[G.R. No. 114299.

September 24, 1999]

TRADERS ROYAL BANK, Petitioner, v. HON. COURT OF APPEALS,

PATRIA, RUBY ANN, MARGARITA, ROSARIO, CYNTHIA, LINDA JOY, all
surnamed CAPAY and RAMON A. GONZALES, Respondents.

[G.R. No. 118862. September 24, 1999]

PATRIA, RUBY ANN, MARGARITA, ROSARIO, CYNTHIA, LINDA JOY, all

surnamed CAPAY, and RAMON A. GONZALES, Petitioners, v. SPS.
HONORATO D. SANTOS and MARIA CRISTINA S. SANTOS, SPS.
CECILIO L. PE and JOSEFINA L. PE, FLORA LARON WESCOMBE, SPS.
TELESFORO P. ALFELOR II and LIZA R. ALFELOR, SPS. DEAN
RODERICK FERNANDO and LAARNI MAGDAMO FERNANDO,
REMEDIOS OCA, DEVELOPMENT BANK OF THE PHILIPPINES and
TRADERS ROYAL BANK, Respondents.

DECISION

KAPUNAN, J.:

The present controversy has its roots in a mortgage executed by the spouses
Maximo and Patria Capay in favor of Traders Royal Bank (TRB) pursuant to a
loan extended by the latter to the former. The mortgage covered several
properties, including a parcel of land, the subject of the present dispute.1 The
loan became due on January 8, 1964 and the same having remained unpaid,
TRB instituted extra-judicial foreclosure proceedings upon the mortgaged
property.

To prevent the propertys sale by public auction, the Capays, on September

22, 1966, filed a petition for prohibition with preliminary injunction (Civil
Case No. Q-10453) before the Court of First Instance (CFI) of Rizal, alleging
that the mortgage was void since they did not receive the proceeds of the
loan. The trial court initially granted the Capays' prayer for preliminary
injunction.

On March 17, 1967, the Capays caused to be filed in the Register of Deeds of
Baguio City a notice of lis pendens over the disputed property. Said notice
was entered in the Day Book, as well as in the Capays certificate of title.

Subsequently, the injunction issued by the trial court was lifted thus allowing
the foreclosure sale to proceed. Foreclosure proceedings were initiated and
on October 17, 1968, the property was sold to TRB which was the highest
bidder at the auction sale. A sheriff certificate of sale was issued in its name
on the same day. On February 25, 1970, the property was consolidated in
the name of TRB, the sole bidder in the sale. TCT No. T-6595 in the name of
the Capay spouses was then cancelled and a new one, TCT No. T-
16272,2 was entered in the banks name. The notice of lis pendens, however,
was not carried over in the certificate of title issued in the name of TRB.

Thereafter, the Capays filed with the CFI a supplemental complaint praying
for the recovery of the property with damages and attorneys fees. Trial in
Civil Case No. Q-10453 proceeded and, on October 3, 1977, the CFI rendered
its decision declaring the mortgage void for want of consideration. The CFI
ordered, among other things, the cancellation of TCT No. T-16272 in the
name of TRB and the issuance of new certificates of title in the name of the
Capay spouses.

TRB appealed to the Court of Appeals. While the case was pending in the
Court of Appeals, TRB on March 17, 1982 sold the land to Emelita Santiago in
whose name a new certificate of title, TCT No. 33774,3 was issued, also,
without any notice of lis pendens annotated thereon. Santiago in turn divided
the land into six (6) lots and sold these to Marcial Alcantara, Armando Cruz
and Artemio Sanchez, who became co-owners thereof.4 Alcantara and his co-
owners developed the property and thereafter sold the six (6) lots to
separate buyers who were issued separate titles, again, bearing no notice
of lis pendens.5
cräläwvirtualibräry

On July 30, 1982, the Court of Appeals rendered its decision modifying the
decision of the trial court as to the award of damages but affirming the same
in all other respects.

For having been filed out of time and for lack of merit, the petition
for certiorari filed by TRB before this Court6 was denied in a Resolution dated
September 12,1983. TRBs motion for reconsideration was similarly denied in
a Resolution dated October 12, 1983. The Courts September 12, 1983
Resolution having become final and executory on November 9, 1983, the trial
court issued a writ of execution directing the Register of Deeds of Baguio City
to cancel TCT No. T-16272 in the name of TRB, and to issue a new one in the
name of the Capay spouses.

Said writ, however, could not be implemented because of the successive

subsequent transfers of the subdivided property to buyers who obtained
separate titles thereto. Thus, a complaint for recovery of
possession/ownership dated 8 June 1985 was filed before the Quezon City
Regional Trial Court against TRB and the subsequent transferees of the
property, the respondents in G.R. No. 118862 (hereinafter, the non-bank
respondents). Plaintiffs in said case were Patria Capay, her children by
Maximo7 who succeeded him upon his death on August 25, 1976, and Ramon
Gonzales, counsel of the spouses in Civil Case No. Q-10453 who became co-
owner of the property to the extent of 35% thereof as his attorneys fees
(collectively, the Capays). On March 27, 1991, the trial court rendered its
decision, the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs against
the defendants and ordering the Register of Deeds for Baguio to cancel TCT
No. T-36177, Books 198, Page 177 in the names of defendants Spouses
Honorato D. Santos and Maria Cristina Santos; to cancel TCT No. 36707,
Book 201, Page 107 in the names of defendant Spouses Cecilio Pe and
Josefina L. Pe; to cancel TCT No. T-36051, Book 198, Page 51 in the name of
Flora Laron Wescombe, married to Kevin Lind Wescombe (now deceased); to
cancel TCT No. T-36147, Book 198, page 147 in the names of Spouses
Telesforo P. Alfelor II and Liza R. Alfelor; to cancel TCT No. T-36730, Book
201, Page 130 in the names of Spouses Dean Roderick Fernando and Laarni
Magdamo Fernando; to cancel TCT No. 37437, Book 205, Page 37 in the
name of Remedios Oca, and issue new ones free from all liens and
encumbrances, together with all the improvements therein in the names of
plaintiffs sharing pro indiviso as follows: 35% to Ramon A. Gonzales, married
to Lilia Y. Gonzales, of legal age, with postal address at 23 Sunrise Hill, New
Manila, Quezon City; 37.92% to Patria B. Capay, of legal age, widow,
Filipino; 5.41% each to Ruby Ann Capay, of legal age, Filipino, married to
Pokka Vainio, Finnish citizen; Chona Margarita Capay, of legal age, Filipino,
married to Waldo Flores; Rosario Capay, of legal age, Filipino, married to
Jose Cuaycong, Jr.; Cynthia Capay, of legal age, Filipino, married to Raul
Flores; Linda Joy Capay, of legal age, Filipino, married to Pedro Duran, all
with postal address at 37 Sampaguita St., Capitolville Subd., Bacolod City,
ordering said defendants to vacate the premises in question and restoring
plaintiffs thereto and for defendant Traders Royal Bank to pay each of the
plaintiffs moral damages in the amount of P100,000.00, P40,000.00 in
exemplary damages and P40,000.00 as attorneys fees, all with legal interest
from the filing of the complaint, with costs against defendants.

SO ORDERED.8

TRB and the non-bank respondents appealed to the Court of Appeals. In a

Decision promulgated on February 24, 1994 in CA-G.R. CV No. 33920, the
appellate court affirmed the decision of the trial court in toto.9 It ruled that
the non-bank respondents cannot be considered as purchasers for value and
in good faith, having purchased the property subsequent to the action in Civil
Case No. Q-10453 and that while the notice of lis pendens was not carried
over to TRBs certificate of title, as well as to the subsequent transferees
titles, it was entered in the Day Book which is sufficient to constitute
registration and notice to all persons of such adverse claim, citing the cases
of Villasor vs. Camon,10 Levin vs. Bass11 and Director of Lands vs. Reyes.12cräläwvirtualibräry

As regard TRB, the Court of Appeals said that the bank was in bad faith when
it sold the property knowing that it was under litigation and without
informing the buyer of that fact.

On April 26, 1994, TRB filed with this Court a petition for review to set aside
the CA decision, docketed herein as G.R. No. 114299, invoking the following
grounds:
 I.

THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE

AND SERIOUS ERROR OF LAW IN PROMULGATING THE DISPUTED DECISION
AND THEREBY DECIDED A QUESTION OF SUBSTANCE WHOLLY CONTRARY
TO SETTLED JURISPRUDENCE AND TOTALLY NOT IN ACCORD WITH
APPLICABLE DECISION OF THIS HONORABLE SUPREME COURT.

II.

THE RESPONDENT HONORABLE COURT OF APPEALS HAS COMMITTED SO

GRAVE AND SERIOUS ERRORS OF LAW IN SANCTIONING A DEPARTURE
FROM THE USUAL AND ACCEPTED COURSE OF JUDICIAL PROCEEDING AS TO
CALL FOR THE EXERCISE OF THE POWER OF REVIEW BY THIS HONORABLE
SUPREME COURT.

a) The public respondent has plainly and manifestly acted whimsically,

arbitrarily, capriciously, with grave abuse of discretion, in excess of
jurisdiction tantamount to lack of jurisdiction.

xxx

b) The public respondent erred in not finding that it was not the fault of
petitioner when the notice of lis pendens was not carried over to its new title.

xxx

c) The public respondent erred in not finding that PD No. 1271 had legally
caused the invalidation of the Capays property and the subsequent validation
of TRBs title over the same property was effective even as against the
Capays.13

Meanwhile, the non-bank respondents moved for a reconsideration of the

Court of Appeals decision. Convinced of the movants arguments, the Court of
Appeals in a Resolution promulgated on August 10, 1994 granted the motion
for reconsideration and dismissed the complaint as against them. The
dispositive portion of the resolution states:

ACCORDINGLY, in view of the foregoing disquisitions and finding merit in the

motion for reconsideration, the same is hereby GRANTED. Consequently, the
decision of this Court, promulgated on February 24, 1994, is hereby
RECONSIDERED. The complaint filed against defendants-appellants with the
court a quo is hereby ordered DISMISSED, and the certificate of titles
originally issued to them in their individual names are hereby ordered
restored and duly respected. We make no pronouncement as to costs.

SO ORDERED.14
The Capays thus filed with this Court a petition for review, docketed as G.R.
No. 118862, to set aside the resolution of the Court of Appeals raising the
following errors:

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT TUAZON VS. REYES, 48 PHIL. 814 AND RIVERA VS. MORAN,
48 PHIL. 836 ARE NOT APPLICABLE HEREOF, WHILE PINO VS. COURT OF
APPEALS, 198 SCRA 436, IS APPLICABLE.

II

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT ATUN VS. MUNOZ, 97 PHIL. 762 AND LAROZA VS. GUIA, 134
SCRA 34, ARE NOT APPLICABLE.

III

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT LEVIN VS. BASS, 91 PHIL. 419 VILLASOR VS. CAMON, 89
PHIL. 404 AND DIRECTOR OF LANDS VS. REYES, 68 SCRA 73, ARE NOT
APPLICABLE HEREOF.

IV

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT PETITIONERS ARE GUILTY OF LACHES.

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT THERE IS NO DISTINCTION IN THE REGISTRATION OF
VOLUNTARY INSTRUMENTS VIS--VIS INVOLUNTARY INSTRUMENTS.

VI

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT RESPONDENTS WHO ARE LAWYERS, RESPONSIBLE
CITIZENS AND WELL-RESPECTED RESIDENTS IN THE COMMUNITY, ARE
EXEMPTED FROM THE EFFECTS OF THE CONSTRUCTIVE NOTICE ARISING
FROM REGISTRATION.

VII
THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF WITH
REGARDS TO TRADERS ROYAL BANK, AFTER THE LATTER HAS PERFECTED
ITS APPEAL TO THE SUPREME COURT.

VIII

THE COURT OF APPEALS PALPABLY ERRED IN NOT RULING ON THE

COUNTER-ASSIGNMENT OF ERROR THAT:

B) THE LOWER COURT ERRED IN NOT HOLDING THAT DEFENDANTS ARE

BOUND BY THE DECISION IN CIVIL CASE NO. Q-10453.

Subsequently, G.R. No. 118862 was consolidated with G. R. No. 114299,

pursuant to this Courts Resolution dated July 3, 1996.15 cräläwvirtualibräry

The consolidated cases primarily involve two issues: (1) who, as between the
Capays and the non-bank respondents, has a better right to the disputed
property, and (2) whether or not TRB is liable to the Capays for damages.

On the first issue, we rule for the non-bank Respondents.

First, when TRB purchased the property at the foreclosure sale, the notice
of lis pendens that the Capays caused to be annotated on their certificate of
title was not carried over to the new one issued to TRB. Neither did the
certificate of title of Emelita Santiago, who purchased the property from TRB,
contain any such notice. When Santiago caused the property to be divided,
six (6) new certificates of title were issued, none of which contained any
notice of lis pendens. Santiago then sold the lots to Marcial Alcantara and his
co-owners who next sold each of these to the non-bank respondents. The
non-bank respondents, therefore, could not have been aware that the
property in question was the subject of litigation when they acquired their
respective portions of said property. There was nothing in the certificates of
title of their respective predecessors-in-interest that could have aroused their
suspicion. The non-bank respondents had a right to rely on what appeared
on the face of the title of their respective predecessors-in-interest, and were
not bound to go beyond the same. To hold otherwise would defeat one of the
principal objects of the Torrens system of land registration, that is, to
facilitate transactions involving lands.

The main purpose of the torrens system is to avoid possible conflicts of title
to real estate and to facilitate transactions relative thereto by giving the
public the right to rely upon the face of a Torrens certificate of title and to
dispense with the need of inquiring further, except when the party concerned
has actual knowledge of facts and circumstances that should impel a
reasonably cautious man to make such further inquiry. Where innocent third
persons, relying on the correctness of the certificate of title thus issued,
acquire rights over the property, the court cannot disregard such rights and
order the total cancellation of the certificate. The effect of such an outright
cancellation would be to impair public confidence in the certificate of title, for
everyone dealing with property registered under the Torrens system would
have to inquire in every instance as to whether the title has been regularly or
irregularly issued by the court. Every person dealing with registered land
may safely rely on the correctness of the certificate of title issued therefor
and the law will in no way oblige him to go beyond the certificate to
determine the condition of the property.

The Torrens system was adopted in this country because it was believed to
be the most effective measure to guarantee the integrity of land titles and to
protect their indefeasibility once the claim of ownership is established and
recognized. If a person purchases a piece of land on the assurance that the
sellers title thereto is valid, he should not run the risk of being told later that
his acquisition was ineffectual after all. This would not only be unfair to him.
What is worse is that if this were permitted, public confidence in the system
would be eroded and land transactions would have to be attended by
complicated and not necessarily conclusive investigations and proof of
ownership. The further consequence would be that land conflicts could be
even more numerous and complex than they are now and possibly also more
abrasive, if not even violent. The Government, recognizing the worthy
purposes of the Torrens system, should be the first to accept the validity of
titles issued thereunder once the conditions laid down by the law are
satisfied.16

Second, the foregoing rule notwithstanding, the non-bank respondents

nevertheless physically inspected the properties and inquired from the
Register of Deeds to ascertain the absence of any defect in the title of the
property they were purchasing-an exercise of diligence above that required
by law.

Thus, respondent Aida Fernando Meeks, who bought Lot 5 for her son Dean,
testified:

Q How did you come to live in Baguio City, particularly in Km. 2.5 San Luis,
Baguio City?

A In one of my visits to my sister who has been residing here for twelve (12)
years now, I got interested in buying a property here.

Q How did you come to know of this property at Asin Road where you now
reside?

A My sister, Ruth Ann Valdez, sir.

Q When this particular property was bought by you, when was that?
A I do not remember the exact date, but it was in early 1984, sir.

Q At the time when you went to see the place where you now reside, how did
it look?

A This particular property that I bought was then a small one (1)-room
structure, it is a two (2)-storey one (1) bedroom structure.

Q What kind of structure with regards to material?

A It is a semi-concrete structure, sir.

Q And aside from this two (2)-storey one (1)-room structure, how did the
surrounding area look like at the time you visited?

A There were stone walls from the road and there were stone walls in front of
the property and beside the property.

Q At the time you went to see the property with your agent, rather, your
sister Ruth Ann Valdez, did you come to know the owner?

A We did because at the time we went there, Mr. Alcantara was there
supervising the workers.

Q And who?

A Amado Cruz, sir.

Q After you saw this property, what else did you do?

A My first concern then was am I buying a property with a clean title.

Q In regards to this concern of yours, did you find an answer to this concern
of yours?

A At first, I asked Mr. Alcantara and I was answered by him.

Q What was his answer?

A That it was a property with a clean title, that he has shown me the mother
title and it is a clean title.

Q Aside from being informed that it is a property with a clean title, did you
do anything to answer your question?

A Yes, sir.
Q What did you do?

A Well, the first step I did was to go to the Land Registration Office.

Q Are you referring to the City Hall of Baguio?

A Yes, the City Hall of Baguio.

Q And what did you do in the Registry of Deeds?

A We looked for the title, the original title, sir.

Q When you say we, who was your companion?

A Mr. Alcantara and my present husband, sir.

Q The three (3) of you?

A Yes, sir.

Q What title did you see there?

A We saw the title that was made up in favor of Amado Cruz, sir.

Q And what was the result of your looking up for this title in the name of
Amado Cruz?

A We had to be reassured that it was a genuine one, so we asked Atty.

Diomampo who heads the office. We showed him a copy of that title and we
were also reassured by him that anything that was signed by him was as
good as it is.

Q Did this Atty. Diomampo reassure you that the title was good?

A He did.

Q After your conversation with the Register of Deeds, what did you do?

A The second step we did was to confer with our lawyer, a friend from RCBC
Binondo, Manila, this is Atty. Nelson Waje.

Q What is your purpose in going to this lawyer?

A We wanted an assurance that we were getting a valid title just in case we

think of buying the property.

Q What was the result of your conference with this lawyer?

A He was absolutely certain that that was a valid title.

Q Mrs. Meeks, after looking at the place, going to the Register of Deeds,
looking at the title and seeing your lawyer friend, what decision did you
finally make regarding the property?

A We wanted more reassurances, so we proceeded to Banaue, as advised by

that same lawyer, there is another office of the Bureau of Lands. I cannot
recall the office but it has something to do with registration of the old.

Q What is your purpose in going to this Office in Banaue?

A I wanted more reassurances that I was getting a valid title.

Q What was the result of your visit to the Banaue Office?

A We found the title of this property and there was reassurance that it was a
clean title and we saw the mother title under the Hilario family.

Q Mrs. Meeks, when you say Banaue, what particular place is this Banaue?

A It is in Banaue Street in Quezon City, sir.

Q And when you saw the title to this property and the mother title, what was
the result of your investigation, the investigation that you made?

A We were reassured that we were purchasing a valid title, we had a genuine

title.

Q When you were able to determine that you had a valid, authentic or
genuine title, what did you do?

A That is when I finally thought of purchasing the property.17

Telesforo Alfelor II, the purchaser of Lot 4, narrated going through a similar
routine:

Q How did you come to know of this place as Asin Road where you are
presently residing?

A It was actually through Mrs. Flory Recto who is presently the Branch
Manager of CocoBank. She informed my wife that there is a property for sale
at Asin road, and she was the one who introduced to us Mr. Alcantara, sir.

Q When you were informed by Mrs. Recto and when you met with Mr.
Alcantara, did you see the property that was being offered for sale?
A Yes, sir.

Q When did you specifically see the property, if you can recall?

A I would say it is around the third quarter of 1983, sir.

Q When you went to see the place, could you please describe what you saw
at that time?

A When we went there the area is still being developed by Mr. Alcantara. As
a matter of fact the road leading to the property is still not passable
considering that during that time it was rainy season and it was muddy, we
fell on our way going to the property and walked to have an ocular inspection
and physical check on the area, sir.

xxx

Q What was the improvement, if any, that was in that parcel which you are
going to purchase?

A During that time, the riprap of the property is already there, the one-half
of the riprap sir.

Q Do you know who was making this improvement at the time that you went
there?

A I would understand that it was Marcial Alcantara, sir.

Q After you saw the place and you saw the riprap and you were in the course
of deciding to purchase this property, what else did you do?

A First, I have to consider that the property is clean.

Q How did you go about determining whether the title of the property is
clean?

A Considering that Marcial Alcantara is a real estate broker, I went to his

office and checked the documents he has regarding the property.

Q And what was the result of your checking as to whether the title of the
property is clean?

A He showed me the copy of the title and it was clean, sir.

Q Aside from going to Mr. Alcantara to check up the title of the property,
what else did you do?
A Well, the next thing is I requested his wife to accompany me to the Bureau
of Lands or rather the Registry of Deeds, sir.

Q What registry of Deeds are you referring to?

A The Registry of Deeds of Baguio City, sir.

Q And were you able to see the Register of Deeds regarding what you would
like to know?

A Yes, and we were given a certification regarding this particular area that it
was clean, sir.

Q What Certification are you referring to?

A It is a Certification duly signed by the employee of the Registry of Deeds

Adelina Tabangin, sir.

Q Do you have a copy of that Certification?

A Yes, I have, sir.18

The testimonies of Honorato Santos19 and Josefina Pe20 were to the same

effect.

The non-bank respondents predecessor-in-interest, Marcial Alcantara, was no

less thorough:

Q And will you give a brief description of what you do?

A I normally acquire land, quite big tract of land and subdivide it into smaller
lots and sold it to some interested parties.

Q Specifically, Mr. Alcantara, will you please inform the Court in what place in
Baguio have you acquired and subdivided and sold lots?

A Dominican Hill, Leonila Hill, Crystal Cave and Asin Road, sir.

Q You mentioned Asin Road, what particular place in Asin Road are you
referring?

A That property I bought from Emelita Santiago, sir.

Q When you say you bought it from Emelita Santiago, how did you come to
know that Emelita Santiago is disposing of the property?
A Because of the father, he is the one who offered me the property, sir,
Armando Gabriel.

Q Is he also a resident of Baguio?

A He is from Buyagan, La Trinidad, sir.

Q How did you come to know of this Armando Gabriel wanting to sell a
property in Asin?

A He approached me in the house, sir. He has acquired a title from the

Traders Royal Bank.

Q Can you inform the Honorable Court when you had this conversation with
Armando Gabriel on the sale of the property at Asin Road?

A Later part of March, 1983, sir.

Q Now, when this Armando Gabriel informed you that he wants his property
to be sold, what did you do?

A I went to the place with the agent, sir.

Q When you say you went to the place with the agent, what place?

A Kilometer 2, Asin Road, sir.

Q And when you went there to see the place, did you actually go there to see
the place?

A By walking, I parked my car a kilometer away, sir.

Q Is it my understanding that when you went to see the property there were
no roads?

A None, sir.

xxx

Q Mr. Alcantara, when you went to see this place at Asin Road last week of
March, 1983, will you please briefly describe how this place looked like at
that time?

A The place was mountainous, grassy, there were cogon trees, some of the
roads were eroding already, so we cannot possibly enter the property, sir.
Q At the time you entered the place, was there any visible sign of claim by
anyone?

A None, sir.

Q In terms of fence in the area?

A There is no such, sir.

xxx

Q Aside from looking or going to the property, what else did you do to this
property prior to your purchase?

A I investigated it with the Register of Deeds, sir.

Q What is your purpose in investigating it with the Register of Deeds?

A To see if the paper is clean and there are no encumbrances, sir.

Q To whom did you talk?

A To Atty. Ernesto Diomampo, sir.

Q And when you went to the Registry of Deeds to investigate and check, did
you have occasion to talk with Atty. Diomampo?

A Yes, sir.

Q And what was the result of your talk with Atty. Diomampo?

A The papers are clean except to the annotation at the back with the road
right of way, sir.

Q After making this investigation with the Register of Deeds and talking with
Atty. Diomampo, what else transpired?

A We bought the property, sir.

Q After purchasing the property from Emelita Santiago, could you please tell
the Honorable Court what you did with that deed of sale?

A We registered it with the Register of Deeds for the Certificate of Title

because at that time when we bought the property, Emelita Santiago had it
subdivided into six (6) lots, sir.
Q Is it our understanding that prior to your purchase the property was
subdivided into six (6) parcels?

A Yes, sir.

Q Could you please inform the Honorable Court if you have any buyers in the
subdivision of this property prior to your purchase?

A Yes, I have.

Q This subdivision of this property, to what office was it brought for action?

A Bureau of Lands, San Fernando, La Union, sir.

Q Now, Mr. Alcantara, at the time that you had this property subdivided by
the owner, could you please inform the Court if there was any claim by any
other party opposing the subdivision or claiming the property?

A None, sir.

Q When the Deed of Sale was executed and you said that you presented it to
the Register of Deeds and after the subdivision already, what action did the
Register of Deeds have regarding the matter?

A They approved it and registered it already in six (6) titles, sir.

Q In whose names?

A One (1) title under my name, Amado Cruz and Dr. Sanchez, sir.

Q Initially, Mr. Alcantara, you said that you are the sole purchaser of this
entire area of One Thousand Five Hundred Ninety One (1,591) Square
Meters. Now, you are informing this Honorable Court that one Amado Cruz
and one Dr. Sanchez were also issued two (2) titles. Could you explain how
these titles came into their possession?

A Actually, two (2) are our co-owners, sir.

Q So, is it our understanding that the Deed of Sale from Emelita Santiago is
in favor of these two (2) Atty. Cruz and Dr. Sanchez?

A Yes, sir.21

Third, between two innocent persons, the one who made it possible for the
wrong to be done should be the one to bear the resulting loss.22 The Capays
filed the notice of lis pendens way back on March 17, 1967 but the same was
not annotated in TRBs title. The Capays and their counsel Atty. Ramon A.
Gonzales knew in 1968 of the extra-judicial foreclosure sale of the property
to TRB and the consolidation of title in the banks name following the lapse of
the one-year period of redemption. But in the next fifteen (15) years or so,
they did not bother to find out the status of their title or whether the liens
noted on the original certificate of title were still existing considering that the
property had already been foreclosed. In the meantime, the subject property
had undergone a series of transfers to buyers in good faith and for value. It
was not until after the land was subdivided and developed with the buyers
building their houses on the other lots when the Capays suddenly appeared
and questioned the occupants titles. At the very least, the Capays are guilty
of laches. Laches has been defined as the failure or neglect, for an
unreasonable and unexplained length of time, to do that which by exercising
due diligence could nor should have been done earlier; it is negligence or
omission to assert a right within a reasonable time, warranting presumption
that the party entitled to it either has abandoned it or declined to assert
it.23
cräläwvirtualibräry

Verily, the principle on prescription of actions is designed to cover situations

such as the case at bar, where there have been a series of transfers to
innocent purchasers for value. To set aside these transactions only to
accommodate a party who has slept on his rights is anathema to good order.

Independently of the principle of prescription of actions working against

petitioners, the doctrine of laches may further be counted against them,
which latter tenet finds application even to imprescriptible actions. x x x.24

In De La Calzada-Cierras vs. Court of Appeals,25 we held:

While it is true that under the law it is the act of registration of the deed of
conveyance that serves as the operative act to convey the land registered
under the Torrens System (Davao Grains, Inc. vs. Intermediate Appellate
Court, 171 SCRA 612), the petitioners cannot invoke said dictum because
their action to recover Lot 4362 is barred by the equitable doctrine of laches.

The act of registering the conveyance to Rosendo was constructive notice to

the whole world of the fact of such conveyance (Heirs of Maria Marasigan vs.
Intermediate Appellate Court, 152 SCRA 253).

But the petitioners complaint to recover the title and possession of Lot 4362
was filed only on July 21, 1981, twelve (12) years after the registration of
the sale to Rosendo. The petitioners failed and neglected for an unreasonably
long time to assert their right, if any, to the property in Rosendos possession.

Being guilty of laches, the Capays cannot invoke the ruling in Villasor vs.
Camon, Levin vs. Bass and Director of Lands vs. Reyes26 to the effect that
entry of the notice of lis pendens in the day book (primary entry book) is
sufficient to constitute registration and such entry is notice to all persons of
such adverse claim. Certainly, it is most iniquitous for the Capays who, after
sleeping on their rights for fifteen years, to assert ownership over the
property that has undergone several transfers made in good faith and for
value and already subdivided into several lots with improvements introduced
thereon by their owners.

In the same vein, the cases cited by the Capays in their first two (2)
assignment of errors do not help them any, as the transferees In said cases
were not innocent purchasers for value and in good faith. In Tuazon vs.
Reyes and Siochi,27 where the land involved therein was sold by Petronilo
David to Vicente Tuazon, it was with a deed containing the recital that the
land was in dispute between the vendor and Roberto Siochi. Tuazon, who
was merely subrogated to the rights of the vendor was aware of the dispute
and, furthermore, David did not warrant the title to the same. In Rivera vs.
Moran,28 Rivera acquired interest in the land before the final decree was
entered in the cadastral proceedings. Rivera, the transferee, was aware of
the pending litigation and, consequently, could not have been considered a
purchaser in good faith. Similarly, in Atun, et al. vs. Nunez, et
al.29 and Laroza vs. Guia,30 the buyers of the property at the time of their
acquisition knew of the existence of the notice of lis pendens. In contrast to
the cited cases, the non-bank respondents in the case at bar acquired their
respective portions of the land with clean title from their predecessors-in-
interest.

II

We come now to TRBs liability towards the Capays.

The Bank unconvincingly tries to wash its hands off the present controversy,
and attempts to shift the blame on the Capays, thus:

xxx

23. The petitioner Bank, during all the time that it was holding the title for
over fourteen (14) years that there was no legal impediment for it to sell said
property, Central Bank regulations require that real properties of banks
should not be held for more than five (5) years;

24. The fault of the Register of Deeds in not carrying over the Notice of Lis
Pendens to the new title of the petitioner Bank should not be absorbed by the
latter considering that in all good faith, it was not aware of the existence of
said annotation during all the time that said title was in its possession for
almost fourteen (14) years before the property was sold to Emelita G.
Santiago xxx.31

TRB concludes that (t)he inaction and negligence of private respondents,

allowing ownership to pass for almost 15 years constitute prescription of
action and/or laches.32cräläwvirtualibräry
Section 25 of the General Banking Act,33 provides that no bank shall hold the
possession of any real estate under mortgage or trust, deed, or the title and
possession of any real estate purchased to secure any debt due to it, for a
longer period than five years. TRB, however, admits holding on to the
foreclosed property for twelve (12) years after consolidating title in its name.
The bank is, therefore, estopped from invoking banking laws and regulations
to justify its belated disposition of the property. It cannot be allowed to hide
behind the law which it itself violated.

TRB cannot feign ignorance of the existence of the lis pendens because when

the property was foreclosed by it, the notice of lis pendens was annotated on
the title. But when TCT No. T-6595 in the name of the Capay spouses was
cancelled after the foreclosure, TCT No. T-16272 which was issued in place
thereof in the name of TRB did not carry over the notice of lis pendens.

We do not find the Capays guilty of inaction and negligence as against TRB.
It may be recalled that upon the commencement of foreclosure proceedings
by TRB, the Capays filed an action for prohibition on September 22, 1966
against the TRB before the CFI to stop the foreclosure sale. Failing in that
attempt, the Capays filed a supplemental complaint for the recovery of the
property. The case reached this Court. Prescription or laches could not have
worked against the Capays because they had persistently pursued their suit
against TRB to recover their property.

On the other hand, it is difficult to believe TRBs assertion that after holding
on to the property for more than ten (10) years, it suddenly realized that it
was acting in violation of the General Bank Act. What is apparent is that TRB
took advantage of the absence of the notice of lis pendens at the back of
their certificate of title and sold the property to an unwary purchaser. This
notwithstanding the adverse decision of the trial court and the pendency of
its appeal. TRB, whose timing indeed smacks of bad faith, thus transferred
caused the property without the lis pendens annotated on its title to put it
beyond the Capays' reach. Clearly, the bank acted in a manner contrary to
morals, good customs and public policy, and should be held liable for
damages.34 cräläwvirtualibräry

Considering, however, that the mortgage in favor of TRB had been declared
null and void for want of consideration and, consequently, the foreclosure
proceedings did not have a valid effect, the Capays would ordinarily be
entitled to the recovery of their property. Nevertheless, this remedy is not
now available to the Capays inasmuch as title to said property has passed
into the hands of third parties who acquired the same in good faith and for
value. Such being the case, TRB is duty bound to pay the Capays the fair
market value of the property at the time it was sold to Emelita Santiago, the
transferee of TRB.

WHEREFORE, the decision of the Court of Appeals dated February 24, 1994
in CA-G.R. CV No. 33920, as modified by its Resolution dated August 10,
1994 is hereby AFFIRMED. In addition, Traders Royal Bank is ordered to pay
the Capays the fair market value of the property at the time it was sold to
Emelita Santiago.

This Decision is without prejudice to whatever criminal, civil or administrative

action against the Register of Deeds and/or his assistants that may be taken
by the party or parties prejudiced by the failure of the former to carry over
the notice of lis pendens to the certificate of title in the name of TRB.

SO ORDERED.

FACTS:

Filriters through a Detached Agreement   transferred   ownership to Philfinance a Central Bank

Certificate of Indebtedness.  It was only through one of its  officers by which the CBCI was
conveyed without authorization from  the  company.    Petitioner  and  Philfinance  later  entered 
into  a Repurchase   agreement,   on   which   petitioner   bought   the   CBCI   from Philfinance. 
The latter agreed to repurchase the CBCI but failed to do so. When the petitioner tried to have it
registered in its name in the CB, the latter didn't want to recognize the transfer.   
 

HELD:

The  CBCI  is  not  a  negotiable  instrument. The  instrument  provides  for  a promise to pay the
registered owner Filriters.  Very clearly, the instrument was  only  payable  to  Filriters. It  lacked 
the  words  of  negotiability  which should  have  served  as  an  expression  of  the  consent  that 
the  instrument may be transferred by negotiation. 
 
The  language  of  negotiability  which  characterize  a  negotiable  paper  as  a credit  instrument 
is  its  freedom  to  circulate  as  a  substitute  for  money. Hence, freedom of negotiability is the
touchstone relating to the protection of holders in due course, and the freedom of negotiability is
the foundation for  the  protection,  which  the  law  throws  around  a  holder  in  due  course.
This freedom in   negotiability is   totally   absent in a   certificate of indebtedness  as  it  merely 
acknowledges  to  pay  a  sum  of  money  to  a specified person or entity for a period of time. 
 
The  transfer  of  the  instrument  from  Philfinance  to  TRB  was  merely  an assignment, and is
not governed by the negotiable instruments law.    The pertinent  question  then  is—was  the 
transfer  of  the  CBCI  from  Filriters  to Philfinance  and  subsequently  from  Philfinance  to 
TRB, in accord  with existing law, so as to entitle TRB to have the CBCI registered in its name
with  the  Central  Bank?  Clearly  shown  in  the  record  is  the  fact  that Philfinance’s  title  over 
CBCI  is  defective  since  it  acquired  the  instrument from Filriters fictitiously. Although the deed
of assignment stated that the transfer  was  for  ‘value  received‘,  there  was  really  no 
consideration involved.  What  happened  was  Philfinance  merely  borrowed  CBCI  from
Filriters,  a  sister  corporation.  Thus,  for  lack  of  any  consideration,  the assignment made is a
complete nullity.  Furthermore, the transfer wasn't in conformity  with  the  regulations  set  by 
the  CB. Giving  more  credence  to rule that there was no valid transfer or assignment to
petitioner.