AFP-RSBS vs. Plastic King Industrial Corp.

A buyer of registered land who acquires knowledge of a prior sale and pending litigation affecting the property before registering the conveyance cannot be deemed an innocent purchaser for value, and the derivative titles issued in such buyer's name are void and subject to cancellation.

Atty. Nilo Flaviano and his co-owners — his wife Johanna, and children Carlito, Nelia, and Leticia — owned a 4,000-square-meter property identified as Lot Y-2-C in General Santos City. The property was the subject of two successive sales: first, a Transfer of Rights executed in favor of Plastic King Industrial Corporation, represented by Merlen Agabin, and second, a Deed of Absolute Sale executed in favor of AFP-RSBS. The dispute arose from these competing claims over the same property, with the resolution hinging on the validity of the first sale's revocation and the good faith of the second buyer.

On August 8, 1995, Atty. Nilo Flaviano, acting on his own behalf and as attorney-in-fact of his co-owners — his wife Johanna and children Carlito, Nelia, and Leticia — executed an Exclusive Contract to Sell in favor of Evelyn Te and Alan Fausto V. Posadas, authorizing them to look for a buyer of a 4,000-square-meter property in Ex-Magsaysay Park, General Santos City, priced at six thousand pesos per square meter. The contract was effective for six days, until August 14, 1995. Evelyn Te thereafter offered the property to Plastic King Industrial Corporation, represented by Merlen Agabin. Consequently, Atty. Flaviano, on his own behalf and on behalf of his co-owners, executed a "Transfer of Rights" in favor of Plastic King for the consideration of five hundred thousand pesos, covering the entirety of Lot Y-2-C, a 3,800-square-meter parcel of land in General Santos City.

On August 30, 1995, Atty. Flaviano executed another Transfer of Rights in favor of Plastic King pertaining to the foreshore area covered by a lease contract between the Flavianos and the City of General Santos. On the same day, Atty. Flaviano and Evelyn Te executed a Deed of Undertaking to cause the titling of Lot Y-2-C in the name of Plastic King within six months. Also on that date, Atty. Flaviano and Plastic King jointly executed a Memorandum of Agreement indicating that the real purchase price for Lot Y-2-C was fifteen million two hundred thousand pesos, with Plastic King to pay three million pesos as down-payment to cover tax payments and titling expenses. Lot Y-2-C was subsequently subdivided into three lots — Lot Y-2-C-1, Lot Y-2-C-2, and Lot Y-2-C-3 — for which Original Certificate of Title Nos. P-6208, P-6209, and P-6210 were issued, but not in the name of Plastic King; instead, the titles were issued in the collective names of the Flavianos. Plastic King demanded that Atty. Flaviano execute a deed of conveyance in its name, but he failed to heed the demand.

Meanwhile, Wilfredo Pabalan, Assistant Vice President of the Real Estate Department and designated Project Officer for the AFP-RSBS General Santos Project, negotiated with the Flavianos for the purchase of the subject lots. On December 9, 1996, the DENR issued Sales Patent Nos. 116303-96-523, 116303-96-522, and 116303-96-525 covering the three subdivided lots in the names of the Flavianos. Subsequently, AFP-RSBS and Atty. Flaviano, in his own capacity and as representative of his co-owners, executed a Contract to Sell, followed by an Amended Contract to Sell on December 23, 1996, providing a purchase price of forty million ten thousand pesos. On March 4, 1997, Atty. Flaviano, with his wife's consent and acting for himself and as attorney-in-fact of his children, executed a Deed of Absolute Sale of the subject lots in favor of AFP-RSBS, warranting valid titles and peaceful possession, and guaranteeing issuance of titles free from liens and encumbrances.

Plastic King contended that as soon as it learned of the ongoing transaction between the Flavianos and AFP-RSBS, it immediately informed AFP-RSBS through phone calls that the lots were already sold to Plastic King, and that the titles bore a notice of lis pendens. AFP-RSBS allegedly ignored the warning and proceeded with the second sale. By February 28, 1997, AFP-RSBS paid the purchase price in full. On March 14, 1997, notices of lis pendens were annotated on the OCTs. On March 17, 1997, the Register of Deeds cancelled the OCTs in the name of the Flavianos and issued new TCT Nos. T-77598, T-77599, and T-77596 in the name of AFP-RSBS, which carried over the lis pendens annotations. On March 12, 1997, prior to the cancellation of the OCTs, Plastic King had filed a complaint for specific performance, injunction, and damages against the Flavianos in RTC-Davao City. The Flavianos denied selling the lots to Plastic King, claimed the Transfer of Rights was a forgery, and asserted they had revoked the first sale and reimbursed the purchase price through a Memorandum of Revocation executed with Evelyn Te, Plastic King's alleged agent. AFP-RSBS, impleaded via supplemental complaint, maintained it was a buyer in good faith for value, having verified the titles were clean and having completed the transfer before receiving formal notice.

• Collateral Attack: AFP-RSBS faulted the Court of Appeals for affirming the trial court's decree of cancellation of its TCTs, arguing that this relief was not sought in the complaint nor litigated before the trial court, and that the decree validated what was simply a collateral attack against the TCTs.
• Jurisdiction over Titles: AFP-RSBS asserted that the cancellation of the TCTs should not have been allowed because the Register of Deeds was not impleaded as a necessary party in the case.
• Innocent Purchaser for Value: AFP-RSBS claimed it was an innocent purchaser for value because there was no transfer of ownership rights to Plastic King over the lots, and whatever claim Plastic King had was not annotated on the Flavianos' titles at the time of the second sale.
• Judicial Inhibition: AFP-RSBS argued that Judge Carpio's decision to voluntarily inhibit himself only after the parties had presented their evidence was tainted with grave abuse of discretion, as it was not based on any valid ground.

• Bad Faith of AFP-RSBS: Plastic King countered that AFP-RSBS was a buyer in bad faith, having been duly informed of the prior sale through phone calls, a formal letter, and the lis pendens annotation on the titles.
• Invalidity of Revocation: Plastic King maintained that the Memorandum of Revocation was unenforceable because Evelyn Te acted beyond the scope of her authority under the General Power of Attorney, which covered only acts of administration and not acts of ownership.

• Judicial Inhibition: Whether the inhibition of Judge Carpio was proper and whether it affected the validity of the judgment rendered by Judge Robillo, who did not hear the case.
• Validity of Revocation: Whether the revocation of the contract of sale made through agent Evelyn Te was valid.
• Innocent Purchaser for Value: Whether AFP-RSBS was an innocent purchaser in good faith and for value.

• Judicial Inhibition: Yes. The inhibition was proper, being based on the closeness of Judge Carpio's son to Atty. Flaviano's son as fraternity brothers and gun enthusiasts, and the judgment rendered by another judge based on the records was valid.
• Validity of Revocation: No. The revocation was invalid because Evelyn Te's General Power of Attorney covered only acts of administration under Article 1877 of the Civil Code, not acts of ownership such as revoking a contract of sale.
• Innocent Purchaser for Value: No. AFP-RSBS was not an innocent purchaser for value because it had knowledge of the prior sale and the lis pendens annotation on the titles before it registered the second sale in its name.

• Judicial Inhibition: Section 1 of Rule 137 of the Rules of Court provides for compulsory and voluntary inhibition. The second paragraph gives the judge discretion to disqualify himself for just or valid reasons, with conscience as guide. Judge Carpio's inhibition was based on the closeness of his son to Atty. Flaviano's son — they were fraternity brothers and gun enthusiasts who frequented firing ranges together — which constituted a valid and rational ground for desisting from the case. As held in Garcia vs. People, it is not unusual for a judge who did not try a case in its entirety to decide it solely on the basis of the records on hand; such judgment is not violative of substantive and procedural due process because the judge may base the ruling on transcripts of stenographic notes and calibrate witness testimonies according to common experience.

• Validity of Revocation: The General Power of Attorney issued by Plastic King in favor of Evelyn Te on November 11, 1996 authorized her to ask, demand, sue for the parcel of land, and to make, sign, execute, and deliver contracts upon terms acceptable to her. However, Article 1877 of the Civil Code provides that an agency couched in general terms comprises only acts of administration, even if the principal states that he withholds no power or that the agent may execute such acts as he may consider appropriate. The grant of authority referred to acts of administration, not acts of ownership. There was nothing in the General Power of Attorney authorizing Evelyn to revoke the sale made by the Flavianos in favor of Plastic King. Under Article 1910 of the Civil Code, the act of an agent beyond the scope of authority does not bind the principal unless ratified, and no ratification was made by Plastic King, which in fact promptly disowned the revocation. The checks issued by Atty. Flaviano in the name of Evelyn for the total amount of eight million five hundred twenty-five thousand seven hundred ninety-eight pesos and ninety centavos were deposited in Evelyn's personal account, not Plastic King's, and Plastic King denied receipt of the amount. The Flavianos failed to adduce convincing evidence that the refund reached Plastic King. Consequently, the conveyance to Plastic King remains valid and subsisting, and the Flavianos were precluded from selling the lots anew to AFP-RSBS.

• Innocent Purchaser for Value: An innocent purchaser for value is one who buys property without notice that another person has a right to or interest in the property, and who pays a full and fair price at the time of purchase or before receiving notice of the claim. While a buyer of registered land need only rely on the face of the title and is not obliged to explore beyond its four corners, this degree of proof suffices only when three conditions concur: the seller is the registered owner, the seller is in possession, and the buyer was not aware of any claim or interest of another person at the time of sale. Applying Duenas vs. MBTC, the good faith of a purchaser must be present not only at the time of purchase but until the property has been duly registered. Here, while the OCTs of the Flavianos did not carry any encumbrance pertaining to the first sale at the time of the second sale on March 4, 1997, by the time AFP-RSBS sought registration on March 17, 1997, the OCTs already bore notices of lis pendens annotated as early as March 14, 1997. These annotations were carried over to the TCTs issued in AFP-RSBS's name. As held in Rosaroso vs. Soria, a buyer who registers the sale even after obtaining knowledge of a previous sale is considered in bad faith, and the buyer in bad faith is not conferred any right over the property. AFP-RSBS was admittedly notified of the earlier sale before it sought registration, and the lis pendens should have put it on guard that a court case was ongoing affecting ownership and possession. Transferees of title subject to lis pendens stand in the shoes of the transferor and must respect any judgment rendered against the transferor. AFP-RSBS cannot invoke the rule against collateral attack on the indefeasibility of title because buyers in bad faith cannot invoke this defense. The failure to implead the Register of Deeds was not fatal, as held in De Leon vs. Chu and Delos Santos, where the rights of the parties may be adjudicated without the participation of the Register of Deeds.

• Innocent Purchaser for Value — A buyer of registered land is an innocent purchaser for value if he buys without notice of another's right or interest in the property and pays a full and fair price. Good faith must be present not only at the time of purchase but until registration of the conveyance. If, prior to registration, the buyer discovers a claim or interest by a third person, good faith ceases. The Court applied this doctrine to hold that AFP-RSBS was not an innocent purchaser because it had knowledge of the prior sale and the lis pendens annotation before it registered the second sale.

• Agency — General Power of Attorney Limited to Acts of Administration — Under Article 1877 of the Civil Code, an agency couched in general terms comprises only acts of administration, even if the principal states that he withholds no power or that the agent may execute such acts as he may consider appropriate. Acts of ownership, such as revoking a contract of sale, require special authority. The Court applied this to invalidate the Memorandum of Revocation executed by Evelyn Te, whose General Power of Attorney did not authorize her to revoke the sale.

• Lis Pendens — A notice of lis pendens annotated on a title puts prospective buyers on guard that a court case is ongoing affecting the ownership and possession of the property. Transferees of title subject to lis pendens stand in the shoes of the transferor and must respect any judgment rendered against the transferor. The Court applied this doctrine to bind AFP-RSBS to the outcome of the specific performance case filed by Plastic King.

• Collateral Attack on Torrens Title — A certificate of title cannot be altered, modified, or cancelled except in a direct proceeding. However, buyers in bad faith cannot invoke the rule against collateral attack based on indefeasibility of title, as this defense does not extend to those who obtain titles with notices of flaws or who hold invalid titles. The Court applied this to reject AFP-RSBS's invocation of the indefeasibility doctrine.

• Voluntary Inhibition of Judges — Under Section 1, Rule 137 of the Rules of Court, a judge may voluntarily disqualify himself for just or valid reasons other than those for compulsory inhibition, with conscience as guide. The decision must be based on a rational and logical assessment of the circumstances. The Court upheld Judge Carpio's inhibition due to the closeness of his son to Atty. Flaviano's son.

• "The good faith during the purchase must concur with the buyer's good faith at the time of registration." — This passage articulates the rule from Duenas vs. MBTC that good faith must persist from purchase through registration, and is the controlling principle for determining whether a buyer of registered land qualifies as a purchaser in good faith and for value.

• "An agency couched in general terms comprises only acts of administration, even if the principal should state that he withholds no power or that the agent may execute such acts as he may consider appropriate, or even though the agency should authorize a general and unlimited management." — This is the Court's citation of Article 1877 of the Civil Code, establishing the limitation on a general power of attorney and forming the basis for invalidating the Memorandum of Revocation.

• "buyers in bad faith cannot invoke the rule against collateral attack based on the indefeasibility of title as this defense does not extend to those who obtain titles with notices of flaws, much less, to those who hold an invalid title such as here." — This passage defines the exception to the protection against collateral attack on Torrens titles, limiting the defense to purchasers in good faith and excluding those who acquired titles with knowledge of defects.

• "a buyer who registers the sale even after obtaining knowledge of a previous sale is considered in bad faith. The buyer in bad faith is not conferred any right over the property and it is as if there was no registration at all." — This passage from the Court's citation of Rosaroso vs. Soria states the consequence of bad faith registration: the buyer acquires no right over the property, and the registration is treated as if it never occurred.

• Duenas vs. MBTC, G.R. No. 209463, November 20, 2022 — Controlling precedent on the requirement that good faith of a purchaser of registered land must be present not only at the time of purchase but until registration of the conveyance. The Court applied this to hold that AFP-RSBS's good faith ceased upon discovery of the lis pendens before registration.

• Rosaroso vs. Soria, 711 Phil. 644 (2013) — Followed for the rule that a buyer who registers a sale after obtaining knowledge of a previous sale is in bad faith, and acquires no right over the property.

• Garcia vs. People, 64 Phil. 40 (2009) — Followed for the rule that a judge who did not try a case in its entirety may decide it based on the records, and such judgment is not violative of due process.

• San Lorenzo Development Corporation vs. Court of Appeals, 490 Phil. 7 (2005) — Followed for the rule that a notice of lis pendens should put prospective buyers on guard, and unless one intends to gamble on the results of pending litigation, one should keep off the property.

• De Leon vs. Chu and Delos Santos, 768 Phil. 217 (2015) — Followed for the rule that failure to implead the Register of Deeds is not fatal where the rights of the parties may be adjudicated without the Register of Deeds' participation.

• Heirs of Cullado vs. Gutierrez, 858 Phil. 580 (2019) — Cited for the enumeration of the rights conferred to an owner, including jus possidendi, jus utendi, jus fruendi, jus accessionis, jus abutendi, jus disponendi, and jus vindicandi.

• Article 1544, Civil Code — Governs double sale of immovable property, providing that ownership belongs to the person who in good faith first recorded it in the Registry of Property. AFP-RSBS invoked this provision but was held not to qualify as a buyer in good faith.

• Article 1877, Civil Code — Provides that an agency couched in general terms comprises only acts of administration, even if the principal states that he withholds no power. Applied to hold that Evelyn Te's General Power of Attorney did not authorize her to revoke the sale.

• Article 1910, Civil Code — Provides that the act of an agent beyond the scope of his authority does not bind the principal unless ratified. Applied to invalidate the Memorandum of Revocation executed by Evelyn Te.

• Section 1, Rule 137, Rules of Court — Governs disqualification of judges, distinguishing compulsory from voluntary inhibition. Applied to uphold Judge Carpio's voluntary inhibition.

• Section 48, Presidential Decree No. 1529 — Provides that a certificate of title shall not be subject to collateral attack and cannot be altered, modified, or cancelled except in a direct proceeding. The Court held that buyers in bad faith cannot invoke this protection.

Leonen (Acting C.J.), M. Lopez, J. Lopez, and Kho, Jr., JJ., concurred.