FIRST DIVISION

[G.R. No. 114299. September 24, 1999]

TRADERS ROYAL BANK, petitioner, vs. 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, vs. 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.i[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,ii[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,iii[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.iv[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.v[5]

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 Courtvi[6] 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 Maximovii[7] 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.viii[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.ix[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,x[10] Levin vs. Bassxi[11] and Director of Lands vs. Reyes.xii[12]

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.xiii[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.xiv[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.xv[15]

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.

I

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.xvi[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.xvii[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.xviii[18]

The testimonies of Honorato Santosxix[19] and Josefina Pexx[20] 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.xxi[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.xxii[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.xxiii[23]

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.xxiv[24]

In De La Calzada-Cierras vs. Court of Appeals,xxv[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. Reyesxxvi[26] 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,xxvii[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,xxviii[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.xxix[29] and Laroza vs. Guia,xxx[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.xxxi[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.xxxii[32]

Section 25 of the General Banking Act,xxxiii[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.xxxiv[34]

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.

Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.
Facts:

A parcel of land owned by the spouses Capay was mortgage to and subsequently extrajudicially
foreclosed by Traders Royal Bank (TRB). 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.

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, 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.

The Capays title was cancelled and a new one was entered in TRB’s name without the notice of lis
pendens carried over the title. The Capays filed recovery of the property and damages. Court rendered a
decision declaring the mortgage was void for want of consideration and thus cancelled TRB’s title and
issued a new cert. of title for the Capays.

Pending its appeal before the court, TRB sold the land to Santiago who subsequently subdivided and sold
to buyers who were issued title to the land. Court ruled that the subsequent buyers cannot be considered
purchasers for value and in good faith since they purchase the land after it became a subject in a
pending suit before the court. Although the lis pendens notice was not carried over the titles, its
recording in the Day Book constitutes registering of the land and notice to all persons with adverse claim
over the property. TRB was held to be in bad faith upon selling the property while knowing it is pending
for litigation. The Capays were issued the cert. of title of the land in dispute while TRB is to pay damages
to Capays.

TRB filed MR but was denied and CA decision was in favor of Landowners

Issue:

1. Are the buyers of the land from Capays buyers in good faith despite the lis pendens?
 2. Does TRB have a right over the properties?

Ruling:

The court ruled that a Torrens title is presumed to be valid which purpose is to avoid conflicts of title to
real properties. When the subsequent buyers bought the property there was no lis pendens annotated
on the title. Every person dealing with a registered land may safely rely on the correctness of the title and
is not obliged to interpret what is beyond the face of the registered title.

Hence the court ruled that the subsequent buyers obtained the property from a clean title in good faith and
for value. On one hand, the Capays are guilty of latches. After they filed the notice for lis pendens,
the same was not annotated in the TRB title. They did not take any action for 15 years to find out
the status of the title upon knowing the foreclosure of the property. In consideration to the
declaration of the mortgage as null and void for want of consideration, the foreclosure proceeding
has no legal effect.

However, in as much as the Capays remain to be the real owner of the property it has already been passed
to purchasers in good faith and for value. Therefore, the property cannot be taken away to their
prejudice.

Thus, TRB is duty bound to pay the Capays the fair market value of the property at the time they sold it to
Santiago.
i

ii[

iii

iv[4] TSN, March 29, 1989, p. 12.

v[5] Lot 27-A-2-A-1 with an area of 225 sq. meters was sold to Honorato Santos, who was issued TCT
No. T-36177 (Exhibit M). The Santoses later mortaged said lot to the Development Bank of the
Philippines.

Lot 27-A-2-A-2 with an area of 290 sq. meters was sold to Cecilio Pe, who was issued TCT No. 36707
(Exhibit N).

Lot 27-A-2-A-3 with an area of 330 sq. meters was sold to Flora Laron Escumbre, who was issued
TCT. No. T-36051 (Exhibit O).

Lot 27-A-2-A-4 with an area of 280 sq. meters was sold to Telesforo Alfelor II who was issued TCT
No. T-36147 (Exhibit P). The Alfelors later mortgaged the same to the Development Bank of the
Philippines.

TCT No. T-36730 (Exhibit Q) covering Lot 27-A-2-A-5 with an area of 235 sq. meters was issued to
Dean Roderick Fernando.

Lot 27-A-2-A-6 with an area of 231 sq. meters was sold to Remedios Oca. TCT NO. T-37437 (Exhibit
R) was issued to the latter.

vi[6] G. R. No. 62744.

vii[7] Namely, Ruby Ann, Margarita, Rosario, Cynthia, Linda Joy, all surnamed Capay.

viii[8] Branch 74, presided by Judge Leonardo M. Rivera.

ix[9] Rollo, G.R. No. 118862, pp. 49-57.

x[10] 89 Phil. 404 (1951).

xi[11] 91 Phil. 419 (1952).

xii[12] 68 SCRA 177 (1975).

xiii[13] Rollo, G.R. No. 114299, pp. 14-17.

xiv[14] Rollo, G.R. No. 118862, p. 63.

xv[15] Id., at 240.

xvi[16] Tenio-Obsequio vs. Court of Appeals, 230 SCRA 550 (1994).

xvii[17] TSN, March 29, 1989, pp. 22-26.

xviii[18] TSN, March 30, 1989, pp. 3-4, 6-7.

xix[19] Id., at 22-23.

xx[20] TSN, June 1, 1989, pp. 4-5.

xxi[21] TSN, March 29, 1989, pp. 5-6; 8-9; 10-12.

xxii[22] Bacaltos Coal Mines vs. Court of Appeals, 245 SCRA 460 (1995).

xxiii[23] Republic vs. Sandiganbayan, 255 SCRA 438 (1996); Catholic Bishops of Balanga vs. Court of
Appeals, 264 SCRA 181 (1996).

xxiv[24] Buenaventura vs. Court of Appeals, 216 SCRA 819 (1992).

xxv[25] 212 SCRA 390 (1992).

xxvi[26] See Notes 10, 11, and 12.

xxvii[27] 48 Phil. 844 (1926).

xxviii[28] 48 Phil. 836 (1976).

xxix[29] 97 Phil. 762 (1955).

xxx[30] 143 SCRA 341 (1985).

xxxi[31] Rollo, G. R. No. 114299, p. 75.

xxxii[32] Ibid.

xxxiii[33] Republic Act No. 337, as amended.

xxxiv[34] Article 21, Civil Code.