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Republic of the Philippines

SUPREME COURT
Manila

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.

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.1wphi1.nt

To prevent the property's sale by public auction, the Capays, on September 22,
1966, filed a petition for prohibition with preliminary injunction (Civil Case No. Q10453) 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 bank's name. The
notice of lis pendens, however, was not carried over in the certificate of title issued
in the name TRB.

Thereafter, the Capays filed with the CFI a supplemental complaint praying for the
recovery of the property with damages and attorney's fees. Trial in Civil Case No. Q10453 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 seperate buyers who issued seperate titles, again,
bearing no notice of lis pendens. 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 Court 6 was denied in a Resolution dated September 12, 1983.
TRB's motion for reconsideration was similarly denied in a Resolution dated October
12, 1983. The Court's 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. 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 Maximo 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 become
co-owner of the property to the extent of 35% thereof as his attorney's 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. T36177, 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. T36051, Book 198, Page 51 in the name of Flora Laron Wescombe, married to Kevin
Lind Wescombe (now deceased); to cancel TCT No. 36147, Book 198, page 147 in
the names of Spouses Telesforo P. Alfelor II and Liza R. Alfelor; to cancel TCT No. T36730, 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
attorney's 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 TRB's 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. Bass 11 and Director of Lands vs.
Reyes. 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 the 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 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

xxx

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

xxx

xxx

c)
The public respondent erred in not finding that PD No. 1271 had legally
caused the invalidation of the Capay's property and the subsequent validation of
TRB's 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-A-VIS INVOLUNTARY INSTRUMENTS.

VI

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW HOLDING

THAT RESPONDENTS WHO ARE LAWYERS, RESPONSIBLE CITIZENS AND WELLRESPECTED 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 COUNTERASSIGNMENT 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 Court's Resolution dated July 3, 1996. 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.

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 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 nonbank 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 or
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 seller's 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, particulary in Kim. 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?

My sister, Ruth Ann Valdez, sir.

When this particular property was bought by you, when was that?

I do not remember the exact date, but it was in 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.

What kind of structure with regards to material?

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.

And who?

Amado Cruz sir.

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

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?

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

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?

Yes, sit.

What did you do?

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

Are you referring to the City Hall of Baguio?

Yes, the City Hall of Baguio.

And what did you do in the Registry of Deeds?

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

When you say we, who was your companion?

Mr. Alcantara and my present husband, sir.

The three (3) of you?

Yes, sir.

What title did you see there?

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.

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

He did.

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.

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.

What was the result of your conference with this lawyer?

He was absolutely certain 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.

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

I wanted more reassuances that I was getting a valid title.

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.

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

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
title.

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

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

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?

Yes, sir.

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

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

xxx

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?

I would understand that it was Marcial Alcantara, sir.

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

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

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?

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.

What registry of Deeds are you referring to?

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.

What Certification are you referring to?

A
It is a Certification duly signed by the employee of the Registry of Deeds
Adelina Tabangin, sir.

Do you have a copy of that Certification?

Yes, I have, sir. 18

The testimonies of Honorato Santos 19 and Josefina Pe 20 were to the same effect.

The non-bank respondent predecessor-in-interest, Marcial Alcantara, was less

thorough:

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?

Dominican Hill, Leonila Hill, Cristal Cave and Asin Road, sir.

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

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.

Is he also a resident of Baguio?

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?

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?

I went to the place with the agent, sir.

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

Kilometer 2, Asin Road sir.

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

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?

None, sir.

xxx

xxx

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?

None, sir.

In terms of fence in the area?

There is no such, sir.

xxx

xxx

xxx

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

I investigated it with the Register of Deeds, sir.

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

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

To whom did you talk?

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?

Yes, sir.

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?

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?

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?

Yes, I have.

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

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?

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?

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

In whose names?

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?

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?

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 TRB's 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 bank's
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 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

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. . . . 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 Rosendo's possession.

Being guilty of laches, the Capays cannot invoke the ruling in Villasor vs. Camon
Levin Bass and Director of Lands vs. Reyes 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, 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. Nuez, 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 TRB's 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

xxx

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 he 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. . . . 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." 32

Sec. 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 hoding on to the foreclosed property
for twelve (12) years after consolidating title in its name. The bank is, therefore,
estopped from involving 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 TRB's 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

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 Frebruary 24, 1994 in CAG.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.1wphi1.nt
SO ORDERED.
Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.

Footnotes

1
Said piece of land had been registered in the name of the Capay spouses
since December 14, 1959 under TCT No. T-695 (Exh. "J"), and is more accurately
described as follows:
A parcel of land (Lot 27-A-2-A of the subdivision plan (LRC) Psd- 24029, being a
portion of Lot 27-A-2, described on plan LRC Psd-23299, LRC (GLRO) Record No.-Civ.
Res. 211), situated in the Res. Sec. "L", Baguio City, Island of Luzon. Bounded on the
SE., point 3 to 4 by Lot 27-C, (LRC) Psd-10738; on the SW., points 4 to 5, by Lot 27-C
(LRC) Psd-10738, and points 5 to 1 by Lot 27-A-2-B of the Subdivision plan; and on
the NW., and NE., points 1 to 3, by Lot 27-A-2-B of the subdivision plan. . . .
containing an area of ONE THOUSAND FIVE HUNDRED AND NINETY ONE (1,591)
SQUARE METERS, more or less.
2

Exhibit "K."

Exhibit "L."

TSN, March 29, 1989, p. 12.

5
Lot 27-A-2-A-1 with an area of 225 sq. meters sold to Honorato Santos, who
was issued TCT No. 36177 (Exhibit "M"). The Santoses later mortgaged 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-2-4-3 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 Remedies Oca TCT No. T37437 (Exhibit "R") was issued to the latter.
6

G.R. No. 62744.

Namely, Ruby Ann Margarita Rosario, Cynthia Linda Joy, all surnamed Capay.

Branch 74, presided by Judge Leonardo M. Rivera.

Rollo, G.R. No. 118862, pp. 49-57.

10

89 Phil. 404 (1951).

11

91 Phil. 419 (1952).

12

68 SCRA 177 (1975).

13

Rollo, G.R. No. 114299, pp. 14-17.

14

Rollo, G.R. No. 118862, p. 63.

15

Id., at 240.

16

Tenio-Obsequio vs. Court of Appeals, 230 SCRA 550 (1994).

17

TSN, March 29, 1989, pp. 22-26.

18

TSN, March 30, 1989, pp. 3-4, 6-7.

19

Id., at 22-23.

20

TSN, June 1, 1989, pp. 4-5.

21

TSN, March 29, 1989, pp. 5-6; 8-9; 10-12.

22

Bacaltos Coal Mines vs. Court of Appeals, 245 SCRA 460 (1995).

23
Republic vs. Sandiganbayan, 255 SCRA 438 (1996); Catholic Bishops of
Balanga vs. Court of Appeals, 264 SCRA 181 (1996).
24

Buenaventura vs. Court of Appeals, 216 SCRA 819 (1992).

25

212 SCRA 390 (1992).

26

See Notes 10, 11, and 12.

27

48 Phil. 844 (1926).

28

48 Phil. 836 (1976).

29

97 Phil. 762 (1955).

30

143 SCRA 341 (1985).

31

Rollo, G.R. No. 114299, p. 75.

32

Ibid.

33

Republic Act No. 337, as amended.

34

Art. 21, Civil Code.

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