR VALUE.
b) THE REGIONAL TRIAL COURT GRAVELY ERRED IN
FAILING TO RESOLVE THE ISSUE OF WHETHER OR
NOT CODEFENDANTS SPOUSES RADELIA SY AND
ALFRED SY ARE LIABLE FOR SPOUSES CUSI’S CROSS-
CLAIM.
c) THE REGIONAL TRIAL COURT ERRED IN FAILING TO
AWARD DAMAGES AND ATTORNEY’S FEES TO
DEFENDANTS SPOUSES CUSI.17
Spouses Sy
a) THE TRIAL COURT A QUO ERRED IN HOLDING THAT
THE SALE BETWEEN LILIA DOMINGO AND RADELIA SY
VOID AND OF NO EFFECT AND WAS PROCURRED (sic)
THROUGH FRAUDULENT MEANS.
b) THAT THE HONORABLE COURT ERRED IN
AWARDING ACTUAL MORAL DAMAGES, EXEMPLARY
DAMAGES AND ATTORNEY’S FEES AND LITIGATION
EXPENSES THE SAME BEING NULL AND VOID FOR
BEING CONTRARY TO LAW.
c) THAT THE SAID DECISION IS CONTRARY TO LAW
AND JURISPRUDENCE AND IS NOT SUPPORTED BY
EVIDENCE, AS THE SAME CONTAIN SERIOUS
REVERSIBLE ERRORS WHEN THE COURT A QUO
DECLARED THAT TCT NOS. 189568 AND 189569
CANCELLED AND DECLARED NULL AND VOID AB
INITIO.
d) THE INSTANT ASSAILED DECISION OF THE
HONORABLE COURT HAVE (sic) DEPRIVED
DEFENDANT[S] SPOUSES SY OF THEIR BASIC
CONSTITUTIONAL RIGHT TO DUE PROCESS OF LAW.18
Spouses De Vera
a) THE LOWER COURT ERRED IN HOLDING THAT THE
DE VERA SPOUSES ARE NOT PURCHASERS IN GOOD
FAITH AND NOT ENTITLED TO THE POSSESSION OF
THE PROPERTY COVERED BY TCT NO. N-189568.
b) THE LOWER COURT ALSO ERRED IN NOT
AWARDING DEFENDANT-APPELLANT DE VERA HER
COUNTERCLAIMS AGAINST PLAINTIFF-APPELLEE.19
As stated, the CA promulgated its decision on July 16, 2010, affirming
the RTC with modification of the damages to be paid by the Sys to
Domingo, viz:
WHEREFORE, premises considered, the instant appeal
is denied. Accordingly, the Decision dated March 1, 2007 of the
Regional Trial Court is hereby AFFIRMED with the modification on the
award of damages to be paid by defendants-appellants Spouses
Radelia and Alfred Sy in favor of the plaintiff-appellee Lilia V. Domingo,
to wit;
1. ₱500,000.00 by way of moral damages;
2. ₱200,000.00 by way of exemplary damages;
3. ₱100,000.00 as attorney’s fees and litigation expenses.
SO ORDERED.20
The CA held that the sale of the property from Domingo to Sy was null
and void and conveyed no title to the latter for being effected by forging
the signature of Domingo; that Sy thereby acquired no right in the
property that she could convey to the Cusis and De Veras as her
buyers; that although acknowledging that a purchaser could rely on
what appeared on the face of the certificate of title, the Cusis and De
Veras did not have the status of purchasers in good faith and for value
by reason of their being aware of Sy’s TCT No. 186142 being a
reconstituted owner’s copy, thereby requiring them to conduct an
inquiry or investigation into the status of the title of Sy in the property,
and not simply rely on the face of Sy’s TCT No. 186142; and that the
Cusis and De Veras were also aware of other facts that should further
put them on guard, particularly the several nearly simultaneous
transactions respecting the property, and the undervaluation of the
purchase price from ₱7,000,000.00/half to only ₱1,000,000.00/half to
enable Sy to pay a lesser capital gains tax.
The CA later on denied the motions for reconsideration.21
Issues
Hence, this appeal via petitions for review on certiorari by the Cusis
(G.R. No. 195825) and Ramona Liza L. De Vera22 (G.R. No. 195871).
In G.R. No. 195825, the Cusis submit the following issues: 23
I
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN FINDING THAT TRANSFER
CERTIFICATE OF TITLE NO. 186142 REGISTERED IN
THE NAME OF RADELIA SY IS A RECONSTITUTED
TITLE.
II
WHETHER OR NOT THE PETITIONERS ARE BUYERS IN
GOOD FAITH AND FOR VALUE.
III
GRANTING, WITHOUT ADMITTING, THAT THE DECISION
OF THE HONORABLE COURT OF APPEALS IS CORRECT
WITH RESPECT TO THE SECOND ISSUE, WHETHER OR
NOT PETITIONERS ARE ENTITLED TO
REIMBURSEMENT OF ALL THE PAYMENTS MADE BY
PETITIONERS TO THEIR CODEFENDANTS SPOUSES
ALFRED AND RADELIA SY IN ADDITION TO DAMAGES
AND ATTORNEY’S FEES.
In G.R. No. 195871, De Vera asserts that the primordial issue is
whether or not she was an innocent purchaser for value and in good
faith.
Ruling of the Court
The petitions for review are bereft of merit.
Firstly, now beyond dispute is the nullity of the transfer of Domingo’s
property to Sy because both lower courts united in so finding. The
unanimity in findings of both the RTC and the CA on this all-important
aspect of the case is now conclusive on the Court in view of their
consistency thereon as well as by reason of such findings being fully
supported by preponderant evidence. We consider to be significant
that the Sys no longer came to the Court for further review, thereby
rendering the judgment of the CA on the issue of nullity final and
immutable as to them.
Secondly, the Cusis and De Vera commonly contend that the CA
gravely erred in not considering them to be purchasers in good faith
and for value. They argue that Sy’s TCT No. 186142 was free of any
liens or encumbrances that could have excited their suspicion; and that
they nonetheless even went beyond the task of examining the face of
Sy’s TCT No. 186142, recounting every single detail of their quest to
ascertain the validity of Sy’s title, but did not find anything by which to
doubt her title.
13
The Court concurs with the finding by the CA that the Cusis and De
Vera were not purchasers for value and in good faith. The records
simply do not support their common contention in that respect.
Under the Torrens system of land registration,24 the State is required to
maintain a register of landholdings that guarantees indefeasible title to
those included in the register. The system has been instituted to
combat the problems of uncertainty, complexity and cost associated
with old title systems that depended upon proof of an unbroken chain
of title back to a good root of title. The State issues an official certificate
of title to attest to the fact that the person named is the owner of the
property described therein, subject to such liens and encumbrances as
thereon noted or what the law warrants or reserves. 25
One of the guiding tenets underlying the Torrens system is the curtain
principle, in that one does not need to go behind the certificate of title
because it contains all the information about the title of its holder. This
principle dispenses with the need of proving ownership by long
complicated documents kept by the registered owner, which may be
necessary under a private conveyancing system, and assures that all
the necessary information regarding ownership is on the certificate of
title. Consequently, the avowed objective of the Torrens system is to
obviate possible conflicts of title by giving the public the right to rely
upon the face of the Torrens certificate and, as a rule, to dispense with
the necessity of inquiring further; on the part of the registered owner,
the system gives him complete peace of mind that he would be
secured in his ownership as long as he has not voluntarily disposed of
any right over the covered land.26
The Philippines adopted the Torrens system through Act No.
496,27 also known as the Land Registration Act, which was approved
on November 6, 1902 and took effect on February 1, 1903. In this
jurisdiction, therefore, "a person dealing in registered land has the right
to rely on the Torrens certificate of title and to dispense with the need
of inquiring further, except when the party has actual knowledge of
facts and circumstances that would impel a reasonably cautious man
to make such inquiry".28
To obtain a grasp of whether a person has actual knowledge of facts
and circumstances that would impel a reasonably cautious man to
make such inquiry, an internal matter, necessitates an analysis of
evidence of a person’s conduct.29 That renders the determination of
intent as a factual issue,30 something that the Court does not normally
involve itself in because of its not being a trier of facts. Indeed, as a
rule, the review function of the Court is limited to a review of the law
involved.
But the Court now delves into the facts relating to the issue of
innocence of the petitioners in their purchase of the property,
considering that the RTC, through its original decision, at first regarded
them to have been innocent purchasers who were not aware of any
flaw or defect in Sy’s title based on the fact that the property had been
unfenced and vacant. The RTC also regarded the petitioners’ making
of reasonable verifications as their exercise of the due diligence
required of an ordinary buyer.31 The RTC later completely turned
around through another decision, however, and it was such decision
that the CA affirmed subject to the modifications of the damages
granted to Domingo.
There is no question that the petitioners exerted some effort as buyers
to determine whether the property did rightfully belong to Sy. For one,
they did not find any encumbrance, like a notice of lis pendens, being
annotated on the TCT of Sy. Nonetheless, their observance of a
certain degree of diligence within the context of the principles
underlying the Torrens system
was not their only barometer under the law and jurisprudence by which
to gauge the validity of their acquisition of title. As the purchasers of
the property, they also came under the clear obligation to purchase the
property not only in good faith but also for value.
Therein lay the problem. The petitioners were shown to have been
deficient in their vigilance as buyers of the property. It was not enough
for them to show that the property was unfenced and vacant;
otherwise, it would be too easy for any registered owner to lose her
property, including its possession, through illegal occupation. Nor was
it safe for them to simply rely on the face of Sy’s TCT No. 186142 in
view of the fact that they were aware that her TCT was derived from a
duplicate owner’s copy reissued by virtue of the loss of the original
duplicate owner’s copy. That circumstance should have already alerted
them to the need to inquire beyond the face of Sy’s TCT No. 186142.
There were other circumstances, like the almost simultaneous
transactions affecting the property within a short span of time, as well
as the gross undervaluation of the property in the deeds of sale,
ostensibly at the behest of Sy to minimize her liabilities for the capital
gains tax, that also excited suspicion, and required them to be extra-
cautious in dealing with Sy on the property.
To the Court, the CA’s treatment of Sy’s TCT No. 186142 as similar to
a reconstituted copy of a Torrens certificate of title was not
unwarranted. In doing so, the CA cited the ruling in Barstowe
Philippines Corporation v. Republic,32where the Court, quoting from
precedents, opined that "the nature of a reconstituted Transfer
Certificate of Title of registered land is similar to that of a second
Owner’s Duplicate Transfer Certificate of Title," in that "both are
issued, after the proper proceedings, on the representation of the
registered owner that the original of the said TCT or the original of the
Owner’s Duplicate TCT, respectively, was lost and could not be located
or found despite diligent efforts exerted for that purpose;"33 and that
both were "subsequent copies of the originals thereof," a fact that a
"cursory examination of these subsequent copies would show" and
"put on notice of such fact [anyone dealing with such copies who is]
thus warned to be extracareful."34
Verily, the Court has treated a reissued duplicate owner’s copy of a
TCT as merely a reconstituted certificate of title. In Garcia v. Court of
Appeals,35 a case with striking similarities to this one, an impostor
succeeded in tricking a court of law into granting his petition for the
issuance of a duplicate owner’s copy of the supposedly lost TCT. The
impostor then had the TCT cancelled by presenting a purported deed
of sale between him and the registered owners, both of whom had
already been dead for some time, and another TCT was then issued in
the impostor’s own name. This issuance in the impostor’s own name
was followed by the issuance of yet another TCT in favor of a third
party, supposedly the buyer of the impostor. In turn, the impostor’s
transferee (already the registered owner in his own name) mortgaged
the property to Spouses Miguel and Adela Lazaro, who then caused
the annotation of the mortgage on the TCT. All the while,
the original duplicate owner’s copy of the TCT remained in the hands
of an heir of the deceased registered owners with his co-heirs’
knowledge and consent.
The inevitable litigation ensued, and ultimately ended up with the
Court.1âwphi1 The Lazaros, as the mortgagees, claimed good faith,
and urged the Court to find in their favor. But the Court rebuffed their
urging, holding instead that they did not deal on the property in good
faith because: (a) "the title of the property mortgaged to the Lazaros
was a second owner’s duplicate TCT, which is, in effect a reconstituted
title. This circumstance should have alerted them to make the
necessary investigation, but they did not;" and (b) their argument, that
"because the TCT of the property on which their mortgage lien was
annotated did not contain the annotation: "Reconstituted title," the
treatment of the reissued duplicate owner’s copy of the TCT as akin to
a reconstituted title did not apply, had no merit considering that: "The
nature of a reconstituted Transfer Certificate of Title of registered land
is similar to that of a second Owner's Duplicate Transfer Certificate of
Title. Both are issued, after the proper proceedings, on the
representation of the registered owner that the original of the said TCT
or the original of the Owner's Duplicate TCT, respectively, was lost and
could not be located or found despite diligent efforts exerted for that
purpose. Both, therefore, are subsequent copies of the originals
thereof. A cursory examination of these subsequent copies would show
that they are not the originals. Anyone dealing with such copies are put
on notice of such fact and thus warned to be extra-careful. This
warning the mortgagees Lazaros did not heed, or they just ignored it."36
The fraud committed in Garcia paralleled the fraud committed
here.1âwphi1 The registered owner of the property was Domingo, who
remained in the custody of her TCT all along; the impostor was Sy,
who succeeded in obtaining a duplicate owner’s copy; and the Cusis
14
and the De Veras were similarly situated as the Spouses Lazaro, the
mortgagees in Garcia. The Cusis and the De Veras did not investigate
beyond the face of Sy’s TCT No. 186142, despite the certificate
derived from the reissued duplicate owner’s copy being akin to a
reconstituted TCT. Thereby, they denied themselves the innocence
and good faith they supposedly clothed themselves with when they
dealt with Sy on the property.
The records also show that the forged deed of sale from Domingo to
Sy appeared to be executed on July 14, 1997; that the affidavit of loss
by which Sy would later on support her petition for the issuance of the
duplicate owner’s copy of Domingo’s TCT No. 165606 was executed
on July 17, 1997, the very same day in which Sy registered the affidavit
of loss in the Registry of Deeds of Quezon City; that Sy filed the
petition for the issuance of the duplicate owner’s copy of Domingo’s
TCT No. 165606; that the RTC granted her petition on August 26,
1997; and that on October 31, 1997, a real estate mortgage was
executed in favor of one Emma Turingan, with the mortgage being
annotated on TCT No. 165606 on November 10, 1997.
Being the buyers of the registered realty, the Cusis and the De Veras
were aware of the aforementioned several almost simultaneous
transactions affecting the property. Their awareness, if it was not
actual, was at least presumed, and ought to have put them on their
guard, for, as the CA pointed out, the RTC observed that "[t]hese
almost simultaneous transactions, particularly the date of the alleged
loss of the TCT No. 165606 and the purported Deed of Sale, suffice[d]
to arouse suspicion on [the part of] any person dealing with the subject
property."37 Simple prudence would then have impelled them as honest
persons to make deeper inquiries to clear the suspiciousness haunting
Sy’s title. But they still went on with their respective purchase of the
property without making the deeper inquiries. In that regard, they were
not acting in good faith.
Another circumstance indicating that the Cusis and the De Veras were
not innocent purchasers for value was the gross undervaluation of the
property in the deeds of sale at the measly price of ₱1,000,000.00 for
each half when the true market value was then in the aggregate of at
least ₱14,000,000.00 for the entire property. Even if the undervaluation
was to accommodate the request of Sy to enable her to minimize her
liabilities for the capital gains tax, their acquiescence to the fraud
perpetrated against the Government, no less, still rendered them as
parties to the wrongdoing. They were not any less guilty at all. In the
ultimate analysis, their supposed passivity respecting the arrangement
to perpetrate the fraud was not even plausible, because they knew as
the buyers that they were not personally liable for the capital gains
taxes and thus had nothing to gain by their acquiescence. There was
simply no acceptable reason for them to have acquiesced to the fraud,
or for them not to have rightfully insisted on the declaration of the full
value of the realty in their deeds of sale. By letting their respective
deeds of sale reflect the grossly inadequate price, they should suffer
the consequences, including the inference of their bad faith in
transacting the sales in their favor.
De Vera particularly insists that she and her late husband did not have
any hand in the undervaluation; and that Sy, having prepared the deed
of sale, should alone be held responsible for the undervaluation that
had inured only to her benefit as the seller. However, such insistence
was rendered of no consequence herein by the fact that neither she
nor her late husband had seen fit to rectify the undervaluation. It is
notable that the De Veras were contracting parties who appeared to
have transacted with full freedom from undue influence from Sy or
anyone else.
Although the petitioners argue that the actual consideration of the sale
was nearly ₱7,000,000.00 for each half of the property, the Court
rejects their argument as devoid of factual basis, for they did not
adduce evidence of the actual payment of that amount to Sy.
Accordingly, the recitals of the deeds of sale were controlling on the
consideration of the sales.
Good faith is the honest intention to abstain from taking
unconscientious advantage of another. It means the "freedom from
knowledge and circumstances which ought to put a person on
inquiry."38
Given this notion of good faith, therefore, a purchaser in good faith is
one who buys the property of another without notice that some other
person has a right to, or interest in, such property and pays full and fair
price for the same.38As an examination of the records shows, the
petitioners were not innocent purchasers in good faith and for value.
Their failure to investigate Sy's title despite the nearly simultaneous
transactions on the property that ought to have put them on inquiry
manifested their awareness of the flaw in Sy's title. That they did not
also appear to have paid the full price for their share of the property
evinced their not having paid true value.39
Resultantly, the Court affirms the lower courts, and restores to
Domingo her rights of dominion over the propetiy.
WHEREFORE, the Court AFFIRMS the decision of the Court of
Appeals promulgated on July 16, 201 0; and ORDERS the petitioners
to pay the costs of suit.
SO ORDERED
SABERON VS. VENTANILLA
RAUL SABERON, JOAN F. SABERON and JACQUELINE
SABERON, Petitioners,
vs.
OSCAR VENTANILLA, JR., and CARMEN GLORIA D.
VENTANILLA, Respondents.
RESOLUTION
MENDOZA, J.:
For resolution of the Court is a motion for reconsideration of the Court's
January 19, 2011 Resolution1 which denied the petition of Raul F.
Saberon, Jr., Joan F. Saberon and Jacqueline F. Saberon (Saberons).
In effect, it affirmed the March 12, 2010 Decision2 and the June 18,
2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No.
85520, holding that the June 21, 2005 Decision of the Regional Trial
Court, Branch 80, Quezon City (RTC) in Civil Case No. 96-26486, was
correct in, among others, ordering the cancellation of Transfer
Certificate of Title (TCT) Nos. 55396 and 55397 in the name of the
Saberons and Samuel Marquez (Marquez).
This case is an offshoot of two (2) cases involving the same property,
docketed as G.R. No. 82978 and G.R. No. 107282, which had been
decided by the Court with finality on November 22, 1990 and March 16,
1994, respectively.
Antecedent Facts
In the earlier cases, Manila Remnant Co., Inc. (MRCI) was the
petitioner, being the owner of several parcels of land situated in
Quezon City, constituting the subdivision known as Capitol Homes
Subdivision Nos. I and II. On July 25, 1972, MRCI entered into a
contract with A.U. Valencia & Co. Inc. (AUVC) entitled "Confirmation of
Land Development and Sales Contract," whereby for a consideration,
including sales commission and management fee, the latter was to
develop the aforesaid subdivision with authority to manage the sales
thereof; execute contracts to sell to lot buyers; and issue official
receipts. At that time, the president of AUVC, was Artemio U. Valencia
(Valencia).
On March 3, 1970, MRCI and AUVC executed two (2) contracts to sell
covering Lots 1 and 2 of Block 17, in favor of Oscar C. Ventanilla, Jr.
and Carmen Gloria D. Ventanilla (Ventanillas), for the combined
contract price of ₱66,571.00 payable monthly for ten (10) years. The
Ventanillas paid the down payment as stipulated in the two (2)
contracts.
On March 13, 1970, Valencia, holding out himself as president of
MRCI, and without the knowledge of the Ventanillas, resold the same
property to Carlos Crisostomo (Crisostomo), without any consideration.
Valencia transmitted the fictitious contract with Crisostomo to MRCI
while he kept the contracts to sell with the Ventanillas in his private
office files. All the amounts paid by the latter were deposited in
15
Valencia’s bank account and remitted to MRCI as payments of
Crisostomo. The Ventanillas continued to pay the monthly
installment.
Thereafter, MRCI terminated its business relationship with AUVC on
account of irregularities discovered in its collection and remittances.
Consequently, Valencia was removed as president by the Board of
Directors of MRCI. He then stopped transmitting the Ventanillas’
monthly installments which at that time, already amounted to
₱17,925.40 for Lot 1 and ₱18,141.95 for Lot 2 (appearing in MRCI’s
records as credited under the name of Crisostomo).
On June 8, 1973, AUVC sued MRCI to impugn the abrogation of their
agency agreement before the Court of First Instance, Branch 19,
Manila (CFI Manila), which eventually ordered all lot buyers to deposit
their monthly amortizations with the court. On July 17, 1973, AUVC
informed the Ventanillas that it was still authorized by the trial court to
collect the monthly amortizations and requested them to continue
remitting their payment, with the assurance that said payments would
be deposited later in court.
For AUVC’s failure to forward its collections to the trial court as
ordered, MRCI caused the publication of a notice cancelling the
contracts to sell of some lot buyers including those of Crisostomo in
whose name the payments of the Ventanillas had been credited.
It was not until March 1978 when the Ventanillas discovered Valencia’s
deception. Believing that they had already remitted the total amount of
₱73,122.35 for the two lots, the Ventanillas offered to pay the balance
to MRCI. To their shock, their names as lot buyers did not appear in
MRCI’s records. Instead, MRCI showed them a copy of the contract to
sell signed by Valencia, in favor of Crisostomo. MRCI refused the
Ventanillas’ offer to pay for the remainder of the contract price.
Aggrieved, the Ventanillas commenced an action for specific
performance, annulment of deeds and damages against MRCI, AUVC,
and Crisostomo with the Court of First Instance, Branch 17-B, Quezon
City (CFI Quezon City) docketed as Civil Case No. 26411, where
Crisostomo was declared in default for his failure to file an answer.
On November 17, 1980, the CFI Quezon City rendered a decision
declaring the contracts to sell in favor of the Ventanillas as valid and
subsisting, and annulling the contract to sell in favor of Crisostomo. It
ordered the MRCI to execute an absolute deed of sale in favor of the
Ventanillas, free from all liens and encumbrances. Damages and
attorney's fees in the total amount of ₱210,000.00 were also awarded
to the Ventanillas for which the MRCI, AUVC, and Crisostomo were
held solidarily liable. The CFI Quezon City ruled further that if for any
reason the transfer of the lots could not be effected, MRCI, AUVC and
Crisostomo would be solidarily liable to the Ventanillas for the
reimbursement of the sum of ₱73,122.35, representing the amount
they paid for the two (2) lots, and the legal interest thereon from March
1970, plus the decreed damages and attorney's fees. Valencia was
also held liable to MRCI for moral and exemplary damages and
attorney's fees.
On separate appeals filed by AUVC and MRCI, the CA sustained the
CFI Quezon City’s decision in toto.
The 1990 Case
MRCI then filed before this Court a petition for certiorari docketed as
G.R. No. 82978, to review the decision of the CA upholding the
solidary liability of MRCI, AUVC and Crisostomo for the payment of
moral and exemplary damages and attorney's fees to the Ventanillas.
On November 22, 1990, this Court affirmed the decision of the CA and
declared the judgment of the CFI Quezon City immediately executory.
Encouraged by the seeming triumph of their cause, the Ventanillas
moved for the issuance of a writ of execution in Civil Case No. 26411.
The writ was issued on May 3, 1991, and served upon MRCI on May 9,
1991. A notice of levy was annotated in the titles of MRCI on May 31,
1991.
In a manifestation and motion, however, MRCI alleged that the subject
properties could not longer be delivered to the Ventanillas because
they had already been sold to Samuel Marquez (Marquez) on February
7, 1990, while its petition was pending before this Court. Nevertheless,
MRCI offered to reimburse the amount paid by the Ventanillas,
including legal interest plus damages. MRCI also prayed that its tender
of payment be accepted and that all garnishments on their accounts
lifted.
The Ventanillas accepted the amount of ₱210,000.00 as damages and
attorney’s fees but rejected the reimbursement offered by MRCI in lieu
of the execution of the absolute deed of sale. They contended that the
alleged sale to Marquez was void, fraudulent, and in contempt of court
and that no claim of ownership over the properties in question had ever
been made by Marquez.
On July 19, 1991, the CFI Quezon City ordered that the garnishment
made by the Sheriff upon the bank account of MRCI could be lifted
only upon the deposit to the Court of the amount of ₱500,000.00 in
cash.
MRCI then moved for reconsideration praying that it be ordered to
reimburse the Ventanillas in the amount of ₱263,074.10 and that the
garnishment of its bank deposit be lifted. This plea was denied twice by
the trial court prompting MRCI to file another petition for certiorari with
the CA, which ruled that the contract to sell in favor of Marquez did not
constitute a legal impediment to the immediate execution of the
judgment. Furthermore, it held that the cash bond fixed by the trial
court for the lifting of the garnishment was fair and reasonable because
the value of the lot in question had considerably increased.
The 1994 Case
From the CA, the case was elevated to this Court as G.R. No. 107282
where MRCI argued that the sale of the properties to Marquez was
valid because at the time of the sale, the issue of the validity of the sale
to the Ventanillas had not yet been resolved. Further, there was no
specific injunction against it re-selling the property. As a buyer in good
faith, Marquez had a right to rely on the recitals in the certificate of title.
The subject matter of the controversy having been passed to an
innocent purchaser for value, the execution of the absolute deed of
sale in favor of the Ventanillas could not be ordered by the trial court.
The Ventanillas countered that the validity of the sale to them had
already been established even while the previous petition was still
awaiting resolution. The petition only questioned the solidary liability of
MRCI to the Ventanillas. Hence, the portion of the decision ordering
MRCI to execute an absolute deed of sale in their favor had already
become final and executory when MRCI failed to appeal it to the Court.
Thus, an order enjoining MRCI from reselling the property in litigation
was unnecessary. Besides, the unusual lack of interest, on the part of
Marquez, to protect and assert his right over the disputed property
was, to the Ventanillas, a clear indication that the alleged sale to him
was merely a ploy of MRCI to evade the execution of the absolute
deed of sale in their favor.
On March 16, 1994, the Court settled the controversy in this wise:
The validity of the contract to sell in favor of the Ventanilla spouses is
not disputed by the parties. Even in the previous petition, the
recognition of that contract was not assigned as error of either the trial
court or appellate court. The fact that the MRCI did not question the
legality of the award for damages to the Ventanillas also shows that it
even then already acknowledged the validity of the contract to sell in
favor of the private respondents.
On top of all this, there are other circumstances that cast suspicion on
the validity, not to say the very existence, of the contract with Marquez.
First, the contract to sell in favor of Marquez was entered into after the
lapse of almost ten years from the rendition of the judgment of the trial
court upholding the sale to the Ventanillas.
Second, the petitioner did not invoke the contract with Marquez during
the hearing on the motion for the issuance of the writ of execution filed
16
by the private respondents. It disclosed the contract only after the writ
of execution had been served upon it.
Third, in its manifestation and motion dated December 21, 1990, the
petitioner said it was ready to deliver the titles to the Ventanillas
provided that their counterclaims against private respondents were
paid or offset first. There was no mention of the contract to sell with
Marquez on February 7, 1990.
Fourth, Marquez has not intervened in any of these proceedings to
assert and protect his rights to the subject property as an alleged
purchaser in good faith.
At any rate, even if it be assumed that the contract to sell in favor of
Marquez is valid, it cannot prevail over the final and executory
judgment ordering MRCI to execute an absolute deed of sale in favor
of the Ventanillas. No less importantly, the records do not show that
Marquez has already paid the supposed balance amounting to
₱616,000.00 of the original price of over ₱800,000.00. (Emphasis
supplied)
As it turned out, the execution of the judgment in favor of the
Ventanillas was yet far from fruition. Samuel Cleofe, Register of Deeds
for Quezon City (ROD Cleofe) revealed to them, that on March 11,
1992, MRCI registered a deed of absolute sale to Marquez who
eventually sold the same property to the Saberons, which conveyance
was registered in July 1992. ROD Cleofe opined that a judicial order for
the cancellation of the titles in the name of the Saberons was essential
before he complied with the writ of execution in Civil Case No. 26411.
Apparently, the notice of levy, through inadvertence, was not carried
over to the title issued to Marquez, the same being a junior
encumbrance which was entered after the contract to sell to Marquez
had already been annotated.
Civil Case No. Q-96-26486
Once again, the Ventanillas were constrained to go to court to seek the
annulment of the deed of sale executed between MRCI and Marquez
as well as the deed of sale between Marquez and the Saberons, as the
fruits of void conveyances. The case was docketed as Civil Case No.
Q-96-26486 with the Regional Trial Court, Branch 80, Quezon City
(RTC).
During the trial, all the defendants, including Edgar Krohn Jr. (Krohn)
as President of MRCI, and Bede Tabalingcos (Tabalingcos) as its legal
counsel, filed their respective answers, except Marquez who was
declared in default.
On June 21, 2005, the RTC rendered its decision, the dispositive
portion of which reads:
Wherefore, premises considered, judgment is hereby rendered in
favour of plaintiffs, the spouses Oscar and Carmen Ventanilla, and
against defendants MRCI, Krohn, Tabalingcos, Marquez and Saberon,
as follows:
(1) Declaring the Transfer Certificated of Title Nos. 55396
and 55397 in the name of Samuel Marquez, and Transfer
Certificates of Title Nos. 63140 and 63141 in the names of
Raul, Jr., Joan and Jacqueline Saberon as null and void;
(2) Ordering defendant MRCI to receive payment of the
balance of the purchase price to be paid by the plaintiffs and
to execute a Deed of Absolute Sale in favour of the plaintiffs,
and in case of failure thereof, ordering plaintiffs to consign
the amount with this Court;
(3) Ordering the Register of Deeds to cancel the titles in the
name of Marquez and the Saberons, and to issue new
certificates of title in the name of the spouses Ventanillas
upon registration of the Deed of Absolute Sale in favour of
the plaintiffs or proof of their consignment;
(4) Ordering defendant MRCI, Krohn, Tabalingcos and
Marquez to pay plaintiffs, jointly and severally, the sums of:
a. ₱100,000.00, as moral damages; and
b. ₱50,000.00, as attorney’s fees.
(5) Ordering defendant MRCI, Krohn, Tabalingcos and
Marquez to pay defendants Saberon, jointly and severally,
the sum of ₱7,118,155.88 representing the value of the
properties in dispute and the value of the improvements
introduced by defendants Saberon; and
(6) Ordering the defendants to pay the costs of the suit.
Defendants’ counterclaims are hereby dismissed for lack of merit.
Separate appeals were instituted by MRCI and Tabalingcos, on one
hand, and the Saberons, on the other. The former contended that no
fraudulent act could be attributed to them for the sale of the property to
the title of Marquez, considering that ROD Cleofe was the one who
inadvertently omitted the carrying over of the notice of levy to Marquez
who consequently secured a clean title to the lot. MRCI Tabalingcos
further claimed that the sale to Marquez was effected while the
previous case was still pending, at a time when they had every liberty
to believe in the legality of their position.
Meanwhile, the Saberons relied on one central argument—that they
were purchasers in good faith, having relied on the correctness of the
certificates of title covering the lots in question; and therefore, holders
of a valid and indefeasible title.
In the assailed decision, the CA made its conclusion hinged on the
following findings:
When MRCI executed a Contract to Sell in favor of Marquez in
February 1990, it was in the throes of an appeal from the Decision in
Civil Case No. 26411 where its very first Contracts to Sell to the
Ventanillas were upheld over those of Crisostomo. The Marquez
Contract to Sell was in fact the third in a row, and registered a year
later, on May 21, 1991, appears as the first recorded entry in MRCI’s
titles. The notice of levy in Civil Case No. 26411 came ten days later,
on May 31, 1991. Then, in February 1992, MRCI executed a deed of
absolute sale to Marquez and when the new titles were issued in
Marquez’ name, the notice of levy was not carried over. A few months
later, these titles were cancelled by virtue of a deed of sale to the
Saberons and, on the same day, TCT 63140 and 63141 were issued
clean to them.
According to the CA, the arguments espoused by MRCI and
Tabalingcos were untenable. The said parties were found guilty of bad
faith for selling the lots to Marquez at a time when litigation as to the
validity of the first sale to the Ventanillas was still pending. In other
words, MRCI was sufficiently aware of the Court decision confirming its
failure to supervise and control the affairs of its authorized agent,
AUVC, which led to the explicit pronouncement that the first sale to the
Ventanillas was valid. This should have served as a warning to MRCI
that it could no longer deal with the property in deference to the Court’s
ruling and affirmation of the trial court’s order to execute the deed of
sale in favor of the Ventanillas. Obviously, MRCI took no heed of this
caveat. The titles had been transferred yet again to the Saberons, who
claimed to be purchasers in good faith. Unfortunately, there was an
exception to the general rule. The CA cited AFP Mutual Benefit
Association Inc. v. Santiago,4 where the Court ruled that with respect to
involuntary liens, an entry of a notice of levy and attachment in the
primary entry or day book of the Registry of Deeds was considered as
sufficient notice to all persons that the land was already subject to
attachment. Resultantly, attachment was duly perfected and bound the
land.
The Present Petition
Aggrieved by this CA ruling, the Saberons filed the present petition.
They claimed that in 1992, a certain Tiks Bautista offered the lots to
Raul Saberon, who, after being given photocopies of the titles to the
land, inquired with the Registry of Deeds for Quezon City (ROD-QC) to
verify the authenticity of the same. He found no encumbrances or
annotations on the said titles, other than restrictions for construction
17
and negotiation. As agreed upon, he paid Marquez the amount of Two
Million One Hundred Thousand Pesos (₱2,100,000.00) as purchase
price for the lots. Upon payment of the real property taxes, a
certification was issued by the Office of the City Treasurer for the
purpose of transferring the title over the property.
Thereafter, Marquez executed the Deed of Absolute Sale in favor of
the Saberons. The ROD-QC then issued TCT Nos. 63140 and 63141
in their names.
Unknown to the Saberons, the former owner of the properties had
entered into contracts to sell with the Ventanillas, way back in 1970. It
was only upon receipt of the summons in the case filed by the
Ventanillas with the RTC that they learned of the present controversy.
With the RTC and the CA rulings against their title over the properties,
the Saberons now come to the Court with their vehement insistence
that they were purchasers in good faith and for value. Before
purchasing the lots, they exercised due diligence and found no
encumbrance or annotations on the titles. At the same time, the
Ventanillas also failed to rebut the presumption of their good faith as
there was no showing that they confederated with MRCI and its officers
to deprive the Ventanillas of their right over the subject properties.
According to the Saberons, the CA likewise erred in ruling that there
was no constructive notice of the levy made upon the subject lands.
They claimed that the appellate court could not solely rely on AFP
Mutual Benefit Association Inc. v. Santiago.5 Instead, they urged the
Court to interpret
Sections 52 and 42 of Presidential Decree (P.D.) No. 1529 which cover
the effects of registration and the manner thereof; and to examine
Section 54 which shows that, in addition to the filing of the instrument
creating, transferring or claiming interest in registered land less than
ownership, a brief memorandum of such shall be made by the Register
of Deeds on the certificate of title and signed by him. Hence, the ruling
in AFP, that an entry of a notice of levy and attachment in the primary
entry or day book of the Registry of Deeds was sufficient notice to all
persons that the land was already subject to such attachment, would
be rendered as a superfluity in light of the mandatory character of the
said provision.
The Saberons further pointed that the claim of the Ventanillas over the
subject properties never ripened into ownership as they failed to
consign the balance on the purchase price stipulated on the contracts
to sell, thus preventing the obligatory force of the contract from taking
effect.
On October 4, 2010, the Court required the Ventanillas to file their
comment to the petition.6 On January 19, 2011, the Court resolved to
deny the Saberons’ petition for failure to sufficiently show any
reversible error in the assailed judgment by the CA.7 In its June 15,
2011 Resolution,8 the Court required the Ventanillas to comment on
the motion for reconsideration filed by the Saberons.
Resolution of the Court
At first glance, it would seem that the case involves convoluted issues
brought about by the number of times the Ventanillas were impelled by
circumstances to seek judicial action. Nonetheless, the antecedents
would readily reveal that the essential facts are not disputed: 1) that
the subject properties have indeed been the objects of various
transfers effected by MRCI leading to the current controversy between
the Saberons and the Ventanillas; and 2) that prior to the sale to the
Saberons, a notice of levy as an encumbrance was already in
existence.
Sections 51 and 52 of P.D. No. 1529 explain the purpose and effects of
registering both voluntary and involuntary instruments, to wit:
Section 51. Conveyance and other dealings by registered owner. An
owner of registered land may convey, mortgage, lease, charge or
otherwise deal with the same in accordance with existing laws. He may
use such forms of deeds, mortgages, leases or other voluntary
instruments as are sufficient in law. 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 Register of Deeds to make registration.
The act of registration shall be the operative act to convey or affect the
land insofar as third persons are concerned, and in all cases under this
Decree, the registration shall be made in the office of the Register of
Deeds for the province or city where the land lies.
Section 52. Constructive notice upon registration. Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry
affecting registered land shall, if registered, filed or entered in the office
of the Register of Deeds for the province or city where the land to
which it relates lies, be constructive notice to all persons from the time
of such registering, filing or entering.
These provisions encapsulate the rule that documents, like the
certificates of title do not effect a conveyance of or encumbrances on a
parcel of land. Registration is the operative act that conveys ownership
or affects the land insofar as third persons are concerned. By virtue of
registration, a constructive notice to the whole world of such voluntary
or involuntary instrument or court writ or processes, is thereby created.
The question of utmost relevance to this case, then, is this: whether or
not the registration of the notice of levy had produced constructive
notice that would bind third persons despite the failure of the ROD-QC
to annotate the same in the certificates of title?
In answering these questions, the Court is beckoned to rule on two
conflicting rights over the subject properties: the right of the Ventanillas
to acquire the title to the registered land from the moment of inscription
of the notice of levy on the day book (or entry book), on one hand; and
the right of the Saberons to rely on what appears on the certificate of
title for purposes of voluntary dealings with the same parcel of land, on
the other.
The Saberons maintain that they had no notice of any defect,
irregularity or encumbrance in the titles of the property they purchased.
In its decision, however, the RTC pointed out that their suspicion
should have been aroused by the circumstance that Marquez, who was
not engaged in the buy-and-sell business and had the property for only
a few months, would offer the same for sale. Although the RTC found
that the Saberons may not be considered as innocent purchasers for
value because of this circumstance, it, nonetheless, ruled that they,
who might well be unwilling victims of the fraudulent scheme employed
by MRCI and Marquez, were entitled to actual and compensatory
damages.
To this latter finding, the Court agrees. The Saberons could not be said
to have authored the entanglement they found themselves in. No fault
can be attributed to them for relying on the face of the title presented
by Marquez. This is bolstered by the fact that the RTC decision shows
no categorical finding that the Saberons’ purchase of the lots from
Marquez was tainted with bad faith. That the Saberons should have
harbored doubts against Marquez is too high a standard to impose on
a buyer of titled land. This is in consonance to the rule that the one
who deals with property registered under the Torrens system is
charged with notice only of such burdens and claims as are annotated
on the title.9 "All persons dealing with property covered by Torrens
certificate of title are not required to explore further than what the
Torrens title upon its face indicates in quest for any hidden defect or
inchoate right that may subsequently defeat his right thereto."10 These
rules remain as essential features of the Torrens system. The present
case does not entail a modification or overturning of these principles.
Be that as it may, no fault can likewise be imputed to the Ventanillas.
In ultimately ruling for the Ventanillas, the courts a quo focused on the
superiority of their notice of levy and the constructive notice against the
whole world which it had produced and which effectively bound third
persons including the Saberons.
It has already been established in the two previous cases decided by
the Court that the contracts to sell executed in favor of the Ventanillas
18
are valid and subsisting. Clearly, it has been acknowledged, even by
MRCI, as can be seen in the latter’s own choice to only question their
solidary liability in the 1990 case and its failure to assign the same as
an error in the 1994 case. In the same vein, the issue on Marquez’s
title had already been passed upon and settled in the 1994 case. That
he purchased the lots prior to the annotation of the notice of levy in
MRCI’s title was of no moment. In fact, the Court explicitly declared
that MRCI’s transaction with Marquez "cannot prevail over the final and
executory judgment ordering MRCI to execute an absolute deed of
sale in favor of the Ventanillas."
These favorable findings prompted the Ventanillas to register the
notice of levy on the properties. The records show that on the strength
of a final and executory decision by the Court, they successfully
obtained a writ of execution from the RTC and a notice of levy was
then entered, albeit on the primary entry book only. The contract to sell
to Marquez was registered on May 21, 1991, while the notice of levy
was issued ten (10) days later, or on May 31, 1991. In February 1992,
MRCI executed the Deed of Sale with Marquez, under whose name
the clean titles, sans the notice of levy, were issued. A year later, or on
March 11, 1992, MRCI registered the deed of sale to Marquez who
later sold the same property to the Saberons.
This complex situation could have been avoided if it were not for the
failure of ROD Cleofe to carry over the notice of levy to Marquez’s title,
serving as a senior encumbrance that might have dissuaded the
Saberons from purchasing the properties.
The Court agrees with the position of the RTC in rejecting ROD
Cleofe’s theory.
Distinctions between a contract to sell and a contract of sale are well-
established in urisprudence.1âwphi1 In a contract of sale, the title to
the property passes to the vendee upon the delivery of the thing sold;
in a contract to sell, ownership is, by agreement, reserved in the
vendor and is not to pass to the vendee until full payment of the
purchase price. Otherwise stated, in a contract of sale, the vendor
loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; whereas, in a contract to
sell, title is retained by the vendor until full payment of the price. In the
latter contract, payment of the price is a positive suspensive condition,
failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. 11
It is undeniable, therefore, that no title was transferred to Marquez
upon the annotation of the contract to sell on MRCI’s title. As correctly
found by the trial court, the contract to sell cannot be substituted by the
Deed of Absolute Sale as a "mere conclusion" of the previous contract
since the owners of the properties under the two instruments are
different.12
Considering that the deed of sale in favor of Marquez was of later
registration, the notice of levy should have been carried over to the title
as a senior encumbrance.
Corollary to this is the rule that a levy of a judgment debtor creates a
lien, which nothing can subsequently destroy except the very
dissolution of the attachment of the levy itself.13 Prior registration of the
lien creates a preference, since the act of registration is the operative
act to convey and affect the land.14 Jurisprudence dictates that the said
lien continues until the debt is paid, or the sale is had under an
execution issued on the judgment or until the judgment is satisfied, or
the attachment is discharged or vacated in the same manner provided
by law. Under no law, not even P.D. No. 1529, is it stated that an
attachment shall be discharged upon sale of the property other than
under execution.15
Additionally, Section 59 of P.D. No. 1529 provides that, "[i]f, at the time
of the transfer, subsisting encumbrances or annotations appear in the
registration book, they shall be carried over and stated in the new
certificate or certificates, except so far as they may be simultaneously
released or discharged." This provision undoubtedly speaks of the
ministerial duty on the part of the Register of Deeds to carry over
existing encumbrances to the certificates of title.
From the foregoing, ROD Cleofe’s theory that a deed of sale, as a
mere conclusion of a contract to sell, turns into a senior encumbrance
which may surpass a notice of levy, has no leg to stand on. It was, in
fact, properly rejected by the courts a quo. Verily, the controversy at
hand arose not from the Ventanillas’ fault, but from ROD Cleofe’s
misplaced understanding of his duty under the law.
Surely, the Ventanillas had every right to presume that the Register of
Deeds would carry over the notice of levy to subsequent titles covering
the subject properties. The notice was registered precisely to bind the
properties and to serve as caution to third persons who might
potentially deal with the property under the custody of the law. In DBP
v. Acting Register of Deeds of Nueva Ecija,16 the Court ruled that entry
alone produced the effect of registration, whether the transaction
entered was a voluntary or involuntary one, so long as the registrant
had complied with all that was required of him for purposes of entry
and annotation, and nothing more remained to be done but a duty
incumbent solely on the Register of Deeds.
While the Court is not unmindful that a buyer is charged with notice
only of such burdens and claims as are annotated on the title, the RTC
and the CA are both correct in applying the rule as to the effects of
involuntary registration. In cases of voluntary registration of
documents, an innocent purchaser for value of registered land
becomes the registered owner, and, in contemplation of law the holder
of a certificate of title, the moment he presents and files a duly
notarized and valid deed of sale and the same is entered in the day
book and at the same time he surrenders or presents the owner's
duplicate certificate of title covering the land sold and pays the
registration fees, because what remains to be done lies not within his
power to perform. The Register of Deeds is duty bound to perform
it.17 In cases of involuntary registration, an entry thereof in the day
book is a sufficient notice to all persons even if the owner's duplicate
certificate of title is not presented to the register of deeds. Therefore, in
the registration of an attachment, levy upon execution, notice of lis
pendens, and the like, the entry thereof in the day book is a sufficient
notice to all persons of such adverse claim. 18
This rule was reiterated in the more recent case of Armed Forces and
Police Mutual Benefit Association, Inc., v. Santiago,19 as relied upon by
the CA. In AFP, the Notice of Levy was presented for registration in the
Registry of Deeds of Pasig City. The Notice was entered in the Primary
Entry Book, but was not annotated on the TCT because the original
copy of the said title on file in the Registry of Deeds was not available
at that time. Six (6) days after the presentation of the Notice of Levy,
the Deed of Absolute Sale involving the same parcel of land was
presented for registration and likewise entered. The deed of sale was
examined by the same employee who examined the notice of levy, but
she failed to notice that the title subject of the sale was the same title
which was the subject of the notice of levy earlier presented. Unaware
of the previous presentation of the notice of levy, the Register of Deeds
issued a certificate of title in the name of the vendee on the basis of the
deed of sale. The Register of Deeds in AFP immediately requested the
vendee to surrender the documents in light of the mistake discovered
so that he could take appropriate rectification or correction. Settling the
issue on whether the notice of levy could be annotated in the certificate
of title, the Court ruled in the affirmative on the ground that the
preference created by the levy on attachment was not diminished by
the subsequent registration of the prior sale. Superiority and
preference in rights were given to the registration of the levy on
attachment; although the notice of attachment had not been noted on
the certificate of title, its notation in the book of entry of the Register of
Deeds produced all the effects which the law gave to its registration or
inscription, to wit:
…Under the rule of notice, it is presumed that the purchaser has
examined every instrument of record affecting the title. Such
presumption is irrebuttable. He is charged with notice of every fact
shown by the record and is presumed to know every fact shown by the
record and to know every fact which an examination of the record
would have disclosed. This presumption cannot be overcome by proof
of innocence or good faith. Otherwise, the very purpose and object of
the law requiring a record would be destroyed. Such presumption
cannot be defeated by proof of want of knowledge of what the record
contains any more than one may be permitted to show that he was
19
ignorant of the provisions of the law. The rule that all persons must
take notice of the facts which the public record contains is a rule of law.
The rule must be absolute; any variation would lead to endless
confusion and useless litigation. For these reasons, a declaration from
the court that respondent was in bad faith is not necessary in order that
the notice of levy on attachment may be annotated on TCT No. PT-
94912.
The fact that the notice of levy on attachment was not annotated on the
original title on file in the Registry of Deeds, which resulted in its non-
annotation on the title TCT No. PT-94912, should not prejudice
petitioner. As long as the requisites required by law in order to effect
attachment are complied with and the appropriate fees duly paid,
attachment is duly perfected. The attachment already binds the land.
This is because what remains to be done lies not within the petitioner’s
power to perform but is a duty incumbent solely on the Register of
Deeds. (Emphasis supplied)
In the case at bench, the notice of levy covering the subject property
was annotated in the entry book of the ROD QC prior to the issuance
of a TCT in the name of the Saberons. Clearly, the Ventanillas’ levy
was placed on record prior to the sale. This shows the superiority and
preference in rights of the Ventanillas over the property as against the
Saberons. In AFP, the Court upheld the registration of the levy on
attachment in the primary entry book as a senior encumbrance despite
the mistake of the ROD, the Court must, a fortiori, sustain the notice of
levy registered by the Ventanillas notwithstanding the nonfeasance of
ROD Cleofe. Again, the prevailing rule is that there is effective
registration once the registrant has fulfilled all that is needed of him for
purposes of entry and annotation, so that what is left to be
accomplished lies solely on the Register of Deeds.20
Suffice it to say, no bad faith can be ascribed to the parties alike.
Nevertheless, the equal footing of the parties necessarily tilts in favor
of the superiority of the Ventanillas’ notice of levy, as discussed.
The Court also sees no reason to dwell in the contention that the rights
or interests of the Ventanillas in the subject properties never ripened
into ownership. It bears stressing that the previous decisions discussed
herein already sealed the validity of the contract to sell issued to the
Ventanillas decades ago. As found by the RTC, it was MRCI’s
obstinate refusal to accept their tender of payment, not to mention the
devious transfer of the property, which caused the decade-long delay
of the execution of the deed of sale in their favor. This is a finding that
the Court, which is not a trier of facts, will have to respect.
In the same vein, the attribution of laches against the Ventanillas is
flawed. Their failure to learn about the structures being built on the
subject lands and the payment of real property taxes by the Saberons
is not sufficient justification to withhold the declaration of their
ownership over it. Against a different factual milieu, laches may be said
to have set it but not so in this case. While the Ventanillas may have
been unaware that improvements were being erected over the lots, this
obliviousness can, by no means, be treated as a lack of vigilance on
their part. It bears stressing that the Ventanillas are now of advanced
age and retired as university professors. Considering the length of
litigation which they had to endure in order to assert their right over the
property which they have painstakingly paid for decades ago, to hold
now that they have been remiss in the protection of their rights would
be the height of impropriety, if not injustice. To exact from them an
obligation to visit the land in litigation every so often, lest they be held
to have slept on their rights, is iniquitous and unreasonable. All told,
the Ventanillas remain as innocent victims of deception.
The Court deems it significant to note that the amount of
₱7,118,115.88 awarded to the Saberons by the RTC is to be satisfied
by MRCI, Krohn, Tabalingcos, and Marquez, who have not been
impleaded as parties to the present petition, thus, rendering the said
award final and executory. The said amount, however, is separate and
distinct from those provided under Article 44821 in relation to Article
54622 of the Civil Code. In the petition, the Saberons invoked the said
provisions, claiming that they are entitled to reimbursement of all the
expenses incurred in the introduction of improvements on the subject
lands amounting to ₱23,058,822.79.
The Court finds the Saberons to be builders in good faith.
No less than the court a quo observed that "no actual evidence that the
Saberons connived with the MRCI and Marquez to have the titles
registered in their names to the prejudice of the (Ventanillas)" and that
what was obvious was that "the Saberons dealt with clean certificates
of titles." Also quite telling on this point is the finding that MRCI, Krohn,
Tabalingcos, and Marquez are liable to the Saberons. The RTC
reasoned out in the following wise:
This Court is not convinced, however that defendants Saberon took
part in the fraudulent scheme employed by the other defendants
against the plaintiffs. Although they may not be considered as innocent
purchasers for value shown in the discussion above, this Court is not
ready to conclude that the Saberons joined the other defendants in
their efforts to frustrate plaintiffs’ rights over the disputed properties. On
the contrary, they may be considered victims of the same fraudulent
employed by defendants MRCI and Marquez, and thus can rightfully
claim damages from the same.23
Consequently, Article 448 in relation to Article 546 of the Civil Code will
apply.1âwphi1 The provisions respectively read:
Article 448. The owner of the land on which anything has been built,
sow or planted in good faith, shall have the right to appropriate, as his
own the works, sowing, or planting, after payment of the indemnity
provided for in Article 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the
proper rent. However, the builder or planter cannot be obliged to buy
the land and if its value is considerably more than that of the building or
trees. In such case, he shall pay reasonable rent, if the owner of the
land does not choose to appropriate the building or trees after proper
indemnity. The parties shall agree upon the terms of the lease and in
case disagreement, the court shall fix the terms thereof.
Article 546. Necessary expenses shall be refunded to every possessor;
but only the possessor in good faith may retain the thing until he has
been reimbursed therefore.
Useful expenses shall be refunded only to the possessor in good faith
with the same right of retention, the person who has defeated him in
the possession having the option of refunding the amount of the
expenses or of paying the increase in value which the thing may have
acquired by reason thereof.
Thus, the two options available to the Ventanillas: 1) they may exercise
the right to appropriate after payment of indemnity representing the
value of the improvements introduced and the necessary and useful
expenses defrayed on the subject lots; or 2) they may forego payment
of the said indemnity and instead, oblige the Saberons to pay the price
of the land.
Should the Ventanillas elect to appropriate the improvements, the trial
court is ordered to determine the value of the improvements and the
necessary and useful expenses after hearing and reception of
evidence. Should the Ventanillas, however, pursue the option to oblige
the Saberons to pay the "price of the land," the trial court is ordered to
determine said price to be paid to the V entanillas.
WHEREFORE, the Motion for Reconsideration is PARTIALLY
GRANTED. The appealed March 12, 2010 Decision and the June 18,
2010 Resolution of the Court of Appeals in CA-G.R. CV No. 85520 are
AFFIRMED with modification in that the Ventanillas are given a period
of sixty ( 60) days from finality of this Resolution to decide whether to
pay the Saberons the value of the improvements and the necessary
and useful expenses defrayed on the 2 lots or to oblige the Saberons
to pay them the "price" of said lots. Depending on the option exercised
by the Ventanillas, the case is hereby remanded to the court of origin
for further proceedings as to the determination of reimbursement due
to the petitioners or of the "price" of the subject lots due to the
Ventanillas.
SO ORDERED.
BPI VS. SANCHEZ
20

BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
VICENTE VICTOR C. SANCHEZ, HEIRS OF KENNETH NEREO
SANCHEZ, represented by FELISA GARCIA YAP, and HEIRS OF
IMELDA C. VDA. DE SANCHEZ, represented by VICENTE VICTOR
C. SANCHEZ,Respondents.
x-----------------------x
G.R. No. 179835
GENEROSO TULAGAN, HEIRS OF ARTURO MARQUEZ,
represented by ROMMEL MARQUEZ, and VARIED TRADERS
CONCEPT, INC., represented by its President and General
Manager, ANTHONY QUINA, Petitioners,
vs.
VICENTE VICTOR C. SANCHEZ, HEIRS OF KENNETH NEREO
SANCHEZ, represented by FELISA GARCIA YAP, and HEIRS OF
IMELDA C. VDA. DE SANCHEZ, represented by VICENTE VICTOR
C. SANCHEZ, JESUS V. GARCIA, and TRANSAMERICAN SALES &
EXPOSITION, INC., Respondents.
x-----------------------x
G.R. No. 179954
REYNALDO V. MANIWANG, Petitioner,
vs.
VICENTE VICTOR C. SANCHEZ and FELISA GARCIA
YAP, Respondents.
DECISION
VELASCO, JR., J.:
The Case
These are consolidated Petitions for Review on Certiorari under Rule
45 of the Rules of Court assailing the November 6, 2006 Decision1 and
August 31, 2007 Resolution of the Court of Appeals in CA-G.R. No.
83236 entitled Vicente Victor C. Sanchez, Heirs of Kenneth Nereo
Sanchez represented by Felisa Garcia Yap, and Heirs of Imelda C.
Vda. de Sanchez represented by Vicente Victor C. Sanchez v. Jesus V
Garcia and TransAmerican Sales and Exposition, Inc. The assailed
Decision affirmed with modification the Decision dated July 14, 2004 of
the Regional Trial Court, Branch 89 in Quezon City, in Civil Case No.
Q-90-4690.
The Facts
The facts of the case are as follows:
Vicente Victor C. Sanchez (Vicente), Kenneth Nereo Sanchez and
Imelda C. V da. De Sanchez owned a parcel of land located at No. 10
Panay A venue, Quezon City consisting of 900 square meters. The
property was registered under Transfer Certificate of Title No. (TCT)
156254 of the Registry of Deeds of Quezon City (the Subject
Property).2
On October 10, 1988, Jesus V. Garcia (Garcia), doing business under
the name TransAmerican Sales and Exposition, Inc. (TSEI), wrote a
letter3 to Vicente offering to buy the Subject Property for One Million
Eight Hundred Thousand Pesos (₱1,800,000) under the following
terms and conditions:
Following are my basic terms and conditions in buying the
abovementioned property:
1. ₱50,000.00 - Reservation/earnest money to be paid upon
execution of reservation agreement
2. ₱1,750,000.00 - To be paid to seller as soon as all
pertinent sales documents, including a Deed of Absolute
Sale are prepared and executed in my favor.
3. As per standard practice, the capital gain [sic] tax,
documentary stamps, brokers commission of 5% and Deed
of Sale documents shall be in the account of the Seller.
4. Registration expenses and transfer tax shall be my
obligations [sic].4
The offer was good for only seven (7) days. The period elapsed with
the parties failing to come to an agreement.
Sometime in the third week of October 1988, Felisa Yap (Yap), the
widow of Kenneth Nereo Sanchez, and Garcia had a meeting at the
Quezon City Sports Club wherein the parties agreed to the sale of the
subject property under the following terms and conditions:
1.7.1. Garcia shall buy the property for ₱1.850 million
payable in cash immediately after the occupants thereof
shall have vacated the property.
1.7.2. Garcia shall immediately pay (the) amount of
₱50,000.00 creditable against the total purchase.
1.7.3. Garcia shall take care of all documentation necessary
for the transfer of the title in his favor, including the
reconstitution of the original title x x x and the extra judicial
settlement of the property, considering that, as stated, the
title is still registered in the names of plaintiff Sanchez, the
late Kenneth Nereo Sanchez and the lateImelda C. Vda. De
Sanchez. For this purpose, the original owner’s copy of
Transfer Certificate of Title, the copy of the application for
the reconstitution of title of the property, and copies of
receipts of real estate taxes were to be entrusted to
defendant Garcia;
1.7.4. Garcia shall cause the demolition of the old house
standing on the property and shall sell the scrap materials
thereof for not less than ₱50,000.00. All proceeds to be
realized on account of said demolition shall be turned over to
the [Sanchezes].5
Pursuant to this agreement, Yap turned over to Garcia the original
owner’s copy of TCT 156254, the copy of the filed Application for
Restitution of Title to the property, and copies of all receipts for the
payment of real estate taxes on the property,while Garcia paid Yap
50,000 as earnest money.6
Afterwards, Yap required the occupants of the subject property to
vacate the same. Immediately after it was vacated, Garcia, without
Yap’s knowledge and consent, took possession of the lot and installed
his own caretaker thereon with strict instructions not to allow anyone to
enter the property. Yap later learned that Garcia had also demolished
the house on the property and advertised the construction and sale of
"Trans American Townhouse V" thereon. The foregoing developments
notwithstanding and despite numerous demands, Garcia failed to pay
the balance of the purchase price as agreed upon.7
Then, on December 5, 1988, Yap was informed that the checks
representing the purchase price of the subject property were ready but
that Vicente must pick up his checks personally. On December 8,
1988, Vicente came to Manila from Laguna and proceeded to Garcia’s
office to get the checks. However, out of the six (6) checks that were
presented to them, four (4) of them were post-dated, further delaying
their overdue payment.8 In order to properly document such check
payments, the parties executed an Agreement dated December 8,
1988,9 paragraphs 3 to 8 of which relevantly provide:
3. That the total consideration of sale of the rights, interest,
participation and title of the First (Yap) and Second (Vicente) Parties of
the aforestated parcel of land to the Third Party (Garcia) shall be One
Million Eight Hundred Fifty Thousand Pesos (₱1,850,000.00),
Philippine Currency, payable in check, as follows:
21
 a) RBC Check No. 290258 to be drawn in favor of
Felisa G. Yap and dated December 8, 1988 for the
sum of ₱250,000.00;
b) RBC Check No. 290257 to be drawn in favor of
Vicente Victor Sanchez and dated December 8,
1988 for the sum of ₱250,000.00;
c) RBC Check No. 290261 to be drawn in favor of
Felisa G. Yap and dated December 14, 1988 for
the sum of ₱250,000.00;
d) RBC Check No. 290260 to be drawn in favor of
Vicente Victor Sanchez and dated December 14,
1988 for the sum of ₱250,000.00;
e) RBC Check No. 290263 to be drawn in favor of
Felisa G. Yap and dated December 22, 1988 for
the sum of ₱400,000.00; and
f) RBC Check No. 290262 to be drawn in favor of
Vicente Victor Sanchez and dated December 22,
1988 for the sum of ₱400,000.00.
4. That the parties hereto agree that once the aforestated checks are
honored by the bank and encashed by the payees thereof, the First
and Second Parties shall execute an EXTRA-JUDICIAL SETTLEMENT
OF ESTATE WITH SALE distributing and dividing among themselves
the aforestated parcelof land and conveying in the said instrument all
their rights, interest, share, title and participation in the said property to
the Third Party for the consideration stated in the preceding paragraph.
5. That once the aforestated EXTRA-JUDICIAL SETTLEMENT OF
ESTATE WITH SALE is executed, the First and Second Parties shall
immediately deliver the said document to the Third Party who, on the
strength of the same, shall reconstitute the burned Title of the
aforesaid Transfer Certificate of Title No. 156254, copy attached, in the
Registry of Deed of Quezon City and thereafter effect the transfer and
registration of the said property inhis name; it being understood
however that all necessary expenses necessary for such reconstitution
of title, transfer and registration, shall beborne by the Third Party while
the inheritance tax, capital gains tax and documentary stamps required
to be paid therefor shall be borne by the First and Second Parties, but
in no case shall it exceed the combined amount of P____________.
6. That it is agreed by the parties hereof that if at any time one of the
aforestated checks is dishonored by the bank, the First and Second
Parties may opt to rescind this contract and that in the event of
rescission, the First and Second Parties shall forfeit the earnest money
of ₱50,000.00 and retain or withhold the amount representing the value
of damage effected by way of demolition by the Third Party on the
property standing and situated on the aforestated parcel of land, which
value shall not exceed the sum of ₱290,000 -- depreciated cost of the
building therein and that whatever then remain as proceeds of the
aforestated checks shall be returned to the Third Party.
7. It is also agreed that after the delivery of the EXTRAJUDICIAL
SETTLEMENT OF ESTATE WITH SALE by the First and Second
Parties after the encashment of the last check, the Third Party shall
also pay the balance of the demolition proceeds in the amount of
₱20,000.00.
8. That after the delivery of the EXTRA-JUDICIAL SETTLEMENT OF
ESTATE WITH SALE to the Third Party, the First and Second Parties
shall, except those stipulated above, then have only the remaining
obligation to deliver to the Third Party any document in their
possession or what they can lawfully and validly execute in accordance
with their rights as aforestated and/or shown in the aforementioned
title.10
Subsequently, the first four (4) checks were deposited with no issue.
However, the last two (2) checks, amounting to ₱400,000 each, were
dishonored for the reason of "DAIF" or drawn against insufficient
funds.11
Thus, Yap wrote a letter dated December 26, 198812 to Garcia
informing him that the two (2) checks were dishonored and asking that
the checks be replaced within five (5) days from receipt of the letter.
Such request was left unheeded.
On January 10, 1989, Yap informed Garcia in a letter13 that she and
Vicente were rescinding the Agreement while demanding the return of
the original owner’s copy of TCT 156254. This prompted Garcia to offer
two (2) manager’s checks in the aggregate amount of ₱300,000 which
Yap flatly refused, reiterating the rescission of their Agreement and
demanding for the return of all documents entrusted to Garcia through
a January 21, 1989 letter.14
However, in a letter dated January 27, 1989,15 Garcia’s counsel, Atty.
Francisco Beato, Jr. (Beato), informed Yap that they (Garcia, Vicente
and Yap) had an agreement that the ₱800,000 balance of the
purchase price was due to be paid by Garciaonly upon Yap and
Vicente’s payment of the realty, inheritance and capital gains taxes due
onthe transfer of the property. Thus, Garcia effectively refused to return
the documents and to vacate the subject property. Yap referred
Beato’s letter to her own counsel, Atty. Julian S. Yap, who wrote back
in a letter dated February 16, 1989, refuting the claim of Garcia that the
₱800,000 was not yet dueand reiterating their decision to rescind the
Agreement and demanding that Garcia vacate the property and return
the documents that were surrendered to him by Yap.16
In the meantime, on February 19, 1989, Yap and Vicente discovered
that Garcia posted an advertisement inthe classified ads of the Manila
Bulletin offering to sell units at the Trans American Townhouse V
situated at the subject property.17
Thus, on February 27, 1989, Atty. Yap wrote the Housing and Land
Use Regulatory Board (HLURB) informing the latter of the existing
public advertisement of TSEI offering for sale townhouses illegally
constructed on the subject property and urging the HLURB to cancel
any existing permit or license to sell the said townhouse unitsor to deny
any application therefor.18
On March 17, 1989, the HLURB issued a Cease and Desist
Order19 (CDO) enjoining TSEI and Garcia from further developing and
selling the townhouses. In the said order, Commissioner Amado B.
Celoria of the HLURB certified that respondents Garcia and TSEI have
not been issued any permit by said Board for the townhouse Project on
the subject lot. Respondents Garcia and TSEI were directed to
immediately stop from further developing the project. Additionally, such
cease and desist order as well as warnings to possible buyers of the
townhouses were published with the Philippine Daily Inquirer on April
16, 1989, and with the Manila Bulletin on April 19, 1989.20 On May 5,
1989, the HLURB issued another letter to TSEI reiterating its previous
directive for it to cease and desist from selling the townhouse units. 21 In
compliance, Garcia and TSEI stopped construction of the townhouses
units on March 30, 1989.22
In a delayed response to the CDO, TSEI wrote a letter to the HLURB
alleging that only ground leveling works were being undertaken on the
project. This was rebuffed by the HLURB in a letter dated May 8,
198923 stating that ocular inspections of the project revealed that 2nd
floor construction on the townhouses were already being undertaken.
Thus, the HLURB ordered TSEI to explain in writing why administrative
sanctions should not be meted out against it and reiterating its earlier
cease and desist order. Undeterred, TSEI continued its construction
and selling activities for the townhouses. Thus, the HLURB issued an
Order dated June 1, 198924 fining TSEI in the amount of ₱10,000.
To further protect their interests, Yap and Vicente also inquired from
the City Building Official of Quezon City, whether a building permit had
been issued for the construction on the Subject Property. In a letter
dated March 14, 1989, the office found that the construction on the
subject property was indeed illegal and at its 5% initial
stage.25Additionally, Yap also wrote a letter dated April 3, 198926 to the
Register of Deeds in Quezon City informing it that TCT 156254 was no
longer in their possession and requesting that the office clear the
matter with them first before acting on any transaction pertaining to the
subject property.
22
In the meantime, the HLURB issued another letter dated June 22,
198927 denying TSEI’s proposed compromise penalty of ₱2,500 and
directing TSEI to pay the ₱10,000 fine. And on June 23, 1989, it issued
another letter28 to TSEI refuting the latter’s claim that they were not
selling townhouses by citing advertisements of TransAmerican
Townhouse V units at No. 10, Panay Avenue in the Philippine Daily
Inquirer (PDI) and the Manila Bulletin (MB).
Then, on August 21, 1989, Yap filed a formal complaint29 with the
Office of the City Building Official of Quezon City. The complaint was
set for hearing on August 30, 1989 with an order for Garcia and TSEI
to produce their building permit.30 However, both Garciaand TSEI failed
to attend the said hearing.
Thereafter, on February 15, 1990, Yap and Vicente, in his own behalf
and representing the heirs of Imelda C.Vda. De Sanchez, filed before
the Regional Trial Court (RTC) in Quezon City, Branch 89 a Complaint
dated February 14, 199031 for the rescission of contract, restitution and
damages with prayer for TRO/preliminary injunction against TSEI and
Garcia, docketed as Civil Case No. Q-90-4690.
Meanwhile, Garcia managed to cause the cancellation of TCT 156254
and its replacement with TCT 383697 in the name of TSEI.32 TCT
383697, however, bore the date of issuance as June 9, 1988,way
before the parties agreed on the sale sometimein October 1988.
Garcia apparently used TCT 383697 to entice several buyers tobuy the
townhouse units being constructed by TSEI on the subject lot. Claiming
to have bought townhouse units sometime in early 1989, the following
intervened in the instant case: the spouses Jose and Visitacion
Caminas (Caminas), Reynaldo V. Maniwang (Maniwang), Generoso C.
Tulagan (Tulagan), Varied Traders Concept, Inc. (VTCI), and Arturo
Marquez (Marquez).
The records reveal that on January 31, 1989, TSEI sold to Tulagan a
52-square meter portion of TCT 156254 and the townhouse unit that
was going to be built upon it for the amount of ₱800,000 as evidenced
by a Conditional Deed of Sale of even date.33 Later, Tulagan bought
another unit from TSEI this time for ₱600,000 as shown by a Contract
to Sell dated February 21, 1989.34 Then, Maniwang bought a unit from
TSEI for ₱700,000 through an Absolute Deed of Sale dated February
22, 1989.35 Later, Marquez purchased a townhouse unit from TSEI for
₱800,000 in a Contract to Sell dated March 13, 1989.36 Afterwards,
TSEI sold to Caminas a townhouse unit for ₱650,000 through an
Absolute Deed of Sale dated March 21, 1989.37 Thereafter, VTCI
bought three (3) townhouses from TSEI for ₱700,000 each in three (3)
separate Absolute Deeds of Sale all dated October 30, 1989.38 TSEI
left the townhouse units unfinished, leaving these intervenors to finish
their townhouses by themselves.
Notably, except for the Absolute Deeds of Sale executed between
TSEI and VTCI, all the other intervenors’ contracts conveying
townhouses in their favor identified their purchased lots as covered by
TCT 156254 (the title of the Sanchezes). As culled fromthe transcripts,
the intervenors Caminas,39 Maniwang,40 Tulagan,41 and
Marquez42asserted that they were all shown TCT 383697 in the name
of TSEI but nevertheless signed their respective contracts with TSEI
indicating the subject property as covered by TCT 156254.
Subsequently, they all got a photocopy of TCT 383697 and verified the
same with the Registry of Deeds of Quezon City, which confirmed that
the title was clean. Onthe other hand, only the Absolute Deed of Sale
in favor of VTCI, dated October 30, 1987, reflected that the property
sold was covered by TCT 383697.43
Far East Bank and Trust Company (FEBTC) entered into a Loan
Agreement 44 dated May 22, 1989 with TSEIsecured by a Real Estate
Mortgage over TCT 156254.FEBTC later merged with the Bank of the
Philippine Islands (BPI) with the latter as the surviving bank. Garcia
purportedly explained to FEBTC that the parties were still in the
process of transferring the title. Afterwards, Garcia submitted a copy of
TCT 383697 in TSEI’s name. Upon default, FEBTC (now BPI)
foreclosed the subject lot and had the Foreclosure Certificate of Sale
annotated on TCT 383697. The Ruling of the Regional Trial Court
On July 14, 2004, the RTC rendered a Decision in favor of the
Sanchezes as plaintiffs, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Declaring the legality and validity of the Extrajudicial
Rescission effected by the plaintiffs on the Contract to Sell
on the subject property, covered by TCT No. 156254 in their
names;
2. Ordering the defendants and all persons acting on their
behalf to return to the plaintiffs the Owner’s Copy of TCT No.
156254, including all the documents entrusted to them in
consideration of their Contract to Sell;
3. Ordering defendants and all persons, including the
intervenors and all persons claiming rights under them to
return and surrender to the plaintiffs the peaceful possession
of the subject property covered by TCT No. 156254 located
at No. 10 Panay Avenue, Quezon City;
4. Ordering the defendants jointly and severally to pay the
plaintiffs the sum of One Hundred Thousand (₱100,000.00)
Pesos, Philippine Currency as and by way of attorney’s fees;
5. Ordering the defendants jointly and severally to pay the
plaintiffs the sum of Two Hundred Thousand (₱200,000.00)
Pesos, Philippine Currency as and by way of moral
damages;
6. Ordering the defendants jointly and severally to pay the
plaintiffs the sum of Two Hundred Thousand (₱200,000.00)
Pesos, Philippine Currency as and by way ofexemplary
damages to serve as correction or example for the public
good;
7. Ordering the defendants jointly and severally to pay the
plaintiffs the sum of Two Hundred Ninety Thousand
(₱290,000.00) Pesos, representing the depreciated cost of
the plaintiffs’ demolished building per their Agreement
(Exhibit "D");
8. Dismissing defendants’ counterclaim as well as
intervenors’ counterclaims/complaints and answers in
intervention against the plaintiffs;
9. Ordering the plaintiffs to return to the defendants, after
deducting the damages herein awarded, the remaining
amount on the sum paid by the defendants on the subject
property;
10. Dismissing the counterclaim of plaintiffs against all
intervenors;
11. Ordering the defendants to return to intervenors, Jose
and Visitacion Caminas, Reynaldo Maniwang, Generoso
"Gener" Tulagan, and VTCI, and Arturo Marquez, the
following sum to wit:
1. CAMINAS - ₱650,000.00 (Absolute Deed of
Sale dated 14 March 1989);
2. MANIWANG - ₱700,000.00 (Absolute Deed of
Sale dated 22 February 1989);
3. TULAGAN - ₱1.4 Million, representing the
following:
3.1 ₱600,000.00 – (Contract To Sell
dated 21 February 1989);
3.2 ₱800,000.00 – (Conditional Deed of
Sale dated 31 January 1989);
4. VTCI - ₱2.1 Million, representing the following:
23
 4.1 ₱700,000.00 – (Absolute Deed of
Sale dated 30 October 1989 – Lot 1-K);
4.2 ₱700,000.00 – (Absolute Deed of
Sale dated 30 October 1989 – Lot 1-I);
4.3 ₱700,000.00 – (Absolute Deed of
Sale dated 30 October 1989 – Lot 1-F);
5. MARQUEZ - ₱600,000.00 (Contract To Sell
dated 8 March 1989);
6. BPI - Declaring the intervention of the Bank
without merit. respectively, representing the full
and/or partial purchase price of their respective
units, all with six (6) percent interest per annum
counted from the time of their filing of their
intervention of judicial demand, and twelve (12)
percent per annum upon the finality of this
decision.
With costs against defendants.
SO ORDERED.45
The RTC declared that the Sanchezes have the right to rescind the
Agreement they entered into with Garcia and TSEI under proviso no.
646 of the Agreement. In fact, the RTC enunciated that because the
Agreement is in the nature of a contract to sell, the ownership over the
subject property remained with the Sanchezes as the suspensive
condition––that the check payments shall be honored––was not
complied with. Thus, the RTC concluded that there was not even any
need for rescission in this case. Moreover, the RTC found that TSEI
and Garcia were builders in bad faith as the Sanchezes never
consented to the construction of the townhouses. Furthermore, the
presentation by Garcia and TSEI to the intervenors of TCT 383697 in
TSEI’s name sufficiently shows their bad faith. Anent the rights of
intervenors, the RTC found the Sanchezes to have a better right over
the subject property considering that the transactions between
Garcia/TSEI and the intervenors suffered from several irregularities,
which they, the intervenors, in bad faith, ignored.
The Ruling of the Court of Appeals
Upon appeal by the intervenors-appellants, the CA rendered, on
November 6, 2006, the assailed Decision affirming the RTC Decision
with modifications, the decretal portion of which reads: WHEREFORE,
the judgment appealed from is hereby AFFIRMED with
MODIFICATIONS in that (1) the Register of Deeds of Quezon City is
hereby directed to cancel the Transfer Certificate of Title No. 383697 in
the name of Trans American Sales and Exposition, Inc. and to
reinstate Transfer Certificate of Title No. 156254 in the name of the
[sic] Kenneth Nereo Sanchez, Vicente Victor Sanchez and Imelda C.
Vda. de Sanchez in its original status prior to the claim of the
intervenors-appellants; and (2) the plaintiffs and the defendants are
ordered to follow the provisions of Article 448 of the Civil Code of the
Philippines as regards the improvements constructed on the subject
property. The questioned decision is affirmed in all other respects. SO
ORDERED.47
Thus, the CA ordered the cancellation of TCT 383697 in TSEI’s name
and the reinstatement of TCT 156254 in the names of the Sanchezes.
However, the appellate court found the Sanchezes equally inbad faith
with TSEI and Garcia, and gave the Sanchezes the option either to
appropriate the townhouses by paying for them or to oblige TSEI and
Garcia to pay the price of the land, unless the subject lot’s value is
considerably more than that of the structures built thereon in which
case TSEI and Garcia would have to pay the Sanchezes reasonable
rent for the use of the subject property. Hence, these petitions under
Rule 45 separately interposed by the intervenors.
The Issues
In G.R. No. 179518, BPI raises the following issues:
V.
Grounds for this Appeal
A. The Court of Appeals erred in decreeing the rescission of the
Agreement between plaintiffs Sanchez, et al. and defendants TSE and
Garcia.
i. Sanchez, et al. had no intention of rescinding
their Agreement.
ii. Rescission cannot take place because the
property was already acquired by third person who
acted in good faith.
iii. Sanchez, et al. should bear all the losses
arising from their own negligence.
B. The Court of Appeals erred in ordering the annulment of TCT No.
383697 in a collateral action.
C. The Court of Appeals erred in ordering the annulment of TCT No.
383697 notwithstanding that it had no jurisdiction to do so, since such
relief was never prayed for in the complaint.
D. The Court of Appeals erred in decreeing rescission, notwithstanding
that it would result in the unjust enrichment of plaintiffs Sanchez, et al.,
at the expense of BPI.
E. Assuming that Article 448 of the Civil Code is applicable, the Court
of Appeals erred in not ruling that BPI already acquired the rights of
defendants under the said article.48
In G.R. No. 179835, Tulagan, the heirs of Marquez and VTCI raise the
following issue:
Whether or not the herein petitioners, as buyers and possessors of
their respective units that were constructed by respondent Garcia in
the subject property, are entitled, to the same benefit granted to the
latter (who was subsequently declared by the Court of Appeals as a
builder in good faith of the improvements he introduced in the subject
property), under the provision of Article 448 of the Civil Code of the
Philippines.49
While in G.R. No. 179954, Maniwang raises the following issues:
Grounds for the Petition
With all due respect, the Honorable Court of Appeals failed to apply the
pertinent provisions of law and utterly failed to consider prevailing
jurisprudence when it totally disregarded the perfected Contract of Sale
under the nomenclature "Contract to Sell" entered into by respondents
and defendants prior to the "Agreement" entered into by them.
With all due respect, the Honorable Court of Appeals utterly neglected
to apply pertinent provisions of the Civil Code and prevailing
jurisprudence on the matter when it affirmed the trial court’s decision
granting the respondents’ prayer for rescission.
With all due respect, it is respectfully submitted that the Honorable
Court of Appeals erred in not finding that petitioner Reynaldo
Maniwang is an innocent purchaser in good faith, thus resulting in the
total disregard of his rights over the subject property when it applied to
the instant case the provisions of Article 448 of the Civil Code of the
Philippines.50
The essential common issues presented by intervenors-petitioners are:
first, whether the parties all acted in bad faith; second, whether there
was a valid rescission of the Agreement between the Sanchezes and
TSEI/Garcia; and third, whether TCT 383697 in the name of TSEI may
be cancelled.
The Court’s Ruling
24
The petitions in these consolidated cases must be denied.
The Sanchezes are not guilty of negligence
Petitioners would lay the blame on the Sanchezes and argue that there
was negligence on the latter’s part when they turned over the owner’s
original duplicate copy of TCT 156254 despite receiving only the
₱50,000 earnest money, which led tothe fraudulent transfer oftitle over
the subject lot by Garcia and the issuance of TCT 383697 in the name
of TSEI. They also argue that the Sanchezes werealso negligent for
surrendering possession of the subject property to Garcia and TSEI,
and for failing to stop the construction of the townhouses on the subject
property.
It must be stated that the CA already ruled that the issue of the
Sanchezes’ negligence was never raised at the pre-trial. As such, it
can no longer be raised on appeal. Nevertheless, even if such issue
were to be passed upon, the Sanchezes cannot be considered
negligent, much less in bad faith.
As explained by the CA:
It must be noted that defendant Garcia committed himself that, upon
full payment of the purchase price, he would personally undertake the
preparation and execution of the Extrajudicial Settlement with Sale as
well as the reconstitution of the original copy of TCT No. 156254 on file
with the Register of Deeds of Quezon City. Thus, it was inevitably for
plaintiff-appellant/appellee Felisa Yap to surrender to defendant Garcia
the owner’s duplicate copy of the aforesaid title as well as the other
documents pertinent for such documentation and reconstitution. To
Our mind, this does not constitute negligence on the part of the
plaintiffs appellants/appellees as the surrender was purely to comply
with and in pursuance to their earlier agreement with the defendants.
As regards the alleged relinquishment of possession of the subject
property, We also do not find any negligence on the part of the
plaintiffs appellants/appellees. The records would disclose that the
plaintiffs appellants/appellees did not voluntarily surrender possession
thereof to defendants. On the contrary, it was defendant Garcia who
took possession of the subject property, without plaintiffs-
appellants/appellees knowledge, posted his own caretaker therein with
strict instructions not to allow anyone to enter the same. The latter also
caused the demolition of the old house standing thereon and
advertised the same for sale by placing a large billboard in front of the
subject property. In fact, had it not been for persistent efforts of
plaintiffs-appellants/appellees, the Agreement which eventually
protected the latter’s rights over the subject property, could not have
been executed.51
Negligence is the omission of that diligence required by the nature of
the obligation and corresponds to the circumstances of the persons, of
the time and of the place.52 The Sanchezes could not be found
negligent as they relied upon the assurances of Garcia after their oral
agreement to sell was negotiated. The Sanchezes trusted Garcia and
entrusted to him—per their oral agreement—the owner’s original
duplicate of TCT 156254 in order to facilitate the documentation
required under the terms of agreement for the sale of the subject lot. It
must be pointed out that the parties in this case were not dealing on
equal terms.The Sanchezes had insufficient knowledge in the legalities
of transacting with real estate. This is evidenced by the fact that they
already considered an oral agreement for the sale of real property as
sufficient. Had they been knowledgeable in such matters, they would
have known that such oral agreement is unenforceable and instead
sought the production of a written agreement. Moreover, the facts
show that the Sanchezes did not simply surrender possession of the
property to TSEI and Garcia, but that such possession was taken from
them without their consent.
The Sanchezes did not act in bad faith
Contrary to the finding of the CA, the Sanchezes cannot be considered
to be in bad faith for failing to file an action for injunction against the
construction of the townhouses on the subject property. The CA stated:
x x x However, it appears that plaintiffs/appellants/appellees did not
take any step to forestall the continued construction of the townhouses.
The records do no [sic] show that the plaintiffs/appellants/appellees
filed any case for injunction to at least restrain the defendants from
continuing with the construction. Conversely, they allowed the same to
continue despite the fact that they were not asyet fully paid of the
purchase price on the subject property and no contract of sale has
been executed by them in defendants’ favor. Under these
circumstances, the provision of Article 453 of the Civil Code should
have been applied by the trial court.53
Such ruling is erroneous.
Article 453 of the Civil Code relevantly states:
Article 453. If there was bad faith, not only on the part of the person
who built, planted or sowed on the land of another, but also on the part
of the owner of such land, the rights of one and the other shall be the
same as though both had acted in good faith.
It is understood that there is bad faith on the part of the landowner
whenever the act was done with his knowledge and without opposition
on his part. (emphasis supplied)
The second paragraph of the provision clearly reads that a landowner
is considered in bad faith if he does not oppose the unauthorized
construction thereon despite knowledge of the same. It does not,
however, state what form such opposition should take. The fact of the
matter is that the Sanchezes did take action to oppose the construction
on their property by writing the HLURB and the City Building Official of
Quezon City. As a result, the HLURB issued two (2) Cease and Desist
Orders and several directives against Garcia/TSEI which, however,
were left unheeded. In addition, the Sanchezes could not be faulted for
not having been able to enjoin the sale of the townhouses by Garcia
and TSEI to the intervenors Sps. Caminas, Maniwang, Tulagan, and
Marquez who bought their townhouse units during the sameperiod that
the Sanchezes were demanding the full payment of the subject lot and
were exercising their right of extrajudicial rescission of the Agreement.
As the intervenors asserted having bought the townhouse units in early
1989, it can be seen that the preselling was done almost immediately
after the Sanchezes and Garcia/TSEI agreed on the terms of the sale
of the subject lot, or shortly after Garcia and TSEI had taken over the
property and demolished the old house built thereon. In either case,
the pre-selling already commenced and was continuing when the two
postdated checks amounting to the remaining balance of ₱800,000
bounced. And whenthe Sanchezes informed Garcia and TSEI that they
were rescinding the Agreement in early 1989, the intervenors
apparently werealready in the process of closing their deals with TSEI
for the purchase of townhouse units. As to the transactions between
FEBTC and Garcia/TSEI and that between VTCI and Garcia/TSEI, it is
suffice to state that the Sanchezes, despite the actions they undertook,
were not aware of the said dealings.
Garcia, TSEI, BPI, and the intervenors acted in bad faith
a. Garcia and TSEI acted in bad faith
The Court agrees with both the RTC and the CA that Garcia and/or
TSEI are builders in bad faith. They knew for a fact that the property
still belonged to the Sanchezes and yet proceeded to build the
townhouses not just without the authority of the landowners, but also
against their will. Thus, the CA wrote:
Anent the improvements constructed on the subject property, the
defendants were undoubtedly builders in bad faith. As borne out by the
evidence, the defendants took possession of the subject property and
constructed the 20-unit townhouses thereon without prior consent of
the plaintiffs-appellants/appellees. On top of this, defendant Garcia
was aware that the defendants have not as yet fully paid the purchase
price thereof and therefore are not yet owner/s of the subject property.
In fact, no contract of sale over the subject property has been executed
by the plaintiffs/appellants/appellees in defendants’ favor.54 x x x
The next query: are the intervenors purchasers in good faith?
25
The Court rules otherwise.
b. Intervenors Sps. Caminas,
Maniwang, Tulagan, and
Marquez acted in bad faith
Prevailing jurisprudence reveals the following established rules:
1. Well settled is the rule that all persons dealing with
property covered by a torrens certificate of title are not
required to go beyond what appears on the face of the title.
Whenthere is nothing on the certificate of title to indicate any
cloud or vice in the ownership of the property, or any
encumbrance thereon, the purchaser is not required to
explore further than what the torrens title upon its face
indicates in quest for any hidden defect or inchoate right that
may subsequently defeat his right thereto.55
2. This rule, however, admits of an exception as where the
purchaser or mortgagee has knowledge of a defect or lack of
title in the vendor, or that he was aware ofsufficient facts to
induce a reasonably prudent man to inquire into the status of
the property in litigation.56 (emphasis supplied)
3. Likewise, one who buys property withfull knowledge of the
flaws and defects in the title of the vendor is enough proof of
his bad faith and estopped from claiming that he acquired
the property in good faith against the owners.57
4. To prove good faith, the following conditions must be
present: (a) the seller is the registered owner of the land; (b)
the owner is in possession thereof; and (3) at the time of the
sale, the buyer was not aware of any claim or interest of
some other personin the property, or of any defect or
restriction in the titleof the seller or in his capacity to convey
title to the property. All these conditions must be present,
otherwise, the buyer is under obligation to exercise extra
ordinary diligence by scrutinizing the certificates of title and
examining all factual circumstances to enable him to
ascertain the seller’s title and capacity to transfer any
interest in the property.58
The factual milieu of the case reveals that intervenors are buyers in
bad faith for the following reasons, viz:
Firstly, they admitted that they executed either contracts of sale or
contracts to sell indicating that the lot is covered by TCT No. 156254
registered under the name of the respondent Sanchezes. While the
established rule is that persons dealing with property covered by a
Torrens certificate of title are not required togo beyond what appears
on the face of the title, intervenors cannot seek haven from such
doctrine as the title of the lot does not pertain to the vendor (Garcia or
TSEI) they dealt with. The fact that the lot being sold to them belonged
to persons other than TSEI or Garcia should have driven the
intervenors, as prudence would dictate, to investigate the true status of
the property. They should have gone to the Register of Deeds of
Quezon City (RD) to verifyif in fact TCT No. 156254 had already been
cancelled and a new title has been issued to TSEI or Garcia. They
should have asked for the deed of absolute sale filed and registered
with the RD to find out if the Sanchezes indeedsold the lot in question
to TSEI. They could have verified from the primary entry book of said
office if the deed of absolute sale from the Sanchezes in favor of TSEI
was registered in said book, which, under the Property Registration
Decree (PD No. 1529), is considered as an effective and legal notice to
third persons and the whole world of such transfer. Evidently, the
intervenors failed to do so.
Secondly, the intervenors know, based on the contract of sale or
contract to sell, that the property isregistered under TCT No. 156254 in
the name of the Sanchezes. As such, they should have insisted that
they talk to the Sanchezes before executing said conveyances. Had
they done so, they would have known that the Sanchezes have not
executed a written deed of absolute sale in favor of TSEI for the latter’s
failure to pay the consideration in full. Having failed to ferret out the
truth from the Sanchezes, intervenors cannot be considered innocent
purchasers for failure to exercise utmost caution and extra diligence in
determining the true owner of the property.
Thirdly, the intervenors should havebeen suspicious of the explanation
of Garcia that TCT No. 383697, reflecting TSEI as the owner of the
property, has been burned and that he is in the process of
reconstituting the title. Before signing the contract of sale or contract to
sell, they should have asked Garcia where the reconstitution case has
been filed or is pending and proceeded to verify with the said court the
status of the reconstitution. Had they done so, they would have known
that neither Garcia nor TSEI had a deed of absolute sale executed in
their favor over the lot in question. The truth of the matter is that it is
the duplicate certificate of title of TCT No. 156254 that has been lost or
misplaced, and is being sought to be reconstituted, not TCT No.
383697. Had intervenors been prudent enough to verify with the court
the status of the alleged TCT No. 383697, they would have known that
Garcia planned to deceive them in the sale of the subject property.
Fourthly, the intervenors knew that they were buying a townhouse over
a subdivision lot from TSEI and Garcia. Such being the case, they
should have verified with the HLURB whether said project is registered
with said housing agency and if a license to sell has been issued to
TSEI or Garcia. Had they made such an inquiry, they would have
known that instead of a permit for the project and a license to sell the
property, a cease and desist order was issued by the HLURB precisely
to enjoin TSEI and Garcia from selling said property to the public.
Similarly, they could have inquired from the City Building Official of
Quezon City if a building permit was issued to TSEI and Garcia for the
construction of the townhouses, which would have yielded the same
negative result.
c. VCTI acted in bad faith
As compared to the other purchasers,the Deeds of Absolute Sale of
intervenor VTCI cited TCT 383697 inthe name of VTCI and not TCT
156254. Nevertheless, the Court finds that respondent VTCI is a
purchaser in bad faith for the following reasons:
Firstly, respondent VTCI has not shown that it verified with the RD if
the alleged TCT 383697 of respondent TSEI is valid and genuine. It did
not present any certified true copy of said TCT 383697 to demonstrate
that based on the RD’s records, said title exists and that it is genuine
and valid. It should be remembered that the duplicate certificate of TCT
156254 was lost and subject of reconstitution. Yet respondents Garcia
and TSEI were not able to show that it was already reconstituted. In
addition, there was no deed of absolute sale executed by the
Sanchezes in favor of TSEI as the latter failed to pay the last two (2)
installments and subsequently, the agreement to sell was rescinded by
the Sanchezes for non-payment.There being no deed of absolute sale,
there is, consequently, no ground for the RD to cancel TCT No.
156254 and subsequently issue TCT 383697 in the name of TSEI. This
goes to show that TCT 383697 of TSEI appears to be spurious and a
fake title. This is buttressed by the fact that the date of the issuance of
TCT 383697 is June 9, l988, pre-dating the execution of the Agreement
between the Sanchezes and TSEI on December 8, l988. With the
failure of VTCI to exert earnest efforts to verify the authenticity of TCT
383697, then it is not a purchaser in good faith.
Secondly, Garcia and TSEI stopped the construction of the
townhouses on March 30, l989 pursuant to the CDO of the HLURB.
Thus, the townhouses were not fully finished and completed. Yet on
December 27, l989 (date of notarization), VTCI entered into three (3)
Deeds of Absolute sale over three (3) townhouses on three (3) lots
covered by TCT 383697 and despite the non-completion of the
townhouses, it still fully paid the uniform price of ₱700,000 for the
townhouse on each of the 3 lots – 1st lot with an area of 52.5 square
meters; 2nd lot with an area of 72.5 square meters; and 3rd lot with an
area of 42.5 square meters. The price of ₱700,000 was even applied to
all lots even if ordinarily a bigger lot will commend a higher price.
These are doubtful transactions since a man of average intellect will
not fully pay the price of a townhouse which has not yet been
completed. The alleged purchases are not in accord with the normal
business practice and common behavior of an ordinary human being.
These circumstances sway the Court to believe that said alleged
26
conveyances are not genuine and that VTCI is not a purchaser in good
faith.
Thirdly, with the CDO and the warnings to the public and prospective
buyers published in the Philippine Daily Inquirer on April 16, 1989 and
in the Manila Bulletin on April 19, 2014, VTCI should have been aware
of the irregularities in the proposed sale of townhouses by Garcia and
TSEI. The failure of VTCI to heed the warnings and prohibition to buy
said townhouses tends to show that said respondent is not a purchaser
in good faith.
Fourthly, with the issuance of the CDO by the HLURB and the notices
in the major dailies, VTCI should have inquired with the said HLURB if
Garcia and TSEI have a permit to sell the townhouses. Had it done so,
it would have discovered that the project, as it lacks the necessary
permits, is unauthorized and that the title over the townhouses is
questionable.
Fifthly, a buyer of a townhouse will ordinarily visit the project site and
look at and investigate the lot, the title and the townhouses being sold.
If it inspected the site of the construction project, it would have known
from the other purchasers that the project has no permit from the
HLURB and that construction has been stopped because of the CDO.
Had VTCI done the inspection and investigation, then it would not have
entered into the deeds of absolute sale with Garcia and TSEI. Thus,
respondent VTCI cannot be considered as a purchaser in good faith.
From the foregoing, the fact that all the intervenors turned a blind eye
to the flaws and defects in the ownership of TSEI over the property and
miserably failed to undertake measures required of a reasonably
prudent man to investigate the title of the pseudo owner and the
legality of the townhouse project constitutes bad faith for which there is
no available relief under the law.
d. BPI cannot be considered a mortgagee in good faith
Even as the intervenors have been found to be in bad faith, BPI, the
successor of FEBTC, cannot be considered a mortgagee in good faith,
considering the glaring anomalies in the loan transaction between TSEI
and FEBTC. This can be gleaned from several undisputed factual
circumstances:
Firstly, when Garcia gave TCT 156254 to FEBTC for the processing of
a loan secured by a mortgage, it indubitably showed that Garcia/TSEI
did not yet own the subject property as said title was in the name of the
Sanchezes. But FEBTC did not require Garcia/TSEI to submit a
Special Power of Attorney (SPA) in their favor authorizing them to
mortgage the subject property covered by TCT 156254.
Secondly, considering that Garcia/TSEI were already selling the
townhouse units to the public as early as January 1989, FEBTC was
also remiss in not requiring Garcia/TSEI to submit a written approval
from the HLURB for the mortgage of the subject property where the
townhouse units were being constructed as required under Sec. 1859 of
Presidential Decree No. (PD) 957.60 Thirdly, considering further that
Garcia presented the Agreement between the Sanchezes and
Garcia/TSEI asbasis for ownership of the subject property covered by
TCT 156254, FEBTC was remiss in neither ascertaining whether the
full payment of the ₱1.8 million covered by six (6) checks in view of the
proviso number 6 of the Agreement nor requiring the presentment of
the EXTRA-JUDICIAL SETTLEMENT OF ESTATE WITH SALE from
the Sanchezes in favor of Garcia/TSEI.
Fourthly, FEBTC was again negligent in not scrutinizing the TCT
383697 considering that the title has the purported issuance date of
June 9, 1988 way before the December Agreement was executed and
when the loan was negotiated. More, the purported issuance of TCT
383697 was made more than six (6) months before Garcia/TSEI
approached the bank for the loan. Thus, FEBTC should have been
placed on guard as to why Garcia/TSEI initially gave it TCT 156254 in
the name of the Sanchezes when TCTC 383697 was purportedly
already issued and in Garcia’s possession way before the bank loan
was negotiated. Again, FEBTC did not exercise the due diligence
required of banks.
Fifthly, the Court notes that FEBTC released portions of the loan
proceeds in April even before it approved the loan secured by a real
estate mortgage on May 22, 1989. And more anomalous is the fact that
FEBTC had TCT 383697 verified for its veracity and genuineness way
after it approved the loan to Garcia/TSEI. The Certification61 from the
Register of Deeds was issued only on June 13,1989 upon the request
of Garcia.
Verily, given the foregoing anomalies, the general rule that a
mortgagee need not look beyond the titledoes not apply tobanks and
other financial institutions as greater care and due diligence are
required of them,62 and FEBTC should have exercised the appropriate
due diligence review and made the requisite inquiries about the subject
property which was offered to secure the loan applied for by
Garcia/TSEI under a real estate mortgage. FEBTC (now BPI) was
negligent and cannot be considered as a mortgagee in good faith.
The effects of attributing bad
faith to the intervenors, BPI,
TSEI, and Garcia
a. Rescission of the Agreement
was not barred by the
subsequent transfer
Article 1191 of the Civil Code states that rescission is available to a
party in a reciprocal obligation where one party fails to comply
therewith:
Article 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and
1388 and the Mortgage Law. (emphasis supplied) Article 1385 of the
Civil Code does provide that rescission shall not take place if the
subject matter of the prior agreement is already in the hands of a third
party who did not act in bad faith, to wit:
Article 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the
price with its interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be obliged to
restore. Neither shall rescission take place when the things which are
the object of the contract are legally in the possession of third persons
who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss. (emphasis added)
In the extant case, the failure of TSEI to pay the consideration for the
sale of the subject property entitled the Sanchezes to rescind the
Agreement. And in view of the finding that the intervenors acted in bad
faith in purchasing the property, the subsequent transfer in their favor
did not and cannot bar rescission.
b. The Sanchezes are to elect
their option under the Arts.
449-450 of the New Civil Code
Moreover, bad faith on the part of TSEI, Garcia and the intervenors
leads to the application of Articles 449-450 of the New Civil Code,
which provide:
Article 449. He who builds, plants or sows in bad faith on the land of
another, loses what is built, planted or sown without right to indemnity.
27
Article 450. The owner of the land on which anything has been built,
planted or sown in bad faith may demand the demolition of the work, or
that the planting or sowing be removed, in order to replace things in
their former condition at the expense of the person who built, planted
or sowed; or he may compel the builder or planter to pay the price of
the land, and the sower the proper rent.
Consequently, the Sanchezes have the following options: (1) acquire
the property with the townhouses and other buildings and
improvements that may be thereon without indemnifying TSEI or the
intervenors;63 (2) demand from TSEI or the intervenors to demolish
what has been built on the property at the expense of TSEI or the
intervenors; or (3) ask the intervenors to pay the price of the land. 64 As
such, the Sanchezes must choose from among these options within
thirty (30) days from finality of this Decision. Should the Sanchezes opt
to ask from the intervenors the value of the land, the case shall be
remanded to the RTC for the sole purpose of determining the fair
market value of the lot at the time the same were taken from the
Sanchezes in 1988.
If the Sanchezes decide to appropriate the townhouses, other
structures and improvements as their own pursuant to Article 449 of
the Civil Code, then the intervenors-purchasers Caminas, Maniwang,
Tulagan, Marquez and VCTI shall be ordered to vacate said premises
within a reasonable time from notice of the finality of the decision by
the Sanchezes. They have a right to recover their investment in the
townhouses from Garcia and TSEI. If the Sanchezes do not want to
make use of the townhouses and improvements on the subject lot,
thenthe purchasers can be ordered to demolish said townhouses or if
theydon’t demolish the same within a reasonable time, then it can be
demolished at their expense. On the 3rd option, if the Sanchezes do
not want toappropriate the townhouses or have the same demolished,
then they can ask that the townhouse purchasers pay to them the fair
market value of the respective areas allotted to their respective
townhouses subject of their deeds of sale.
The suit is not a collateral
attack on TSEI’s title
Finally, BPI argues that the CA erred in ordering the cancellation of
TCT 383697 considering that Section 48 of Presidential Decree No.
1529, or the Property Registration Decree, states that a Torrens
certificate of title cannot be cancelled except in a direct attack thereon.
The provision reads:
Section 48. Certificate not subject to collateral attack. A certificate of
title shall not be subjectto collateral attack. It cannot be altered,
modified, or canceled except ina direct proceeding in accordance with
law.
In Sarmiento v. Court of Appeals,65 the Court differentiated a direct and
a collateral attack in this wise:
An action is deemed an attack on a title when the object of the action
or proceeding is to nullify the title, and thus challenge the judgment
pursuant to which the title was decreed. The attack is direct when the
object of the action is to annul or set aside such judgment, or enjoin its
enforcement. On the other hand, the attack is indirect or collateral
when, in an action to obtain a different relief, an attack on the judgment
is nevertheless made as an incident thereof.
In the instant case, contrary tothe contention of BPI, although the case
was originally an action for rescission, it became a direct attack on TCT
383697. To be sure, there is no indication that when the Sanchezes
filed their complaint with the RTC they already knew of the existence of
TCT 383697. However, when they were confronted with the title
through the filing of the various Answers of the intervenors, the
Sanchezes directly stated that the title was a fake. Thus, in their
Answer with Counter claims to Complaint in Intervention filed by Varied
Traders Concept, Inc. dated April 2, 1991, paragraph 2.1. thereof
states:
2.1. Like the rest of the intervenors herein, VTCI is claiming rights
under a forged deed and a fake or absolutely void title. There was
never any Deed of Absolute Sale between plaintiffs and defendants.
Much less was there any valid land title issued to defendants.
Whatever deeds defendants may have shown VTCI are definitely fakes
or foregeries, hence, null and void. Thus, no rights to plaintiff’s property
ever passed to VTCI.66
An identical paragraph is also contained in the Sanchezes’ Answer
with Counter claims to Intervention filed by Far East Bank and Trust
Company and Supplement to Complaint dated January 11,
1993.67 Thus, the complaint filed by the Sanchezes later became a
direct attack against TCT 383697 and the CA correctly ordered the
cancellation thereof.
WHEREFORE, the instant petitions are DENIED. The assailed
November 6, 2006 Decision of the Court of Appeals in CA-G.R. CV No.
83236 is hereby AFFIRMED with MODIFICATION. The dispositive
portion of the RTC Decision in Civil Case No. Q-90-4690, as affirmed
by the CA, is hereby modified to read:
WHEREFORE, judgment is hereby rendered as follows:
1. Directing the Register of Deeds of Quezon City to cancel
Transfer Certificate ofTitle No. 383697 in the name of Trans
American Sales and Exposition, Inc. and to reinstate
Transfer Certificate of Title No. 156254 in the name of the
[sic] Kenneth Nereo Sanchez, Vicente Victor Sanchez and
Imelda C. Vda. de Sanchez in its original status prior to the
claim of the intervenors-appellants without need to pay any
registration fee, transfer tax, documentary stamp tax and
other expenses in relation to transfer of title.
2. Granting to the Sanchezes the right to inform the Regional
Trial Court of Quezon City, Branch 89 in Civil Case No. Q-
90-4690 within thirty (30) days from date of finality of
decision whether or not they will appropriate the townhouses
and improvements on the lot covered by TCT No. 156254 as
their own without need to pay indemnity therefor pursuant to
Article 449 of the Civil Code.
In such a case, the intervenors and all their successors-in-
interest shall vacate the subject property and surrender
possession thereof to the Sanchezes within Thirty (30)
Daysfrom notice of their decision.
If the Sanchezes opt for the second option, the defendants
or intervenors shall demolish the townhouses and all other
improvements on the property at their own expense within
ninety (90) days from notice of the Sanchezes’ decision. If
they failto do so, the Sanchezes can have the same
demolished and the expenses of demolition shall be charged
to the intervenors on a pro rata basis based on the
respective areas of their townhouses.
Finally, if the Sanchezes choose the third option, the case
shall be remanded to the RTC to determine the fair market
value of the land at the time of the taking thereof in 1988 and
the intervenors-townhouse owners shall pay such value to
the Sanchezes within Thirty (30) days from the finality of the
determination of the RTC of such fair market value;
3. Declaring the legality and validity of the Extrajudicial
Rescission effected by the plaintiffs on the Contract to Sell
on the subject property, covered by TCT No. 156254 in their
names;
4. Ordering the defendants and all persons acting on their
behalf to return to the plaintiffs the Owner’s Copy of TCT No.
156254, including all the documents entrusted to them in
consideration of their Contract to Sell;
5. Ordering defendants and all persons, including the
intervenors and all persons claiming rights under them to
return and surrender to the plaintiffs the peaceful possession
of the subject property covered by TCT No. 156254 located
atNo. 10 Panay Avenue, Quezon City in the event plaintiffs
Sanchezes decide to appropriate the townhouses and
28
improvements for their own without need of payment of
indemnity;
6. Ordering the defendants jointly and severally to pay the
plaintiffs the sum of One Hundred Thousand (₱100,000.00)
Pesos, Philippine Currency as and by way of attorney’s fees;
7. Ordering the defendants jointly and severally to pay the
plaintiffs the sum of Two Hundred Thousand (₱200,000.00)
Pesos, Philippine Currency as and by way of moral
damages;
8. Ordering the defendants jointly and severally to pay the
plaintiffs the sum of Two Hundred Thousand (₱200,000.00)
Pesos, Philippine Currency as and by way ofexemplary
damages to serve as correction or example for the public
good;
9. Ordering the defendants jointly and severally to pay the
plaintiffs the sum of Two HundredNinety Thousand
(₱290,000.00) Pesos, representing the depreciated cost of
the plaintiffs’ demolished building per their Agreement
(Exhibit "D");
10. Dismissing defendants’ counterclaim as well as
intervenors’ counterclaims/complaints and answers in
intervention against the plaintiffs;
11. Ordering the plaintiffs to return to the defendants, after
deducting the damages herein awarded, the remaining
amount on the sum paid by the defendants on the subject
property;
12. Dismissing the counterclaim of plaintiffs against all
intervenors except as awarded to the former in this Decision;
13. Ordering the defendants jointly and severally to return to
intervenors, Jose and Visitacion Caminas, Reynaldo
Maniwang, Generoso "Gener" Tulagan, and VTCI, and
Arturo Marquez, the following sum to wit:
1. CAMINAS - ₱650,000.00 (Absolute Deed of
Sale dated 14 March 1989);
2. MANIWANG - ₱700,000.00 (Absolute Deed of
Sale dated 22 February 1989);
3. TULAGAN - ₱1.4 Million, representing the
following:
3.1 ₱600,000.00 – (Contract To Sell
dated 21 February 1989);
3.2 ₱800,000.00 – (Conditional Deed of
Sale dated 31 January 1989);
4. VTCI - ₱2.1 Million, representing the following:
4.1 ₱700,000.00 – (Absolute Deed of
Sale dated 30 October 1989
– Lot 1-K);
4.2 ₱700,000.00 – (Absolute Deed of
Sale dated 30 October 1989
– Lot 1-I);
4.3 ₱700,000.00 – (Absolute Deed of
Sale dated 30 October 1989
– Lot 1-F);
5. MARQUEZ - ₱600,000.00 (Contract To Sell
dated 8 March 1989);
6. BPI - Declaring the intervention of the Bank
without merit.
respectively, representing the fulland/or partial purchase
price of their respective units, all with six (6) percent interest
per annum counted from the time of their filing of their
intervention of judicial demand until fully paid.
With costs against defendants.
SO ORDERED.
HOME BANKERS SAVINGS VS. CA
HOME BANKERS SAVINGS & TRUST CO., Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, PABLO N. AREVALO,
FRANCISCO A. UY, SPOUSES LEANDRO A. SORIANO, JR. and
LILIAN SORIANO, ALFREDO LIM and FELISA CHI LIM/ALFREDO
LIM, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking to annul the Decision1 of the Court of Appeals
(CA) dated November 28, 1996 in CA-G.R. SP No. 40892 and its
Resolution dated February 19, 1997 denying petitioner’s motion for
reconsideration.
Each of private respondents entered into separate contracts to sell with
TransAmerican Sales and Exposition (TransAmerican) through the
latter’s Owner/General Manager, Engr. Jesus Garcia, involving certain
portions of land covered by Transfer Certificate of Title (TCT) No.
19155, located at No. 45 Gen. Lim Street, Heroes Hill, Quezon City,
together with one unit three-storey townhouse to be built on each
portion, as follows:
Respondent Pablo N. Arevalo purchased the portion of land
denominated as Unit No. 52 for the amount of P750,000.00
on August 21, 1988 and had already fully paid the purchase
price on September 3, 1988;
Respondent Alfredo Lim purchased the portion of land
denominated as Unit No. 13 for the amount of P800,000.00
on December 22, 1988 and fully paid the same upon
execution of the agreement on the same day;
Respondent Francisco A. Uy purchased the portion of land
denominated as Unit No. 64 on October 29, 1988 in the
amount of P800,000.00 payable in installments and had
allegedly made a total payment of P581,507.41. He ordered
to stop the payment of all [postdated] checks from
September 1990 to November 1995 on the ground of non-
completion of his unit and had later learned of the
foreclosure of the property;
Respondent spouses Leandro A. Soriano, Jr. and Lilian
Soriano purchased the portion of land denominated as Unit
No. 35 on February 15, 1990 in the amount of P1,600,000.00
and had allegedly made a payment of P669,960.00. They
had stopped paying because of non-completion of the
project and had later learned of the foreclosure of the
property;
Respondents Alfredo Lim and Santos Lim purchased the
portion of land denominated as Unit No. 76 for P700,000.00
on October 1988 and had been fully paid as of March 18,
1989; Santos Lim subsequently sold and assigned his share
29
 of the property to private respondent Felisa Chi Lim on May
12, 1989.
It is stipulated in their respective contracts that their individual
townhouses will be fully completed and constructed as per plans and
specifications and the respective titles thereto shall be delivered and
transferred to private respondents free from all liens and
encumbrances upon their full payment of the purchase
price. However, despite repeated demands, Garcia/TransAmerican
failed to comply with their undertakings.
On May 30, 1989, Engr. Garcia and his wife Lorelie Garcia obtained
from petitioner Home Bankers Savings and Trust Company (formerly
Home Savings Bank and Trust Company) a loan in the amount
of P4,000,000.00 and without the prior approval of the Housing and
Land Use Regulatory Board (HLURB), the spouses mortgaged7 eight
lots covered by TCT Nos. 3349 to 3356 as collateral. Petitioner
registered its mortgage on these titles without any other encumbrance
or lien annotated therein. The proceeds of the loan were intended for
the development of the lots into an eight-unit townhouse
project. However, five out of these eight titles turned out to be private
respondents’ townhouses subject of the contracts to sell with
Garcia/TransAmerican.
When the loan became due, Garcia failed to pay his obligation to
petitioner. Consequently, petitioner instituted an extrajudicial
foreclosure8 on the subject lots and being the highest bidder in the
public auction, a certificate of sale9 in its favor was issued by the sheriff
on February 26, 1990. Subsequently, the sheriff’s certificate of sale
was registered and annotated on the titles of the subject lots in the
Register of Deeds of Quezon City.
On November 8, 1990, private respondents filed a complaint with the
Office of Appeals, Adjudication and Legal Affairs (OAALA), HLURB,
against Garcia/TransAmerican as seller/developer of the property and
petitioner, as indispensable party, for non-delivery of titles and non-
completion of the subdivision project.10 They prayed for the completion
of the units, annulment of the mortgage in favor of petitioner, release of
the mortgage on the lots with fully paid owners and delivery of their
titles, and for petitioner to compute individual loan values of amortizing
respondents and to accept payments from them and damages.
Petitioner filed its Answer contending that private respondents have no
cause of action against it; that at the time of the loan application and
execution of the promissory note and real estate mortgage by Garcia,
there were no known individual buyers of the subject land nor
annotation of any contracts, liens or encumbrances of third persons on
the titles of the subject lots; that the loan was granted and released
without notifying HLURB as it was not necessary.
Private respondents filed their Reply and a motion for the judgment on
the pleadings. Petitioner did not file a rejoinder. Private respondents
filed a manifestation reiterating for a judgment on their pleadings and
asked that the reliefs prayed for be rendered as far as petitioner was
concerned. Upon motion of private respondents, the case against
Garcia/TransAmerican was archived for failure to serve summons on
him/it despite efforts to locate his whereabouts or its office. The case
was then considered submitted for decision.
On August 16, 1991, OAALA rendered its Decision,11 the dispositive
portion of which reads:
WHEREFORE, Judgment is hereby rendered as follows:
1. Declaring the mortgage executed by and between
respondents Engr. Jesus Garcia/TransAmerican Sales and
Exposition and Home Bankers Savings and Trust Company
(formerly Home Savings Bank and Trust Company) to be
unenforceable as against all the complainants;
2. Ordering the Register of Deeds of Quezon City to
cancel the annotations of the mortgage indebtedness
between respondents Engr. Jesus Garcia and Home
Bankers Savings and Trust Company (formerly Home
Savings Bank and Trust Company);
3. Ordering, likewise the Register of Deeds of Quezon
City to cancel the annotation of the Certificate of Sale in
favor of the respondent Home Bankers Savings and Trust
Company on the following Transfer Certificates of Title to wit:
1) TCT No. 3350
2) TCT No. 3351
3) TCT No. 3352
4) TCT No. 3354
5) TCT No. 3356
4. Ordering respondent Home Bankers Savings and Trust
Company (formerly Home Savings Bank and Trust
Company) to:
4.1. AS TO THE FIRST CAUSE OF ACTION
Deliver to Complainant Pablo N. Arevalo TCT No.
3352 free from all liens and encumbrances.
4.2. AS TO THE SECOND CAUSE OF ACTION
Deliver to Complainant Alfredo Lim TCT No. 3356
free from all liens and encumbrances.
4.3. AS TO THE THIRD CAUSE OF ACTION
To compute and/or determine the loan value of
complainant Francisco A. Uy who was not able to
complete or make full payment and to accept
payment and/or receive amortization from said
complainant Francisco A. Uy and upon full
payment to deliver TCT No. 3351 free from all
liens and encumbrances.
4.4. AS TO THE FOURTH CAUSE OF ACTION
To compute and/or determine the loan value of
Complainant Spouses Leandro A. Soriano, Jr. and
Lilian Soriano who were not able to complete or
make full payment and to accept and/or receive
amortization from said Complainants Soriano and
upon full payment to deliver TCT No. 3354 free
from all liens and encumbrances.
4.5. AS TO THE FIFTH CAUSE OF ACTION
Deliver to complainant Alfredo Lim and Felisa Chi
Lim TCT No. 3350 free from all liens and
encumbrances.
without prejudice to its right to require respondent Engr.
Jesus Garcia/TransAmerican to constitute new collaterals in
lieu of the said titles sufficient in value to cover the mortgage
obligation.12
Petitioner filed an appeal with the Board of Commissioners of the
HLURB which dismissed the same in a decision dated June 15,
1992.13 Petitioner then elevated the case to the Office of the President
which rendered a decision dated June 30, 199514 dismissing the appeal
and affirming the June 15, 1992 decision of the HLURB. Petitioner’s
motion for reconsideration was also denied in a Resolution dated May
7, 1996.15
Petitioner filed a petition for review with the CA which, in the herein
assailed decision dated November 28, 1996, denied the petition and
affirmed the decision of the Office of the President. The CA applied
the case of Union Bank of the Philippines vs. HLURB, et al.,16 where it
was held that the act of a subdivision developer of mortgaging the
subdivision without the knowledge and consent of a unit buyer and
30
without the approval of the National Housing Authority (NHA, now
HLURB) is violative of Section 18 of P.D. No. 957 thus, falling under
the exclusive jurisdiction of HLURB.
The CA upheld the findings of the OAALA, HLURB that private
respondents had already entered into separate contracts to sell with
TransAmerican as early as 1988 while it was only in 1989 that spouses
Garcia applied for a loan with petitioner and executed a mortgage
contract over the subject lots; that the proceeds of the loan were
purposely intended for the development of a property which was the
same property subject of the contracts to sell; that despite the
contracts to sell, Garcia/TransAmerican did not apprise petitioner of the
existence of these contracts nor did petitioner exhaust any effort to
inquire into their existence since petitioner merely relied on the
purported clean reconstituted titles in the name of Garcia; that the
mortgage of the subject lots without the consent of the buyers and the
authorization of the HLURB is a clear violation of P.D. No. 957; that the
mortgage contract is void and unenforceable against private
respondents.
Petitioner’s motion for reconsideration was denied by the CA in its
Resolution dated February 19, 1997.17
Petitioner is now before us raising the following grounds in support of
its petition:
A. THE OFFICE OF THE PRESIDENT ERRED IN RULING
THAT THE HLURB HAS JURISDICTION TO NULLIFY OR
DECLARE UNENFORCEABLE THE REAL ESTATE
MORTGAGE VALIDLY CONSTITUTED BY THE OWNER.
B. ASSUMING ARGUENDO THAT THE HLURB HAS
JURISDICTION, RESPONDENT COURT MANIFESTLY
ERRED IN FINDING THE REAL ESTATE MORTGAGE IN
FAVOR OF HOME AS INVALID AND UNENFORCEABLE
AGAINST RESPONDENTS.
C. IN THE EVENT THAT THE DECISION OF THE
RESPONDENT COURT FINDING THE REAL ESTATE
MORTGAGE IN FAVOR OF HOME AS INVALID AND
UNENFORCEABLE AGAINST RESPONDENTS IS
UPHELD, THE UNREGISTERED CONTRACTS TO SELL IN
FAVOR OF RESPONDENTS SHOULD ALSO BE HELD
VALID ONLY AS TO THE PARTIES THERETO BUT
UNENFORCEABLE AGAINST PETITIONER.
Private respondents filed their Comment and petitioner filed its Reply
thereto.
In a Resolution dated February 23, 2004, we gave due course to the
petition and required the parties to submit their respective memoranda
which they complied with.
The petition is devoid of merit.
Notably, the issues raised are mere rehash of the issues already
passed upon by the HLURB, the Office of the President and the CA
which we uphold as we find no reversible errors committed.
Petitioner claims that HLURB has no power to declare the mortgage
contract over real property executed between a real estate developer
and petitioner, a banking institution, void or unenforceable, as it is
properly within the jurisdiction of the Regional Trial Court. Petitioner
asserts that being a mortgagee of the subject lots and a purchaser in
good faith, it is not a project owner, developer, or dealer contemplated
under P.D. No. 1344, the law which expanded the jurisdiction of the
NHA; and that since there is no seller-buyer relationship existing
between it and private respondents, HLURB has no jurisdiction to rule
on the validity of the mortgage and to annul foreclosure proceedings.
The argument is untenable.
The CA did not err in affirming the decision of the Office of the
President that HLURB has jurisdiction to declare invalid the mortgage
contract executed between Garcia/TransAmerican and petitioner over
the subject lots insofar as private respondents are concerned. It
correctly relied on Union Bank of the Philippines vs. HLURB, et
al.18where we squarely ruled on the question of HLURB’s jurisdiction to
hear and decide a condominium buyer’s complaint for: (a) annulment
of a real estate mortgage constituted by the project owner without the
consent of the buyer and without the prior written approval of the NHA;
(b) annulment of the foreclosure sale; and (c) annulment of the
condominium certificate of title that was issued to the highest bidder at
the foreclosure sale, thus:
. . . The issue in HLURB Case No. REM-062689-4077 is the
validity of the real estate mortgage of David’s condominium
unit that FRDC executed in favor of the Union Bank and Far
East Bank without prior approval of the National Housing
Authority and the legality of the title which the mortgage
banks acquired as highest bidder therefore in the
extrajudicial foreclosure sale. The applicable provisions of
P.D. No. 957, otherwise known as "The Subdivision and
Condominium Buyer’s Protective Decree" are quoted
hereunder as follows:
Sec. 3. NATIONAL HOUSING AUTHORITY.
– The National Housing Authority shall have
exclusive jurisdiction to regulate the real estate
trade and business in accordance with the
provisions of this Decree.
Section 18. Mortgages – No mortgage on any unit or lot
shall be made by the owner or developer without prior written
approval of the authority. Such approval shall not be granted
unless it is shown that the proceeds of the mortgage loan
shall be used for the development of the condominium or
subdivision project and effective measures have been
provided to ensure such utilization. The loan value of each
lot or unit covered by the mortgage shall be determined and
the buyer thereof if any shall be notified before the release of
the loan. The buyer may, at his option, pay his installment
for the lot or unit directly to the mortgagee who shall apply
the payments to the corresponding mortgage indebtedness
secured by the particular lot or unit being paid for, with a
view to enabling said buyer to obtain title over the lot or unit
promptly after full payment thereof.
P.D. No. 1344 of April 2, 1978 expanded the jurisdiction of the National
Housing Authority to include the following:
Sec. 1. In the exercise of its function to regulate the real
estate trade and business and in addition to its powers
provided for in Presidential Decree No. 957, the National
Housing Authority shall have exclusive jurisdiction to hear
and decide cases of the following nature:
A. Unsound real estate business practices;
B. Claims involving refund and any other claims
filed by subdivision lot or condominium unit buyer
against the project owner, developer, dealer,
broker or salesman; and
C. Cases involving specific performance of
contractual and statutory obligations filed by
buyers of subdivision lot or condominium unit
against the owner, developer, broker or salesman.
On February 7, 1981, Executive Order No. 648 transferred the
regulatory and quasi-judicial functions of the NHA to the Human
Settlements Regulatory Commission.
Sec. 8. TRANSFER OF FUNCTIONS. – The regulatory
functions of the National Housing Authority pursuant to
Presidential Decree Nos. 957, 1216, 1344 and other related
laws are hereby transferred to the Commission, together with
such applicable personnel, appropriation, records,
equipment and property necessary for the enforcement and
31
 implementation of such functions. Among these regulatory
functions are:
1. Regulation of the real estate trade and
business:
...
7. Approval of mortgage on any
subdivision lot or condominium unit
made by the owner or developer;
...
11. Hear and decide cases on unsound
real estate business practices; claims
involving refund filed against project
owners, developers, dealers, brokers, or
salesmen; and cases of specific
performance.
Executive Order No. 90 dated December 17, 1986 changed
the name of the Human Settlements Regulatory Commission
to Housing and Land Use Regulatory Board (HLURB).
Clearly, FRDC’s act of mortgaging the condominium project
to Bancom and FEBTC, without the knowledge and consent
of David as buyer of a unit therein, and without the approval
of the NHA (now HLURB) as required by P.D. No. 957, was
not only an unsound real estate business practice but also
highly prejudicial to the buyer. David, who has a cause of
action for annulment of the mortgage, the mortgage
foreclosure sale, and the condominium certificate of title that
was issued to the UBP and FEBTC as the highest bidders at
the sale. The case falls within the exclusive jurisdiction of
the NHA (now HLURB) as provided in P.D. No. 957 of 1976
and P.D. No. 1344 of 1978.
...
We hold that the jurisdiction of the HLURB to regulate the
real estate trade is broad enough to include jurisdiction over
complaints for specific performance of the sale, or annulment
of the mortgage, of a condominium unit, with damages.19
Petitioner avers that the Union Bank ruling is not applicable in its case,
since it had no knowledge of any buyer of the subject lots at the time
the mortgage was constituted; that there was no construction in the
subject lots at the time petitioner accepted the same as collateral; that
the title to the subject property was still in the process of being
reconstituted and the loan was in fact meant for the development of the
subject lots into an eight-unit townhouse project.
We are not persuaded.
Contrary to petitioner’s claim that there were no buyers of the subject
lots at the time of the constitution of the mortgage, records show that
private respondents Arevalo, Uy, Alfredo Lim and Santos Lim had
entered into contracts to sell with Garcia/TransAmerican as early as
1988 for their respective lots. In fact, they, except for Uy, had already
fully paid their townhouse units in 1988 without the certificates of title
being delivered to them. Garcia mortgaged the subject lots without
their knowledge and consent.
While private respondents spouses Soriano bought the subject lots
after the constitution of the mortgage in favor of petitioner, the subject
lots are, as early as 1988, subdivision lots which as defined under
Section 2(e) of P.D. No. 957 to mean any of the lots, whether
residential, commercial, industrial, or recreational in a subdivision
project20 are entitled to the protection of P.D. No. 957.
Under Section 18 of P.D. No. 957, it is provided that no mortgage on
any unit or lot shall be made by the owner or developer without prior
written approval of the authority. Such approval shall not be granted
unless it is shown that the proceeds of the mortgage loan shall be used
for the development of the condominium or subdivision project and
effective measures have been provided to ensure such utilization. As
in the Union Bank, the mortgage was constituted on the subject lots in
favor of petitioner without the prior written approval from the HLURB,
thus HLURB has jurisdiction to rule on the validity of the mortgage.
Notwithstanding that petitioner became the owner of the subject lots by
being the highest bidder in the extrajudicial foreclosure sale, it must be
remembered that it was first a mortgagee of the same. Since the lot
was mortgaged in violation of Section 18 of P.D. No. 957, HLURB has
jurisdiction to declare the mortgage void insofar as private respondents
are concerned and to annul the foreclosure sale. In Far East Bank and
Trust Co. vs. Marquez,21 we held that Section 18 of P.D. No. 957 is a
prohibitory law, and acts committed contrary to it are void. We said:
In determining whether a law is mandatory, it is necessary to
ascertain the legislative intent, as stated by Sen. Arturo M.
Tolentino, an authority on civil law:
There is no well-defined rule by which a
mandatory or prohibitory law may, in all
circumstances, be distinguished from one which is
directory, suppletory, or permissive. In the
determination of this question, the prime object is
to ascertain the legislative intention. Generally
speaking, those provisions which are mere matter
of form, or which are not material, do not affect
any substantial right, and do not relate to the
essence of the thing to be done, so that
compliance is a matter of convenience rather than
substance, are considered to be directory. On the
other hand, statutory provisions which relate to
matters of substance, affect substantial rights and
are the very essence of the thing required to be
done, are regarded as mandatory.
In Philippine National Bank vs. Office of the President, we
had occasion to mull over the intent of P.D. No. 957 thus:
. . . [T]he unmistakable intent of the law [is] to
protect innocent lot buyers from scheming
subdivision developers. As between these small
lot buyers and the gigantic financial institutions
which the developers deal with, it is obvious that
the law – as an instrument of social justice – must
favor the weak. Indeed, the petitioner Bank had at
its disposal vast resources with which it could
adequately protect its loan activities, and therefore
is presumed to have conducted the usual "due
diligence" checking and ascertaining (whether thru
ocular inspection or other modes of investigation)
the actual status, condition, utilization and
occupancy of the property offered as collateral, . .
. On the other hand, private respondents
obviously were powerless to discover attempt of
the land developer to hypothecate the property
being sold to them. It was precisely in order to
deal with this kind of situation that P.D. No. 957
was enacted, its very essence and intendment
being to provide a protective mantle over helpless
citizens who may fall prey to the razzmatazz of
what P.D. No. 957 termed "unscrupulous
subdivision and condominium sellers."
Concededly, P.D. No. 957 aims to protect innocent
lot buyers. Section 18 of the decree directly
addresses the problem of fraud committed against
buyers when the lot they have contracted to
purchase, and which they have religiously paid for,
is mortgaged without their knowledge. The
avowed purpose of P.D. No. 957 compels the
reading of Section 18 as prohibitory – acts
committed contrary to it are void. Such construal
ensures the attainment of the purpose of the law:
to protect lot buyers, so that they do not end up
32
 still homeless despite having fully paid for their
home lots with their hard-earned cash.22
Since the mortgage is void, HLURB’s orders of the cancellation of the
sheriff’s certificate of sale, release of the mortgaged lots and delivery of
the corresponding titles to respondents who had fully paid the
purchase price of the units are but the necessary consequences of the
invalidity of the mortgage for the protection of private respondents.
Anent the second issue, petitioner contends that since the titles on
their face were free from any claims, liens and encumbrances at the
time of the mortgage, it is not obliged under the law to go beyond the
certificates of title registered under the Torrens system and had every
reason to rely on the correctness and validity of those titles.
We are not convinced.
While the cases23 cited by petitioner held that the mortgagee is not
under obligation to look beyond the certificate of title when on its face,
it was free from lien or encumbrances, the mortgagees therein were
considered in good faith as they were totally innocent and free from
negligence or wrongdoing in the transaction. In this case, petitioner
knew that the loan it was extending to Garcia/TransAmerican was for
the purpose of the development of the eight-unit
townhouses. Petitioner’s insistence that prior to the approval of the
loan, it undertook a thorough check on the property and found the titles
free from liens and encumbrances would not suffice. It was incumbent
upon petitioner to inquire into the status of the lots which includes
verification on whether Garcia had secured the authority from the
HLURB to mortgage the subject lots. Petitioner failed to do so. We
likewise find petitioner negligent in failing to even ascertain from Garcia
if there are buyers of the lots who turned out to be private
respondents. Petitioner’s want of knowledge due to its negligence
takes the place of registration, thus it is presumed to know the rights of
respondents over the lot. The conversion of the status of petitioner
from mortgagee to buyer-owner will not lessen the importance of such
knowledge.24 Neither will the conversion set aside the consequence of
its negligence as a mortgagee.25
Judicial notice can be taken of the uniform practice of banks to
investigate, examine and assess the real estate offered as security for
the application of a loan. We cannot overemphasize the fact that the
Bank cannot barefacedly argue that simply because the title or titles
offered as security were clean of any encumbrances or lien, that it was
thereby relieved of taking any other step to verify the over-reaching
implications should the subdivision be auctioned on foreclosure. 26 We
find apropos to cite our ruling in Far East Bank and Trust Co. vs.
Marquez, thus:27
Petitioner argues that it is an innocent mortgagee whose lien
must be respected and protected, since the title offered as
security was clean of any encumbrances or lien. We do not
agree.
. . . As a general rule, where there is nothing on the
certificate of title to indicate any cloud or vice in the
ownership of the property, or any encumbrance thereon, the
purchaser is not required to explore further than what the
Torrens Title upon its face indicates in quest for any hidden
defect or inchoate right that may subsequently defeat his
right thereto. This rule, however, admits of an exception as
where the purchaser or mortgagee has knowledge of a
defect or lack of title in the vendor, or that he was aware of
sufficient facts to induce a reasonably prudent man to inquire
into the status of the property in litigation.
Petitioner bank should have considered that it was dealing
with a [townhouse] project that was already in progress. A
reasonable person should have been aware that, to finance
the project, sources of funds could have been used other
than the loan, which was intended to serve the purpose only
partially. Hence, there was need to verify whether any part
of the property was already the subject of any other contract
involving buyers or potential buyers. In granting the loan,
petitioner bank should not have been content merely with a
clean title, considering the presence of circumstances
indicating the need for a thorough investigation of the
existence of buyers like respondent. Having been wanting in
care and prudence, the latter cannot be deemed to be an
innocent mortgagee.
Petitioner cannot claim to be a mortgagee in good
faith. Indeed it was negligent, as found by the Office of the
President and by the CA. Petitioner should not have relied
only on the representation of the mortgagor that the latter
had secured all requisite permits and licenses from the
government agencies concerned. The former should have
required the submission of certified true copies of those
documents and verified their authenticity through its own
independent effort.
Having been negligent in finding out what respondent’s rights
were over the lot, petitioner must be deemed to possess
constructive knowledge of those rights.
As to the third issue, petitioner contends that private respondents were
negligent in failing to register their contracts to sell in accordance with
Section 17 of P.D. No. 957; that private respondents’ unregistered
contracts to sell are binding only on them and Garcia/TransAmerican
but not on petitioner which had no actual or constructive notice of the
sale at the time the mortgage was constituted.
We disagree.
Section 17 of P.D. No. 95728 provides that the seller shall register the
contracts to sell with the Register of Deeds of Quezon City. Thus, it is
Garcia’s responsibility as seller to register the contracts and petitioner
should not blame private respondents for not doing so. As we have
said earlier, considering petitioner’s negligence in ascertaining the
existence or absence of authority from HLURB for
Garcia/TransAmerican to mortgage the subject lots, petitioner cannot
claim to be an innocent purchaser for value and in good
faith. Petitioner is bound by private respondents’ contracts to sell
executed with Garcia/TransAmerican.
The last paragraph of Section 18 of P.D. No. 957 provides that
respondents who have not yet paid in full have the option to pay their
installment for the lot directly to the mortgagee (petitioner) who is
required to apply such payments to the corresponding mortgage
indebtedness secured by the particular lot or unit being paid for, with a
view to enabling said buyer to obtain title over the lot or unit promptly
after full payment thereof. Thus, petitioner is obliged to accept the
payment of remaining unpaid amortizations, without prejudice to
petitioner bank’s seeking relief against the subdivision developer. 29
Notably, although no issue was taken on the fact that the case against
Garcia/TransAmerican, the developer/seller and mortgagor of the
subject lots, was archived for failure to serve summons on him/it as his
whereabouts or the office could not be located, it must be stated that
Garcia/TransAmerican is not an indispensable party since a final
determination on the validity of the mortgage over the subject lots can
be rendered against petitioner. Thus, the absence of
Garcia/TransAmerican did not hamper the OAALA from resolving the
dispute between private respondents and petitioner.
In China Bank vs. Oliver,30 we held that the mortgagor, who allegedly
misrepresented herself to be Mercedes M. Oliver, the registered owner
of TCT No. S-50195, is not an indispensable party in a case filed by a
person claiming to be the true registered owner, for annulment of
mortgage and cancellation of title against the mortgagee, China
Bank. We found therein that even without the mortgagor, the true
Mercedes Oliver can prove in her complaint that she is the real person
referred in the title and she is not the same person using the name who
entered into a deed of mortgage with the mortgagee, China Bank.
In the present case, private respondents, in their complaint, alleged
that the mortgage was constituted without the prior written approval of
the HLURB which is in violation of Section 18 of P.D. No.
957. Petitioner’s admission that it granted and released the loan
without notifying the HLURB because of its belief that it was not
33
necessary to do so, is fatal to petitioner’s defense. As a consequence
thereof, the mortgage constituted in favor of petitioner can be declared
invalid as against private respondents even without the presence of
Garcia/TransAmerican. It is worthy to mention that the assailed
decision was rendered merely against petitioner and had not made any
pronouncement as to Garcia/TransAmerican’s liability to private
respondents for the non-completion of the projects; or to herein
petitioner, as mortgagee.
The present case merely involves the liability of petitioner bank to
private respondents as buyers of the lots and townhouse units.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
DE LA MERCED VS. GSIS
COL. FRANCISCO DELA MERCED, substituted by
his heirs namely, LUIS CESAR DELA MERCED, BLANQUITA DELA
MERCED nee MACATANGAY, and MARIA OLIVIA M.
PAREDES, Petitioners,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS) and
Spouses VICTOR and MILAGROS MANLONGAT,Respondents.
DECISION
DEL CASTILLO, J.:
A transferee pendente lite of registered land, whose title bears a notice
of a pending litigation involving his transferor’s title to the said land, is
bound by the outcome of the litigation, whether it be for or against his
transferor. Given this principle, the modification of the final decision
against the transferor in order to include the transferee pendente
lite does not violate the doctrine of immutability of final judgments. His
inclusion does not add to or change the judgment; it is only a legal
consequence of the established doctrine that a final judgment binds the
privy of a litigating party.
Before the Court is a Petition for Review1 assailing the validity of the
February 9, 2005 Order2 of Branch 160 of the Regional Trial Court
(RTC) of Pasig City. The said Order denied petitioners’ motion for
supplemental writ of execution:3
Conformably with Section 8, Rule 39, 1997 Rules of Civil Procedure,
execution in this case can only be implemented as far as what has
been decreed in the decision dated September 11, 2001, qualified by
the Order of this Court dated January 20, 2003 with respect [to] the
payment of attorney’s fees.
In view thereof, plaintiffs’ motion for supplemental writ of execution is
DENIED.
SO ORDERED.4
The September 11, 2001 Decision referred to in the assailed Order
was rendered by this Court in G.R. No. 140398, entitled Col. Francisco
Dela Merced, substituted by his heirs, namely, BLANQUITA E. DELA
MERCED, LUIS CESAR DELA MERCED, BLANQUITA E. DELA
MERCED (nee MACATANGAY), and MARIA OLIVIA M. PAREDES, v.
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS) and
SPOUSES VICTOR and MILAGROS MANLONGAT.5 The fallo of the
said Decision reads:
WHEREFORE, in view of the foregoing, the petition is GRANTED. The
decision of the Court of Appeals is REVERSED AND SET ASIDE. The
decision of the Regional Trial Court of Pasig City, Branch 160, in Civil
Case Nos. 51410 and 51470, is REINSTATED. The foreclosure sale of
Lot Nos. 6, 7, 8 and 10 of Block 2 and Lot 8 of Block 8 of the property
originally covered by TCT 26105, and the subsequent certificates of
titles issued to GSIS as well as TCT No. PT-94007 in the name of
Elizabeth Manlongat, are declared NULL AND VOID. The Register of
Deeds of Pasig City is ordered to CANCEL all present certificates of
title in the name of GSIS and Elizabeth Manlongat covering the above-
mentioned properties, and to ISSUE new certificates of title over the
same in the name of petitioners as co-owners thereof. Respondents
GSIS and spouses Victor and Milagros Manlongat are ORDERED to
pay, jointly and severally, attorney’s fees in the increased amount of
₱50,000.00, and to pay the costs.
SO ORDERED.6
G.R. No. 140398 has long attained finality7 but could not be executed
because of the objections raised by the Register of Deeds (RD) and
respondent Government Service Insurance System (GSIS). These
objections, which the trial court found insurmountable in its assailed
February 9, 2005 Order, are now presented to us for resolution.
Factual antecedents
This case involves five registered parcels of land located within the
Antonio Subdivision, Pasig City – Lots 6, 7, 8, and 10 of Block 2 and
Lot 8 of Block 8 (subject properties). These lots were originally owned
by, and titled in the name of, Jose C. Zulueta (Zulueta), as evidenced
by Transfer Certificate of Title (TCT) No. 26105.8 TCT No. 26105
contains several lots, other than the subject properties, within the
Antonio Subdivision.
Later, the Zulueta spouses mortgaged9 several lots contained in TCT
No. 26105 to the GSIS, which eventually foreclosed on the mortgaged
properties, including the subject properties. Upon consolidation of
GSIS’s ownership, TCT No. 26105 in Zulueta’s name was cancelled,
and TCT No. 2355410 was issued in GSIS’s name.11
Upon learning of the foreclosure, petitioners’ predecessor, Francisco
Dela Merced (Dela Merced) filed a complaint12praying for the nullity of
the GSIS foreclosure on the subject properties (Lots 6, 7, 8, and 10 of
Block 2 and Lot 8 of Block 8) on the ground that he, not the Zuluetas,
was the owner of these lots at the time of the foreclosure. Dela Merced
also impleaded Victor and Milagros Manlongat,13 who were claiming
Lot 6, Block 2 by virtue of a sale executed by the GSIS in their
daughter’s (Elizabeth Manlongat) favor.14 Dela Merced argued that,
due to the nullity of GSIS’s foreclosure over the subject properties, it
had no ownership right that could be transferred to Elizabeth
Manlongat.
Dela Merced caused the annotation of lis pendens15 on GSIS’s TCT
No. 23554 on September 21, 1984 in order to protect his interests in
the subject properties. Dela Merced died in 1988 and was substituted
by his heirs, the petitioners in the instant case.
After a protracted litigation, the case reached this Court as G.R. No.
140398. On September 11, 2001, a Decision16was rendered in
petitioners’ favor. The Court nullified GSIS’s foreclosure of the subject
properties because these lots were never part of its mortgage
agreement with the Zulueta spouses. The dispositive portion of said
Decision reads:
WHEREFORE, in view of the foregoing, the petition is granted. The
decision of the Court of Appeals is reversed and set aside. The
decision of the Regional Trial Court of Pasig City, Branch 160, in Civil
Case Nos. 51410 and 51470, is REINSTATED. The foreclosure sale of
Lot Nos. 6, 7, 8 and 10 of Block 2 and Lot 8 of Block 8 of the property
originally covered by TCT 26105, and the subsequent certificates of
titles issued to GSIS as well as TCT No. PT-94007 in the name of
Elizabeth Manlongat, are declared NULL AND VOID. The Register of
Deeds of Pasig City is ordered to CANCEL all present certificates of
title in the name of GSIS and Elizabeth Manlongat covering the above-
mentioned properties, and to ISSUE new certificates of tile over the
same in the name of petitioners as co-owners thereof. Respondents
GSIS and spouses Victor and Milagros Manlongat are ORDERED to
pay, jointly and severally, attorney’s fees in the increased amount of
₱50,000.00, and to pay the costs.17
Judgment was entered on April 23, 2002.18
Pursuant to the finality of the above Decision, petitioners filed a Motion
for Execution19 with Branch 160 of the RTC of Pasig City.
34
First obstacle:
GSIS’s alleged exemption from execution
GSIS opposed the motion for execution, citing as basis Section 39 of
Republic Act No. 8291 (RA 8291), also known as the GSIS Act of
1997. The said provision allegedly exempts GSIS funds and properties
from attachment, garnishment, execution, levy and other court
processes.20
On January 20, 2003, the trial court granted petitioners’ motion for
execution; but held in abeyance the execution of the award of
attorney’s fees, pending clarification before the higher courts of the
issue of GSIS’s exemption under Section 39 of RA 8291. The said
Order is reproduced below:
Acting on the Motion for Execution filed by the plaintiff herein together
with the opposition of defendant GSIS, and considering that the
judgment has already become final and executory, the same is hereby
Granted.
As prayed for, let a writ of execution issue to enforce the judgment of
this court.
However, with respect to the payment of attorney’s fees in the
increased amount of ₱50,000.00 which has to be paid jointly and
severally by the GSIS and Sps. Manlongat, the same is held in
abeyance as far as GSIS is concerned pending clarification by the
GSIS before the Supreme Court on the issue of whether its funds and
assets are exempt from execution pursuant to Section 39, R.A. 8291,
otherwise known as the GSIS Act of 1997.
SO ORDERED.21
A writ of execution was issued on July 24, 2003.22
Eventually, GSIS filed with the Court of Appeals (CA) a petition for
certiorari and prohibition against the trial court’s implementation of the
writ of execution against it.23 The petition, docketed as CA-G.R. SP No.
87821, presented the issue whether the trial judge gravely abused her
discretion in ordering execution against GSIS funds and properties
despite their alleged express and absolute exemption from execution,
garnishment, and other court processes under Section 39 of RA
8291.24
In its October 28, 2005 Decision, the CA dismissed GSIS’s petition and
held that execution may be enforced against it.25 The ratio of the
appellate court is reproduced in part:
Public respondent court presided by Hon. Amelia A. Fabros did not
commit grave abuse of discretion when it issued the Writ of Execution
dated 24 July 2003. It must be considered that the properties which
(Lots 6, 7, 8, and 10 of Block 2 and Lot 8 of Block 8 of Antonio
Subdivision) were the subject of the writ of execution in the instant
case are not the properties of petitioner GSIS. In the court a quo’s
Decision dated October 23, 1987 and reiterated in the Honorable
Supreme Court’s Decision dated September 11, 2001, it declared inter
alia that the certificates of title issued to petitioner GSIS pertaining to
Lot Nos. 6, 7, 8, and 10 of Block 2 and Lot 8 of Block 8 are null and
void and further directed inter alia the Register of Deeds of Pasig City
to cancel all the present certificates of title in the name of petitioner
GSIS. x x x26
xxxx
[P]etitioner GSIS has no interest over the subject properties and x x x
had never validly acquired ownership thereof. x x x27 Therefore, any
and all [rights] that petitioner GSIS may have on the subject properties
were non-existent from the very beginning. Verily, the court a quo was
right then in issuing the writ of execution dated 24 July 2003 and that
petitioner GSIS’ claim that it should be exempted from execution has
no basis in fact and in law.28
xxxx
We lay stress that the pronouncement made in the abovementioned
SC circular and in the case of Commissioner of Public Highways vs.
San Diego, cited in the Armovit case find no application in the case at
bar. It must be noted that the properties referred to therein are those
owned by government which could not be seized under writ of
execution to satisfy such judgment because to do so, there is a
necessity for the corresponding appropriation of public funds by
Congress before the same could be disbursed. In this instant case, it
has already been settled that the herein properties involved are not
owned by petitioner GSIS; hence, there is no prohibition that the same
could be executed and that there is no public funds involved which
require the corresponding appropriation thereof. x x x29
xxxx
In fine, the execution of the subject properties is proper for to assert
otherwise, would be depriving private respondents dela Merced and
Paredes of their properties without due process of law as it had been
clearly established on record that they really owned the subject
properties. To sustain petitioner GSIS’ view that it should be exempt
from execution would be putting the subject properties beyond the
reach of the rightful owners thereof x x x. Likewise, to uphold petitioner
GSIS’ theory would inevitably lead to a disastrous consequence and
lend imprimatur to deprivation of property without due process of law.
Additionally, to grant petitioner GSIS’ prayer that the subject properties
be exempt from execution without any factual and legal basis thereof
would resultantly remain the same in the custody or control of
petitioner GSIS which unjustly enriches itself at the expense of private
respondents dela Merced and Paredes and who the latter could be
deprived of the beneficial use/ownership thereof when in the very first
place they were able to establish the ownership thereof. Every person
who through an act or performance by another, or any other means,
acquires or comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to him.30
xxxx
WHEREFORE, premises considered, the instant PETITION FOR
CERTIORARI and PROHIBITION is hereby DISMISSED. Accordingly,
the Writ of Execution dated 24 July 2003 and the Order dated 16
September 2004 both rendered by the Regional Trial Court of Pasig
City, Branch 160 stand.
SO ORDERED. 31
GSIS’s motion for reconsideration of the above Decision was denied in
the June 30, 2006 Resolution of the appellate court.32 GSIS appealed
the CA Decision to this Court33 but the petition was denied in a
Resolution dated February 12, 2007,34 which denial was entered in the
Book of Judgments on October 2, 2007.35
Second obstacle:
Alleged inadequacy of the fallo
After the resolution of the issue of GSIS’s exemption, petitioners
encountered more problems with the execution of the September 11,
2001 Decision in G.R. No. 140398. According to the RD of Pasig City,
Policarpio Espenesin, he could not enforce the Decision in G.R. No.
140398 as worded.
The order to cancel the titles of GSIS over Lots 7 and 8 of Block 2
allegedly could not be enforced because GSIS no longer had title over
these two lots. GSIS had already conveyed these lots in 1985 and
1988 to Diogenes Bartolome (Lot 8) and Antonio Dimaguila [Dimaguila]
(Lot 7), respectively. At present, Lot 7 of Block 2 is titled in Dimaguila’s
name (TCT No. PT-67466)36 while Lot 8 of Block 2 is titled in the name
of Bartolome’s assignee, Zenaida Victorino [Victorino] (TCT No.
53031).37 While both titles contain notices of lis pendens carried over
from GSIS’s title,38 the RD claimed that the writ of execution must first
be modified to include the cancellation of derivative titles of the GSIS
title.
The RD also found difficulty in implementing the order to cancel GSIS’s
titles over Lot 10 of Block 2 and Lot 8 of Block 8 and to issue new ones
35
in petitioners’ name because no such individual titles exist in his
records. The RD posited that these two lots must still be included in
GSIS’s "mother" title, TCT No. 23554. The RD opined that he cannot
cancel GSIS’s mother title, even if it contains Lot 10 of Block 2 and Lot
8 of Block 8 because it would affect other lots that might still be
included therein.
The RD further lamented that assuming he could cancel GSIS’s mother
title with respect to Lot 10 of Block 2 and Lot 8 of Block 8, there is still
no way that he could issue new titles over these lots in petitioners’
name. This is because his office has no information regarding the
technical descriptions for these two lots. The RD thus suggested that
the parties provide him with these relevant information before he can
proceed.
In order to address these difficulties, petitioners filed before the trial
court a Motion for Supplemental Writ of Execution.39 They prayed for a
supplemental writ ordering the RD to cancel the titles over Lots 7 and 8
of Block 2 in GSIS’s name or in the name of other subsequent
transferees; and directing the GSIS and the Bureau of Lands to supply
the RD with the technical descriptions of Lot 10, Block 2, and Lot 8,
Block 8.40
GSIS opposed the issuance of a supplemental writ of execution. 41
On February 9, 2005, Judge Amelia A. Fabros issued the assailed
order denying petitioners’ motion for supplemental writ of execution.
Respondent’s arguments
The Manlongats could not be served with copies of the Court’s
resolutions; hence the Court dispensed with their comment. 42
GSIS argues that petitioners’ motion was properly denied because it
seeks
to modify a final and executory Decision. The September 11, 2001
Decision in G.R. No. 140398 only ordered the cancellation of GSIS’s
titles over the subject properties. It did not order the cancellation of all
derivative titles of GSIS’s transferees; nor did it order the GSIS to
perform acts such as providing the RD with the technical descriptions
for Lot 10, Block 2 and Lot 8, Block 8. GSIS maintains that a
supplemental writ that includes such additional orders is null and void
for non-conformity with the judgment.
Further, GSIS argues that the inclusion of "derivative titles" in the
September 11, 2001 Decision in G.R. No. 140398 would deprive the
holders of these derivative titles their day in court. GSIS opines that the
holders of the derivative titles are not bound by the judgment against
GSIS because these holders are strangers to the action between GSIS
and petitioners.
Lastly, GSIS again raises its earlier argument that the September 11,
2001 Decision in G.R. No. 140398 cannot be enforced because of
GSIS’s exemption from court processes under RA 8291.
Petitioners’ arguments
Petitioners counter that the September 11, 2001 Decision in G.R. No.
140398 can be enforced against GSIS’s transferees pendente lite
because these transferees were given notice of the pendency of the
case by virtue of the notice of lis pendens that had been inscribed on
GSIS’s TCT No. 23554 as early as September 21, 1984. In fact, when
TCT No. 23554 was cancelled with respect to Lots 7 and 8 of Block 2
in order to issue new titles in Dimaguila’s and Victorino’s names, this
notice was carried over to their respective titles. Moreover, the
conveyance of these lots to Victorino and Dimaguila transpired in 1985
and 1988, respectively; clearly during the pendency of the case and
with notice of the questions surrounding GSIS’s ownership over these
properties.
As transferees pendente lite, Dimaguila’s and Victorino’s titles are
proper subjects of writs of execution even if they were not actual
parties to the case. Petitioners cite Voluntad v. Spouses Dizon43 as
their authority.44
With regard to the issuance of new titles for Lot 10, Block 2 and Lot 8,
Block 8, petitioners argue that GSIS can be compelled to provide the
RD with their respective technical descriptions. This power is granted
to the courts under Section 10, Rule 39 of the Rules of Court.45
Petitioners maintain that execution of the Decision in G.R. No. 140398
should not be confined to the literal terms contained only in the fallo or
the dispositive portion.46
As regards GSIS’s alleged exemption, petitioners posit that the GSIS
can no longer raise the issue of exemption from execution given that
the CA had already rendered its Decision on that question in CA-G.R.
SP No. 87821. The said Decision was affirmed by this Court in G.R.
No. 173391 through our February 12, 2007 Resolution47 and entry of
judgment in that case was made on October 2, 2007.48
Issues
Can GSIS still raise the issue of exemption?
Whether a final and executory judgment against GSIS and Manlongat
can be enforced against their successors-in-interest or holders of
derivative titles
Whether an order to cancel title to a particular property includes an
order to provide technical descriptions and segregate it from its mother
title
Our Ruling
On the issue of GSIS’s exemption
The issue of GSIS’s alleged exemption under RA 8291 had been finally
decided against GSIS in G.R. No. 173391, when this Court denied
GSIS’s petition for review. The denial rendered the CA Decision in CA-
G.R. SP No. 87821 final and executory. GSIS’s attempt to resurrect the
same issue by interjecting the same in this proceeding is barred by the
principle of "law of the case," which states that "determinations of
questions of law will generally be held to govern a case throughout all
its subsequent stages where such determination has already been
made on a prior appeal to a court of last resort."49 The Decision in G.R.
No. 173391 allowing the execution of the judgment against GSIS is the
"law of the case" and controls the proceedings below which are already
in the execution stage.
Enforcement of judgment against transferees pendente lite
"A notice of lis pendens is an announcement to the whole world that a
particular real property is in litigation, serving as a warning that one
who acquires an interest over said property does so at his own risk, or
that he gambles on the result of the litigation over the said
property."50 The effect of the annotation of lis pendens on future
transactions over the subject property is discussed by an authority on
land titles and registration:
Once a notice of lis pendens has been duly registered, any
cancellation or issuance of the title of the land involved as well as any
subsequent transaction affecting the same, would have to be subject to
the outcome of the litigation. In other words, upon the termination of
the litigation there can be no risk of losing the property or any part
thereof as a result of any conveyance of the land or any encumbrance
that may be made thereon posterior to the filing of the notice of lis
pendens.51
It is not disputed that petitioners caused the annotation of lis pendens
on TCT No. 23554, which covers Lots 7 and 8 of Block 2, as early as
September 21, 1984.52 On July 29, 1985 and August 24, 1998, TCT
No. 23554 was cancelled with respect to Lots 7 and 8 of Block 2 and
new individual titles were issued to Victorino and Dimaguila. Both titles
had the notice of lis pendens which was carried over from TCT No.
23554. Ineluctably, both Victorino and Dimaguila had notice of the
litigation involving GSIS’s ownership over the subject properties, and
were bound by the outcome of the litigation. When a transferee
pendente lite takes property with notice of lis pendens, such transferee
undertakes to respect the outcome of the litigation. As held in Selph v.
36
Vda. de Aguilar,53 an order to cancel the transferor’s title may be
enforced against his transferee, whose title is expressly subject to the
outcome of the litigation by the fact of the annotation of lis pendens.
The existence of these entries on Dimaguila’s and Victorino’s titles
bars any defense of good faith54 against petitioners and effectively
makes Dimaguila and Victorino mere privies of GSIS and subject to
whatever rights GSIS might have in the subject properties, which (as it
turns out) is none at all. What Dimaguila and Victorino possess are
derivative titles of the GSIS’s title over Lots 7 and 8 of Block 2, which
this Court has finally adjudicated to be null and void. Given the legal
maxim that a spring cannot rise higher than its source, it follows that
Dimaguila’s and Victorino’s titles, or any other title over the subject
properties that are derived from TCT No. 23554 of the GSIS, are
likewise null and void. As explained by this Court in another case, the
title obtained by the transferee pendente lite affords him no special
protection; he cannot invoke the rights of a purchaser in good faith and
cannot acquire better rights than those of his predecessor-in-interest.55
In Voluntad v. Spouses Dizon,56 the Court allowed the issuance of an
alias
writ of execution against the transferees pendente lite, who had
knowledge of the pending litigation on the basis of the annotation of the
notice of lis pendens on their titles. The Court clarified therein that
there was no need for the victorious [parties] to file a separate action to
enforce their right to recover the property as against the new registered
owners.57
In Associated Bank v. Pronstroller,58 the Court affirmed the judgments
of the trial and appellate courts cancelling the titles of the spouses
Vaca, who were transferees pendente lite of Associated Bank, despite
the fact that the spouses Vaca were not parties to the case between
Associated Bank and the Pronstrollers. The Court explained therein:
Admittedly, during the pendency of the case, respondents timely
registered a notice of lis pendens to warn the whole world that the
property was the subject of a pending litigation.
Lis pendens, which literally means pending suit, refers to the
jurisdiction, power or control which a court acquires over property
involved in a suit, pending the continuance of the action, and until final
judgment. Founded upon public policy and necessity, lis pendens is
intended to keep the properties in litigation within the power of the
court until the litigation is terminated, and to prevent the defeat of the
judgment or decree by subsequent alienation. x x x
The filing of a notice of lis pendens has a twofold effect: (1) to keep the
subject matter of the litigation within the power of the court until the
entry of the final judgment to prevent the defeat of the final judgment
by successive alienations; and (2) to bind a purchaser, bona fide or
not, of the land subject of the litigation to the judgment or decree that
the court will promulgate subsequently.
This registration, therefore, gives the court clear authority to cancel the
title of the spouses Vaca, since the sale of the subject property was
made after the notice of lis pendens. x x x59
Upon Associated Bank’s MR, the spouses Vaca filed a motion to
intervene arguing that they had a real interest in assailing the July 14,
2008 Decision, which ordered the cancellation of their title. The Court
denied the intervention. It was held that the interests of the spouses
Vaca in the subject property were properly represented in the action by
their transferor/vendor Associated Bank, which was already a party
thereto. As transferees pendente lite, the spouses Vaca stand exactly
in the shoes of their predecessor-in-interest, Associated Bank.60
The Court cannot accept GSIS’s theory that the dispositive portion of
the Decision in G.R. No. 140398 is enforceable only against GSIS’s
title because it does not contain the phrase "and all its derivative titles."
GSIS’s narrow interpretation would render nugatory the principle that a
final judgment against a party is binding on his privies and successors-
in-interest. We cannot sustain this interpretation. In Cabresos v. Judge
Tiro,61 the Court upheld the respondent judge’s issuance of an alias
writ of execution against the successors-in-interest of the losing litigant
despite the fact that these successors-in-interest were not mentioned
in the judgment and were never parties to the case. The Court
explained that an action is binding on the privies of the litigants even if
such privies are not literally parties to the action. Their inclusion in the
writ of execution does not vary or exceed the terms of the judgment. In
the same way, the inclusion of the "derivative titles" in the writ of
execution will not alter the Decision in G.R. No. 140398 ordering the
cancellation of GSIS’s title.
Cancellation of title
The RD claimed that it cannot execute the order to cancel the GSIS’s
titles over Lot 10, Block 2 and Lot 8, Block 8 because it has no record
of GSIS’s title over these two lots. The RD theorized that these lots are
included in a ‘mother title’ in GSIS’s possession and would still have to
be segregated therefrom. To effectuate such segregation, the RD
needed the technical descriptions of the two lots and the ‘mother title.’
Thus, petitioners ask that the GSIS be compelled to surrender its title
over, as well as the technical descriptions of, Lot 10, Block 2 and Lot 8,
Block 8.
GSIS refused to turn over the needed documents and information,
claiming that these acts go beyond what were ordered in the Decision
in G.R. No. 140398. GSIS’s protestations ring hollow.
The order contained in the Decision in G.R. No. 140398 is for the RD
to cancel GSIS’s titles over Lot 10, Block 2 and Lot 8, Block 8, inter
alia. Whether these titles are individual or contained in a mother title is
of no consequence. The RD has to cause their cancellation. If the
cancellation can only be carried out by requiring GSIS or the Bureau of
Lands to provide the necessary information, then they can be
compelled to do so. Otherwise, the Court’s decision would be rendered
inefficacious, and GSIS would retain ostensible ownership over the lots
by the simple expedience that they are included in a mother title,
instead of individual titles. That result is manifestly contrary to the
Court’s ruling and would subvert the very purpose of bringing this case
for a complete resolution.
A similar predicament was ruled upon by the Court in Republic Surety
and Insurance Co., Inc. v. Intermediate Appellate Court.62 In that case,
the Court declared that Republic Mines had no right to the property
involved but during the execution, the RD refused to cancel the TCT in
Republic Mine’s name on the ground that the dispositive portion of the
trial court’s Decision did not order the RD to cancel the title and to
revive the old title in favor of the victorious party. The Court held that
the missing "order to cancel and revive" should be deemed implied in
the trial court’s decision. Speaking through Justice Feliciano, the Court
explained thus:
What is involved here is not what is ordinarily regarded as a clerical
error in the dispositive part of the decision of the Court of First
Instance, which type of error is perhaps best typified by an error in
arithmetical computation. At the same time, what is involved here is not
a correction of an erroneous judgment or dispositive portion of a
judgment. What we believe is involved here is in the nature of an
inadvertent omission on the part of the Court of First Instance x x x, of
what might be described as a logical follow-through of something set
forth both in the body of the decision and in the dispositive portion
thereof: the inevitable follow-through, or translation into, operational or
behavioral terms, of the annulment of the Deed of Sale with
Assumption of Mortgage, from which petitioners' title or claim of title
embodied in TCT 133153 flows. The dispositive portion of the decision
itself declares the nullity ab initio of the simulated Deed of Sale with
Assumption of Mortgage and instructed the petitioners and all persons
claiming under them to vacate the subject premises and to turn over
possession thereof to the respondent-spouses. Paragraph B of the
same dispositive portion, confirming the real estate mortgage executed
by the respondent-spouses also necessarily assumes that Title No.
133153 in the name of petitioner Republic Mines is null and void and
therefore to be cancelled, since it is indispensable that the mortgagors
have title to the real property given under mortgage to the creditor
(Article 2085 [2], Civil Code).63
xxxx
37
There are powerful considerations of an equitable nature which impel GSIS is seriously warned not to further delay the execution of this
us to the conclusions we reach here. Substantial justice cannot be case.
served if the petitioner Republic Mines, having absolutely no right, legal
or equitable, to the property involved, its claim thereto being based SO ORDERED.
upon a transaction which was not only simulated but also immoral and
unconscionable, should be allowed to retain the Transfer Certificate of
Title in its name. The petitioner would thereby be in a position to inflict
infinite mischief upon the respondent-spouses whom they deprived for
15 years of the possession of the property of which they were and are
lawful owners, and whom they compelled to litigate for 15 years to
recover their own property. The judicial process as we know it and as
administered by this Court cannot permit such a situation to subsist. It
cannot be an adequate remedy for the respondent-spouses to have to
start once more in the Court of First Instance, to ask that court to clarify
its own judgment, a process which could be prolonged by the filing of
petitions for review in the Court of Appeals and eventually in this Court
once more. Public policy of the most fundamental and insistent kind
requires that litigation must at last come to an end if it is not to become
more pernicious and unbearable than the very injustice or wrong
sought to be corrected thereby. That public policy demands that we cut
this knot here and now.64

When a judgment calls for the issuance of a new title in favor of the
winning party (as in the instant case), it logically follows that the
judgment also requires the losing party to surrender its title for
cancellation. It is the only sensible way by which the decision may be
enforced. To this end, petitioners can obtain a court order requiring the
registered owner to surrender the same and directing the entry of a
new certificate of title in petitioners’ favor.65 The trial court should have
granted petitioners’ motion for supplemental writ of execution as it had
authority to issue the necessary orders to aid the execution of the final
judgment.66

GSIS’s objection that these orders cannot be enforced because they

do not literally appear in the Decision in G.R. No. 140398 is
unreasonable. GSIS would have the Court spell out the wheres, whys,
and hows of the execution. GSIS wants a dispositive portion that is a
step-by-step detailed description of what needs to be done for
purposes of execution. This expectation is unreasonable and absurd.

WHEREFORE, the petition is GRANTED. The February 9, 2005 Order

of Branch 160 of the Regional Trial Court of Pasig City is REVERSED
and SET ASIDE. The September 11, 2001 Decision in G.R. No.
140398 is clarified to read as follows:

WHEREFORE, in view of the foregoing, the petition is GRANTED. The

decision of the Court of Appeals is REVERSED AND SET ASIDE.

The decision of the Regional Trial Court of Pasig City, Branch 160, in
Civil Case Nos. 51410 and 51470, is REINSTATED.1âwphi1 The
foreclosure sale of Lot Nos. 6, 7, 8 and 10 of Block 2 and Lot 8 of Block
8 of the property originally covered by TCT No. 26105, and the
subsequent certificates of titles issued to GSIS as well as TCT No. PT-
94007 in the name of Elizabeth Manlongat, and their respective
derivative titles are declared NULL AND VOID.

The Register of Deeds of Pasig City is ordered to CANCEL all present

certificates of title covering the above-mentioned properties, whether
contained in individual titles or in a mother title, in the name of GSIS
and Elizabeth Manlongat, or in the name of their privies, successors-in-
interest or transferees pendente lite, and to ISSUE new certificates of
title over the same in the name of petitioners as co-owners thereof.

GSIS and the Bureau of Lands are ordered to supply the necessary
documents and information for the proper enforcement of the above
orders.

Respondents GSIS and spouses Victor and Milagros Manlongat are

ORDERED to pay, jointly and severally, attorney’s fees in the
increased amount of ₱50,000.00, and to pay the costs.

SO ORDERED.

The trial court is ordered to ISSUE the writ of execution in accordance

with the above clarified dispositive portion.
38