Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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D E C I S I O N

LEONARDO-DE CASTRO, J.:

Assailed in the instant petition for review on certiorari are the Decision¹ of the Court of Appeals (CA) dated August 29, 2002 in CA-G R. CV No. 42985 and the Resolution² dated November 21, 2002 denying petitioners’ motion for reconsideration.

The assailed CA decision reversed the decision of the Regional Trial Court (RTC) of Makati City, Branch 135, in Civil Case No. 90-064, an action for quieting of title thereat commenced by petitioner spouses Jesus Ching and Lee Poe Tin against respondent spouses Adolfo and Arsenia Enrile.

The antecedent facts follow.

On September 5, 1985, petitioners purchased from a certain Raymunda La Fuente a 370-square meter lot located at Barrio Tungtong, Las Piñas and covered by TCT No. 83618. La Fuente delivered to petitioners a duly notarized Deed of Absolute Sale³ with the Owner’s Duplicate Certificate of Title and thereafter, petitioners took physical possession of the subject property.

For reasons known only to petitioners, the conveyance was not registered in the Register of Deeds as prescribed by Section 51 of PD 1529⁴ . Instead, on November 20, 1986, petitioners executed an Affidavit of Adverse Claim which was recorded and annotated at the back of TCT No. 83618 reflected in the Memorandum of Encumbrances under Entry No. 86-62262.⁵

In the meantime, petitioners peacefully and continuously possessed the subject property.

On August 19, 1988 ─ three years after they purchased the disputed property, petitioners received a Notice of Levy on Attachment and Writ of Execution issued by the Regional Trial Court (RTC) of Pasig in favor of respondents, in Civil Case No. 54617 entitled Sps. Adolfo Enrile and Arsenia Enrile v. Raymunda La Fuente.

The Notice of Levy on Attachment was recorded at the dorsal portion of TCT No. 83618 under Entry No. 3433-2 while the Writ of Execution was inscribed under Entry No. 3434-2. Also inscribed in the TCT is the Certificate of Sale dated January 26, 1989 covering the disputed property in favor of respondents.

On January 8, 1990, petitioners filed a Petition to Remove Cloud on or Quiet Title to Real Property asserting ownership of the disputed property.

On May 11, 1993, the RTC rendered judgment in favor of petitioners upholding the latter’s superior right over the disputed property in view of the registration of the Affidavit of Adverse Claim prior to the Certificate of Sale annotated in favor of respondents. Dispositively the decision reads:

WHEREFORE, premises, the above-entitled petition is granted for being preponderantly meritorious. Judgment is hereby rendered ordering:

1) The Register of Deeds of Las Piñas, Metro Manila to cancel all the annotations of encumbrances in favor of defendants [respondents] in Transfer Certificate of Title No. 83618 issued by the Register of Deeds of Pasay City, Metro Manila, District IV;

2) Defendants [respondents] to pay plaintiffs [petitioners] in the sum of P 10,000.00 as compensatory damages by way of litigation expenses;

3) To pay to plaintiffs [petitioners] the sum of P 10,000.00 as attorney’s fees; and,

4) To pay the cost of the proceedings.

SO ORDERED.

In time, respondents appealed to the CA, principally arguing that the RTC committed reversible error in ruling that petitioners had a better right over the disputed property. Respondents theorized that the prior conveyance of the disputed property made by La Fuente to petitioners being a voluntary dealing with a registered land, mere registration of their adverse claim was insufficient. To respondents, in order to have petitioners’ interest protected, they should have registered the Deed of Absolute Sale with the Register of Deeds pursuant to Section 51 of PD 1529 and not merely register an adverse claim under Section 70 of the same law. Citing the second paragraph of Section 70 which provides that an adverse claim shall be effective for a period of thirty days from the date of registration, respondents insisted that the annotated Adverse Claim of petitioners had already expired, hence, it offered no protection when respondents acquired the disputed property through execution sale.

On August 29, 2002, the CA rendered the herein challenged decision reversing that of the RTC. Even as the CA viewed the prior sale of the disputed lot in favor of petitioners as perfected and consummated, it nonetheless upheld respondents’ preferential right over the disputed property. Finding merit in respondents’ arguments, the CA ruled:

This Court, also believes that there is truth in defendants-appellants’ assertion that while the sale is perfected and consummated, plaintiffs-appellees failed to diligently protect their interests by failing to register the conveyance or transaction in the office of Register of Deeds. An owner of a registered land is vested by law with rights and obligations and thus exercises all attributes of ownership. These attributes include among others the right to dispose the real property itself. The owner of the land may convey, mortgage, lease or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instrument as are sufficient in law. However, as clearly provided by Section 51 of Presidential Decree 1529, 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, until the same has been registered in the office of the Register of Deeds. It shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to effect 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 of the province or city where the land lies. Unless and until the subject transaction has been filed or registered in the office of the Register of Deeds, the transaction shall only be binding on the parties to the contract but not on the third person. The instrument is not thereby rendered void by failure to register. Section 51 of PD 1529 states:

Section 51. Conveyance and other dealings by registered owner – An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make registration.

The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies.

Laying the blame on petitioners, the CA added:

The law provides protection to third person, who believing in good faith and relying on the sweet representations of some evil minded persons, may be unjustifiably inveigled to enter into a contract or transaction not knowing that the subject real property has been encumbered or sold. It is the duty of the buyer or vendee to register the transaction before the Register of Deeds of the province or city where the property lies. The registration is intended to inform any minded individual that the property has been subjected to a prior transaction and that entering into any further contract involving the same property shall be at his own risk. In the event that any third person was bona fide tricked to enter into any transaction involving the same property because the transferee or vendee failed to register the same as required by law, the latter’s interests should be subordinated to that of the third party. Axiomatic is the rule in this jurisdiction that when loss or damage was caused to two individuals who both acted in good faith but one is negligent, the loss or damage shall fall upon the one who acted negligently.

Citing a myriad of jurisprudence⁶ , the CA declared that respondents, as attaching creditors who registered the order of attachment and the sale of the property to them as the highest bidders, acquired a valid title to the disputed property as against petitioners who had previously bought the same property from the registered owner but failed to register their deed of sale.

The CA further declared respondents as purchasers in good faith. On the premise that petitioners’ filing of the Affidavit of Adverse Claim was procedurally flawed and that the annotated adverse claim had already prescribed on December 20, 1986 after the lapse of 30 days from its registration which was November 20, 1986, the CA ruled that it cannot be considered sufficient notice to third person like the respondents who were not aware of the sale of the disputed lot to petitioners prior to the levy on attachment.

As stated at the threshold hereof, the CA, in its decision⁷ of August 29, 2002, reversed and set aside that of the RTC, thus:

WHEREFORE, in view of the foregoing, the Decision dated May 11, 1993 of the Regional Trial Court, National Capital Judicial Region, Branch 135, Makati City in Civil Case No. 90-064 is hereby REVERSED.

The Register of Deeds of Las Piñas, Metro Manila is hereby mandated not to cancel any annotations of encumbrances in favor of defendants-appellants in Transfer Certificate of Title No. 83618 issued by the Register of Deeds of Pasay City, Metro Manila, Dist. IV.

Who among the parties has a preferential right over the disputed property.

SO ORDERED.

Their motion for reconsideration having been denied by the CA in its challenged Resolution of November 21, 2002, petitioners are now before this Court, faulting the CA as follows:

WITH DUE RESPECT, THE COURT A QUO GRAVELY ERRED AND ABUSED ITS DISCRETION WHEN IT RENDERED SUBJECT DECISION AND RESOLUTION IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR RULES WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT; Specifically, the Court a quo erred;

a. When it held that the levy on attachment LATER annotated shall prevail over the Adverse Claim EARLIER annotated at the back of the title by the mere lapse of 30 days and even without any petition in court for its cancellation;

b. When it did not dismiss the appeal considering that the question raised were questions of law and NO question of fact.⁸

The petition is impressed with merit.

At the outset, the Court finds that the CA committed reversible error when it ruled that the annotated adverse claim had already prescribed by the mere lapse of 30 days from its registration. The issue is no longer of first impression. In the 1996 case of Sajonas v. Court of Appeals,⁹ we explained that a notice of adverse claim remains valid even after the lapse of the 30-day period provided by Section 70 of PD 1529. Section 70 provides:

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, 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 cancelled 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.

In the same case, we held that for as long as there is yet no petition for its cancellation, the notice of adverse claim remains subsisting: Thus:

At first blush, the provision in question would seem to restrict the effectivity of the adverse claim to thirty days. But the above provision cannot and should not be treated separately, but should be read in relation to the sentence following, which reads:

After the lapse of said period, the annotation of the adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest.

If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the lapse of thirty days, then it would not have been necessary to include the foregoing caveat to clarify and complete the rule. For then, no adverse claim need be cancelled. If it has been automatically terminated by mere lapse of time, the law would not have required the party in interest to do a useless act.¹⁰

In a petition for cancellation of adverse claim, a hearing must first be conducted. The hearing will afford the parties an opportunity to prove the propriety or impropriety of the adverse claim.¹¹

Now, as we see it, the recourse will either rise or fall on the decisive question of whether or not respondents were purchasers in good faith when they acquired the disputed lot despite the annotated adverse claim on their title.

We rule and so hold that they were not.

The Court has invariably ruled that in case of conflict between a vendee and an attaching creditor, an attaching creditor who registers the order of attachment and the sale of the property to him as the highest bidder acquires a valid title to the property as against a vendee who had previously bought the same property from the same owner but who failed to register his deed of sale. This is because registration is the operative act that binds or affects the land insofar as third persons are concerned. It is upon registration that there is notice to the whole world. But where a party has knowledge of a prior existing interest, as here, which is unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him.¹² Knowledge of an unregistered sale is equivalent to registration.¹³

The general rule is that a person dealing with registered land is not required to go behind the register to determine the condition of the property. In that case, such person is charged with notice of the burden on the property which is noted on the face of the register or certificate of title.¹⁴

Article 1544 of the Civil Code governs in cases of double sale. It provides:

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.

An "innocent purchaser for value" or any equivalent phrase shall be deemed to include, under the Torrens System, the innocent lessee, mortgagee, and other encumbrancer for value.¹⁵

In Bautista v. Court of Appeals,¹⁶ we held that where the thing sold twice is an immovable, the one who acquires it and first registers it in the Registry of Property, in good faith, shall be the owner.

Who then can be considered a purchaser in good faith?

In the early case of Leung Yee v. F.L. Strong Machinery Co. and Williamson,¹⁷ the Court explained good faith in this wise:

One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.¹⁸

Good faith, or the want of it, is capable of being ascertained only from the acts of one claiming its presence, for it is a condition of the mind which can only be judged by actual or fancied token or signs.¹⁹

It is beyond dispute that the property in question had already been sold by La Fuente to petitioners on September 5, 1985. Petitioners immediately took possession thereof. When the Notice of Levy on Attachment was recorded at the dorsal portion of TCT No. 83618 and when the Writ of Execution and Certificate of Sale were inscribed under Entry No. 3434-2 in favor of respondents, on January 26, 1989, petitioners have been, since September 5, 1985, in actual, physical, continuous and uninterrupted possession.

The law does not require a person dealing with the owner of registered land to go beyond the certificate of title as he may rely on the notices of the encumbrances on the property annotated on the certificate of title or absence of any annotation. Here, petitioners’ adverse claim is annotated at the back of the title coupled with the fact that they are in possession of the disputed property. To us, these circumstances should have put respondents on guard and required them to ascertain the property being offered to them has already been sold to another to prevent injury to prior innocent buyers. A person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value. It is a well-settled rule that a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor.²⁰

As aptly observed by the RTC, regardless of the non-registration of the Deed of Absolute Sale to petitioners, nor the 30-day effectivity of the adverse claim under Section 70 of PD 1529, respondents were constructively notified of petitioners’ prior purchase of the disputed property. We quote with approval the RTC’s observation on this matter, thus:

xxx In derogation to defendants claim that they have a better right over the questioned property superior over that of the plaintiffs, the Court has only to carefully examine the face of TCT No. 83618 and its dorsal part on Memorandum of Encumbrances for entries and inscriptions in their chronological order of dates of annotation of documents in the Office of the Register of Deeds. On the title itself it is readily perceived and palpable that Entry No. 86-62262/T-83618 in reference to the Adverse Claim executed by plaintiff Jesus Ching was registered way ahead on November 20, 1986 compared to Entries Nos. 3433-2, 3434-2 and 736-3, respectively the Notice of Levy, Writ of Execution and Certificate of Sale in favor of spouses defendants Enrile which were duly registered on August 19, 1988 (for the first two documents) and on March 21, 1989 (for the last document). Perforce, before the registrations of the three documents purporting to be the rights and interests of defendants in the property in question, the defendants more particularly and the whole world in general were given constructive notice that Raymunda La Fuente, the judgment debtor in Civil Case No. 54617 of the Regional Trial Court of Pasig, has no more interest and rights to the property subject of litigation. Defendants should have at the first instance been duly warned and notified that the property involved in litigation subject to attachment and levy, execution and sale from actual registration of the defendants’ documents referred herein. The annotation of inscription to Entry No. 86-622/T-83618 is obviously and indeed very clear indicating that the plaintiffs’ registered adverse claim in reference to the sale of the same property sought by defendants to be levied on attachment, final execution and sale came ahead.²¹

Hence, the particular circumstances of this case constrain us to rule that respondents were not purchasers in good faith and, as such, could not acquire good title to the property as against the former transferee.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals promulgated on August 29, 2002, in CA-G R. CV No. 42985, and the Resolution dated November 21, 2002 are hereby REVERSED and SET ASIDE. In lieu thereof, the decision of the Regional Trial Court, of Makati City Branch 135, dated May 11, 1993, in Civil Case No. 90-064 is REVIVED and AFFIRMED in toto.

No costs.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ADOLFO S. AZCUNA
Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

¹ Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate Justices Romeo J. Callejo, Sr. (now retired Supreme Court Associate Justice) and Danilo B. Pine (ret.), concurring; rollo, pp. 7-21.

² Id., p. 26.

* Additional Member as per Special Order No. 515.

³ Id., p. 42

⁴ The Property Registration Decree.

⁵ Rollo, p. 41.

⁶ Worcester v. Ocampo, 34 Phil. 646 (1916); Laxamana v. Carlos, 57 Phil. 722 (1932); Anderson v. Garcia, 64 Phil. 506 (1937); Vargas v. Francisco, 67 Phil. 308 (1939); Reynes v. Barrera, 68 Phil. 656 (1939).

⁷ Supra note 1.

⁸ Id., p. 32.

⁹ G.R. No 102377, July 5, 1996, 258 SCRA 79, 94.

¹⁰ Id., pp 95-96.

¹¹ Rolando Y. Tan v. The Court of Appeals, G.R. No. 135038, November 16, 2001, 369 SCRA 255, 264.

¹² Ruiz, Sr. v. Court of Appeals, G.R. No. 121298, July 31, 2001, 362 SCRA 40, 50, citing Egao v. Court of Appeals, G.R. No. 79787, June 29, 1989, 174 SCRA 484.

¹³ Winkleman v. Veluz, 43 Phil. 604, 608 (1922).

¹⁴ Navotas Industrial Corporation v. German D. Cruz, et al., G.R. No. 159212, September 12, 2005, 469 SCRA 530, 553.

¹⁵ Express Credit Financing Corporation v. Sps. Morton and Juanita Velasco, G.R. No. 156033, October 20, 2005, 473 SCRA 570, 577.

¹⁶ G.R. No. 106042, 28 February 1994, 230 SCRA 446, 454.

¹⁷ No. 11658, 37 Phil. 644, 651 (1918).

¹⁸ Id. at 651.

¹⁹ Id. at 652.

²⁰ Amancio Sarmiento v. CA, Rodeanna Realty Corporation, et al., G.R. No. 152627, September 16, 2005, 470 SCRA 99, 123.

.

²¹ Rollo, pp. 61-62.