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EN BANC

[ G.R. No. 209463, November 29, 2022 ]

FLORENCIA H. DUENAS* AND DAPHNE DUENAS-MONTEFALCON, PETITIONERS, VS. METROPOLITAN BANK AND TRUST COMPANY AND ELVIRA ONG CHAN; AF REALTY DEVELOPMENT, INC. AND ZENAIDA R. RANULLO; ADELAIDA T. BERNAL; AND INOCENCIO DOMINGO AND PENELOPE ISON OF THE REGISTER OF DEEDS OF MAKATI CITY, RESPONDENTS.

D E C I S I O N

HERNANDO, J.:

Purchasers of registered land may seek sanctuary under the protection accorded to innocent purchasers in good faith and for value provided they steadfastly remain in good faith until they have dutifully registered the conveyance. It is only upon registration in good faith can the purchaser acquire such rights and interest as they appear in the certificate of title, unaffected by any prior lien or encumbrance not noted therein, and if need be, invoke their right to rely on the Torrens title as against any claims to his or her interest.

Challenged in this petition[1] is the March 15, 2013 Decision[2] and October 8, 2013 Resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 77595, which affirmed in toto the January 15, 2002 Decision[4] and the April 23, 2002 Order[5] of the Regional Trial Court (RTC) of Makati City, Branch 60, in Civil Case No. 94-751.

The Antecedents

The subject three parcels of land, located in Buendia Avenue, corner Dian St., Makati City with an area of 1,411 square meters, were registered in the name of Dolores Egido Vda. De Sola (Dolores) under Transfer Certificates of Title (TCT) Nos. T-79864, T-79865, and T-79866.[6] On May 22, 1978, TCT Nos. T-79864, T-79865, and T-79866 were cancelled, and in lieu thereof, TCT Nos. S-68301, S-68302, and S-68303[7] were issued in the name of Bellever Brothers, Inc. (BBI). Later, BBI contracted a loan in the total amount of P2,500,00.00 from Manotoc Securities Inc. (MSI), and mortgaged the subject three lots as per Deed of Mortgage dated May 19, 1978.[8] The said mortgage was annotated as Entry No. 83066 on TCT Nos. S-68301, S-68302, and S-68303.[9]

On June 12, 1978, Dolores filed a complaint,[10] docketed as Civil Case No. 29782, before the Court of First Instance (CFI) of Pasig, Branch 19, against BBI and MSI to rescind and/or declare the nullity of the sale of the subject three lots, and to cancel BBI's titles over them.[11]

On June 13, 1978, Dolores caused the annotation of a Notice of Lis Pendens [12] on TCT Nos. S-68301, S-68302, and S-68303 under Entry No. 84647 dated June 12, 1978.[13] During the pendency of Civil Case No. 29782, Dolores died and was substituted by her daughter, Carmen Egido (Carmen).

On September 18, 1981, a writ of preliminary injunction[14] dated May 23, 1979 issued by CFI Pasig, Branch 19 was also annotated under Entry No. 47764 on TCT Nos. S-68301, S-68302, and S-68303.[15]

On July 19, 1989, Civil Case No. 29782 was temporarily archived by CFI, Branch 19 of Pasig, (now RTC, Branch 158 of Pasig).[16] Then, Carmen authorized petitioner Florencia H. Duenas (Florencia) to enter into a settlement of Civil Case No. 29782 which involved the subject three lots.[17] On August 6, 1991, Carmen assigned all her rights over the subject three lots in favor of Florencia.[18]

Meanwhile, MSI was dissolved and placed under receivership or liquidation pursuant to Securities and Exchange Commission (SEC) En Banc Order dated March 18, 1988 in SEC-EB No. 033.[19] Thereafter, Florencia submitted before the SEC a Letter Proposal for Amicable Settlement of Civil Case No. 29782[20] involving the subject three lots.[21] While Florencia and MSI's receiver or liquidator were in the process of negotiating a compromise agreement with regard to the subject three lots, they discovered that TCT Nos. S-68303, S-68301, and S-68302 in the name of BBI were cancelled by Mila O. Flores (Flores) of the Register of Deeds, Makati City.[22]

Adelaida Bernal (Bernal), acting as alleged representative of MSI, executed an Affidavit of Loss[23] of TCT Nos. S-68301, S-68302, and S-68303, and filed a petition[24] for the issuance of a new owner's duplicate copy of the said titles before the RTC, Branch 135 of Makati City which was docketed as LRC Case No. M-2490. On March 12, 1992, the RTC Branch 135 of Makati City issued an Order[25] for the Register of Deeds, Makati City to immediately issue an owner's duplicate copy of TCT Nos. S-68301, S-68302, and S-68303 in lieu of the lost titles.

Thereafter, Bernal and BBI presented a falsified Decision[26] dated December 18, 1985 allegedly issued by CFI Branch 19 of Pasig in Civil Case No. 29782, and an Absolute Deed of Sale dated December 18, 1985[27] to cancel Entry Nos. 83066, 84647, and 47764 annotated on TCT Nos. S-68301, S-68302, and S-68303, and to subsequently cause the issuance of the new titles, i.e., TCT Nos. 178934, 178935, and 178936[28] on March 19, 1992 in the name of Bernal.[29]

However, the spouses Daniel and Florencia Duenas (spouses Duenas) averred that based on the Certification dated September 1, 1992[30] issued by the Clerk of Court of RTC of Pasig, Branch 158, the CPI of Pasig, Branch 19 did not render any decision on December 18, 1985 in Civil Case No. 29782; instead the said case was archived as per Order dated July 19, 1989. Thus, to protect their right over the subject three lots, the spouses Duenas caused the annotation of their Affidavit of Adverse Claim[31] dated August 31, 1992 under Entry No. 48918 on September 2, 1992 on TCT Nos. 178934, 178935, and 178936.

In addition, the spouses Duenas filed a Complaint,[32] docketed as Civil Case No. 92-2831, before the RTC of Makati City, Branch 61 to declare the nullity of TCT Nos. 178934, 178935, and 178936, and the Absolute Deed of Sale dated December 18, 1985; and to pray for damages against Bernal, BBI, Jesse P. Beato, BBI's corporate secretary, and Flores.[33]

Thereafter, Notices of Lis Pendens[34] under Entry No. 50908 dated October 1, 1992 were annotated on TCT Nos. 178934, 178935, and 178936 which were, however, cancelled as per RTC of Makati City, Branch 61's Orders dated January 25, 1993[35] and February 24, 1993.[36] Thus, the spouses Duenas assailed the said cancellation through a petition for certiorari under Rule 65 to the CA docketed as CA G.R.-SP No. 30354.[37]

On March 11, 1993, the CA issued a Resolution[38] temporarily enjoining the implementation of the RTC of Makati City, Branch 61's January 25, 1993 and February 24, 1993 Orders. The said CA's Resolution dated March 11, 1993 was received by RTC of Makati City Branch 61 on March 12, 1993.[39] Then, on October 29, 1993, the CA in CA G.R.-SP No. 30354 ultimately ruled in favor of the spouses Duenas and set aside the ruling of RTC of Makati City, Branch 61's January 25, 1993 and February 24, 1993 Orders in Civil Case No. 92-2831.[40] On November 29, 1993, the CA's October 29, 1993 Decision[41] in CA G.R.-SP No. 30354 has become final and executory.

However, despite the CA's favorable ruling and temporary restraining order in CA G.R.-SP No. 30354, the spouses Duenas alleged that on March 12, 1993, the RTC of Makati City, Branch 61 issued a Certificate of Finality[42] of its January 25, 1993 Order to cancel the Notice of Lis Pendens under Entry No. 50908 dated October 1, 1992. Consequently, Penelope Ison (Ison) of the Register of Deeds, Makati City cancelled the said annotation on TCT Nos. 178934, 178935, and 178936.[43]

Meanwhile, Bernal executed an Absolute Deed of Sale[44] dated April 23, 1993 in favor of respondent AF Realty Development, Inc. (AFRDI). Consequently, Inocencio M. Domingo (Domingo) of the Register of Deeds of Makati cancelled the Affidavit of Adverse Claim dated August 31, 1992, and TCT Nos. 178934, 178935, and 178936; and thereafter issued TCT Nos. 185022, 185023, and 185024[45] in the name of AFRDI on April 28, 1993.

Thus, on February 22, 1994, the spouses Duenas filed the herein Complaint[46] before the RTC of Makati City, Branch 60, docketed as Civil Case No. 94-751, to declare the nullity of TCT Nos. 185022, 185023, and 185024, and the Absolute Deed of Sale dated April 12, 1993; and to demand damages from Bernal, AFRDI, Ison, and Domingo. On February 23, 1994, the spouses Duenas caused the annotation of a Notice of Lis Pendens under Entry No. 81678 on TCT Nos. 185022, 185023, and 185024 in the name of AFRDI.[47] Thereafter, on April 4, 1994, the spouses Duenas filed an Amended Complaint[48] in Civil Case No. 94-751.

However, on January 31, 1994, AFRDI sold the subject three lots covered by TCT Nos. 185022, 185023, and 185024 to respondent Metropolitan Bank & Trust Co. (MBTC) by virtue of an Absolute Deed of Sale dated January 31, 1994.[49] The spouses Duenas discovered the said sale transaction of the subject three lots between AFRDI and MBTC on June 8, 1994.[50]

Hence, on June 13, 1994, the spouses Duenas filed a Second Amended Complaint[51] before the RTC of Makati City, Branch 60 to implead Zenaida R. Ranullo (Ranullo) of AFRDI, MBTC, and Elvira Ong Chan (Chan), then Executive Vice-President of MBTC, as defendants in Civil Case No. 94-751.

On June 15, 1994, TCT Nos. 195231, 195232, and 195233[52] were issued in the name of MBTC.

On their part, respondents MBTC and Chan countered that the bank is a purchaser in good faith and for value as the titles of the subject three lots, i.e. TCT Nos. 185022, 185023, and 185024 in the name of AFRDI, did not show any lien or encumbrance at the time of sale on January 31, 1994. In addition, they averred that the Notice of Lis Pendens was annotated only on February 23, 1994. Hence, the bank had every right to rely on the said titles and was not obliged to go beyond them to determine if there was any irregularity in their issuance.[53]

In its crossclaim against AFRDI, respondent MBTC demanded that in the event that its titles over the subject three lots are cancelled, AFRDI should be made to return the payment for the sale of the subject three lots, i.e., PHP 39,508,000.00 plus legal interest, and to reimburse whatever amount MBTC and/or Chan may be required to pay petitioners.[54]

On the other hand, respondents AFRDI and Ranullo claimed that they acted in good faith when AFRDI bought the subject three lots from Bernal. They argued that at the time of the execution of the absolute deed of sale dated April 23, 1993, the Notice of Lis Pendens under Entry No. 50908 dated October 1, 1992 was already cancelled pursuant to the January 25, 1993 Order of the RTC of Makati City, Branch 61.[55]

Hence, the Register of Deeds of Makati City properly issued TCT Nos. 180522, 180523, and 180524 in AFRDI's favor. In addition, AFRDI and Ranullo insisted that the spouses Duenas' recourse is not to go against MBTC and/or Chan but to recover from the Assurance Fund under Section 95 of Presidential Decree No. (PD) 1529.[56]

MSI intervened and alleged that it is the mortgagee of the subject three lots who later acquired ownership thereof by virtue of a dacion en pago with full, final, and complete acquittance of obligations dated July 23, 1980 executed by BBI due to the latter's inability to pay its loan.[57] MSI reiterated the spouses Duenas' allegations of fraud and illegal cancellation of TCT Nos. S-68301, S-68302, and S-68303 through a falsified CFI of Pasig, Branch 19's Decision dated December 18, 1985 in Civil Case No. 29782, and Absolute Deed of Sale dated December 18, 1985 presented by Bernal before the Register of Deeds of Makati City to cause the issuance of TCT Nos. 178934, 178935, and 178936 in the name of Bernal.[58]

Lastly, Ison and Domingo averred that they acted in accordance with law and in utmost good faith when they cancelled the Notice of Lis Pendens under Entry No. 50908 dated October 1, 1992 on TCT Nos. 178934, 178935, and 178936 in the name of Bernal, and issued TCT Nos. 185022, 185023, and 185024 in the name of AFRDI. They further claimed that they had no participation whatsoever in the transactions involving the spouses Duenas and the defendants in Civil Case No. 94-751. Ison and Domingo argued that the functions of the Register of Deeds are purely ministerial. Thus, they are duty-bound to register the document, which is regular on its face, and have no authority to determine the validity thereof if presented for registration. Hence, they should not be held liable for damages of any kind to the spouses Duenas.[59]

On June 5, 1995, the SEC En Banc issued an Order[60] in SEC-EB No. 033, which states that 60% of the subject three lots should pertain to the Egido family, now owned by the spouses Duenas, and 40% to MSI. The said Order reads:

After having studied the records of Civil Case No. 29782, Dolores F. Vda. de Egido, et al. vs. Manotoc Securities, Inc., et al., before the RTC of Pasig and having heard the parties on March 20, 1995, this Commission rules and so holds that the 60-40 percent distributions is equitable for both parties. It shall be understood, however, that 60% will go to the Egido family while the remaining 40%, to MSI and that the 40% will be taken from the corner lot.

SO ORDERED.[61]

On June 19, 1995, the RTC of Makati City, Branch 61 rendered its Decision[62] in Civil Case No. 92-2831 in favor of the spouses Duenas, and declared TCT Nos. 178934, 178935, and 178936 in the name of Bernal as null and void. It further reinstated TCT Nos. S-68301, S-68302, and S-68303 in the name of BBI, as well as the corresponding entries therein. The fallo of the Decision reads:

WHEREFORE, premises above-considered and plaintiffs' claim having been duly proven by evidence, judgment is hereby rendered in favor of plaintiff and as against defendant BERNAL by declaring TCT Nos. 178934, 178935 and 178936 of the Register of Deeds of Makati, M.M., in the name of defendant Adelaida Bernal as null and void ab initio and the cancelled TCT Nos. S-68301, S-68302 and S-68303 in the name of Bellever Brothers, Inc. of the Register of Deeds of Makati, M.M., together with the Entries therein numbered 83066, 84647 and 47764 are hereby ordered revived and reinstated.

Further defendant BERNAL is hereby ordered to pay:

1) Plaintiffs the sum of P500,000.00 as and by way of moral damages;

2) The sum of P300,000.00 as exemplary damages;

3) The sum of P200,000.00 as and by way of attorney's fees; and to

4) Pay the cost of suit.

SO ORDERED.[63]

On September 22, 1995, the RTC of Pasig, Branch 158 (formerly CFI of Pasig, Branch 19) rendered its Decision[64] in Civil Case No. 29782 approving Florencia and MSI’s compromise agreement dated August 30, 1995, pursuant to the share distribution or partition of the subject three lots embodied in SEC En Banc's Order dated June 5, 1995 in SEC-EB No. 033, i.e., 60% to Florencia and 40% to MSI.

The dispositive portion of the RTC of Pasig, Branch 158's Decision reads:

The foregoing Compromise Agreement, not being contrary to law, moral or public policy, is approved and judgment is hereby rendered in accordance with the terms and conditions set forth in the Compromise Agreement and the parties are enjoined to strictly comply therewith.

SO ORDERED.[65]

On September 30, 1996, the RTC of Makati City, Branch 60 in Civil Case No. 94-751 issued an Order[66] partially granting the spouses Duenas' application for a writ of preliminary mandatory injunction restraining MBTC from alienating, disposing, selling, mortgaging, assigning, leasing, or entering into any kind of contract involving the subject three lots covered by TCT Nos. 195231, 195232, and 195233 in the name of MBTC.

Subsequently, on November 28, 1996, the RTC of Makati City, Branch 61 issued a Writ of Preliminary Injunction[67] in Civil Case No. 94-751 restraining: (a) the MBTC from alienating, disposing, selling, mortgaging, assigning, leasing or entering into any kind of contract, involving the lots covered by TCT Nos. 195231, 195232, and 195233 of the Registry of Deeds, Makati City; and (b) the Register of Deeds, Makati City from registering and annotating on the TCT Nos. 195231, 195232, and 195233 any document executed by or for MBTC involving the aforesaid certificates of title.

Ruling of the Regional Trial Court, Branch 60 of Makati City (Civil Case No. 94-751)

On January 15, 2002, the RTC of Makati City, Branch 60 rendered its Decision[68] in Civil Case No. 94-751 in favor of the spouses Duenas and MSI. The fallo of the RTC of Makati City, Branch 60 Decision reads:

[WHEREFORE], in view of all the foregoing, judgment is hereby rendered ordering defendants Adelaida T. Bernal and AF Realty to indemnify plaintiff and plaintiff-Intervenor in the amount of Php39,308,000.00 representing the amount paid by defendant Metrobank for the subject lots in question, with plaintiff-Intervenor entitled to the extent of 40% of the said amount. Apart from this, said defendants are also directed to pay attorney's fees in the amount of P100,000.00 in favor of plaintiff and plaintiff Intervenor[.]

In addition to this public defendants, Inocencio C. Domingo and Penelope Ison, by reason of their negligent acts and wrongful omissions are held jointly and solidarily liable with defendants Bernal and AF Realty to pay in favor of plaintiff the amount of Php100,000.00 as and by way of moral damages.

SO ORDERED.[69]

The RTC of Makati City, Branch 60 found that Bernal perpetuated a fraudulent scheme that unlawfully deprived the spouses Duenas and MSI of their ownership and beneficial interest in the subject three lots. However, the ownership and titles of the subject three lots have already passed into the hands of MBTC that bought the subject three lots free from any liens and encumbrances. Thus, the spouses Duenas and MSI's proper recourse is to go against the parties who committed the fraud, and, who by their negligence, allowed the title to go into the hands of innocent purchasers as per Section 55 of Act No. 496[70] now Sec. 53 of PD 1529.[71]

With respect to Ison and Domingo, the RTC of Makati City Branch 60 held that they did not exercise due diligence in the performance of their duties, and that by reason of their gross negligence, they facilitated the transfer of the titles of the subject three lots to an innocent purchaser despite the pendency of Civil Case No. 92-2831 before the RTC of Makati City, Branch 61. Ison and Domingo's reliance on the Certificate of Finality dated March 12, 1993 that did not categorically state that Civil Case No. 92-2831 was terminated, constituted gross negligence in the performance of their duties. Besides, the Certificate of Finality was issued only four days from the issuance of an order which means it had not yet attained finality.[72]

The spouses Duenas and MSI moved for the reconsideration[73] of the RTC of Makati City, Branch 60's January 15, 2002 Decision, insisting that the RTC of Makati City, Branch 60 erred in not finding MBTC in bad faith, and in not ordering the revival and reinstatement of TCT Nos. S-68301, S-68302, and S-68303 and the corresponding entries therein. They likewise assailed the amount of damages awarded.

On April 23, 2002, the RTC of Makati City, Branch 60 issued an Order[74] partially granting the spouses Duenas and MSI's motions for reconsideration thus:

WHEREFORE, both Motions are partially GRANTED in so far as they refer to the foregoing. Accordingly, the Decision of 15 January 2002 is MODIFIED and the dispositive portion shall hereafter read as follows:

Wherefore in view of the foregoing judgment is hereby rendered ordering defendants Adelaida T. Bernal and AF Realty to indemnify plaintiff and plaintiff-intervenor the amount of Php 39,308,000.00 representing the amount paid by the defendant Metrobank for the subject lots in question, with plaintiff-intervenor entitled to the extent of 40% of the said amount. Apart from this, said defendants are also directed to pay attorney's fees in the amount of Php300,000.00 in favor of plaintiff and plaintiff-intervenor.

In addition to this, public defendants, Inocencio C. Domingo and Penelope Ison, by reason of their negligent acts and wrongful omissions are held jointly and solidarily liable with defendants Bernal and AF Realty to pay in favor of plaintiff the amount of Php200,000.00 as and by way of moral damages.

SO ORDERED.[75]

Hence, the spouses Duenas,[76] MSI,[77] and AFRDI[78] filed an appeal before the CA.

Ruling of the Court of Appeals

In its May 15, 2013 Decision,[79] the CA affirmed in toto the January 15, 2002 Decision and the April 23, 2002 Order of the RTC of Makati City, Branch 60, to wit:

WHEREFORE, premises considered, the decision rendered by the Regional Trial Court, Branch 60 of Makati City is hereby AFFIRMED in TOTO.

SO ORDERED.[80]

The CA found MBTC to be a purchaser in good faith. It ruled that even a forged or fraudulent document may become the root of a valid title, if the property has already been transferred from the name of the owner to that of the forger. Thus, a person who deals with a registered property in good faith will acquire a good title from a forger and be absolutely protected by a Torrens title.[81]

Furthermore, the CA held that during MBTC and AFRDI's negotiation, and the former's eventual purchase of the subject lots on January 31, 1994, the titles over the three lots were clean. The Register of Deeds even confirmed that the said titles were free from liens and encumbrances. An MBTC's officer also visited the subject lots and saw eight shanties of informal settlers. The CA concluded that MBTC had no knowledge of any circumstance that would engender any doubt on the validity of the seller's title or any defect that would necessitate further investigation or inquiry as to its authenticity.[82]

The CA noted that MBTC became aware only of the pending cases involving the subject three lots on June 13, 1994 when it received summons. In addition, the Notice of Lis Pendens became effective only on February 23, 1994 pursuant to Sec. 52 of PD 1529. When the Notice of Lis Pendens was annotated on the titles of the subject lots, the sale between MBTC and AFRDI was already consummated. Hence, the CA ruled that the subsequent annotation of the Notice of Lis Pendens cannot defeat MBTC's status as a buyer in good faith and for value.[83]

Meanwhile, Daniel Duenas died on February 23, 2007[84] during the pendency of the appeal and was substituted by his heirs, Florencia and Daphne Duenas-Montefalcon (Daphne), the herein petitioners.

Petitioners Florencia and Daphne moved for the reconsideration[85] of the CA's May 15, 2013 Decision. However, the motion was denied by the CA in its October 8, 2013 Resolution.[86]

Hence, this Petition for Review on Certiorari under Rule 45.

Issues

Petitioners presented the following issues for the resolution of this Court:

I. THE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE ERROR IN SUSTAINING THE FINDINGS OF THE TRIAL COURT – THAT HEREIN RESPONDENT METROPOLITAN BANK AND TRUST COMPANY WAS IN GOOD FAITH IN ACQUIRING THE SUBJECT REAL ESTATE PROPERTIES IN LITIGATION;

II. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A SERIOUS REVERSIBLE ERROR IN NOT DECLARING THE TITLES ISSUED TO RESPONDENT AF REALTY AND DEVELOPMENT INC. AND RESPONDENT METROPOLITAN BANK AND TRUST COMPANY AS NULL AND VOID AB INITIO;

III. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A SERIOUS REVERSIBLE ERROR IN NOT AWARDING ACTUAL DAMAGES IN FAVOR OF HEREIN PETITIONERS FOR THE COMPENSATION OF THE REASONABLE RENTALS FOR THE USE AND OCCUPATION OF THE SUBJECT PREMISES BY RESPONDENT METROPOLITAN BANK AND TRUST COMPANY;

IV. THE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE ERROR IN SUSTAINING THE TRIAL COURT'S INADEQUATELY AWARDED MORAL DAMAGES IN FAVOR OF HEREIN PETITIONERS;

V. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A SERIOUS REVERSIBLE ERROR IN NOT AWARDING EXEMPLARY DAMAGES IN FAVOR OF HEREIN PETITIONERS; AND

VI. THE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE ERROR IN SUSTAINING THE TRIAL COURT'S MEAGERLY AWARDED ATTORNEY'S FEES IN FAVOR OF HEREIN PETITIONERS.[87]

Petitioners' Arguments

Petitioners argue that for a buyer to be considered in good faith, said buyer must be in good faith from the time of acquisition of the property until the registration of the deed of conveyance. In this case, petitioners contend that MBTC, as a banking institution imbued with public interest, cannot merely rely on the face of the certificate of title of a registered land and is duty-bound to undertake due diligence in checking the validity of the titles of the real estate properties.[88]

In addition, petitioners insist that the Notice of Adverse Claim dated September 2, 1992 under Entry No. 48918 annotated on TCT Nos. 178934, 178935, and 178936 in the name of Bernal was never cancelled and thus, is considered a notice to the public of petitioners' claim on the subject three lots. Hence, the subsequent acquisition of the subject three lots derived from the fraudulently issued TCT Nos. 178934, 178935, and 178936 in the name of Bernal would render the succeeding buyers thereof in bad faith.[89]

Furthermore, petitioners caused the annotation of a Notice of Lis Pendens dated October 1, 1992 on TCT Nos. 178934, 178935, and 178936 that again notified the public of the pending litigation, i.e., Civil Case No. 92-2831, involving the subject three lots. Petitioners maintain that this Notice of Lis Pendens dated October 1, 1992 was never cancelled and is deemed automatically carried over to the subsequently issued titles in favor AFRDI, i.e., TCT Nos. 185022, 185023, and 185024. The Register of Deeds is duty bound to carry over the Notice of Lis Pendens on all subsequently issued titles. However, petitioners argue that the Register of Deeds, Makati City unreasonably and intentionally failed to perform its lawful duty and effectively omitted to carry over the Notice of Lis Pendens on the newly issued titles in favor of AFRDI.[90]

Moreover, the Notice of Lis Pendens dated February 23, 1994 under Entry No. 81178 annotated on TCT Nos. 185022, 185023, and 185024 in the name of AFRDI served as a notice to the public of a pending litigation, i.e. Civil Case No. 94-751, involving the subject three lots. Petitioners contend that although AFRDI and MBTC executed a Deed of Absolute Sale on January 31, 1994, it was not registered or annotated on TCT Nos. 185022, 185023, and 185024.[91]

Thus, MBTC's failure to register the deed of absolute sale and the eventual issuance of TCT Nos. 195231, 195232, and 195233 in the name of MBTC despite the Notice of Lis Pendens dated February 23, 1994 rendered MBTC a buyer in bad faith. MBTC cannot validly insist that it is a buyer in good faith because there was a Notice of Lis Pendens dated February 23, 1994 duly annotated on TCT Nos. 185022, 185023, and 185024 prior to its registration of the Absolute Deed of Sale dated January 31, 1994 on June 15, 1994. Petitioners insist that the registration of the sale transaction is the determining factor which governs the status of a buyer, whether the latter is in good faith or bad faith.[92]

Petitioners also argue that MBTC's failure to immediately register the Absolute Deed of Sale dated January 31, 1994 will not affect innocent third persons as the same is binding only between the buyer and seller prior to its registration. Thus, petitioners' annotation of a Notice of Lis Pendens on February 23, 1994 prior to MBTC's registration of its Absolute Deed of Sale dated January 31, 1994 on June 15, 1994 renders the latter a buyer in bad faith.[93]

As to AFRDI, petitioners maintain that when AFRDI acquired the subject three lots from Bernal on April 23, 1993, there was a Notice of Lis Pendens under Entry No. 50908 dated October 1, 1992 on TCT Nos. 178934, 178935, and 178936, thereby binding subsequent parties whose titles are derived therefrom. The CA in G.R. SP No. 30354 clearly upheld the Notice of Lis Pendens annotated on Bernal's titles, i.e., TCT Nos. 178934, 178935, and 178936.[94]

Hence, the cancellation by the Register of Deeds, Makati City of the said Notice of Lis Pendens on March 12, 1993 has therefore no legal and factual bases. The registration of the Absolute Deed of Sale dated April 23, 1993 without carrying over the registered Notice of Lis Pendens therein does not make AFRDI a buyer in good faith. Its alleged ownership over the subject three lots emanated from fraudulent documents and titles that were later declared in Civil Case No. 92-2831 as null and void ab initio. Consequently, AFRDI's titles, i.e., TCT Nos. 185022, 185023, and 185024, are, likewise, null and void.[95]

Petitioners also note that Civil Case No. 92-2831 had already become final and executory. Thus, MBTC's titles over the subject three lots are likewise null and void as they emanated and were derived from AFRDI's titles that were already declared null and void in Civil Case No. 92-2831.[96]

Furthermore, petitioners contend that the CA's pronouncement that even a forged or fraudulent document may become the root of a valid title if the property has already been transferred from the name of the owner to the forger, contravenes Sec. 53 of PD 1529 that specifically limits the application and protection of good faith to purchasers of original petition or application. Hence, any subsequent registration, if procured through fraud or forgery, cannot be protected under the mantle of good faith.[97]

Lastly, petitioners demand actual damages, moral damages, exemplary damages and attorneys' fees.

Petitioners opine that they are entitled to actual damages as reasonable compensation for MBTC's use and occupation of the subject three lots, i.e., PHP 250,000.00 per month from the time of MBTC's unlawful possession of the subject three lots on February 23, 1994 until their actual surrender to petitioners.[98]

As to moral damages, petitioners assert that because of respondents' concerted acts in depriving them of the use and occupation of a valuable real estate property, they suffered continuous mental anguish, fright, serious anxiety, besmirched reputation, moral shock, social humiliation, and sleepless nights. Thus, they demand PHP 1,000,000.00 as moral damages.[99]

In addition, they pray for an award of PHP 500,000.00 as exemplary damages to serve as a lesson to the public and to discourage others from committing fraudulent transactions and irregularities in dealing with real properties covered by the Torrens system, and a reasonable amount of attorney's fees, i.e., PHP 300,000.00 for the expenses incurred in the litigation of the subject three lots which spanned more or less 20 years.[100]

Respondents MBTC and Chan's Arguments

Respondents MBTC and Chan opine that the question of whether MBTC is a buyer in good faith is one of fact that is outside the scope of a petition for review on certiorari under Rule 45. They contend that the Court is not a trier of facts and its jurisdiction is confined to reviewing errors of law that may have been committed in the judgment under review. They maintain that the petitioners' arguments are a mere rehash of those raised in and judiciously passed upon by the courts a quo.[101]

Furthermore, respondents contend that MBTC is a buyer in good faith as the titles were free from any liens and encumbrances when MBTC purchased the subject three lots from AFRDI. Also, MBTC verified and counterchecked the titles of the subject three lots with the Register of Deeds, Makati City. MBTC validly relied on the correctness of the certificates of title issued and is not obliged to go behind the certificates to determine the condition of the property. Thus, respondents maintain that MBTC is an innocent purchaser for value that is entitled to enjoy the protection of the law on indefeasibility of titles.[102]

Moreover, the annotation of the adverse claim and notice of lis pendens on Bernal's titles, i.e., TCT Nos. 178934, 178935, and 178936, does not negate the fact that MBTC is an innocent purchaser for value and in good faith. Respondents insist that MBTC had no knowledge of such adverse claim at the time of sale on January 31, 1994. The MBTC took the necessary precautions to verify the status of the titles of the subject three lots.[103]

Also, respondents note that the subsequent annotation of a Notice of Lis Pendens on February 23, 1994 on AFRDI's titles, i.e. TCT Nos. 185022, 185023, and 185024, will not make MBTC a buyer in bad faith. Respondents argue that the sale between MBTC and AFRDI was already perfected on January 31, 1994. The subsequent registration of the absolute deed of sale dated January 31, 1994 on June 15, 1994, even with the prior annotation of a Notice of Lis Pendens dated February 23, 1994, will not affect MBTC's status as a buyer in good faith.

Respondents Ison and Domingo's
Arguments

Respondents Ison and Domingo assert that the present petition is fatally defective as it raises pure questions of fact that are inappropriate in a petition for review on certiorari under Rule 45. They argue that the ascertainment of good faith or the lack of it, and the determination of whether due diligence and prudence was exercised or not, are questions of fact. In addition, they opine that the issue on the amount of damages awarded calls for the reevaluation of evidence which is obviously a question of fact.[104]

Furthermore, Ison and Domingo argue that the CA did not commit reversible error in affirming in toto the findings of the RTC of Makati City, Branch 60 that MBTC is an innocent purchaser for value.[105] They maintain that MBTC duly established that at the time of its purchase of the subject three lots from AFRDI, the titles were clean. MBTC's further verification with the Register of Deeds, Makati City yielded no information about any defect in the titles of AFRDI. Hence, MBTC's titles over the subject three lots must be respected and protected although AFRDI acquired titles over them through fraudulent means.[106]

Respondents Ison and Domingo echo the stance of MBTC and Chan that when the Notice of Lis Pendens was annotated on AFRDI's titles on February 23, 1994, the sale between MBTC and AFRDI was already consummated. Hence, the said subsequent annotation of a notice of lis pendens cannot defeat MBTC's status as a buyer in good faith and for value.[107]

Anent the damages awarded, respondents Ison and Domingo contend that the amount of PHP 200,000.00 as moral damages awarded to petitioners is fair and reasonable under the circumstances. Nonetheless, they opine that petitioners are not entitled to exemplary damages as there is no sufficient proof that Ison and Domingo acted in bad faith or wanton manner.[108]

Respondents AFRDI and Ranullo

Respondents AFRDI and Ranullo failed to file their respective comments on the petition despite due notice. Thus, they are deemed to have waived the filing of their respective comments. Pending the resolution of the petition, respondent Ranullo died on January 20, 2010.[109]

Our Ruling

After a careful consideration, We find the petition meritorious.

For ease of reference, the table below shows the transfers and/or transactions that transpired involving the subject three lots:

Registered Owner
Transfer Certificate
of Title Number
Date Issued
Instrument or Deed
of Conveyance
1. Dolores Egido Vda. De Sola
TCT Nos. T-79864, T-79865 and T-79866
(not found in records)
(not found in records)
2. Bellever Brothers, Inc.
TCT Nos. S-68301, S-68302 and S-68303
May 22, 1978
(not found in records)
3. Adelaida T. Bernal
TCT Nos. 178934, 178935 and 178936
March 19, 1992
Deed of Absolute Sale dated December 18, 1985
4. AF Realty Development, Inc.
TCT Nos. 185022, 185023 and 185024
April 28, 1993
Deed of Absolute Sale dated April 23, 1993
5. Metropolitan Bank and Trust Company
TCT Nos. 195231, 195232 and 195233
June 15, 1994
Deed of Absolute Sale dated January 31, 1994

Moreover, a perusal of the records reveals that the subject three lots were involved in three separate civil actions including the present case, namely:

Civil Case Number
Court
Parties
Nature of Action
1. Civil Case No. 29782
CFI, Pasig, Branch 19 (now RTC of Pasig, Branch 158)
Plaintiff: Dolores substituted by her heir Carmen who thereafter assigned her rights to petitioner Florencia

Defendants: BBI and MSI

Action to rescind and/or declare the nullity of sale of the subject three lots, and to cancel BBI's titles
2. Civil Case No. 92-2831
RTC of Makati City, Branch 61
Plaintiffs: Spouses Duenas

Defendants: Bernal, BBI, Jesse Beato, and Flores
Action to declare the nullity of TCT Nos. 178934, 178935 and 178936 (Bernal's titles) and the Absolute Deed of Sale dated December 18, 1985
3. Civil Case No. 94-751 (Present Case)
RTC of Makati City, Branch 60
Plaintiffs: Spouses Duenas (Daniel later on substituted by his heirs Daphne and Florencia)

Defendants: Bernal, AFRDI, Ison, Domingo, Ranullo, MBTC and Chan

Action to declare the nullity of TCT Nos. 185022, 185022 and 185024 (AFRDI's titles), and to demand damages

At the outset, We state that the issue of Bernal's fraudulent acquisition of titles over the subject three lots, i.e., TCT Nos. 178934, 178935, and 178936, had already been passed upon and settled in Civil Case No. 92-2831.[110] Thus, as between petitioners Florencia and Daphne, and respondent Bernal, the former have conclusively established their right of ownership over the subject three lots. The June 19, 1995 Decision of the RTC of Makati City, Branch 61 in Civil Case No. 92-2831 had already become final and executory, and thus constitutes res judicata with regard to the nullity of Bernal's titles. The principle of res judicata holds that issues actually and directly resolved in a former suit cannot be raised in any future case between the same parties.[111] As correctly ruled by the court a quo:

Besides, the decision rendered by RTC-Br. 61 entitled Spouses Duenas, et al. vs. Bernal and docketed as Civil Case No. 92-2831 conclusively established plaintiff's right of ownership over the subject properties. The decision finding in favor of plaintiff Duenas as against defendant Bernal by declaring TCT Nos. 178934, 178935 and 178936 null and void and which has become final unappealable and executory constitutes res judicata in so far as the nullity of the aforesaid titles is concerned.[112]

Notably, the said June 19, 1995 Decision of RTC of Makati City, Branch 61 in Civil Case No. 92-2831 was annotated on MBTC's titles, i.e., TCT Nos. 195231, 195232, and 195233 on September 11, 2000 under entry no. 46768.[113]

Further, it is worth noting that MSI did not appeal the assailed CA's March 15, 2013 Decision and the October 8, 2013 Resolution. Consequently, no affirmative relief can be granted to MSI, if any, in the present petition. As far as MSI is concerned, the CA's March 15, 2013 Decision and the October 8, 2013 Resolution affirming in toto the RTC of Makati City, Branch 60's January 15, 2002 Decision and April 23, 2002 Order in Civil Case No. 94-751 are already final. It is settled that no affirmative relief can be granted to those parties who did not appeal. Hence, MSI is entitled to 40% of the amount paid by MBTC to AFRDI as purchase price for the sale of the subject three lots, i.e., 40% of PHP 39,308,000.00.

Conversely, petitioners Florencia and Daphne's share on the subject three lots or the purchase price thereof paid by MBTC is only 60%. To clarify, the subject matter of the present controversy pertains only to the alleged ownership of petitioners over the subject three lots comprising 60% thereof. Thus, any reference on petitioners Florencia and Daphne's alleged right of ownership over the subject three lots is construed to pertain only to 60%.

With the foregoing matters settled, the remaining issues for resolution are: a) whether AFRDI's acquisition of titles over the subject three lots from Bernal, i.e. TCT Nos. 185022, 185023, and 185024, and the subsequent transfer of titles to MBTC, i.e., TCT Nos. 195231, 195232, and 195233, are tainted with bad faith; and b) whether petitioners Florencia and Daphne are entitled to actual damages, moral damages, exemplary damages, and attorney's fees.

The crux of the controversy is rooted on the alleged lack of good faith on the part of AFRDI and MBTC when they acquired the subject three lots from Bernal and AFRDI, respectively. However, before proceeding to the substantial issues of the case, We first resolve the procedural issue, that is, whether the determination of good faith is a question of fact and therefore outside the ambit of a petition for review on certiorari under Rule 45.

The determination of good faith is a question of fact which is outside the ambit of Rule 45. However, the rule admits of certain exceptions

As a general rule, only questions of law may be raised in a petition for review on certiorari[114] under Rule 45 as this Court is not a trier of facts. In the exercise of the power of review, We do not normally undertake a re-examination of the evidence presented by the contending parties during the trial of the case, that is, the ascertainment of whether AFRDI and MBTC acted in good faith in buying the subject three lots, respectively. However, the said rule admits of exceptions, such as in the present case. The findings of facts of the courts a quo will not bind the parties considering that the inference made on the evidence is mistaken and the judgment is based on a misapprehension of facts.[115]

Hence, We now proceed to the core of controversy.

Who is an innocent purchaser in good faith and for value?

The prevailing rule in dealing with registered lands is that one need not inquire beyond the four corners of the Torrens certificate of title.[116] The purpose 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 to dispense, as a rule, with the necessity of inquiring further."[117] In line with the foregoing, Section 44 of PD 1529 expressly recognizes innocent purchasers in good faith and for value and their right to rely on a clean title:

Section 44. Statutory liens affecting title. — Every registered owner receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted in said certificate and any of the following encumbrances which may be subsisting, namely:

First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines which are not by law required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or encumbrances of record.

Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the acquisition of any right over the land by an innocent purchaser for value, without prejudice to the right of the government to collect taxes payable before that period from the delinquent taxpayer alone.

Third. Any public highway or private way established or recognized by law, or any government irrigation canal or lateral thereof, if the certificate of title does not state that the boundaries of such highway or irrigation canal or lateral thereof have been determined.

Fourth. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to, Presidential Decree No. 27 or any other law or regulations on agrarian reform. (Emphasis and underscoring supplied)

In Leong v. See,[118] We defined an innocent purchaser for value as:

An innocent purchaser for value refers to someone who "buys the property of another without notice that some other person has a right to or interest in it, and who pays a full and fair price at the time of the purchase or before receiving any notice of another person's claim." One claiming to be an innocent purchaser for value has the burden of proving such status.

The protection of innocent purchasers in good faith for value grounds on the social interest embedded in the legal concept granting indefeasibility of titles. Between the third party and the owner, the latter would be more familiar with the history and status of the titled property. Consequently, an owner would incur less costs to discover alleged invalidities relating to the property compared to a third party. Such costs are, thus, better borne by the owner to mitigate costs for the economy, lessen delays in transactions, and achieve a less optimal welfare level for the entire society.[119] (Emphasis and underscoring supplied, citations omitted)

Under Sec. 32[120] of PD 1529, the definition of an innocent purchaser for value has been expanded to include an innocent lessee, mortgagee, or other encumbrancer for value. To be accorded the protection in Sec. 44, a buyer of registered land must comply with two parameters: (a) payment of value, i.e., a full and fair price for the property and (b) the buyer must have purchased the property in good faith. In essence, good faith is a state of mind consisting of honesty in belief or purpose, faithfulness to one's duty or obligation, observance of reasonable commercial standards of fair dealing in a given trade or business, or absence of intent to defraud or to seek unconscionable advantage.[121]

Further, the Court in Bautista v. Silva[122] and Gabutan v. Nacalaban,[123] We ruled that for one to be considered a purchaser for value and in good faith, the following requisites must concur:

In Bautista v. Silva, 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 corners 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.[124] (Emphasis and underscoring supplied; citations omitted)

Moreover, the Court in Nobleza v. Nuega[125] and Dy v. Aldea[126] held that to successfully invoke the ordinary presumption of good faith, the buyer must have shown prudence and due diligence in the exercise of his or her rights.

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. 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. To successfully invoke and he 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.' 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.[127] (Emphasis and underscoring supplied; citations omitted)

In Domingo Realty, Inc. v. Court of Appeals[128] and Locsin v. Hizon,[129] We elucidated on the precautionary measures and diligence a prospective buyer of titled lands must observe to ensure the legality of the title and the accuracy of the metes and bounds of the lots to be purchased, to wit:

Thus, in Domingo Realty, Inc. v. CA, we emphasized the need for prospective parties to a contract involving titled lands to exercise the diligence of a reasonably prudent person in ensuring the legality of the title, and the accuracy of the metes and bounds of the lot embraced therein, by undertaking precautionary measures, such as:

1. Verifying the origin, history, authenticity, and validity of the title with the Office of the Register of Deeds and the Land Registration Authority;

2. Engaging the services of a competent and reliable geodetic engineer to verify the boundary, metes, and bounds of the lot subject of said title based on the technical description in the said title and the approved survey plan in the Land Management Bureau;

3. Conducting an actual ocular inspection of the lot;

4. Inquiring from the owners and possessors of adjoining lots with respect to the true and legal ownership of the lot in question;

5. Putting up of signs that said lot is being purchased, leased, or encumbered; and

6. Undertaking such other measures to make the general public aware that said lot will be subject to alienation, lease, or encumbrance by the parties[.][130]

In sum, the mirror doctrine provides that every person dealing with a registered land may safely rely on the correctness of the certificate of title issued therefor and is not obliged to go beyond the certificate to determine the condition of property. "As such, a defective title, or one the procurement of which is tainted with fraud and misrepresentation — may be the source of a completely legal and valid title, provided that the buyer is an innocent third person who, in good faith, relied on the correctness of the certificate of title, or an innocent purchaser for value."[131]

However, the said rule admits of certain exceptions, namely: (a) when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make further inquiry; (b) when the buyer has knowledge of a defect or the lack of title in his vendor; or (c) when the buyer/mortgagee is a bank or an institution of similar nature as they are enjoined to exert a higher degree of diligence, care, and prudence than individuals in handling real estate transactions.[132]

Guided by the foregoing legal precepts, and before revisiting our current concept of 'good faith' required of a purchaser, We resolve whether AFRDI and MBTC respectively hold an indefeasible title to the subject three lots as innocent purchasers in good faith and for value under current parameters. In applying the foregoing, AFRDI and MBTC are deemed wanting.

a. AFRDI is not a purchaser in good faith and for value.

A perusal of the records shows that TCT Nos. 178934, 178935, and 178936 in the name of Bernal had the following annotations: (a) Affidavit of Adverse Claim dated August 31, 1992 by petitioner Florencia who claimed ownership over the subject three lots by virtue of a deed of assignment dated July 31, 1991 under entry no. 48918 annotated on September 2, 1992; and (b) Notice of Lis Pendens dated October 1, 1992 under Entry No. 45319 annotated on the same day, October 1, 1992, stating that the subject three lots were subjects of a pending litigation docketed as Civil Case No. 92-2831.

Thereafter, Bernal sold the subject three lots to AFRDI which claimed that it acquired the titles free from any lien or encumbrances. AFRDI argued that at the time of its acquisition of the subject three lots by virtue of a Deed of Absolute Sale dated April 23, 1993, the Notice of Lis Pendens dated October 1, 1992 was already cancelled by Ison of the Register of Deeds of Makati City under Entry No. 60929 on March 12, 1993. The said cancellation was based on the January 25, 1993 Order of RTC of Makati City, Branch 61 that allegedly became final and executory on March 12, 1993, the same day Entry No. 60929 was inscribed.

Although it is true that the annotation of a Notice of Lis Pendens dated October 1, 1992 was already cancelled in the titles of Bernal, i.e., TCT Nos. 178934, 178935, and 178936 on March 12, 1993, or prior to the sale of the subject three lots to AFRDI on April 23 1993, it bears noting that Bernal's TCT Nos. 178934, 178935, and 178936 still bear the annotation of the Affidavit of Adverse Claim dated August 31, 1992. The annotation of the Affidavit of Adverse Claim was cancelled only by Domingo of the Register of Deeds, Makati City on April 28, 1993 under Entry No. 63539, or five days after the sale to AFRDI. "The annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property, and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or may have a better right than the registered owner thereof."[133]

Notably, the titles of AFRDI, i.e., TCT Nos. 185022, 185023, and 185024 were issued on April 28, 1993 or on the same day Entry No. 48918 or the petitioners' affidavit of adverse claim dated August 31, 1992 was cancelled. With the foregoing, AFRDI cannot validly claim that it had no knowledge or notice of any fact and circumstance that would impel it to make further inquiry. The fact that AFRDI bought the subject three lots knowing that the Affidavit of Adverse Claim dated August 31, 1992 was duly annotated on Bernal's titles and was not yet cancelled during their sale transaction means that AFRDI was duly informed of the defect or lack of title, if any, of its vendor Bernal.

Moreover, nothing in the records would show that AFRDI or any of its officers or representatives inquired into the veracity of petitioner Florencia's claim of ownership over the subject three lots by virtue of her affidavit of adverse claim dated August 31, 1992. AFRDI, cannot, therefore, seek the protection accorded by law to innocent purchasers in good faith and for value on the pretext that the Affidavit of Adverse Claim dated August 31, 1992 was already cancelled on April 28, 1993.

To reiterate, AFRDI already had prior knowledge of petitioner Florencia's claim over the subject three lots when it purchased the subject properties from Bernal. Thus, AFRDI cannot simply rely on the certificates of title when the said titles were not clearly free from any lien or encumbrance.

Besides, Entry No. 63539 that cancelled Entry No. 48918 or the Affidavit of Adverse Claim dated October 31, 1992 was not even clear on what ground or under whose order the said adverse claim was cancelled. What is clear is that AFRDI registered its Deed of Absolute Sale dated April 23, 1993 on April 28, 1993 which coincided with the cancellation of the Affidavit of Adverse Claim dated August 31, 1992 by Domingo of the Register of Deeds, Makati City.

Sec. 70 of PD 1529 clearly states that an adverse claim annotated on a certificate of title has an effective date of 30 days. After the lapse of such period, the adverse claim may be cancelled upon filing of a verified petition by the party in interest, thus:

Section 70. Adverse claim.—Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Decree for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, a reference to the number of the certificate of title of the registered owner, the name of the registered owner, and a description of the land in which the right or interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimant's residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be canceled upon filing of a verified petition therefor by the party in interest: Provided, however, that after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant.

Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance where the land is situated for the cancellation of the adverse claim, and the court shall grant a speedy hearing upon the question of the validity of such adverse claim, and shall render judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered canceled. If, in any case, the court, after notice and hearing, shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less than one thousand pesos nor more than five thousand pesos, in its discretion. Before the lapse of thirty days, the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn petition to that effect. (Emphasis and underscoring supplied)

The records are bereft of any showing that AFRDI or Bernal filed a verified petition to cancel petitioner Florencia's affidavit of adverse claim dated August 31, 1992. Notwithstanding the 30-day validity of the adverse claim from the date of its registration, this does not negate the fact that AFRDI was aware of its annotation on Bernal’s titles at the time of its purchase. AFRDI cannot therefore refute such knowledge and invoke the cloak of protection accorded to an innocent purchaser for its failure to exercise the diligence of a reasonably prudent person in employing precautionary measures to ensure the legality of the titles of the properties it intends to purchase.

For the foregoing reasons, AFRDI is considered a buyer in bad faith and therefore not entitled to protection of law.

b) MBTC is not an innocent purchaser in good faith and for value at the time of the execution of the Deed of Absolute Sale dated January 31, 1994.

At the outset, it is worthy to stress that "[b]anks assume a degree of prudence and diligence higher than that of a good father of a family, because their business is imbued with public interest and is inherently fiduciary."[134] In the same vein, banking institutions are enjoined to exert a higher degree of diligence, care, and prudence than ordinary individuals in handling real estate transactions. "When the purchaser or mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied more strictly."[135] A banking institution cannot, therefore, simply rely on the face of the certificate of title and assume that because the certificate of title is free from any lien or encumbrances, it is relieved from the responsibility of taking farther steps to verify the title and inspect the properties. It is expected to verify the genuineness of the title and investigate who is/are its real owner/s and actual possessors.[136]

Thus, while MBTC examined TCT Nos. 185022, 185023, and 185204 covering the subject properties and found that they were clean on its face and free from any annotations at the time of sale on January 31, 1994,[137] and relied on the representations of its Department of Internal Affairs that the titles were authentic,[138] the banking institution should have flagged the numerous cancelled annotations - consisting of several pages of the TCTs - which, albeit already cancelled, forewarn of a long history of disputes plaguing the three subject lots. MBTC should have been further put into alert when it conducted a physical inspection of the three subject lots and found the same to be occupied by informal settlers. In Crisostomo v. Court of Appeals,[139] We ruled:

It is a well-settled rule that a purchaser or mortgagee cannot close his [or her] eyes to facts which should put a reasonable man [or woman] upon his [or her] guard, and then claim that he [or she] acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His [or her] mere refusal to believe that such defect exists, or his [or her] willful closing of his [or her] eyes to the possibility of the existence of a defect in the vendor's or mortgagor's title, will not make him an innocent purchaser or mortgagee for value, if it afterwards develops that the title was in fact defective, and it appears that he [or she] had such notice of the defects as would have led to its discovery had he [or she] acted with the measure of precaution which may be required of a prudent man [or woman] in a like situation.[140] (Emphasis supplied and citations omitted)

To stress, a "buyer of real property which is in possession of another must be wary and investigate the rights of the latter. Otherwise, without such inquiry, the buyer cannot be said to be in good faith and cannot have any right over the property[.]"[141] Thus, instead of merely relying on the face of the title and AFRDI's representations that the occupants were members of the NPA and informal settlers and requiring AFRDI to eject the illegal occupants, and disregarding these circumstances that should have reasonably aroused its suspicion, it was incumbent upon MBTC to be mindful of these red flags and to conduct an exhaustive investigation into any issues or clouds on the title of the subject three lots.

Had MBTC earnestly exerted the required diligence and further investigated the status of the property by utilizing the vast resources in its disposal instead of acting in undue haste, it would have discovered the defects plaguing the titles of the subject three lots. However, it miserably failed to do so. Verily, at the time of the purchase, MBTC is a buyer in bad faith and therefore has no rights over the three subject lots.

Nevertheless, the peculiar circumstances of this case and the arguments raised by the parties behoove the Court to reexamine one of the basic concepts under our land registration laws. To recall, in considering MBTC to be a purchaser in good faith, the appellate court stressed that the subsequent annotation of the Notice of Lis Pendens after the consummation of the sale between AFRDI and MBTC but prior to MBTC's registration of such sale cannot defeat MBTC's status as a buyer in good faith and for value.

It is significant to note that existing jurisprudence merely requires a purchaser to maintain 'good faith' at the time of the sale. In Bautista v. Silva,[142] the Court pronounced the parameters of an innocent purchaser for value and in good faith in this wise:

A holder of registered title may invoke the status of a buyer for value in good faith as a defense against any action questioning his [or her] title. Such status, however, is never presumed but must be proven by the person invoking it.

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 [or she] has notice of the claim or interest of some other persons in the property. He [or she] buys the property with the well-founded belief that the person from whom he [or she] 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 [or she] relied on the face of the title to the property. He [or she] need not prove that he [or she] made further inquiry for he [or she] is not obliged to explore beyond the four corners 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 [or her] 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 [or she] relied on the face of the title; he [or she] must now also show that he [or she] exercised reasonable precaution by inquiring beyond the title. Failure to exercise such degree of precaution makes him [or her] a buyer in bad faith.[143] (Emphasis and underscoring supplied; citations omitted)

Moreover, the Court in Universal Robina Sugar Milling Corp. v. Heirs of Teves[144] held:

An innocent purchaser is one who acquired the property for a valuable consideration, not knowing that the title of the vendor or grantor is null and void. He is also one who buys the property of another without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same, at the time of such purchase, or before he [or she] has notice of the claim or interest of some other persons in the property. The concept underscores two important factors: (1) the property which is bought for consideration, and (2) the lack of knowledge or notice of adverse claim or interest prior to the sale[.][145] (Emphasis supplied and citations omitted)

Thus, assuming arguendo that MBTC complied with the standards of good faith until the time of its purchase of the three subject lots from AFRDI, the CA was correct in considering AFRDI to be an innocent purchaser for value and in good faith under current parameters.

Nevertheless, in assailing the foregoing, petitioners argue that for a buyer to be considered in good faith, his or her good faith must be continuing from the time of acquisition of the property until the registration of the deed of conveyance. To recall, MBTC only registered the said Deed of Conveyance on June 15, 1994. Obviously, during its registration, TCT Nos. 185022, 185023, and 185024 already contained a Notice of Lis Pendens, i.e., Civil Case No. 94-751, which was duly filed and registered on February 23, 1994 by petitioners. Otherwise stated, when MBTC registered the Deed of Absolute Sale, petitioners' Notice of Lis Pendens was already annotated on the subject titles. Withal, petitioners assert that MBTC's belated registration of the sale, at a time when the petitioners' Notice of Lis Pendens was already annotated on the titles of the three subjects lots, operated to defeat petitioners' good faith in dealing with the transaction.

After a careful reexamination of our land registration laws and jurisprudence, We agree with petitioners. The Court now holds that buyers of registered land must be continuing purchasers for value and in good faith until the registration of the conveyance. In the event a buyer of registered land who has yet to register the conveyance is made 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 or her capacity to convey title, the buyer shall no longer be considered to be in good faith even if he or she subsequently registers the conveyance. It is only upon registration of the conveyance in good faith will the purchaser acquire such rights and interest as they appear in the certificate of title, unaffected by any prior lien or encumbrance not noted therein.

In arriving at this conclusion, an initial discussion of the Torrens system in the Philippines vis-à-vis the role of registration in PD 1529 is in order.

Registration; role and effects under PD 1529; the principle of primus tempore, potior jure

The Torrens system, and registration of title to land under this framework, was designed to give titles greater security and afford greater protection to the purchaser. It traces its roots to Australia in 1858, and the same system was later adopted by other countries.[146] Similarly, to establish a framework by which recorded title becomes absolute, indefeasible and imprescriptible, all registered lands in the Philippines were placed under the Torrens system of registration pursuant to Act No. 496,[147] otherwise known as the Land Registration Act.[148] PD 1529, known as the Property Registration Decree and which was enacted on June 11, 1978, amended and updated Act No. 496.[149]

The goal in establishing the Torrens system of registration is to craft a mechanism by which land ownership may be incontrovertibly proven, with the anticipated effect of facilitating the ease, reliability, and enforceability of real estate transactions.[150] The ratio for its enactment is to make all evidence of title to lands in the Philippine Islands a matter of record, to the end that all persons dealing or treating with respect of titles to lands might be enabled from the proper register of titles to ascertain the true status and ownership of liens, etc., respecting particular parcels or tracts of land.[151]

In accord with this purpose, the requirement of registration is at the forefront of PD 1529 in which many of the statute's provisions find anchor. At the outset, inclusion in the Torrens system requires an applicant to register in accordance with the procedures laid out in the statute. Upon issuance of the original decree of registration, the statute recognizes an "innocent purchaser for value and in good faith" of registered land, who may rely on the certificate of title and hold the same free from all encumbrances, subject to the stated exceptions in accordance with Sec. 44 of PD 1529, which is worded thus:

Section 44. Statutory liens affecting title. — Every registered owner receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted in said certificate and any of the following encumbrances which may be subsisting, namely:

First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines which are not by law required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or encumbrancers of record.

Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the acquisition of any right over the land by an innocent purchaser for value, without prejudice to the right of the government to collect taxes payable before that period from the delinquent taxpayer alone.

Third. Any public highway or private way established or recognized by law, or any government irrigation canal or lateral thereof, if the certificate of title does not state that the boundaries of such highway or irrigation canal or lateral thereof have been determined.

Fourth. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to, Presidential Decree No. 27 or any other law or regulations on agrarian reform. (Emphasis and underscoring supplied)

The requirement of registration is also imposed on conveyances and dealings involving registered land under Secs. 51 and 52 of PD 1529, which provide that:

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 [or she] 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. (Emphasis supplied)

Thus, persons who acquire registered land or an interest therein are reposed with the duty to register such conveyances and dealings should they seek to protect their interest on the land in relation to third persons. The requirement of registration goes hand-in-hand with the governing principle embodied in Sec. 51 and Sec. 52 that "the act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned" and that "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 as evidence of authority to the Register of Deeds to make registration." Prior to such registration, a deed of sale or conveyance may be entered into freely by the parties, but remains binding only as between the parties thereto. No act of the parties themselves can transfer the ownership of real estate under the Torrens system; that is done by the act of registration of the conveyance which the parties have made.[152] Verily, the acquisition of registered land vis-à-vis the public is completed not upon the purchase of the property by the buyer, but only upon registration.

Similarly, it is settled that any voluntary and involuntary dealings in registered land that are less than ownership, and its extinguishment, must be duly registered under the Torrens system through the procedure under PD 1529.[153] These include mortgages and leases,[154] powers of attorney and trusts,[155] attachments,[156] adverse claims,[157] and lis pendens.[158] Therefore, in both voluntary and involuntary dealings, registration is imperative to affect and bind the land against third persons. Indeed, persons who are not privy to voluntary or involuntary dealings affecting registered land cannot be expected to have constructive knowledge or notice of a conveyance, or voluntary instruments such as deeds, mortgages, and leases, much less be bound by such without such instrument being duly filed and registered with the Register of Deeds.

In the above context, there is manifest inconsistency in allowing a buyer of registered land to maintain good faith only until at the time of the sale, and accord them protection from any liens or annotations they may be made aware of prior to registering the conveyance to notify third persons. On one hand, it is basic under PD 1529 that a conveyance takes effect only upon the parties to the conveyance and would bind third persons only upon registration. On the other, the consequences of becoming an innocent purchaser for value and in good faith (i.e. the right to rely on the four corners of the title and hold the same free from liens and encumbrances, as against any competing claims) redound to the benefit of such purchaser and in turn, operates against any and all third persons with an interest or claim on the property transferred. In practical terms, a purchaser who had no notice of any unregistered cloud or lien on his or her property during the sale, but who subsequently receives actual notice of the foregoing prior to registration of the conveyance, is shielded from such notice and retains his or her rights over the land purchased. The conveyance to registered land, to some extent, thereby already becomes binding to non-parties to the transaction even prior to its registration, which is antithetical to the tenets stated in Secs. 51 and 52 of PD 1529.

This apparent discordance in our current parameters of good faith is highlighted when the principle of primus est in tempore, potior est in jure (first in time, stronger in right), which is controlling in land registration matters,[159] is considered. Under this principle, prior unregistered claims are considered subordinate to registered deeds and conveyances. Moreover, registration alone without good faith is not sufficient. Good faith must concur with registration for such prior right to be enforceable.[160]

In Heirs of Marasigan v. Intermediate Appellate Court,[161] (Marasigan), the Court ruled in favor of the duly registered notice of lis pendens over a prior unregistered sale, to wit:

There is a clear showing that although the late Maria Marasigan acquired the property in question from the Bazars pursuant to a deed of absolute sale on December 18, 1974 or a little over four months before the filing of Civil Case No. 97479, the transaction became effective as against third persons only on July 5, 1977 when it was registered with the Registry of Deeds of Manila. It is the act of registration which creates constructive notice to the whole world. Section 51 of Act 496, as amended by Section 52 of the Property Registration Decree (P.D. 1529) provides:

"Sec. 52. Constructive notice upon registration. — Every conveyance [x x x ] 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."

Moreover, there is no question that when the late Maria Marasigan was issued her transfer certificate of title to the subject property (T.C.T. No. 126056), the Registrar of Deeds of Manila then carried over to the new title the notice of lis pendens which the private respondent had caused to be annotated at the back of the Bazar's title. In case of subsequent sales or transfers, the Registrar of Deeds is duty bound to carry over the notice of lis pendens on all titles to be issued. Otherwise, if he cancels any notice of lis pendens in violation of his duty, he may be held civilly and even criminally liable for any prejudice caused to innocent third persons (The Director of Lands, et al. v. Reyes, 68 SCRA 177).

A notice of lis pendens means that a certain property is involved in a litigation and serves as notice to the whole world that one who buys the same does it at his [or her] own risk (Rehabilitation Finance Corporation v. Morales, 101 Phil. 171). It was also a clear notice to Maria Marasigan that there was a court case affecting her rights to the property she had purchased.

As earlier stated it was only on July 5, 1977 that the sale between Maria Marasigan and the Bazars became effective as against third persons. The registration of the deed of sale over the subject property was definitely subsequent to the annotation made on January 27, 1976. Consequently, Marasigan was bound by the outcome of the litigation against her vendors or transferors. (See Rivera v. Tirona, et al., 109 Phil. 505).

We reiterate the established rule that:

[x x x] the filing of a notice of lis pendens charges all strangers with a notice of the particular litigation referred to therein and, therefore, any right they may thereafter acquire on the property is subject to the eventuality of the suit. The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the subject matter of the litigation within the power of the Court until the judgment or decree shall have been entered; otherwise, by successive alienations pending the litigation, its judgment or decree shall be rendered abortive and impossible of execution [x x x] (Laroza v. Guia, 134 SCRA 341)

The late Marasigan's transferors did not interpose any appeal from the adverse judgment dated February 24, 1976 in Civil Case No. 97479. The 30-day period under the old rule (Rule 41, section 3 of the Revised Rules of court now amended by Batas Pambansa Bilang 129, section 39) within which the Bazars may have taken an appeal started to run from May 12, 1976 when they were served with a copy of the said decision. On June 11, 1976, the February 24, 1976 decision in Civil Case No. 97479 became final and executory. At this point after the finality of the said decision, the Bazars no longer had the right to alienate the property subject of the litigation. Any transaction effective during the period of litigation is subject to the risks implicit in the notice of lis pendens and to the eventual outcome of the litigation.[162] (Emphasis and underscoring supplied; citations omitted)

In Marasigan, the Court applied Sec. 52 of PD 1529 in ruling that the unregistered sale transaction between Marasigan and the Bazars is not effective against third persons. Thus, when Marasigan registered its Deed of Absolute Sale dated December 18, 1974 only on July 5, 1977, the same operates as a constructive notice to the whole world only from such time. Consequently, at the time of its registration, the Notice of Lis Pendens was already registered and annotated on January 27, 1976. Hence, even with the subsequent issuance of title in Marasigan's name, the Notice of Lis Pendens was carried over on her title which denotes that Marasigan and the subject property were bound by the outcome of the litigation.

In Cruz v. Bancom Finance Corp.,[163] the Court reiterated that registration is not the operative act for a mortgage to be binding between the parties; but to third persons, it is indispensable. In this case, the Adverse Claim and Notice of Lis Pendens were annotated on the title on October 30, 1989 and December 10, 1979, respectively. The prior mortgage was registered only on March 14, 1980. The Court applied the doctrine that a prior registration of a lien creates a preference. Hence, as between a prior unregistered mortgage, and a registered adverse claim and Notice of Lis Pendens, the latter are considered superior over the former. The subsequent registration of the prior mortgage will not diminish the preference.[164]

In Du v. Stronghold Insurance Co., Inc.[165] (Stronghold), the Court ruled in favor of a duly registered levy on attachment or execution over a prior unregistered sale. The Court upheld the application and effects of Secs. 51 and 52 of PD 1529, holding thus:

The preference given to a duly registered levy on attachment or execution over a prior unregistered sale is well-settled in our jurisdiction. As early as Gomez v. Levy Hermanos, this Court has held that an attachment that is duly annotated on a certificate of title is superior to the right of a prior but unregistered buyer. In that case, the Court explained as follows:

x x x. It is true that she bought the lots with pacto de retro but the fact of her purchase was not noted on the certificates of title until long after the attachment and its inscription on the certificates. In the registry, therefore, the attachment appeared in the nature of a real lien when Apolonia Gomez had her purchase recorded. The legal effect of the notation of said lien was to subject and subordinate the right of Apolonia Gomez, as purchaser, to the lien. She acquired the ownership of the said parcels only from the date of the recording of her title in the register, which took place on November 21, 1932 ([S]ec. 51 of Act No. 496; Liang-Wong-Shih vs. Sunico and Peterson, 8 Phil. 91; Tabigue vs. Green, 11 Phil. 102; Buzon vs. Lucauco, 13 Phil. 354; and Worcester vs. Ocampo and Ocampo, 34 Phil. 646), and the right of ownership which she inscribed was not an absolute but a limited right, subject to a prior registered lien, by virtue of which Levy Hermanos, Inc. was entitled to the execution of the judgment credit over the lands in question, a right which is preferred and superior to that of the plaintiff (sec. 51, Act No. 496 and decisions cited above). x x x

Indeed, the subsequent sale of the property to the attaching creditor must, of necessity, retroact to the date of the levy. Otherwise, the preference created by the levy would be meaningless and illusory, as reiterated in Defensor v. Brillo:

x x x The doctrine is well-settled that a levy on execution duly registered takes preference over a prior unregistered sale; and that even if the prior sale is subsequently registered before the sale in execution but after the levy was duly made, the validity of the execution sale should be maintained, because it retroacts to the date of the levy; otherwise. the preference created by the levy would be meaningless and illusory.

Even assuming, therefore, that the entry of appellants' sales in the books of the Register of Deeds on November 5, 1949 operated to convey the lands to them even without the corresponding entry in the owner's duplicate titles, the levy on execution on the same lots in Civil Case No. 1182 on August 3, 1949, and their subsequent sale to appellee Brillo (which retroacts to the date of the levy) still takes precedence over and must be preferred to appellants' deeds of sale which were registered only on November 5, 1949.

This result is a necessary consequence of the fact that the properties herein involved were duly registered under Act No. 496, and of the fundamental principle that registration is the operative act that conveys and binds lands covered by Torrens titles (sections 50, 51, Act 496). Hence, if appellants became owners of the properties in question by virtue of the recording of the conveyances in their favor, their title arose already subject to the levy in favor of the appellee, which had been noted ahead in the records of the Register of Deeds. (Citations omitted, italics supplied)

The Court has steadfastly adhered to the governing principle set forth in Sections 51 and 52 of Presidential Decree No. 1529:

SEC. 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 Registry 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 the city where the land lies.

SEC. 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. (Italics supplied)

As the property in this case was covered by the torrens system, the registration of Stronghold's attachment was the operative act that gave validity to the transfer and created a lien upon the land in favor of respondent.[166] (Emphasis supplied)

The Court reiterated its ruling in Stronghold in Valdevieso v. Damalerio[167] when it ruled that the preference accorded to a duly registered levy on attachment takes preference over a prior unregistered sale as a necessary consequence of the fact that the property involved was duly covered by the Torrens system which works under the fundamental principle that registration is the operative act which gives validity to the transfer or creates a lien upon the land. Thus, the petitioner therein acquired ownership of the land only from the date of the recording of his title in the register, and the right of ownership which he inscribed was not absolute but a limited right, subject to a prior registered lien of respondents, a right which is preferred and superior to that of petitioner.[168]

In Portes, Sr. v. Arcala,[169] the Court again upheld the adverse claim dated November 23, 1970 and Notice of Lis Pendens dated September 14, 1971 over a sale executed on December 28, 1967 but was registered only on December 16, 1971. Verily, Napoleon, the purchaser in this case, was considered a purchaser in bad faith. However, the Court opined that even if Napoleon was unaware of the conflict involving the subject property, he was already charged with the knowledge of the flaw on the title at the time he registered the sale on December 16, 1971, to wit:

Assuming that Napoleon was unaware of the conflict over Lot 2-A at the time of the execution of the deed of sale, Napoleon was, however, already charged with knowledge of the flaw in Luis' title at the time of the registration of the sale. Inscriptions of an adverse claim dated 23 November 1970 and lis pendens dated 14 September 1971 were already annotated on Luis' title over Lot 2-A when Napoleon registered the Deed of Sale on 16 December 1971.

While the sale between Luis and Napoleon bound both parties, the registration of the sale with the property registry is what binds third parties and the world to the transfer of ownership. Moreover, registration alone without good faith is not sufficient. Good faith must concur with registration for such prior right to be enforceable.[170] (Emphasis and underscoring supplied)

Furthermore, in Mahinay v. Judge Lee Gako, Jr.[171] (Mahinay), the Court upheld a registered notice of lis pendens over a mortgagee in good faith. Mahinay's Notice of Lis Pendens was duly annotated on August 17, 1994 while Sorensen's Real Estate Mortgage (REM) was executed on October 27, 1994, and registered on October 28, 1994. Sorensen claimed that he was an innocent mortgagee for value as he relied on the title of the property which appears to be free from any lien or encumbrance. The Court ruled that the prior registration of Mahinay's notice of lis pendens bound the whole world including Sorensen, which charged the latter of the notice that the property is under litigation.

Although the Notice of Lis Pendens in Mahinay was registered prior to the execution of the REM, the Court adhered to the same principle that "prior est in tempore, potior est in jure (he who is first in time is preferred in right)." Thus, even if the title does not contain any adverse annotation at the time of the execution of the REM, the Court favored the prior registration over the claim of the mortgagee in good faith. "Having registered his instrument ahead of Sorensen's [REM], Mahinay's Notice of Lis Pendens takes precedence over the said [REM]."[172]

In Spouses Suntay v. Keyser Mercantile, Inc.,[173] the Court emphasized the doctrine of primus tempore, potior jure (first in time, stronger in right) and declared that a duly registered levy on execution is superior to the subsequent registration of a prior unregistered deed of absolute sale, to wit:

The CA stated in its decision that when the subject property was levied and subjected to an execution sale, Bayfront had already sold it to Keyser. As such, Spouses Suntay no longer acquired the right over the subject property from Bayfront because the latter, as judgment debtor, had nothing more to pass. Earlier, the RTC held that at the time Spouses Suntay were to register the auction sale, the subject property was already registered in Keyser's name and, thus, they were fully aware of the earlier sale. It was too late for Spouses Suntay to deny their knowledge of Keyser's title. The RTC also found the auction sale questionable due to the lack of posting and publication of notice.

The Court disagrees with the lower courts. They had completely over-looked the significance of a levy on execution. The doctrine is well-settled that a levy on execution duly registered takes preference over a prior unregistered sale. Even if the prior sale was subsequently registered before the sale in execution but after the levy was duly made, the validity of the execution sale should be maintained because it retroacts to the date of the levy. Otherwise, the preference created by the levy would be meaningless and illusory.

In this case, the contract to sell between Keyser and Bayfront was executed on October 20, 1989, but the deed of absolute sale was only made on November 9, 1995 and registered on March 12, 1996. The Notice of Levy in favor of Spouses Suntay was registered on January 18, 1995, while the Certificate of Sale on April 7, 1995, both dates clearly ahead of Keyser's registration of its Deed of Absolute Sale. Evidently, applying the doctrine of primus tempore, potior jure (first in time, stronger in right), Spouses Suntay have a better right than Keyser.[174] (Emphasis and underscoring supplied)

In this scenario, a buyer of registered land may be considered an "innocent purchaser for value and in good faith" under current parameters but his or her claim to the property, owing to a prior unregistered sale, is subordinate to an interest registered prior to registration of the sale. Applying the foregoing, even assuming that MBTC was in good faith at the time of its purchase of the three subject lots, petitioners would still have a superior claim over the subject three lots in view of the earlier registration of petitioners' Notice of Lis Pendens on February 23, 1994 on AFRDI's titles vis-à-vis MBTC's belated registration of its deed of absolute sale dated January 31, 1994, i.e., on June 15, 1994. In effect, "an innocent purchaser for value and in good faith" as currently defined would not be able to fully rely on the four corners of the Torrens title, since his or her claim to the property is subject to any subsequent claims that may be registered on the title prior to the buyer's registration of his or her claim. The protection accorded to such purchaser under Sec. 44 is watered down from that intended by the statute; the indefeasibility of titles under PD 1529 is invariably diminished. The Legislature could not have intended such an interpretation.

Our jurisprudence on double sales, which is governed by Article 1544 of the Civil Code, also upholds the principle of primus tempore, potior jure (first in time, stronger in right). While Art. 1544's application is limited to cases involving double sales, registration contemplated under this provision has been held to refer to registration under Act No. 496 Land Registration Act (now PD 1529) which considers the act of registration as the operative act that binds the land.[175] Under this provision, as between two buyers of immovable property, ownership shall belong to the one who first registers the conveyance in good faith:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473)

In applying Art. 1544 of the Civil Code, the Court in Uraca v. Court of Appeals,[176] explained:

Under the foregoing, the prior registration of the disputed property by the second buyer does not by itself confer ownership or a better right over the property. Article 1544 requires that such registration must be coupled with good faith. Jurisprudence teaches us that "(t)he governing principle is primus tempore, potior jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except where the second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. Such knowledge of the first buyer does not bar her [or him] from availing of her [or his] rights under the law, among them, to register first her [or his] purchase as against the second buyer. But in converso, knowledge gained by the second buyer of the first sale defeats his [or her] rights even if he [or she] is first to register the second sale, since such knowledge taints his [or her] prior registration with bad faith. This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer; that before the second buyer can obtain priority over the first, he must show that he [or she] acted in good faith throughout (i.e. in ignorance of the first sale and of the first buyer's rights) — from the time of acquisition until the title is transferred to him [or her] by registration or failing registration, by delivery of possession."[177] (Emphasis supplied)

In line with the foregoing, the Court finds that realigning the parameters of 'good faith' and harmonizing the foregoing with the tenets and purpose of the Torrens system by broadening the standard of good faith and diligence reposed upon the purchaser until registration of the sale on the title will breathe life to the mandate of PD 1529 and would hold true to the very purpose and spirit of our Torrens system. As keenly observed by Justice Japar B. Dimaampao:

Inevitably, such proposed precept will give teeth to the two-fold purpose of the Torrens system in our jurisdiction - one, guarantee the integrity of land titles; and two, protect their indefeasibility once the claim of ownership is established and recognized. Indeed, broadening the standard of good faith diligence, and prudence of buyers in that they should be continuing purchasers for value and in good faith up to the time that they register the sale on the title which is devoid of any annotation, breath[e]s life into the rationale for the rule on innocent purchasers for value which is "'the public's interest in sustaining the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrance' on it." In this accord, our case law will be more consistent with our rules on property registration, which gives the public the right to rely upon the face of the Torrens title and dispense with the need of inquiring further as to the ownership of the property.[178] (Emphasis Ours; citations omitted)

The Court is not unmindful that PD 1529 does not expressly require a purchaser to maintain good faith until registration. As worded, Sec. 44 grants the right to rely on the certificate of title and hold the same free from all encumbrances not noted on the title to "every subsequent purchaser of registered land taking a certificate of title for value and in good faith," which may be interpreted to refer only to a purchaser of registered land, and not necessarily one who has registered the property. Nevertheless, if the statutory purpose is clear, the provisions of the law should be construed so as not to defeat but to carry out such end, for a statute derives its vitality from the purpose for which it is enacted and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law.[179] Indeed, legislative intent or spirit is the controlling factor and guiding light in the application and interpretation of a statute; legislative intent is part and parcel of the law.[180]

It is settled that in construing a statute, a construction which gives effect to the whole of the statute — its every word – must be pursued.[181] Moreover, where a statute is susceptible of more than one interpretation, the court should adopt such reasonable and beneficial construction which will render the provision thereof operative and effective, as well as harmonious with each other.[182] In the instant case, requiring a purchaser to be continuing innocent purchasers for value and in good faith until he or she has registered the conveyance would revitalize, rather than emasculate, the provisions of PD 1529 and the key purpose behind its enactment.

A buyer of registered land must remain in good faith from the time of purchase until he or she has duly registered the conveyance. Thus, MBTC may no longer be considered an innocent purchaser for value and in good faith since it was notified of the lis pendens prior to MBTC's registration of its purchase over the subject three lots.

In fine, to be considered an innocent purchaser for value under Sec. 44 of PD 1529, one must possess good faith from the time one acquires registered land until registration of the acquisition under their name. The buyer must purchase the property and register the deed of conveyance without notice that some other person has a right to, or interest in, such property and pay a full and fair price for the same, at the time of such purchase, or before he or she has notice of the claim or interest of some other persons in the property. The: (1) property must be bought for consideration, and (2) purchaser should have no knowledge or notice of adverse claim or interest until registration.[183] In the event a buyer of registered land who has yet to register the conveyance be made 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 or her capacity to convey title, the buyer shall no longer be considered to be in good faith even if he or she subsequently registers the conveyance.

When shall the buyer be considered to have duly registered the conveyance? We find guidance in Levin v. Bass[184] and Garcia v. Court of Appeals,[185] which explain that a purchaser is deemed the registered owner once he or she: (a) files a duly notarized valid deed of sale, (b) the sale is entered into the day book, (c) the buyer surrenders or presents the owner's duplicate certificate of title covering the land sold, and (d) pays the registration fees:

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.

On the other hand, according to the said cases of Levin vs. Bass, in case 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 [or she] 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 [or she] 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 [or her] power to perform. The register of deeds is duty bound to perform it.[186] (Emphasis supplied; citations omitted)

Indeed, "[n]either violence to, nor stretching of the meaning of, the law would be done, if we should hold that an innocent purchaser for value of registered land becomes the registered owner and in the contemplation of law the holder of a certificate thereof the moment he presents and files a duly notarized and lawful deed of sale and the same is entered on the day book and at the same time he [or she] surrenders or presents the owner's duplicate certificate of title to the property sold and pays the full amount of registration fees, because what remains to be done lies not within his [or her] power to perform. The Registrar of Deeds is in duty bound to perform it. We believe that is a reasonable and practical interpretation of the law under consideration - a construction which would lead to no inconsistency and injustice."[187]

Once a buyer complies with the foregoing requisites, the buyer of registered land may claim the status of an innocent purchaser for value and in good faith, who is vested with the right to rely on the face on the Torrens title without inquiring further and to hold the same free from liens and encumbrances not noted on the title or as otherwise provided under the law, as a defense against any action questioning his or her title.[188] "The purchaser acquires such rights and interest as they appear in the certificate of title, unaffected by any prior lien or encumbrance not noted therein. The purchaser is not required to explore farther than what the Torrens title, upon its face, indicates."[189]

However, should the buyer fail to comply with the foregoing requisites, the buyer must show that he or she exercised reasonable precaution by inquiring beyond the title. The buyer is placed on notice and obliged 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.[190]

Applying the foregoing precepts, even assuming arguendo that MBTC remained in good faith at the time of the purchase, it failed to maintain such status until registration. It is observed that MBTC belatedly registered the Deed of Absolute Sale dated January 31, 1994 when TCTs 185022, 185023, and 185024 already contained a Notice of Lis Pendens, i.e., Civil Case No. 94-751 which was duly filed and registered earlier on February 23, 1994 by petitioners.

Thus, when AFRDI and MBTC executed the Deed of Absolute Sale dated January 31, 1994 without it having registered with the Register of Deeds, the said deed is considered valid but only as between AFRDI and MBTC. In so far as petitioners and the public are concerned, they cannot be bound by such sale prior to its registration, or be expected to have knowledge or notice of the same.

On the other hand, petitioners' institution of Civil Case No. 94-751 to claim ownership and demand cancellation of AFRDI's titles, and petitioners' subsequent annotation of a Notice of Lis Pendens on the titles before the Register of Deeds on February 23, 1994, served as a notice to the general public, including MBTC, that the subject property is involved in a litigation. Even with the subsequent transfer of titles from AFRDI to MBTC on June 15, 1994, i.e., TCTs 195231, 195232, and 195233, MBTC cannot deny that it was duly notified of the pendency of Civil Case No. 94-751.

In Heirs of Lopez, Sr. v. Enriquez,[191] We elucidated on the definition, purpose and effect of a notice of lis pendens, thus:

Lis pendens literally means a pending suit. The doctrine of lis pendens 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.

The purposes of lis pendens are (1) to protect the rights of the party causing the registration of the lis pendens, and (2) to advise third persons who purchase or contract on the subject property that they do so at their peril and subject to the result of the pending litigation.

The filing of a notice of lis pendens has a two-fold effect. First, it keeps 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. Second, it binds a purchaser, bona fide or not, of the land subject of the litigation to the judgment or decree that the court will promulgate subsequently. However, the filing of a notice of lis pendens does not create a right or lien that previously did not exist.

Without a notice of lis pendens, a third party who acquires the property after relying only on the certificate of title is a purchaser in good faith. Against such third party, the supposed rights of a litigant cannot prevail, because the former is not bound by the property owner's undertakings not annotated in the transfer certificate of title. Thus, we have consistently held that

The notice of lis pendens x x x is ordinarily recorded without the intervention of the court where the action is pending. The notice is but an incident in an action, an extrajudicial one, to be sure. It does not affect the merits thereof. It is intended merely to constructively advise, or warn, all people who deal with the property that they so deal with it at their own risk, and whatever rights they may acquire in the property in any voluntary transaction are subject to the results of the action, and may well be inferior and subordinate to those which may be finally determined and laid down therein. The cancellation of such a precautionary notice is therefore also a mere incident in the action, and may be ordered by the Court having jurisdiction of it at any given time. And its continuance or removal x x x is not contingent on the existence of a final judgment in the action, and ordinarily has no effect on the merits thereof.[192] (Citations omitted and italics not ours.)

Verily, although a Notice of Lis Pendens does not create a right or lien over the subject property, the same was carried over on MBTC's new titles when the latter subsequently registered its Deed of Absolute Sale dated January 31, 1994 on June 15, 1994. Thus, when MBTC registered the conveyance, it was aware of petitioners' claim over the subject properties as it was duly notified of a flaw in the title of its transferor AFRDI, i.e., by virtue of the Notice of Lis Pendens dated February 23, 1994. The defense of indefeasibility of a Torrens title does not extend to a transferee who takes it with a notice of a flaw in the title. To be effective, the inscription in the registry must have been made in good faith.[193]

Ultimately, MBTC failed to properly protect its interests in the subject three lots when it did not register the sale and/or facilitate the issuance of the certificate of title in its name diligently after the sale transaction. Atty. Villaluz's contention that he was busy with the registration of other real estate properties bought by MBTC in the provinces[194] is but a flimsy excuse for MBTC's negligence in protecting its rights. In fine, AFRDI and MBTC may not be considered an innocent purchaser for value and in good faith. Consequently, MBTC cannot claim ownership over the subject property as against petitioners.

Rights and obligations of the
parties

Having arrived at the conclusion that AFRDI and MBTC are buyers in bad faith and that MBTC was charged with knowledge of the Notice of Lis Pendens dated February 23, 1994, MBTC cannot, therefore, claim ownership over petitioners' share, i.e., 60% of the subject three lots. Since MBTC registered the deed of absolute sale dated January 31, 1994 with knowledge of the pendency of Civil Case No. 94-751 as per Notice of Lis Pendens dated February 23, 1994 involving the nullification of AFRDI's titles, MBTC merely holds or possesses the 60% portion of the subject property in trust for its lawful owner.

Nonetheless, We affirm the ruling of the courts a quo insofar as the reimbursement of the purchase price paid. However, instead of both Bernal and AFRDI being ordered to pay petitioners, AFRDI should indemnify MBTC to the extent of 60% of the purchase price paid, i.e., 60% of PHP 39,308,000.00 which corresponds to the share of petitioners in the subject three lots. The same shall earn legal interest of 12% per annum from the filing of MBTC's Cross Claim[195] on July 11, 1994 against AFRDI until June 30, 2013; and six percent (6%) per annum from July 1, 2013 until finality of the judgment.[196] The total amount of the foregoing shall earn interest at the rate of 6% from date of finality of this judgment until full payment. As to AFRDI's cross claim against Bernal, We cannot grant the same for its failure to appeal before this Court or even comment on the present petition.

To reiterate, the remaining 40% of PHP 39,308,000.00 which pertains to MSI's share shall stand and is final for its failure to appeal and pray for affirmative relief before this Court. In fine, MSI's share or 40% of the subject three lots shall remain with MBTC while 60% thereof shall be owned by petitioners subject to partition pursuant to the September 22, 1995 Decision of the RTC of Pasig City, Branch 158 in Civil Case No. 29872.

With the settlement of the ownership of the subject three lots, i.e. 40% to MBTC, and 60% to Florencia and Daphne, We come now to the issue of damages demanded by petitioners. MBTC, as AFRDI's successor-in-interest, is charged with the knowledge of petitioners' Notice of Lis Pendens and with the evidence on record showing the improvements made on the three lots[197] despite knowledge that the lots were subject of a pending litigation, MBTC is considered a builder in bad faith. "To be deemed a builder in good faith, it is essential that a person asserts title to the land on which he builds, i.e., that he be a possessor in the concept of owner, and that he be unaware that there exists in his title or mode of acquisition any flaw which invalidates it."[198] Obviously, at the time MBTC became the registered owner of the subject three lots on June 15, 1994 and began constructing improvements thereon, it was well aware of the pendency of Civil Case No. 94-751 as per Notice of Lis Pendens dated February 23, 1994. It, therefore, took the risk that the outcome of Civil Case No. 94-751 may be adverse to it. As such, Articles 449, 450, 451, 452 and 546 of the Civil Code must be applied, thus:

Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right of indemnity.

Art. 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.

Art. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder, planter or sower.

x x x x

Art. 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 therefor.

Applying the foregoing, petitioners have the right to appropriate what has been built on its property, i.e. 60% of the subject three lots, without any obligation to pay indemnity therefor. Due to MBTC's bad faith, it forfeits what it has built on 60% of the subject three lots without any right to be paid indemnity. Moreover, in the alternative, petitioners may exercise either their rights under Arts. 450 and 451 of the Civil Code, namely: (a) to demand the removal or demolition of what has been built on 60% of the subject three lots at MBTC's expense; or (b) to compel MBTC to pay the price or value of the 60% portion thereof whether or not its value is considerably more than the value of the improvements.

The right to choose from among these three alternative rights lies with the petitioners and not MBTC. Petitioners prayed for the cancellation or nullification of AFRDI's titles and MBTC's titles over the subject three lots, and the reinstatement of BBI's titles, i.e. TCT Nos. S-68301, S-68302 and S-68303; and demanded MBTC to demolish and dismantle its buildings or structures erected thereon and remove the debris from the subject three lots and surrender possession thereof. However, due to the finality of Civil Case No. 29782, there is no rhyme or reason to reinstate BBI's titles because the distribution and/or partition of the subject three lots has already been settled by the RTC Pasig City, Branch 158, i.e. 60% to petitioners and 40% to MSI. Consequently, MBTC is obliged to vacate and surrender the possession and ownership of 60% portion of the subject three lots to petitioners, and to remove or demolish what has been built on said portion of the subject three lots at MBTC's expense.

However, MBTC shall be reimbursed the necessary expenses in the preservation but it cannot retain the 60% portion thereof pending the reimbursement of necessary expenses. "Necessary expenses are those made for the preservation of the land occupied,[199] or those without which the land would deteriorate or be lost. These may also include expenditures that augment the income of the land or those that are incurred for its cultivation, production, and upkeep."[200] In this light, We find it proper to order the remand of this case to the trial court for the purpose of determining the amount of necessary expenses to be reimbursed to MBTC.

Amount of Damages

Article 451 of the Civil Code grants the petitioners the right to recover damages from a builder in bad faith. "While Article 451 does not provide the basis for damages, the amount thereof should reasonably correspond with the value of the properties lost or destroyed as a result of the occupation in bad faith, as well as the fruits from those properties that the landowner reasonably expected to obtain."[201]

Petitioners prayed for the award of actual damages in the nature of a reasonable compensation or monthly rental for the use and occupation by MBTC of the subject three lots. However, Article 2199 of the Civil Code provides that actual damages must be duly proved. We are not unmindful of the fact that the subject three lots are situated in a commercial area in Makati City and that petitioners would have earned reasonable rental income if not for the fraudulent machinations employed by Bernal in transferring the titles of the property to her name which led to the eventual possession and occupation of MBTC. However, the amount prayed for by petitioners, i.e., PHP 250,000.00 monthly rental, cannot be granted without any basis.

Nonetheless, We recognize the pecuniary loss suffered by petitioners who were deprived of the use of their property for a considerable number of years reckoned from the finality of the September 22, 1995 Decision rendered by RTC Pasig, Branch 158 in Civil Case No. 29872 approving petitioners and MSI's compromise agreement regarding the distribution and partition of the subject property, i.e., 60% petitioners and 40% MSI, and that only the amount thereof cannot be ascertained. In addition, the present action, i.e., Civil Case No. 94-751, for the declaration of nullity of AFRDI's titles from which MBTC derived its titles had been pending since the filing of petitioners' complaint on February 22, 1994.

Hence, We find it proper to award petitioners temperate damages in the amount of PHP 5,000,000.00 as reasonable compensation for the use and occupation of 60% of the subject three lots taking into account the value of the land, their location, use or purpose. As a builder in bad faith, MBTC is liable to pay petitioners temperate damages in the amount of PHP 5,000,000.00 for the use and occupation of 60% portion of the subject property owned by petitioners.

Furthermore, as a result of AFRDI and MBTC's bad faith and the negligent acts of Ison and Domingo in the cancellation of the Notice of Lis Pendens dated October 1, 1992 and affidavit of adverse claim dated August 31, 1992 on Bernal's titles, We sustain the award of moral damages in the amount of PHP 200,000.00. "Moral damages are meant to compensate and alleviate the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injuries unjustly caused x x x. Moral damages are not punitive in nature and were never intended to enrich the claimant at the expense of the defendant."[202] Although there is no hard-and-fast rule in determining a fair and reasonable amount of moral damages, we hold that the amount awarded by the trial court, i.e., PHP 200,000.00 is commensurate to the loss or injury suffered by petitioners.

In addition, an award of exemplary damages is likewise in order. The requirements for an award of exemplary damages are: (1) they may be imposed by way of example in addition to compensatory damages, and only after the claimant's right to them has been established; (2) they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant; and (3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner.[203]

We hold that AFRDI and MBTC's bad faith that resulted in the deprivation of petitioners' right to lawfully use and possess their property for a considerable number of years made them liable for exemplary damages. MBTC as a builder in bad faith cannot deny the fact that it built on the subject property despite knowing that an unfavorable outcome may prejudice its possession of the subject three lots.

On AFRDI's part, it cannot also refute its knowledge of the cancellation of petitioners' affidavit of adverse claim dated August 31, 1992 when it was cancelled on the same day its deed of absolute sale dated April 23, 1993 was registered. Hence, We deem it proper to hold MBTC and AFRDI jointly and solidarily liable to pay petitioners the amount PHP 200,000.00 as exemplary damages.

Finally, We sustain the award of attorney's fees in the amount of PHP 300,000.00 to both petitioners and MSI. The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case.[204] Obviously, petitioners were compelled to litigate for the protection of their rights and interests, and for the recovery of damages as a result of AFRDI and MBTC's bad faith, and Ison and Domingo's negligent acts. In fact, petitioners and the subject property were involved in three separate civil actions that mainly dealt with nullification of titles of the subject property. Thus, We uphold the award of PHP 150,000.00 attorney's fees as petitioners' share in the attorney's fees against respondents AFRDI and MBTC.

As to Chan and Ranullo's respective liabilities, petitioners failed to prove by clear and convincing evidence that they are guilty of gross negligence or bad faith. Without such evidence, We cannot hold Chan and Ranullo personally and solidarily liable with MBTC and AFRDI's liabilities, respectively.

Notably, Bernal's fraudulent act of transferring BBI's titles over the subject three lots to her name by virtue of a falsified December 18, 1985 Decision allegedly rendered by CFI Pasig, Branch 19 in Civil Case No. 29872, and an absolute deed of sale dated December 18, 1985, had already been passed upon by RTC Makati City, Branch 61 in Civil Case No. 92-2831 which ordered Bernal to pay petitioners the amount PHP 300,000.00 as exemplary damages, PHP 500,000.00 as moral damages, PHP 200,000.00 as attorney's fees and cost of suit. Hence, the issue of Bernal's liability to petitioners is considered res judicata that was finally settled in Civil Case No. 29872. She cannot, therefore, be obliged to indemnify petitioners in the present case for the same fraudulent act.

The temperate damages, moral damages, exemplary damages and attorney's fees shall earn legal interest at the rate of six percent (6%) per annum from the date of finality of this Decision until its full payment.[205]

WHEREFORE, the petition is GRANTED. The May 15, 2013 Decision and October 8, 2013 Resolution of the Court of Appeals in CA-G.R. CV No. 77595 are REVERSED and SET ASIDE insofar as the rights of petitioners Florencia Duenas and Daphne Duenas-Montefalcon over the subject three lots are concerned.

Accordingly, petitioners Florencia Duenas and Daphne Duenas-Montefalcon are entitled to the recovery and possession of 60% of the subject three lots. Thus, Transfer Certificates of Title Nos. 195231, 195232, and 195233 in the name of Metropolitan Bank and Trust Company, and Transfer Certificates of Title Nos. 185022, 185023, and 185024 in the name of AF Realty Development, Inc. are declared NULL and VOID. Respondent Metropolitan Bank and Trust and Company and all persons claiming rights under it are hereby ORDERED, upon finality of this Decision without awaiting the resolution of the matter of necessary expenses by the trial court, to (a) immediately VACATE 60% of the subject property and DELIVER its peaceful possession to petitioners; and (b) to remove or demolish what has been built on 60% portion of the subject three lots at its expense.

This case is REMANDED to the court of origin for the determination of the necessary expenses of preservation of the 60% portion of the land, if any, incurred by respondent Metropolitan Bank and Trust Company while it is in the possession of the subject property, which expenses shall be reimbursed to Metropolitan Bank and Trust Company by petitioners Florencia Duenas and Daphne Duenas-Montefalcon.

The Register of Deeds, Makati City is ORDERED to cancel: (a) Transfer Certificates of Title Nos. 195231, 195232, and 195233 in the name of Metropolitan Bank and Trust Company; (b) Transfer Certificates of Title Nos. 185022, 185023, and 185024 in the name of AF Realty Development, Inc.; and (c) Transfer Certificates of Title Nos. S-68301, S-68302 and S-68303 in the name of Bellever Brothers, Inc. Accordingly, the Register of Deeds, Makati City shall issue new transfer certificates of titles in the names of petitioners Florencia Duenas and Daphne Duenas-Montefalcon, and Metropolitan Bank and Trust Company subject to the partition of 60% and 40%, respectively, agreed upon by petitioner Florencia Duenas and Manotoc Securities, Inc. and approved by the Regional Trial Court of Pasig City, Branch 158 in its September 22, 1995 Decision in Civil Case No. 29872.

In addition, respondent Metropolitan Bank and Trust Company is ORDERED to pay petitioners Florencia Duenas and Daphne Duenas-Montefalcon the amount of PHP 5,000,000.00 as temperate damages.

Respondents Metropolitan Bank and Trust Company, AF Realty Development, Inc., Penelope Ison, and Inocencio Domingo are ORDERED to jointly and severally pay petitioners Florencia Duenas and Daphne Duenas-Montefalcon PHP 200,000.00 as moral damages.

Respondents Metropolitan Bank and Trust Company and AF Realty Development, Inc. are ORDERED to jointly and severally pay petitioners Florencia Duenas and Daphne Duenas-Montefalcon PHP 200,000.00 as exemplary damages; and PHP 150,000.00 as attorney's fees.

The above monetary awards, i.e. temperate damages, moral damages, exemplary damages, and attorney's fees, shall earn interest at the rate of six percent (6%) per annum from the finality of this Decision until full payment thereof.

Lastly, respondent AF Realty Development, Inc. is ORDERED to reimburse respondent Metropolitan Bank and Trust Company the amount of 60% of PHP 39,308,000.00, the purchase price paid, with legal interest of 12% per annum from the date of filing of cross claim on July 11, 1994 until June 30, 2013, and six percent (6%) per annum from July 1, 2013 until finality of this Decision. The total amount of the foregoing shall earn interest at the rate of six percent (6%) from date of finality of this Decision until full payment.

SO ORDERED.

Gesmundo, C.J., Inting, Zalameda, M. Lopez, Gaerlan, Rosario, J. Lopez, Kho, Jr., and Singh, JJ., concur.
Leonen, SAJ., see separate opinion.
Caguioa, J
., see concurring opinion.
Lazaro-Javier, J., please see concurrence.
Dimaampao,** J., on official leave.
Marquez,*** J
., on official business.


* Dueñas in some parts of the records.

** On official leave

*** On official business.

[1] Rollo, Vol. I, pp. 3-52.

[2] Id. at 53-69. Penned by Associate Justice Danton Q. Bueser and concurred in by Associate Justices Amelita G. Tolentino and Ramon R. Garcia.

[3] Id. at 71-72.

[4] Records, Vol. VI, pp. 2217- 2236. Penned by Judge Marissa Macaraig Guillen.

[5] Id. at 2303-2304.

[6] Plaintiff's Folder of Exhibits, Exhibit G-I, unpaginated.

[7] Id.

[8] Records, Vol. VI, pp. 1826-1839.

[9] Rollo, Vol. 1, p. 360.

[10] Id.

[11] Id.

[12] Id.

[13] Plaintiff's Folder of Exhibits, Exhibit G-I, unpaginated.

[14] Rollo, Vol. 1, p. 360.

[15] Id.

[16] Records, Vol. 1, p. 29.

[17] Id. at 30-31, records, Vol. VI, pp. 1826-1839; Plaintiff's Folder of Exhibit C, unpaginated.

[18] Records, Vol. I, pp. 34-35; Plaintiff's Folder of Exhibits, Exhibit D, unpaginated.

[19] Records, Vol. III, pp. 714-718; records, Vol. VI, pp. 1811- 1815.

[20] Plaintiff's Folder of Exhibits, Exhibit L, unpaginated.

[21] Records, Vol. III, p. 987.

[22] Plaintiff's Folder of Exhibits, Exhibits G-I, unpaginated.

[23] Rollo, Vol. I, p. 361.

[24] Id.

[25] Plaintiff's Folder of Exhibits, Exhibit J, unpaginated.

[26] Records, Vol. I, pp. 46-48; Plaintiff's Folder of Exhibits, Exhibit L, unpaginated.

[27] Id. at 49-50; Plaintiff's Folder of Exhibits, Exhibit K, unpaginated.

[28] Respondent's Folder of Exhibits, Exhibits 3-5, unpaginated; Plaintiff's Folder of Exhibits, Exhibits P-R, unpaginated.

[29] Rollo, Vol. I, p. 361.

[30] Records, Vol. 1, p. 55; Plaintiff's Folder of Exhibits, Exhibit N, unpaginated.

[31] Id. at 56-58; Plaintiff's Folder of Exhibits, Exhibit O, unpaginated.

[32] Rollo, Vol. 1, p. 361.

[33] Records, Vol. I, pp. 59-69.

[34] Id. at 71-72; Plaintiff's Folder of Exhibits, Exhibit S, unpaginated.

[35] Id. at 73-74; Plaintiff's Folder of Exhibits, Exhibit BB, unpaginated.

[36] Id. at 75; Plaintiff's Folder of Exhibits, Exhibit CC, unpaginated.

[37] Plaintiff's Folder of Exhibits, Exhibit DD, unpaginated.

[38] Plaintiff's Folder of Exhibits, Exhibits LL, GG-1, unpaginated.

[39] Plaintiff's Folder of Exhibits, Exhibit GG-1, unpaginated.

[40] Records, Vol. I, pp. 117-124; Plaintiff's Folder of Exhibits, Exhibit NN, unpaginated.

[41] Plaintiff's Folder of Exhibits, Exhibit OO, unpaginated.

[42] Plaintiff's Folder of Exhibits, Exhibit MM, unpaginated.

[43] Rollo, Vol. I, pp. 361, 363.

[44] Records, Vol. I, pp. 125-126; Respondent's Folder of Exhibits, Exhibit 6, unpaginated.

[45] Plaintiff's Folder of Exhibits, Exhibits FF-HH, unpaginated.

[46] Rollo, Vol. I, p. 8.

[47] Plaintiff's Folder of Exhibits, Exhibits FF-HH, unpaginated.

[48] Records, Vol. I, pp. 137-149.

[49] Records, Vol. II, pp. 446-448; Respondent MBTC's Folder of Exhibits, Exhibit 5; and Respondent AFRDI's Folder of Exhibits, Exhibit 11, unpaginated.

[50] Id. at 324-325.

[51] Id. at 314-331.

[52] Records, Vol. VI, pp. 2286-2294; Plaintiff's Folder of Exhibits, Exhibit II-KK, unpaginated.

[53] Records, Vol. II, pp. 506-516.

[54] Id. at 508-509.

[55] Rollo, Vol. I, p. 364.

[56] Records. Vol. II at 571-574 and 580-591.

[57] Records, Vol. III, pp. 719-724; records, Vol. VI, pp. 1819-1825.

[58] Records, Vol. III, pp. 725-738.

[59] Records, Vol. II, pp. 306-311; 492-497.

[60] Records, Vol. III, p. 989.

[61] Id.; Plaintiff's Folder of Exhibits, Exhibit PP, unpaginated.

[62] Records, Vol. III, pp. 986-988.

[63] Id. at 988; Plaintiff's Folder of Exhibits, Exhibit PP, unpaginated.

[64] Records, Vol. IV, pp. 1265-1272; Plaintiff's Folder of Exhibits, Exhibit RR, unpaginated.

[65] Id. at 1272.

[66] Id. at 1326-1332.

[67] Records, Vol. V, pp. 1354-1355.

[68] Records, Vol. VI, p. 2236.

[69] Id. at 2217-2236; Plaintiff's Folder of Exhibits, Exhibit RR, unpaginated.

[70] Entitled "AN ACT TO PROVIDE FOR THE ADJUDICATION AND REGISTRATION OF TITLES TO LANDS IN THE PHILIPPINE ISLANDS or The Land Registration Act." Enacted: November 6, 1902.

[71] Rollo, Vol. I, pp. 381-386; Presidential Decree No. 1529 entitled "AMENDING AND CODIFYING THE LAWS RELATIVE TO REGISTRATION OF PROPERTY AND FOR OTHER PURPOSES." Approved: June 11, 1978.

[72] Id.

[73] Id.

[74] Id.

[75] Id. at 2304.

[76] Rollo, Vol. I, pp. 62-63.

[77] Rollo, Vol. II, p. 794.

[78] Rollo, Vol. I, pp. 17-18.

[79] Id. at 53-69.

[80] Id. at 68.

[81] Id. at 64-65.

[82] Id. at 65-68.

[83] Id. at 74.

[84] Id. at 74.

[85] Id. at 71.

[86] Id. at 71-72.

[87] Id. at 19-20.

[88] Id. at 21-22.

[89] Id. at 23.

[90] Id. at 24-25.

[91] Id. at 27-28.

[92] Id. at 27-28.

[93] Id. at 28-30.

[94] Id. at 30-32.

[95] Id. at 32-36.

[96] Id.

[97] Id. at 36-41.

[98] Id. at 41-43.

[99] Id. at 43-44.

[100] Id. at 45-48.

[101] Rollo, Vol. II, pp. 602-603.

[102] Id. at 604-606.

[103] Id. at 607-611.

[104] Id. at 718-719.

[105] Id. at 720.

[106] Id. at 720-721.

[107] Id. at 720-722.

[108] Id. at 722-724.

[109] Id. at 705.

[110] Records, Vol. III, pp. 986-988.

[111] AFP Mutual Benefit Association, Inc. v. RTC, Marikina City, Branch 193, 658 Phil. 69, 77-78 (2011).

[112] Records, Vol. VI, p. 2231.

[113] Id. at 2288, 2291 & 2294.

[114] RULES OF COURT, Rule 45, Sec. 1.

[115] Locsin v. Hizon, 743 Phil. 420, 428 (2014).

[116] Leong v. See, 749 Phil. 314, 323 (2014).

[117] Id.

[118] Supra.

[119] Id. at 324-325.

[120] Sec. 32, PD 1529 reads:

Section 32. Review of decree of registration; Innocent purchaser for value.— The decree of registration shall not be reopened or revised by reason of absence, minority, or other disability of any person adversely affected thereby, nor by any proceeding in any court for reversing judgments, subject, however, to the right of any person, including the government and the branches thereof, deprived of land or of any estate or interest therein by such adjudication or confirmation of title obtained by actual fraud, to file in the proper Court of First Instance a petition for reopening and review of the decree of registration not later than one year from and after the date of the entry of such decree of registration, but in no case shall such petition be entertained by the court where an innocent purchaser for value has acquired the land or an interest therein, whose rights may be prejudiced. Whenever the phrase "innocent purchaser for value" or an equivalent phrase occurs in this Decree, it shall be deemed to include an innocent lessee, mortgagee, or other encumbrancer for value.

Upon the expiration of said period of one year, the decree of registration and the certificate of title issued shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or any other persons responsible for the fraud.

[121] See Maynilad Water Services, Inc. v. The Secretary of the Department of Environment and Natural Resources, G.R. Nos. 202897, 206823 & 207969, July 19, 2022, citing Black's Law Dictionary, 9th ed. West Publishing Co., 2009, p. 762.

[122] 533 Phil. 627 (2006).

[123] 788 Phil. 546 (2016).

[124] Id. at 575-576.

[125] 755 Phil. 656 (2015).

[126] 816 Phil. 657 (2017).

[127] Id. at 669-670.

[128] 542 Phil. 39 (2007).

[129] Supra note 116.

[130] Id. at 430-431.

[131] Dy v. Aldea, supra 668.

[132] Calma v. Atty. Lachica, 821 Phil. 607, 620 (2017).

[133] Rufloe v. Burgos, 597 Phil. 261, 271 (2009).

[134] Poole-Blunden v. Union Bank of the Philippines, 821 Phil. 915, 935 (2017).

[135] Land Bank of the Philippines v. Belle Corporation, 768 Phil. 368, 385 (2015).

[136] Id. at 385-386.

[137] TSN, November 8, 1995, p. 6.

[138] TSN, November 8, 1995, p. 7; TSN, December 1, 1995, p. 3; TSN, December 7, 1999, pp. 23-24.

[139] 274 Phil. 1134 (1991).

[140] Id. at 1142-1143.

[141] Tamayao v. Lacambra, G.R. No. 244232, November 3, 2020.

[142] Supra note 123 at 638-640.

[143] Id.

[144] 438 Phil. 26 (2002).

[145] Id. at 39.

[146] Successive Registrations of the Same Land under the "Torrens System". Harvard Law Review Vol. 29, No. 7 (May 1916, pp. 772-774). Available at <https://www.jstor.org/stable/132670?origin=crossref#metadata_info_tab_contents> Last accessed on November 22, 2022.

[147] Approved on November 6, 1902.

[148] Collado v. Court of Appeals, 439 Phil. 149, 168 (2002), citing Noblejas & Noblejas, Registration of Land Titles and Deeds, 1992 Ed.

[149] Id.

[150] BPI Family Savings Bank, Inc. v. Soriano, G.R. No. 214939, June 8, 2020, 936 SCRA 464, 476.

[151] Liong-Wong-Shih v. Sunico, 8 Phil. 91, 94 (1907).

[152] Tuason v. Raymundo, 28 Phil. 635, 637 ( 1914).

[153] Section 54, PD 1529 reads:

Section 54. Dealings less than ownership, how registered.—No new certificate shall be entered or issued pursuant to any instrument which does not divest the ownership or title from the owner or from the transferee of the registered owners. All interests in registered land less than ownership shall be registered by filing with the Register of Deeds the instrument which creates or transfers or claims such interests and by a brief memorandum thereof made by the Register of Deeds upon the certificate of title, and signed by him. A similar memorandum shall also be made on the owner's duplicate. The cancellation or extinguishment of such interests shall be registered in the same manner.

[154] Sections 60 to 63, PD 1529.

[155] Sections 64 to 68, PD 1529.

[156] Section 69, PD 1529.

[157] Section 70, PD 1529.

[158] Section 76, PD 1529.

[159] Garcia v. Court of Appeals, 184 Phil. 358, 365 (1980), citing La Urbana vs. Bernardo, 62 Phil. 790, 806 (1936).

[160] Portes, Sr. v. Arcala, 505 Phil. 443, 453 (2005).

[161] 236 Phil. 274 (1987).

[162] Id. at 281-283.

[163] 429 Phil. 225 (2002).

[164] Id. at 241-243.

[165] 475 Phil. 722 (2004).

[166] Id. at 731-734.

[167] 492 Phil. 51 (2005).

[168] Id. at 58.

[169] Supra note 161.

[170] Id. at 452-453.

[171] 677 Phil. 292 (2011).

[172] Id. at 316.

[173] 749 Phil. 970 (2014).

[174] Id. at 983-984.

[175] Spouses Abrigo v. De Vera, 476 Phil. 641, 657 (2004), citing Vitug, Compendium of Civil Law and Jurisprudence (1993), pp. 604.

[176] 344 Phil. 253 (1997).

[177] Id. at 265.

[178] Reflections of Associate Justice Japar B. Dimaampao, p. 3.

[179] Aquino v. Commission on Audit, G.R. No. 227715, November 3, 2020, citing Pilipinas Kao, Inc. v. Court of Appeals, 423 Phil. 834, 858 (2001).

[180] League of Cities of the Phils. v. Commission on Elections, 592 Phil. 1, 66-67 (2008).

[181] R.E. Agpalo, Statutory Construction 273 (6th edition, 2009). Citations omitted.

[182] Thunderbird Pilipinas Hotels and Resorts, Inc. v. Commissioner of Internal Revenue, G.R. No. 211327, November 11, 2020, citing PAGCOR v. Bureau of Internal Revenue, 749 Phil. 1010, 1022-1026 (2014).

[183] Cf. Universal Robina Sugar Milling Corp. v. Heirs of Teves, supra note 145 at 39 (2002).

[184] 91 Phil. 419, 436-437 (1952).

[185] Supra note 160, at 365-366.

[186] Id.

[187] Levin v. Bass, supra note 185, at 438.

[188] Bautista v. Silva, supra note 123, at 638.

[189] Spouses Abrigo v. De Vera, supra note 176, at 657.

[190] See Bautista v. Silva, supra note 123, at 639-640.

[191] 490 Phil. 74 (2005).

[192] Id. at 86-87.

[193] Rufloe v. Burgos, supra note 134, at 273.

[194] TSN, December 1, 1995, p. 8.

[195] Records, Vol. II, pp. 506-510.

[196] Federal Builders, Inc. v. Foundation Specialists, Inc., 742 Phil. 433, 449 (2014).

[197] Folder of Exhibits for the Plaintiff, Plaintiff-Intervenor, Defendant, Exh. EE.

[198] Spouses Espinoza v. Spouses Mayandoc, 812 Phil. 95, 102 (2017).

[199] National Housing Authority v. Manila Seedling Bank Foundation, Inc., 787 Phil. 531, 539 (2016).

[200] Id.

[201] Princess Rachel Development Corp. v. Hillview Marketing Corp., G.R. No. 222482, June 2, 2020, 936 SCRA 124, 160.

[202] Go v. Cordero, 634 Phil. 69, 103 (2010).

[203] Id.

[204] Pleasantville Development Corp. v. Court of Appeals, 323 Phil. 12, 19 (1996).

[205] Nacar v. Gallery Frames, 716 Phil. 267, 283 (2013).



CONCURRING AND DISSENTING OPINION

LEONEN, SAJ.:

I concur in the result.

However, I find that Metropolitan Bank and Trust Company (MBTC) was not in good faith.

I

Involved in this case are three parcels of land in Makati City with an aggregate area of 1,411 square meters, which is the subject of successive transfers ultimately leading to the hands of MBTC.

The properties were originally registered in the name of Dolores Egido Vda. De Sola (Dolores) under Transfer Certificate of Title (TCT) Nos. T-79864, T-79865 and T-79866.

On May 22, 1978, the certificates of title under Dolores' name were cancelled, and in lieu thereof, TCT Nos. S-68301, S-68302, and S-68303 under the name of Bellever Brothers Inc. (Bellever Brothers) were issued. As security for the loan it contracted, Bellever Brothers later mortgaged the lots to Manotoc Securities Inc. (Manotoc Securities). The mortgage was annotated as Entry No. 83066 in Bellever Brothers' certificates of title.

On June 12, 1978, Dolores filed a complaint before the Court of First Instance of Pasig City, Branch 19 against Bellever Brothers and Manotoc Securities docketed as Civil Case No. 29782 for the declaration of nullity of the relevant sale and the cancellation of Bellever Brothers' certificates of title.[1]

Dolores also caused the annotation of a notice of lis pendens under Entry No. 84647. When Dolores died during the pendency of the case, she was substituted by her daughter, Carmen Egido (Carmen).

On September 18, 1981, the Writ of Preliminary Injunction issued by the Court of First Instance, Branch 9 was also annotated on the certificates of title of the Bellever Brothers' under Entry No. 47764.

On July 19, 1989, the Court of First Instance temporarily archived Civil Case No. 29782. Carmen initially authorized Florencia Duenas (Florencia)[2] to enter into a settlement of Civil Case No. 29782. Later, however, she assigned all her rights over the three parcels of land to Florencia.

Meanwhile, Manotoc Securities was dissolved and was placed under receivership.

Florencia submitted a letter proposal to the Securities and Exchange Commission for the amicable settlement of Civil Case No. 29782. While Florencia and Manotoc Securities' receiver were negotiating a compromise agreement, they found out that the Bellever Brothers' certificates of title were cancelled by Mila Flores (Flores) of the Register of Deeds of Makati City.

The cancellation of the certificates of title of the Bellever Brother's was brought about by the fraudulent scheme perpetrated by Adelaida Bernal (Bernal) and Bellever Brothers.

Bernal, acting as a supposed representative of Manotoc Securities, executed an affidavit of loss of the certificates of title of the Bellever Brothers and filed a petition for the issuance of new duplicate copies before the Regional Trial Court of Makati City, Branch 135. Eventually, Branch 135 released an Order directing the Register of Deeds of Makati City to issue an owner's duplicate copy of the certificates of title of the Believer Brothers to replace the ones that were purportedly lost.

Bernal and Bellever Brothers subsequently presented a falsified Decision dated December 18, 1985 allegedly issued by the Court of First Instance, Pasig City Branch 19, in Civil Case No. 29782, as well as an absolute deed of sale dated December 18, 1985 to cancel the annotations on the certificates of title of the Bellever Brothers and to cause the issuance of new titles over the properties.

On March 19, 1992, the certificates of title of the Bellever Brothers were transferred in Bernal's name under TCT Nos. 178934, 178935, and 178936.[3]

Knowing that the Court of First Instance, Pasig City Branch 19 did not render any decision in Civil Case No. 29782 and that the case was archived per certification issued by the Clerk of Court, Daniel and Florencia Duenas (the Duenas Spouses) caused the annotation of their affidavit of adverse claim dated August 31, 1992 under Entry No. 48918 on Bernal's certificates of title.

The Duenas Spouses also commenced Civil Case No. 92-2831 before the Regional Trial Court of Makati City, Branch 61 for the declaration of nullity of Bernal's certificates of title and the absolute deed of sale dated December 18, 1985. The annotation of notice of lis pendens under Entry No. 50908 followed. Nevertheless, the annotation was cancelled pursuant to the Orders of Branch 61 dated January 25, 1993 and February 24, 1993.

Aggrieved, the Duenas Spouses filed a petition for certiorari before the Court of Appeals.

On March 11, 1993, the Court of Appeals temporarily enjoined the implementation of the assailed Orders of Branch 61. On March 12, 1993, Branch 61 received the Resolution of the Court of Appeals.

On October 29, 1993, the Court of Appeals finally ruled in favor of the Duenas Spouses, thereby setting aside the trial court's assailed Orders in Civil Case No. 92-2831. The Court of Appeals' Decision became final and executory on November 29, 1993.

Nonetheless, despite the Court of Appeals' favorable ruling and prior temporary restraining order, the Duenas Spouses claimed that Branch 61 still issued a certificate of finality of its January 25, 1993 Order which cancelled the notice of lis pendens under Entry No. 50908. As a result, Penelope Ison (Ison) of the Register of Deeds of Makati City cancelled the said annotation on the certificates of title of Bernal.[4]

On April 23, 1993, Bernal executed an absolute deed of sale over the lots in favor of AF Realty Development Inc. (AF Realty). On April 28, 1993, Inocencio Domingo (Domingo) of the Makati City Register of Deeds cancelled the certificates of title of Bernal, including the annotation of the affidavit of adverse claim of the Duenas Spouses therein, and consequently issued a new set of titles under AF Realty's name.

On February 22, 1994, the Duenas Spouses commenced Civil Case No. 94-751 for the declaration of nullity of AF Realty's titles and the accompanying absolute deed of sale in AF Realty's favor which also included claim for damages against Bernal, AF Realty, Ison, and Domingo before the Regional Trial Court of Makati City, Branch 60. On February 23, 1994, the Duenas Spouses caused the annotation of a notice of lis pendens under Entry No. 81678 on the certificates of title of AF Realty.

In the interim, however, AF Realty sold the lots to MBTC on January 31, 1994. The Duenas Spouses only discovered the sale on June 8, 1994. Thus, they filed an amended complaint in Civil Case No. 94-751, impleading MBTC and its executive vice president as additional defendants.

On June 15, 1994, a new set of certificates of title under MBTC's name was issued.[5]

MBTC insisted that it was a purchaser in good faith and for value. Allegedly, the certificates of title under AF Realty's name were bereft of any lien or encumbrance during the time of sale on January 31, 1994. Besides, the notice of lis pendens was only annotated in the certificates of title of AF Realty's on February 23, 1994. Accordingly, the bank had every right to depend on the titles presented and was not obligated to look beyond it to ascertain any defect in its issuance.[6]

On January 15, 2002, Branch 60 ruled in favor of the Duenas Spouses in Civil Case No. 94-751. As to the trial court, Bernal resorted to a fraudulent scheme that unlawfully deprived Manotoc Securities and the Duenas Spouses of their interest in the properties. Nevertheless, the lots were already conveyed to MBTC, which, on the other hand, bought the three parcels of land free from liens and encumbrances. Therefore, the Duenas Spouses and Manotoc Securities' proper recourse is to go against the party responsible for the fraud, and those, who, by their negligence, allowed the title to pass into the hands of innocent purchasers as provided under Section 55 of Act No. 496, now Section 53 of Presidential Decree No. 1529.

On April 23, 2002, Branch 60 partially granted the Duenas Spouses and Manotoc Securities' motion for reconsideration only in terms of the amount of damages awarded.[7]

On May 15, 2013, the Court of Appeals affirmed the trial court's decision in toto and upheld that MBTC is a purchaser in good faith. Further, the sale between MBTC and AF Realty had already been consummated when the notice of lis pendens was annotated in the relevant certificates of title.

The Court of Appeals also explained that even a fraudulent document may become the root of valid title if the property has already been conveyed from the owner's name to that of the forger. Thus, a person dealing with a registered property in good faith obtains a valid title from the forger and will therefore be protected under the Torrens System.[8]

During the pendency of the appeal, Daniel Duenas died and was substituted by his heirs, Florencia and Daphne Duenas-Montefalcon (Montefalcon). On October 8, 2013, the Court of Appeals denied Florencia and Montefalcon's motion for reconsideration.

The ponencia granted the Petition and set aside the assailed rulings[9] of the Court of Appeals on account of the following considerations:

First, AF Realty is not a purchaser in good faith in light of the existing annotation of the affidavit of adverse claim of the Duenas Spouses in Bernal's certificates of title at the time of sale on April 23, 1993. The cancellation of said annotation only occurred when AF Realty registered the deed of absolute sale in its favor with the Register of Deeds on April 28, 1993;[10] and

Second, MBTC is an innocent purchaser for value and has been able to acquire the properties free from any lien or encumbrance at the time of sale on January 31, 1994.

Even so, as between MBTC's January 31, 1994 deed of absolute sale belatedly registered on June 15, 1994 and petitioners' lis pendens annotated on February 23, 1994, petitioners' right over the lots precedes.[11]

Ultimately, the ponencia declared petitioners' entitlement to recover and possess their just share of the properties. The certificates of title under AF Realty and MBTC's names were declared null and void. Thus, the Makati City Register of Deeds was ordered to issue new certificates of title under the name of petitioners.[12]

I concur in the result.

Nevertheless, in my view, MBTC is not an innocent purchaser in good faith and for value. There are relevant indications that should have impelled it to investigate further on the lots, which are the subject of prior successive transfers, each conveyance having been consistently and repeatedly assailed by petitioners and their predecessors.

More telling that as a bank and financial institution, MBTC cannot just make much of a bare claim that it can securely rely on the clean certificates of title of AF Realty.[13] Being engaged in a business imbued with public interest, a higher degree of prudence and diligence is asked of it when dealing with real properties.

II

It is the very intent of the Torrens System of registration to quiet title to land and to put an end to any inquiry as to the validity of a title, save for claims already annotated during registration or which may occur consequently to it.[14] Thus, a person dealing with a registered property may securely rely on the correctness of the title, and the law will not, in any way, compel them to go beyond it to verify the status or condition of the property. Otherwise stated, when a certificate of title is clean and bereft of any encumbrance, a buyer holds every right to rely on its correctness in deciding whether to ensue with the purchase. As such, they are considered innocent purchasers in good faith and for value.[15]

Presidential Decree No. 1529, or the Property Registration Decree, seeks to reinforce the Torrens System[16] hence, Section 44 of which recognizes the right afforded to innocent purchasers in good faith and for value:

Section 44. Statutory Liens Affecting Title. — Every registered owner receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted in said certificate and any of the following encumbrances which may be subsisting, namely:

First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines which are not by law required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or encumbrancers of record.

Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the acquisition of any right over the land by an innocent purchaser for value, without prejudice to the right of the government to collect taxes payable before that period from the delinquent taxpayer alone.

Third. Any public highway or private way established or recognized by law, or any government irrigation canal or lateral thereof if the certificate of title does not state that the boundaries of such highway or irrigation canal or lateral thereof have been determined.

Fourth. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to, Presidential Decree No. 27 or any other law or regulations on agrarian reform.[17] (Emphasis supplied)

The protection afforded to innocent purchasers for value is essential to maintain the conclusiveness and efficacy of a certificate of title, which is warranted under the Torrens System.[18] Where innocent third persons relying on the correctness of the title attain rights over the property subject of the sale, the court cannot simply discount them and direct the absolute cancellation of their titles.[19] An innocent purchaser in good faith and for value possesses an indefeasible title to the registered land.[20]

An innocent purchaser in good faith and for value embraces:

. . . [O]ne who buys the property of another without notice that some other person has a right to or interest in it, and who pays a full and fair price at the time of the purchase or before receiving any notice of another person's claim.[21] (Citations omitted)

On the contrary, a person is not an innocent purchaser in good faith and for value if they actually knew of a flaw or the vendor's lack of title on the property, or anything on the title that would reasonably cause doubt or suspicion, and that they failed to investigate or ensue with the necessary measures to guarantee that there exists no cloud on the ownership or title to the property involved in the sale.[22]

It bears stressing that the sincerity of intention that comprises good faith entails a lack of knowledge of circumstances that "ought to put a prudent person on inquiry."[23] Good faith encompasses a possessor's belief that the person from whom they got the property is the true owner who, on the other hand, could validly transfer their title. While good faith is always the presumption in the absence of contrary evidence, this nevertheless demands a well-founded belief.[24]

As follows, there are exceptions to the general rule that a person dealing with registered land may safely rely on the issued certificate of title and is not compelled to go beyond it to ascertain the property's condition:

. . . (1.) when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make further inquiry; (2.) when the buyer has knowledge of a defect or the lack of title in his vendor; or (3.) when the buyer / mortgagee is a bank or an institution of similar nature as they are enjoined to exert a higher degree of diligence, care, and prudence than individuals in handling real estate transactions.[25] (Emphasis supplied)

An innocent purchaser for value "is deemed to include an innocent lessee, mortgagee, or other (beneficiary of an) encumbrance for value."[26] Banks, being engaged in a business imbued with public interest, cannot simply depend on the certificates of title in determining the status of properties subject to their dealings. Banks are supposed to employ a higher degree of care and prudence in their transactions than private individuals.[27]

As to MBTC, it exercised due diligence in verifying the authenticity of AF Realty's certificates of title over the three parcels of land. Upon verification of its representative with the Register of Deeds of Makati City, the relevant certificates of title were allegedly found to be true and free from any defect:

MBTC claimed that it exerted due diligence in verifying the authenticity of TCT Nos. 185022, 185023 and 185024 with the Register of Deeds of Makati City based on the appraisal report and the testimony of Atty. Cris Villaruz (Atty. Villaruz), an MBTC employee who assisted in purchasing the subject three lots, and testified that he personally went to the Register of Deeds of Makati City to verify that indeed TCT Nos. 185022, 185023 and 185024 are genuine and free from any lien or encumbrances.

Atty. Villaruz testified that a certain department or group of MBTC was tasked to look into the genuineness of the titles of real properties MBTC intends to purchase. He added that this department or group assured him verbally that TCT Nos. 185022, 185023 and 185024 were indeed authentic. In addition, MBTC also inspected the subject three lots and found them to be occupied by informal settlers who were later ejected by [AF Realty] before the execution of the deed of absolute sale dated January 31, 1994.[28] (Emphasis supplied and citations omitted)

MBTC' s assertions fail to convince.

In my view, the foregoing shows that MBTC failed to diligently inquire into the history and the origin of the certificates of title of its predecessor, AF Realty, before proceeding with the sale. While it is uncontested that there is no annotation of any adverse claim that would impel MBTC to inquire on the status of the property at the time of purchase, it cannot be gainsaid that, unlike a private individual, a higher degree of diligence is expected of it when it comes to its property dealings.

Although we cannot disregard that a representative from MBTC allegedly went to the Register of Deeds of Makati City to verify the authenticity of AF Realty's certificates of title, it should have been more elaborate on the manner and depth of inquiry it conducted before such government office. If only MBTC employed the higher degree of diligence required of it as a bank or financial institution, it would be highly improbable that it failed to discover that the property it intends to purchase from AF Realty has long been the subject of successive transfers, all of which were constantly being contested and assailed by petitioners and the latter's predecessors.

Furthermore, as found by the Court of Appeals, the MBTC representative found eight shanties of informal settlers on-site during ocular visit.[29] Regardless of whether these occupants were duly evicted before the execution of the relevant deed of sale, this, by itself, should have all the more alerted MBTC to conduct a thorough investigation of AF Realty's certificates of title, considering likewise that it will be paying it a substantial amount of PHP 39,308,000.00 in exchange for the property.[30]

Worth stressing is the oft-repeated rule that "purchasers cannot close their eyes to known facts that should put a reasonable person on guard."[31] They cannot eventually insist that they have acted in good faith, believing there was no flaw in the seller's certificates of title. Their mere denial to face up to that likelihood does not render them innocent purchasers for value if it later becomes obvious that the certificates of title were indeed flawed and that they should have discovered the same had they employed the necessary precaution asked of a prudent person in a similar situation.[32]

All told, as a bank, MBTC fell short of the required diligence in dealing with the registered property subject of the sale. Therefore, I believe that MBTC is not an innocent purchaser in good faith and for value.

With the proffer that MBTC is not an innocent purchaser for value, it would be unnecessary to delve into whose right over the property precedes in light of MBTC's belated registration of the absolute deed of sale on June 15, 1994 in relation to petitioners' annotation of the notice of lis pendens on February 23, 1994.

ACCORDINGLY, I vote to GRANT the Petition.


[1] Ponencia, p. 2.

[2] Id.

[3] Id. at 3.

[4] Id. at 3-4.

[5] Id. at 5.

[6] Id. at 6.

[7] Id. at 8-10.

[8] Id. at 10-11.

[9] Id. at 44.

[10] Id. at 23-25.

[11] Id. at 26.

[12] Id. at 44-45.

[13] Id. at 6 and 15.

[14] Cruz v. Court of Appeals, 346 Phil. 506, 511 (1997) [Per J. Bellosillo, First Division].

[15] Aguirre v. Bombaes (2021), G.R. No. 233681 [Per J. Inting, Third Division].

[16] See Second Whereas Clause of Presidential Decree No. 1529.

[17] Leong v. See, 749 Phil. 314, 324 (2014) [Per J. Leonen, Second Division].

[18] Rabaja Ranch Development Corp. v. AFP Retirement and Separation Benefits System, 609 Phil. 660, 675 (2009) [Per J. Nachura, Third Division].

[19] Cruz v. Court of Appeals, 346 Phil. 506, 511 (1997) [Per J. Bellosillo, First Division].

[20] Aguirre v. Bombaes, G.R. No. 233681, February 3, 2021 <https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/67181> [Per J. Inting, Third Division].

[21] Id.

[22] Id.

[23] Spouses Domingo v. Reed, 513 Phil. 339, 353 (2005) [Per J. Panganiban, Third Division].

[24] Id.

[25] Calma v. Lachica, Jr., 821 Phil. 607, 620 (2017) [Per J. Tijam, First Division].

[26] Spouses Macadangdang v. Spouses Martinez, 490 Phil. 774, 781 (2005) [Per J. Corona, Third Division].

[27] Ursal v. Court of Appeals, 509 Phil. 628, 642 (2005) [Per J. Austria-Martinez, Second Division].

[28] Ponencia, pp. 26-27.

[29] Id. at 11.

[30] Id. at 9.

[31] Spouses Domingo v. Reed, 513 Phil. 339, 353 (2005) [Per J. Panganiban, Third Division].

[32] Id. at 353-354.



CONCURRING OPINION

CAGUIOA, J.:

I concur.

As narrated in the ponencia, this case involves four successive transfers of titles over three parcels of land with a total area of 1,411 sq. m. located in Makati City (subject lots), with the ultimate titles over the subject lots ending in the hands of respondent Metropolitan Bank and Trust Company (Metrobank). Key in the determination of the controversy before the Court is the effect of the fraudulent scheme which included the presentation of a falsified court decision which made possible the issuance of new titles over the subject lots, and the subsequent sale of the same to AF Realty Development, Inc. (AFRDI) and, ultimately, to Metrobank.

The above fraudulent machinations pivot the facts of this case, and the legal ramifications it brings to the parties give rise to what I submit are: first, a misappreciation of the buyer in good faith status in favor of Metrobank under the prevailing definition of the same; second, a need to disabuse the prevailing misnomer that even in the case of a laundered title, a subsequent buyer who claims to have relied on a "clean title" absolutely gains a right over the property that is superior to that of the registered owner who did not contribute to the fraud, either by positive agency or otherwise neglect; and third, a jurisprudential opportunity to clarify who the Torrens system should protect first and foremost.

For the full context and a careful tracing of the transfers of the titles over the subject lots, a brief recall of the pertinent facts is in order.

The subject lots were originally registered in the name of Dolores Egido (Dolores) under Transfer Certificate of Title (TCT) Nos. T-79864, T-79865, and T-79866.[1] In May 1978, these TCTs were cancelled and in lieu thereof, TCT Nos. S-68301, S-68302 and S-68303 were issued in the name of Bellever Brothers, Inc. (BBI).[2]

BBI later contracted a loan from Manotoc Securities, Inc. (MSI) in the amount of P2,500,000.00, and mortgaged the subject lots as security, via a Deed of Mortgage annotated on TCT Nos. S-68301, S-68302 and S-68303.[3]

In June 1978, Dolores filed a complaint in the Court of First Instance of Pasig (CFI-Pasig) against BBI and MSI to rescind and declare null the sale of the subject lots, and to cancel BBI's titles over them (Civil Case No. 29782).[4] She also caused the annotation of a Notice of Lis Pendens on the said TCTs. When Dolores later died, she was survived by her daughter Carmen Egido (Carmen).[5]

In September 1981, CFI-Pasig issued a writ of preliminary injunction, which was also annotated on the TCTs sought to be cancelled. Then, while the case was temporarily archived, Carmen authorized petitioner Florencia Duenas (Florencia) to enter into a settlement of this archived case, and subsequently assigned to the latter all her rights over the subject lots in August 1991.[6]

Meanwhile, MSI was dissolved and placed under receivership. Florencia sent the Securities and Exchange Commission (SEC) a Letter Proposal for Amicable Settlement of Civil Case No. 29782, and while Florencia and MSI's receiver were negotiating a compromise agreement over the subject lots,[7] they discovered that TCT Nos. S-68301, S-68302 and S-68303 in the name of BBI were cancelled by Mila Flores (Flores), the Register of Deeds of Makati City.[8] This cancellation was the result of one Adelaida Bernal (Bernal), allegedly acting as a representative of MSI, executing an Affidavit of Loss of these TCTs, and filing a petition for issuance of a new owner's duplicate copy of the said titles before Branch 135, Regional Trial Court (RTC) of Makati City (Makati RTC Br. 135) (LRC Case No. M-2490). This petition was granted by Makati RTC Br. 135, and the Register of Deeds, upon order, issued a new owner's duplicate copy of said TCTs.[9]

Then, Bernal and BBI presented a falsified Decision in the archived Civil Case No. 29782 and a Deed of Absolute Sale (DoAS) to cancel the annotated entries on the TCTs and the issuance of a third set of titles, TCT Nos. 178934, 178935 and 178936 in Bernal's name.[10]

As it were, Sps. Daniel Duenas (Daniel) and Florencia (Sps. Duenas) disputed this and averred that the CFI-Pasig did not render any decision on Civil Case No. 29782 and that it was archived. They added that to protect their right over the subject lots, they caused the annotation of their Affidavit of Adverse Claim on the third set of TCTs (TCT Nos. 178934, 178935 and 178936). They also filed a complaint before Branch 61, RTC of Makati City (Makati RTC Br. 61) to declare the third set of TCTs and the DoAS null, as well as for damages against Bernal and BBI, et al.[11]

While initially a Notice of Lis Pendens was annotated on these TCTs the same was later cancelled by Makati RTC Br. 61 in its Order dated January 25, 1993. Sps. Duenas also assailed this cancellation before the Court of Appeals (CA).[12]

During the pendency of the case, Bernal (in whose name the third set of TCTs in dispute are named) executed a DoAS in April 1993 over the subject lots in favor of AFRDI, so that the Register of Deeds of Makati City cancelled the Affidavit of Adverse Claim of Sps. Duenas and issued the fourth set of TCTs over the subject lots in the name of AFRDI. Sps. Duenas, once more, filed a complaint before Branch 60, RTC of Makati City (Makati RTC Br. 60) to declare the fourth set of TCTs and the DoAS in favor of AFRDI null and void. As well, Sps. Duenas caused the annotation of another Notice of Lis Pendens on this fourth set of TCTs.[13]

However, before anything could be decided, AFRDI sold the subject lots to Metrobank via a DoAS, which in turn constrained Sps. Duenas to amend their most recent complaint to implead Metrobank.[14]

Later, a fifth set of TCTs over the subject lots (TCT Nos. 195231, 195232 and 195233) were issued in the name of Metrobank. Metrobank, for its part, countered that it is a purchaser in good faith and for value, since the TCTs in the name of AFRDI did not show any lien or encumbrance at the time it bought them in January 1994 (since the Notice of Lis Pendens was only annotated on them a month after said purchase).[15]

Makati RTC Br. 61 declared the third set of TCTs (in Bernal's name) null and void. It also reinstated the second set of TCTs (in BBI's name) along with all the entries therein. Makati RTC Br. 60 found that Bernal perpetuated a fraudulent scheme that unlawfully deprived the petitioners and MSI of their ownership and beneficial interest in the subject lots.[16]

However, owing to the Innocent Purchaser for Value (IPV) rule, Makati RTC Br. 60 held that since the ownership and titles of the subject lots had already passed into the hands of Metrobank that bought the subject three lots free from any liens and encumbrances, Sps. Duenas and MSI's proper recourse is to go against the parties who committed the fraud, and, who by their negligence, allowed the title to go into the hands of innocent purchasers as per Section 55 of Act No. 496 [now Section 53 of Presidential Decree No. (PD) 1529].[17]

On appeal to the CA, the latter affirmed Makati RTC Br. 60 in toto and similarly found that while there was fraud committed which wrested from Sps. Duenas their rights over the subject lots, the same could no longer be recovered since the subject lots have come into the lawful possession of an IPV, i.e., Metrobank.[18]

Daniel died on February 23, 2007 during the pendency of the case with the CA and was substituted by his heirs Florencia and Daphne Duenas-Montefalcon, the herein petitioners.

The ponencia finds the petition with merit.[19] It reverses the CA Decision insofar as the rights of petitioners over the subject lots are concerned, and declares the TCTs in Metrobank's name null and void, and the TCTs in the name of AFRDI similarly null and void. It orders Metrobank and all persons claiming rights under it to vacate 60% of the subject property and deliver its possession to petitioners, as well as remove or demolish what has been built on the 60% portion of the subject properties at its expense.[20]

The ponencia also orders Metrobank to pay petitioners the amount of P5,000,000.00 as temperate damages. It also orders Metrobank, AFRDI, Penelope Ison and Inocencio Domingo to jointly and severally pay petitioners P200,000.00 as moral damages. Finally, it orders AFRDI to reimburse Metrobank the amount of 60% of P39,308,000.00, the purchase price paid, with legal interest.[21]

Given the foregoing pronouncements, I respectfully concur with the ultimate outcome of finding that petitioners are entitled to the recovery and possession of 60% of the subject three lots, as well as declaring the TCTs in the name of Metrobank and AFRDI null and void. I similarly agree with the crucial finding that necessitated a juxtaposition between the Notice of Lis Pendens of Sps. Duenas on the one hand, and Metrobank's registration of its DoAS on the other — that Metrobank is not an IPV. More broadly still, I must similarly submit that with respect to the appreciation of the IPV principle, we must not run roughshod over safeguards that ensure that the Torrens system of registration protects, foremost, the registered owner, instead of lends itself to the laundering of titles and the legitimization of land-grabbing schemes and the like.

Allow me to discuss my reservations in seriatim.

Metrobank is not an IPV

On this central point of query, I proffer that Metrobank failed to prove that it was free from knowledge of circumstances which ought to put a person, or in this case a financial institution, on inquiry as to claim to be an IPV within the facts of this case.

It is important to observe that what may be easily distilled from the facts of this case is that Metrobank, an established financial institution charged with a specific very high due diligence standard, failed to show that it was an IPV, even as against the prevailing contemplation of the principle. For while there is some protection given by current case law to true innocent purchasers for value, the Court has already long elucidated on the variance in application of this case with respect to banks.

Importantly, as against the requisites of the application of the IPV principle, Metrobank failed to establish that said requisites are present. Particularly, the case of Heirs of Cudal, Sr. v. Spouses Suguitan[22] instructs on the principles pertaining to proof of good faith on the part of buyers of real property, to wit:

A holder of registered title may invoke the status of a buyer for value in good faith as a defense against any action questioning his [or her] title. Such status, however, is never presumed but must be proven by the person invoking it.

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 [or she] has notice of the claim or interest of some other persons in the property. He [or she] buys the property with the well-founded belief that the person from whom he [or she] 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 [or she] relied on the face of the title to the property. He [or she] need not prove that he [or she] made further inquiry for be [or she] is not obliged to explore beyond the four corners 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 [or her] 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 [or she] relied on the face of the title; he [or she] must now also show that he [or she] exercised reasonable precaution by inquiring beyond the title. Failure to exercise such degree of precaution makes him [or her] a buyer in bad faith.[23] (Emphasis supplied)

As applied to the defense of Metrobank, its mere claim of reliance on the absence of annotations on the title must fail in the face of a number of other reasonable precautions incumbent upon it which it did not take.

The records of the case show that Metrobank failed to undertake the higher due diligence required of financial institutions which are jurisprudentially considered as more than just an ordinary buyer vis-à-vis the matter of the good faith requirement.

For one, the CA itself noted that on his cross-examination, Atty. Cris Villaluz (Atty. Villaluz), the Metrobank representative, admitted that they merely relied on the title itself, without undertaking any check on the history of the same, viz.:

[Atty. Cris Villaluz] narrated that when the property was transferred to Metrobank in 1994, there was already an encumbrance which is the Notice of Lis Pendens referring to the case filed by Bernal against AF Realty. In the purchase of real properties, the Bank does not normally conduct a history check of the titles covering the property and relies merely on the actual title presented, not the derivative title. Before Metrobank purchased the property, he visited the same and saw around eight (8) shanties occupied by squatter families but he did not do anything about this because he was told that there were some NPA occupants in the area.[24] (Emphasis supplied)

For another, and despite Metrobank's consistent assertion that it observed the degree of diligence required of it in the purchase of the subject lots, Makati RTC Br. 60 observed Atty. Villaluz's admission that he was not aware of pending cases over the subject lots, which fact could have easily been determined had the diligence due been in fact observed. As Makati RTC Br. 60 noted:

Upon cross examination made by Atty. Lucas, [Atty. Villaluz] admitted that he was not authorized to represent the bank in the transaction over the purchase of the property and was only asked to assist the officers on this matter; that he later came to know of the nullification suit of the three titles registered in the name of the bank; that he was unable to make further verification or checking because he was very busy with other matters in the province concerning the purchase of other properties and emphasized that he only came to know of the properties being titled in the name of Bellever Brothers and the letter referring to other pending cases in Pasig after he received the Complaint in this on June 1994.

Later on, Atty. Magpantay was assigned to take charge of his duties and it was he who informed the management of the pending cases.

He is not aware of the Decision rendered by the RT[C] Br. 61 declaring as null and void the TCT of Bernal from which AF Realty and Metrobank took their titles, thereby reviving and reinstating TCT Nos. S-68301 to 68303 in favor of Duenas. He also did not know whether the lawyer who took over his duties became aware of this decision.[25] (Emphasis supplied)

In addition, and as the ponencia itself observes,[26] Atty. Villaluz relied on the assurance of a certain group or department within Metrobank, which reported to him verbally that the titles to the subject lots were authentic. On this, point, it must be noted that no representative from this said department in Metrobank testified before the court as to how it determined the history of the titles to the subject lots.

What is clear from the records, therefore, is that Metrobank failed to conduct the merited investigation needed despite the fact that, among others and as its representative testified to, they found other individuals in possession of the same, as found by the CA, to wit:

On the other hand, the court a quo found that when Metrobank negotiated with AF Realty for the sale of the subject property sometime in September 1993, the titles were clean and no annotation of Notice of Lis Pendens were found. Moreover, Metrobank proceeded to conduct verification and counter-checking with the Registry of Deeds. Likewise, it found the titles with the Registry of Deeds clean and free from liens and encumbrances. These supported the findings that Metrobank is an innocent purchaser for value and enjoyed the protection of the law on indefeasibility of titles.

x x x x

Based on the foregoing discussion, [Metrobank] qualifies as a purchaser in good faith. When it negotiated with AF Realty and eventually purchased the property on 31 January 1994, the titles over the property were clean. During verification with the Registry of Deeds, it was likewise confirmed that those titles were free from liens and encumbrances. Prior to the purchase, [Metrobank] took steps to visit the property. Its officers saw about eight (8) shanties occupied by squatters within the premises.[27]

This much Metrobank itself admits in its Answer before Makati RTC Br. 60, as an affirmative defense, viz.:

Defendant MBTC had every right to rely on these titles and was not obliged to go behind them. It was not aware of any fact or document as would have made it to suspect that there was a cloud over the titles and thus to impel it to conduct an investigation.[28]

Plainly, this defense is belied by the very fact that, in the same breath, as testified to by Atty. Villaluz, Metrobank's representative saw that at least eight houses made of light materials were on the subject lots but did not consider that cause to investigate into the history of the ownership over the same. In both the narrations of Makati RTC Br. 60 and the CA, neither found the fact of the presence of the said structures on the subject lots meriting more than a curt dismissal as possible "NPA" occupants, without citing any basis for the said factual conclusion.

In addition, when the possession of a property purchased is crucial in the determination of whether a buyer is one in good faith or not, the presence of the said structures should have alerted Metrobank to inquire into said occupancy, instead of tersely and summarily dismissing the same to be informal in nature. Had Metrobank only inquired in such a manner, it appears to be within the realm of reason that it would have had more opportunity in becoming aware of the long-winding history of litigation over the subject lots. Moreover, such inquiry would have helped in the determination of whether said occupants had existing legitimate rights in their occupancy that were worth safeguarding. Instead, it opted to dismiss the said structures as "shanties," the reason for their presence on the subject lots not worth knowing. I submit that this glossing over of said occupancy betrays the failure of Metrobank to observe the standard of diligence due under the circumstances.

It is similarly crucial to observe that Metrobank's sole reliance on the "clean titles" over the subject lots must not be taken at face value but must be closely examined. Specifically, the questioned titles over the subject lots have seen a series of at least two turns of annotations of Notice of Lis Pendens by Sps. Duenas, which, even if they were cancelled as Metrobank relies on for its defense, should have still been reflected on the titles. In other words, even with the cancellation of the annotations of adverse claims, it remains demonstrably true as well that the complete history of the annotations on the titles should have still been reflected on the four comers of the titles themselves.

Subject to a verification of the contents of the actual questioned titles in the records of the case, if the questioned titles themselves do reflect, as they should, the two rounds of cancelled annotations which were caused thereon by Sps. Duenas, it is well within reason for the Court to surmise that, at the very least, the existence of these cancelled annotations should have still put Metrobank on notice that the subject lots they were purchasing from AFRDI were at the center of a protracted history of litigations that go all the way back to 1978. The presence of these persistent annotations on the titles themselves, albeit cancelled, should have still raised sufficient caution on the part of Metrobank and brought within its knowledge the knowable level of risk that it was assuming in purchasing the subject lots. To accept Metrobank's default reliance on the IPV doctrine even in the face of circumstantial indications that show otherwise would be perhaps naïve.

Given the foregoing, the central point of query therefore is whether Metrobank's plain reliance on the "clean titles" themselves is sufficient due diligence on its part. I submit that it is not.

On the degree of due diligence required of banks as buyers of properties, the Court has already carefully qualified that financial institutions such as banks are charged with a more exacting standard than that required from an ordinary purchaser. In Philippine National Bank v. Corpuz,[29] the Court disabused the erroneous notion that a bank's sole reliance on the title itself is satisfactory, viz.:

As a rule, the Court would not expect a mortgagee to conduct an exhaustive investigation of the history of the mortgagor's title before he extends a loan. But petitioner PNB is not an ordinary mortgagee; it is a bank. Banks are expected to be more cautious than ordinary individuals in dealing with lands, even registered ones, since the business of banks is imbued with public interest. It is of judicial notice that the standard practice for banks before approving a loan is to send a staff to the property offered as collateral and verify the genuineness of the title to determine the real owner or owners.

One of the CA's findings in this case is that in the course of its verification, petitioner PNB was informed of the previous TCTs covering the subject property. And the PNB has not categorically contested this finding. It is evident from the faces of those titles that the ownership of the land changed from Corpuz to Bondoc, from Bondoc to the Palaganases, and from the Palaganases to the Songcuans in less than three months and mortgaged to PNB within four months of the last transfer.

The above information in turn should have driven the PNB to look at the deeds of sale involved. It would have then discovered that the property was sold for ridiculously low prices: Corpuz supposedly sold it to Bondoc for just P50,000.00; Bondoc to the Palaganases for just P15,000.00; and the Palaganases to the Songcuans also for just P50,000.00. Yet the PNB gave the property an appraised value of P781,760.00. Anyone who deliberately ignores a significant fact that would create suspicion in an otherwise reasonable person cannot be considered as an innocent mortgagee for value.[30] (Emphasis supplied)

In particular, as noted by the ponencia, the rule of reliance on the correctness of the certificate of title admits of exceptions which include when the buyer is a bank such as Metrobank, which is unquestionably enjoined to exert a higher degree of diligence than mere reliance.[31]

Jurisprudentially, the banks have been charged with the duty to check the history of the titles they transact on, which history check was admittedly not undertaken by Metrobank.

Furthermore, in the case of Philippine Banking Corp. v. Dy,[32] the Court plainly stated, thus:

Primarily, it bears noting that the doctrine of "mortgagee in good faith" is based on 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. This is in deference to the public interest in upholding the indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any encumbrance thereon. In the case of banks and other financial institutions, however, greater care and due diligence are required since they are imbued with public interest, failing which renders the mortgagees in bad faith. Thus, before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owner(s) thereof. The apparent purpose of an ocular inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto.[33] (Emphasis supplied, citations omitted)

In the case of Metrobank here, its defense of the absence of any annotated encumbrance on the titles themselves fails to suffice. To be sure, the burden of proving that one is a mortgagee or a purchaser in good faith and for value, being a matter of defense, is upon the party asserting the same, as the Court held in Magsano v. Pangasinan Savings and Loan Bank, Inc.,[34] thus:

Furthermore, as correctly pointed out by petitioners, the claim that one is an innocent purchaser for value is a matter of defense. Hence, while petitioners alleged that Sps. Manuel were purchasers in bad faith, the rule is that he [or she] who asserts the status of a purchaser in good faith and for value has the burden of proving the same, and this onus probandi cannot be discharged by mere invocation of the legal presumption of good faith, i.e., that everyone is presumed to act in good faith.[35] (Emphasis supplied, citations omitted)

Given the foregoing, it appears clearly that Metrobank here is not an IPV. Specifically, Metrobank failed to sufficiently prove that it undertook the due diligence required of it to ensure that the subject lots and the titles thereto were not, as in fact they were, obtained through fraud. For in addition to the suggestion of Justice Japar B. Dimaampao during the deliberations that the good faith must be present not only at the time of the purchase but must be uninterrupted up to the registration of the sale, good faith must also be so demonstrated as free from any suspicion, knowledge or notice of fraud that inevitably negate it. This is the core reason for finding against it.

The registered owner of a land has a superior right over any subsequent buyer who may have obtained a title to his registered property on the occasion of fraud

Apart from the question of whether the ultimate buyer in this case was in good faith, the broader question of consequence that the case at bar presents is this: as between a registered owner and a subsequent buyer claiming to be an IPV, which one does the Torrens system primarily protect? The early case of Legarda v. Saleeby[36] (Saleeby) is most instructive as to the answer, with the same being rooted on the very rationale of the Torrens system of registration, viz.:

x x x The plaintiffs having secured the registration of their lot, including the wall, were they obliged to constantly be on the alert and to watch all the proceedings in the land court to see that someone else was not having all, or a portion of the same, registered? If that question is to be answered in the affirmative, then the whole scheme and purpose of the torrens system of land registration must fail. The real purpose of that system is to quiet title to land; to put a stop forever to any question of the legality of the title, except claims which were noted at the time of registration, in the certificate, or which may arise subsequent thereto. That being the purpose of the law, it would seem that once a title is registered the owner may rest secure, without the necessity of waiting in the portals of the court, or sitting in the "[mirador de su casa]," to avoid the possibility of losing his land. Of course, it cannot be denied that the proceeding for the registration of land under the torrens system is judicial (Escueta vs. Director of Lands, 16 Phil. Rep., 482). It is clothed with all the forms of an action and the result is final and binding upon all the world. It is an action in rem. (Escueta vs. Director of Lands (supra); Grey Alba vs. De la Cruz, 17 Phil. Rep., 49; Roxas vs. Enriquez, 29 Phil. Rep., 31; Tyler vs. Judges, 175 Mass., 71; American Land Co. vs. Zeiss, 219 U. S., 47.)

While the proceeding is judicial, it involves more in its consequences than does an ordinary action. All the world are parties, including the government. After the registration is complete and final and there exists no fraud, there are no innocent third parties who may claim an interest. The rights of all the world are foreclosed by the decree of registration. The government itself assumes the burden of giving notice to all parties. To permit persons who are parties in the registration proceeding (and they are all the world) to again litigate the same questions, and to again cast doubt upon the validity of the registered title, would destroy the very purpose and intent of the law. The registration, under the torrens system, does not give the owner any better title than he had. If he does not already have a perfect title, he cannot have it registered. Fee simple titles only may be registered. The certificate of registration accumulates in one document a precise and correct statement of the exact status of the fee held by its owner. The certificate, in the absence of fraud, is the evidence of title and shows exactly the real interest of its owner. The title once registered, with very few exceptions, should not thereafter be impugned, altered, changed, modified, enlarged, or diminished, except in some direct proceeding permitted by law. Otherwise all security in registered titles would be lost. A registered title cannot be altered, modified, enlarged, or diminished in a collateral proceeding and not even by a direct proceeding, after the lapse of the period prescribed by law.[37] (Emphasis supplied)

The case of Saleeby confronted the Court with two titles issued over the same property, where the Court applied the constructive notice principle and ruled that the act of registration serves as constructive notice to the whole world, including subsequent parties who may transact over the property. Clearly, the rationale in Saleeby affirms that the spirit of the Torrens system is the security of the registered owner in the ownership of his or her land. This is the legal basis for the application of the maxim. As Justice Johnson emphatically delivered for the Court therein, should a registered owner not feel secured against illegal and fraudulent removal or negation of his or her ownership rights over a registered property, then the very purpose of the Torrens system has failed.

In addition, the Court, in Saleeby, similarly makes salient that the security that the registered owner finds in the system stands on the safeguard of constructive notice that is effected upon registration, which consequently results in the faultless logic that no IPV is possible over an inexistent or void title to a land. More specifically, the Court, in Saleeby, likens the rebuttal of the presumption of constructive notice in land registration to that of arguing ignorance of the law, in order to clarify that the constructive notice in the Torrens system of registration is indisputable, regardless of whether the buyer actually verified to this effect, to wit:

May the purchaser of land which has been included in a "second original certificate" ever be regarded as an "innocent purchaser," as against the rights or interest of the owner of the first original certificate, his [or her] heirs, assigns, or vendee? The first original certificate is recorded in the public registry. It is never issued until it is recorded. The record is notice to all the world. All persons are charged with the knowledge of what it contains. All persons dealing with the land so recorded, or any portion of it, must be charged with notice of whatever it contains. The purchaser is charged with notice of every fact shown by the record and is presumed to know every fact which the record discloses. This rule is so well established that it is scarcely necessary to cite authorities in its support (Northwestern National Bank vs. Freeman, 171 U. S., 620, 629; Delvin on Real Estate, sections 710, 710 [a]).

When a conveyance has been properly recorded such record is constructive notice of its contents and all interests, legal and equitable, included therein. (Grandin vs. Anderson, 15 Ohio State, 286, 289; Orvis vs. Newell, 17 Conn., 97; Buchanan vs. International Bank, 78 Ill., 500; Youngs vs. Wilson, 27 N. Y., 351; McCabe vs. Grey, 20 Cal., 509; Montefiore vs. Browne, 7 House of Lords Cases, 341.)

Under the rule of notice, it is presumed that the purchaser has examined every instrument of record affecting the title. Such presumption is irrebutable. He is charged with notice of every fact shown by the record and is presumed 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 anymore than one may be permitted to show that he was 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.[38] (Emphasis supplied)

To be sure, Saleeby is far from a lone jurisprudential voice on the matter, with subsequent Court pronouncements echoing the same. The conclusiveness of the decree of registration upon and against all persons is reiterated in the cases of Government of the Philippine Islands v. Zamora[39] and Director of Lands v. Insa,[40] where the Court held that an exception to Saleeby is when there is a clear error to the drawn up plans from which the land description in the title is based, in which case the metes and bounds of the property as shown in the title covers shall be corrected.

In the facts of the present case, as the ponencia itself finds, the fact of Bernal's fraudulent acquisition of the titles over the subject lots is beyond question.[41] This much was found by Makati RTC Br. 60 in its January 15, 2002 Decision, which held that Bernal unlawfully encroached upon both the Sps. Duenas' and MSI's ownership over the subject lots.[42] It is similarly unrebutted that TCT Nos. 178934, 178935 and 178936 were issued in the name of Bernal as a result of the latter's fraudulent schemes, and are therefore null and void.[43] As noted by the ponencia, Sps. Duenas vigilantly caused the annotation of their Affidavit of Adverse Claims on these void titles, even as they filed a complaint before Makati RTC Br. 61 (Civil Case No. 92-2831) to have these void titles declared so.[44] When Makati RTC Br. 61 in the said case ruled for the cancellation of the annotation of petitioners' adverse claims on the said titles, Sps. Duenas appealed to the CA which ultimately ruled in their favor, and the said Decision became final and executory.[45]

Therefore, by virtue of the fact that the said titles were void for being a result of fraud as vindicated by the CA in its final and executory decision, the said titles are, for all intents and definitions, void. This fact is undisturbed by the unexplained error on the part of Makati RTC Br. 61 which, despite the CA's aforementioned final decision, nevertheless issued a Certificate of Finality of its Order to cancel the Notice of Lis Pendens on the titles in question,[46] which afforded the erroneously "clean titles" which AFRDI and, later, the Metrobank acquired.

On this point, the threshold issue and pragmatic question, both as a matter of law and equity, becomes: should Sps. Duenas as registered owners who remained vigilant in the protection of their rights be permanently prejudiced and wholly divested of their ownership rights due to both a fraudulent scheme by Bernal and the unexplained error by Makati RTC Br. 61 which legitimized void titles? Stated differently, may the frauds and errors that were carried out through no fault of the petitioners be ultimately taken against them?

To borrow Justice Johnson's response to an analogous question in Saleeby, to answer these questions in the affirmative is for the very animus of the Torrens system of registration to fail.

I submit that as between a registered owner who is free from contributory neglect and a subsequent buyer who acquires a void title, the Torrens system's safeguarding purpose must operate to secure the ownership rights of the registered owner. To hold otherwise is to send the illogical message that a registered owner cannot afford to rest secured in his or her registered title since even without his or her neglect, fraudulent machinations that wrest his or her properties from him or her may nevertheless be legitimized by both the Torrens system of registration as well as the courts.

I must submit that nothing could be further from the intendment of the laws on land registration.

Jurisprudentially, void titles may not afford protection to subsequent buyers, even those who claim to be IPV, for only those registered titles which have been validly brought within the protective cover of the Torrens system of registration may do so. Titles such as the ones in question in the instant case have been demonstrated as void, and therefore failed to comply with the requirements for registration of voluntary instruments under Sections 53 and 56 of PD 1529, which provide, thus:

Section 53. Presentation of Owner's Duplicate Upon Entry of New Certificate. — No voluntary instrument shall be registered by the Register of Deeds, unless the owner's duplicate certificate is presented with such instrument, except in cases expressly provided for in this Decree or upon order of the court, for cause shown.

The production of the owner's duplicate certificate, whenever any voluntary instrument is presented for registration, shall be conclusive authority from the registered owner to the Register of Deeds to enter a new certificate or to make a memorandum of registration in accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith.

In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without prejudice, however, to the rights of any innocent holder for value of a certificate of title. After the entry of the decree of registration on the original petition or application, any subsequent registration procured by the presentation of a forged duplicate certificate of title, or a forged deed or other instrument, shall be null and void.

x x x x

Section 56. Primary Entry Book; Fees; Certified Copies. — Each Register of Deeds shall keep a primary entry book in which, upon payment of the entry fee, he [or she] shall enter, in the order of their reception, all instruments including copies of writs and processes filed with him [or her] relating to registered land. He [or she] shall, as a preliminary process in registration, note in such book the date, hour and minute of reception of all instruments, in the order in which they were received. They shall be regarded as registered from the time so noted, and the memorandum of each instrument, when made on the certificate of title to which it refers, shall bear the same date: Provided, that the national government as well as the provincial and city governments shall be exempt from the payment of such fees in advance in order to be entitled to entry and registration. (Emphasis supplied)

In the event that a registration fails to comply with these registration requirements, the underlying transaction is not validly registered, and therefore may not affect the land subject to it. On this point, the case of Levin v. Bass[47] (Levin) instructs:

x x x Under the Torrens system the act of registration is the operative act to convey and affect the land. Do the entry in the day book of a deed of sale which was presented and filed together with the owner's duplicate certificate of title with the office of the Registrar of Deeds and full payment of registration fees constitute a complete act of registration which operates to convey and affect the land? In voluntary registration, such as a sale, mortgage, lease and the like, if the owner's duplicate certificate be not surrendered and presented or if no payment of registration fees be made within 15 days, entry in the day book of the deed of sale does not operate to convey and affect the land sold. In involuntary registration, such as an attachment, levy upon execution, lis pendens and the like, entry thereof in the day book is a sufficient notice to all persons of such adverse claim. Eugenio Mintu fulfilled or took all the steps he was expected to take in order to have the Registrar of Deeds in and for the City of Manila issue to him the corresponding transfer certificate of title on the lot and house at No. 326 San Rafael Street sold to him by Joaquin V. Bass. The evidence shows that Eugenio Mintu is an innocent purchaser for value. Nevertheless, the court below held that the sale made by Bass to Mintu is as against Rebecca Levin without force and effect because of the express provision of law which in part says:

x x x x

x x x The pronouncement of the court below is to the effect that an innocent purchaser for value has no right to the property because he [or she] is not a holder of a certificate of title to such property acquired by him [or her] for value and in good faith. It amounts to holding that for failure of the Registrar of Deeds to comply and perform his [or her] duty an innocent purchaser for value loses that character — he [or she] is not an "innocent holder for value of a certificate of title." The court below has strictly and literally construed the provision of law applicable to the case. If the strict and literal construction of the law made by the court below be the true and correct meaning and intent of the lawmaking body, the act of registration — the operative act to convey and affect registered property — would be left to the Registrar of Deeds. True, there is a remedy available to the registrant to compel the Registrar of Deeds to issue to him [or her] the certificate of title but the step would entail expense and cause unpleasantness. Neither violence to, nor stretching of the meaning of, the law would be done, if we should hold that an innocent purchaser for value of registered land becomes the registered owner and in the contemplation of law the holder of a certificate thereof the moment he presents and files a duly notarized and lawful deed of sale and the same is entered on the day book and at the same time he [or she] surrenders or presents the owner's duplicate certificate of title to the property sold and pays the full amount of registration fees, because what remains to be done lies not within his power to perform. The Registrar of Deeds is in duty bound to perform it. We believe that is a reasonable and practical interpretation of the law under consideration — a construction which would lead to no inconsistency and injustice.[48] (Emphasis supplied)

In other words, as Levin teaches, an IPV becomes the registered owner and the holder of a certificate thereof after he or she: (i) presents and files a duly notarized and lawful deed of sale; (ii) causes the same to be entered in the day book; (iii) surrenders or presents the owner's duplicate certificate of title to the property sold; and (iv) pays the full amount of registration fees. To be sure, while Levin was decided under the regime of the Land Registration Act, these requisites remain applicable as they have been carried over and re-adopted under Sections 51, 52, 53 and 56 of PD 1529.

Stated differently, only when the requisites of a valid registration in accordance with the provisions of the land registration laws are complied with can a truly clean title, one that is free from any flaw or defect, be obtained. Any title that is a product of a circumvention of the legal requirements of registration, or one that is otherwise acquired through fraudulent maneuverings as finally adjudged, is hardly what may be deemed "clean" within the contemplation of the law.

As applied to the facts of this case, the registration of the titles in question, void as they are by virtue of the predicate fraud, have notably failed to comply with two of the foregoing requisites, i.e., (i) the presentation and filing a duly notarized and lawful deed of sale, given that the DoAS presented by Bernal in this case was fraudulent; and (ii) the surrender or presentment of the owner's duplicate certificate of title to the property sold, given that in this case, Bernal did not present the same in furtherance of her fraudulent scheme.

These lacking requisites prevented the completion of the registration process, which in turn rendered the titles in question not only void but also legally inexistent, for not having been validly registered. Consequently, for being void and inexistent for not having been validly registered, they cannot be afforded the protections under the Torrens system, including the often relied upon protection of an IPV and the constructive notice rule.

Importantly, we must hark back to these safeguards that ensure that only valid and lawfully registered titles enjoy the security afforded by the Torrens registration system, lest we loosely apply and yield these protections where they are not merited. Worse still, it is imperative that we qualify that only lawfully registered titles enjoy these protections, or else the Torrens system will lend itself most serviceable to the laundering of fraudulent titles and the facilitation and legitimization of spurious ones.

Set against the backdrop of prevalent land-grabbing designs and acquisitions which often rise to dizzying scales, the Court's ability to draw lines and distinctions where the very spirit of the laws intended them will profoundly impact the integrity of the country's land registration system. The Court's careful qualification in the instant case will ensure that the Torrens system is designed for the ease of lawful transactions over real properties, not the enabling of laundering unlawful ones.

Bearing the above in mind, I agree with the ponencia and vote to GRANT the instant petition.


[1] Rollo, p. 9.

[2] Id. at 55.

[3] The date indicated in the Deed of Mortgage is May 18, 1978 (id. at 341-352), while the date annotated in the titles is May 19, 1978 (see dorsal portions of pp. 331-333). See also id. at 54; ponencia, p. 2

[4] Rollo, pp. 54, 360.

[5] Ponencia, p. 2.

[6] Id. at 3.

[7] Id.

[8] Rollo, p. 55.

[9] Id.

[10] Id.

[11] Id. at 55-56.

[12] Id. at 56.

[13] Id.; ponencia, p. 5.

[14] Rollo, p. 57.

[15] Id.; ponencia, p. 5.

[16] Rollo, p. 381.

[17] Id. at 384-385.

[18] Id. at 64-68.

[19] Ponencia, p. 16.

[20] Id. at 49.

[21] Id. at 50.

[22] G.R. No. 244405, August 27, 2020, accessed at <https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/66517>.

[23] Id.

[24] Rollo, p. 60.

[25] Id. at 379-380.

26] Ponencia, pp. 26-27.

[27] Rollo, pp. 64-65.

[28] Id. at 281.

[29] 626 Phil. 410 (2010).

[30] Id. at 412-413.

[31] Ponencia, p. 23.

[32] 698 Phil. 750 (2012).

[33] Id. at 757.

[34] 797 Phil. 392 (2016).

[35] Id. at 405.

[36] 31 Phil. 590 (1915).

[37] Id. at 593-594.

[38] Id. at 600-601.

[39] 41 Phil. 905 (1920).

[40] 47 Phil. 158 (1924).

[41] Ponencia, p. 17.

[42] Id. at 8-9.

[43] Id. at 3.

[44] Id. at 4.

[45] Id.

[46] Id.

[47] 91 Phil. 419 (1952).

[48] Id. at 436-438.



CONCURRENCE

LAZARO-JAVIER, J.:

I concur.

To recall, the Metropolitan Bank and Trust Co. (MBTC) bought the three (3) parcels of land located on Buendia Avenue, corner Dian St., Makati City from AF Realty Development, Inc. (AFRDI) on January 31, 1994. At the time of the sale, MBTC was not aware of any claim or interest of some other person(s) in the properties nor of any defect or restriction in the title of the seller or its capacity to convey title.[1] Hence, MBTC was correctly found to be a purchaser in good faith and for value at the time it bought the properties.[2]

As it was, however, MBTC did not immediately cause the registration of the sale. But when it eventually did, there was already a prior entry of lis pendens on the title. What is then the effect of the entry of lis pendens on the sale and its belated registration?

I agree with the ponencia that the sale, though done earlier, but registered later, is subject and inferior to the earlier entry of lis pendens.

It is settled that banks and financial institutions are charged with the observance of elevated standards of diligence in dealing with real properties in the course of their business.[3] Thus, as a banking institution, MBTC was enjoined to exert a higher degree of diligence and prudence than ordinary individuals in handling real estate transactions. This is because banking institutions are impressed with public interest.[4]

In Philippine National Bank v. Villa,[5] the Court reminded banks to exercise the highest degree of diligence in its dealings with properties offered or acquired by them. This includes the prompt registration of their sale transactions for the purpose of preserving in full its rights therein as trustees of the shareholders to whom they have the utmost duty of care.

Adhering to the doctrine of primus tempore, potior jure (priority in time, stronger in right) and applying Sections 51, 52, and 76 of Presidential Decree 1529, the Court has consistently ruled in favor of a registered claim or right over a prior unregistered sale or mortgage.[6]

Valdevieso v. Damalerio,[7] is apropos. Although the subject land therein was sold to petitioner as early as December 5, 1995, it was not until June 6, 1996 that the conveyance was registered. In the interim though, the land was subjected to a levy on attachment. The Court clarified that insofar as third persons are concerned, what validly transfers or conveys a person's interest in real property is the registration of the deed. Thus, when Valdevieso bought the property on December 5, 1995, it was at that point, nothing but a private transaction between him and Spouses Uy. It needed to be registered before it could bind third parties, including Damalerio, et al.. Consequently, when the registration finally took place on June 6, 1996, it was already too late because, by then, the levy in favor of respondents, pursuant to the preliminary attachment ordered by the trial court, had already been annotated on the title. The settled rule is that levy on attachment, duly registered, takes preference over a prior unregistered sale. This is a necessary consequence of the fact that the property involved was duly covered by the Torrens system which works under the fundamental principle that registration is the operative act which gives validity to the transfer or creates a lien upon the land.[8]

In the same vein, the sale between MBTC and AFRDI on January 31, 1994 was nothing more than a private transaction between them and remained such up until the sale was eventually registered to bind the whole world. It was only upon such registration that MBTC got to acquire preferential right to the property but only as against those who transacted thereon post facto. Since the entry of lis pendens here was done ex ante, it definitely enjoys precedence over the sale.


[1] Draft Decision, p. 26.

[2] Id. at 27.

[3] BPI Family Savings Bank, Inc. v. Sps. Soriano, G.R. No. 214939, June 8, 2020 [Per J. Gaerlan, Third Division].

[4] See Prudential Bank (now Bank of the Philippine Islands) v. Rapanot and Housing & Land Use Regulatory Board, 803 Phil. 294, 312 (2017) [Per J. Caguioa, First Division].

[5] See 792 Phil. 86, 98 (2016) [Per J. Perez, Third Division].

[6] Draft Decision, p. 30.

[7] 492 Phil. 51, 57-58 (2005) [Per J. Chico-Nazario, Second Division].

[8] See Du v. Stronghold Insurance Co., Inc., 475 Phil. 723, 733 (2004) [Per J. Panganiban, First Division]

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