Billote vs. Spouses Badar

A sale by a co-owner of a concrete or definite portion of co-owned property, without the consent of the other co-owners, is valid to the extent of the disposing co-owner's ideal or undivided share, and any certificate of title derived from a void reconstituted owner's duplicate is itself void, such that any subsequent registration procured through it is null and void.

The property at the center of the dispute — a 6,894-square-meter parcel in Urdaneta City, Pangasinan covered by TCT No. 15296 — was acquired during the marriage of Hilario Solis and Dorotea Corla Solis, who had two daughters, Imelda and Adelaida. Upon Hilario's death in 1955, his one-half conjugal share devolved to his compulsory heirs: Dorotea, Imelda, and Adelaida in equal shares. Dorotea thereafter contracted a second marriage to Segundo Billote, producing two children, Josefina and William. The competing claims over the property arise from two successive sales: one by Dorotea to Josefina in July 2001, and another by Imelda and Adelaida to spouses Badar in November 2003, the latter having been registered through a fraudulently procured second owner's duplicate of TCT No. 15296.

Hilario Solis and Dorotea Corla Solis were spouses who, during their marriage, acquired a parcel of land in Urdaneta City, Pangasinan with an area of 6,894 square meters, covered by TCT No. 15296 and declared for taxation under TD No. 12046, both issued in their names. They had two daughters, Imelda Solis and Adelaida Dalope. Hilario died on November 15, 1955, whereupon his one-half conjugal share in the property devolved to his compulsory heirs — Dorotea, Imelda, and Adelaida — in equal shares of one-sixth each, while the other one-half conjugal share pertained to Dorotea. Dorotea thereafter contracted a second marriage to Segundo Billote, and they had two children: Josefina and William.

On July 28, 2001, Dorotea executed a Deed of Absolute Sale conveying to Josefina, for ₱20,000.00, a "one-half (1/2) portion, at the south-western part, consisting of 3,447 square meters" of the property covered by TCT No. 15296. When Josefina left for the United States, she entrusted the owner's duplicate of TCT No. 15296 and the deed to her brother William for registration, but William failed to register the sale due to his work. On July 13, 2002, Dorotea, Adelaida, and Imelda executed a Deed of Extrajudicial Settlement of Estate of Deceased Person with Quitclaim, wherein Dorotea quitclaimed and renounced all her rights, shares, and interest in the property in favor of Adelaida and Imelda. The sisters could not register the instrument because they did not possess the owner's duplicate of TCT No. 15296.

Imelda thereupon filed a petition in court for the issuance of a second owner's duplicate copy of TCT No. 15296, alleging that the original had been lost. The petition was granted by Branch 47 of the RTC of Urdaneta City in a Decision dated February 24, 2003. After securing the second owner's duplicate, Imelda and Adelaida registered the quitclaim deed, resulting in the cancellation of TCT No. 15296 and the issuance of TCT No. 269811 in their names on April 4, 2003. On November 5, 2003, Imelda and Adelaida sold the entire property to spouses Victor and Remedios Badar for a contract price of ₱1,000,000.00 (though the true selling price was ₱3,000,000.00). TCT No. 269811 was cancelled and TCT No. 274696 was issued in the names of spouses Badar, who immediately took possession.

Meanwhile, Josefina filed a petition for annulment of judgment before the Court of Appeals, praying that the February 24, 2003 Decision, the issuance of the second owner's duplicate, and the subsequent titles all be declared null and void. In a Decision dated May 24, 2007, the CA declared the lower court's February 24, 2003 Decision null and void. The case reached the Supreme Court, which partially affirmed the appellate court's judgment on June 17, 2015 in Josefina Billote vs. Imelda Solis, upholding the nullity of the February 24, 2003 Decision and the second owner's duplicate of TCT No. 15296, but remanding the determination of ownership to the RTC in Civil Case No. U-8088. On June 18, 2004, Josefina had filed her complaint for declaration of nullity of titles, documents, recovery of possession, and damages against spouses Badar, Imelda, and Adelaida before the RTC. Josefina presented the testimonies of William Billote, Segundo Billote, Osmundo Sumio, and Steve Alejo. Imelda and Adelaida failed to present evidence, while spouses Badar presented their case through their attorney-in-fact Neil Tablada, who did not testify on direct examination but submitted a judicial affidavit.

The RTC found the 2001 Deed of Absolute Sale validly executed but limited its effect to Dorotea's one-half undivided share, since the property had not been partitioned. It ruled the 2002 quitclaim validly transferred Dorotea's remaining one-sixth share to Imelda and Adelaida, making them owners of the remaining one-half. As to spouses Badar, the RTC declared them purchasers in good faith whose rights prevailed over Josefina's, sustaining TCT No. 274696. The CA upheld these findings, agreeing that nothing warned spouses Badar of Josefina's claim, but increased the monetary award to Josefina to ₱1,500,000.00 based on the admission that the true selling price was ₱3,000,000.00.

• Section 4, Rule 74 Annotation: Josefina argued that the annotation of Section 4, Rule 74 on TCT No. 269811 in the names of Imelda and Adelaida, carried over to TCT No. 274696 in the names of spouses Badar, should have alerted spouses Badar to possible claims of excluded heirs or unpaid creditors, thereby negating their status as buyers in good faith.
• Good Faith of Spouses Badar: Josefina disputed the CA's factual finding that the Section 4, Rule 74 annotation did not appear on TCT No. 269811 and was not carried over to TCT No. 274696, pointing out that a plain reading of both titles showed the encumbrance on their face.
• Validity of Her Purchase: Josefina maintained that the 2001 Deed of Absolute Sale validly transferred Dorotea's one-half undivided share to her, and that her earlier right should prevail over the subsequent sale to spouses Badar.

• Clean Title: Spouses Badar argued, through their attorney-in-fact Neil Tablada, that verification with the Register of Deeds showed the sellers' title was "clean" with no encumbrances, and that the tenant on the property confirmed Imelda and Adelaida as the real owners.
• Section 4, Rule 74 Not Indicative of Defect: Spouses Badar cited Dela Cruz vs. Dela Cruz for the proposition that a Section 4, Rule 74 entry by itself does not indicate "a scintilla of flaw or defect" in the sellers' title.
• Purchasers in Good Faith: Spouses Badar maintained that nothing warned them of any adverse claim by Josefina or other third persons, and that they took all necessary precautions before purchasing.

• Section 4, Rule 74 Annotation: Whether the CA committed grave abuse of discretion in ruling that spouses Badar are buyers in good faith despite the presence of the annotation of Section 4, Rule 74 on TCT No. 269811 and its carryover to TCT No. 274696.
• Validity of the 2001 Sale: Whether the sale by Dorotea to Josefina of a specific south-western one-half portion of the co-owned property was valid, and to what extent.
• Effect of Nullity of Reconstituted Title: Whether the nullity of the second owner's duplicate of TCT No. 15296 rendered void the subsequent titles and the registration of the sale to spouses Badar.
• Good Faith of Spouses Badar: Whether spouses Badar were innocent purchasers for value notwithstanding the suspicious circumstances surrounding their vendors' title.

• Section 4, Rule 74 Annotation: No. The Section 4, Rule 74 annotation did not affect spouses Badar's good faith because Josefina was not an excluded heir or unpaid creditor of Hilario's estate, and Dorotea had not been deprived of her participation therein.
• Validity of the 2001 Sale: Yes, in part. The sale of a specific portion by a co-owner is valid to the extent of the disposing co-owner's ideal or undivided share, pursuant to Article 493 of the Civil Code and the doctrine in Lopez vs. Vda. de Cuaycong.
• Effect of Nullity of Reconstituted Title: The nullity of the second owner's duplicate rendered TCT No. 269811 void, and the registration of the sale to spouses Badar — procured through that void title — was likewise null and void under Section 53 of PD 1529.
• Good Faith of Spouses Badar: No. Spouses Badar were buyers in bad faith for ignoring suspicious circumstances — the reconstitution proceedings, the Section 4, Rule 74 annotation, dealings through an unidentified intermediary, and failure to communicate with the sellers — that should have put a reasonable person on inquiry.

• Section 4, Rule 74 Annotation: Section 4, Rule 74 of the Rules of Court protects an heir or other person who has been unduly deprived of lawful participation in the estate of a decedent, and unpaid creditors of the estate, within two years from settlement and distribution. The annotation serves as a warning to third persons of possible claims by excluded heirs or creditors. However, the estate to which the annotation pertained was that of Hilario, who died in 1955. Josefina could not claim to be an excluded heir of Hilario's estate because she was not his legal heir, and Dorotea — from whom Josefina could derive a share — had not been excluded but had in fact participated in the extrajudicial settlement and disposed of her entire share. No heir of Hilario was deprived of any successional right. Spouses Badar were likewise not the transferees contemplated by Section 4, Rule 74 because they did not derive their right from a transferor who had excluded an heir. The invocation of Spouses Domingo vs. Roces and Tan vs. Benolirao was counterproductive because those cases presupposed an excluded heir, a condition absent here.

• Validity of the 2001 Sale: When Hilario died, the subject property was co-owned by Dorotea (2/3 undivided share, being her one-half conjugal share plus one-sixth hereditary share), Imelda (1/6), and Adelaida (1/6). Under Article 493 of the Civil Code, each co-owner has full ownership of his or her part and may alienate it, but the effect of the alienation is limited to the portion that may be allotted to the disposing co-owner upon partition. Following Lopez vs. Vda. de Cuaycong and Heirs of Caburnay vs. Heirs of Sison, the sale by Dorotea of a specific 1/2 portion (3,447 square meters) was not void but valid to the extent of her 1/2 ideal or undivided share. The maxim Quando res non valet ut ago, valeat quantum valere potest applied — the binding force of the contract was recognized as far as legally possible. After the 2001 sale, Dorotea retained a 1/6 undivided share. The 2002 quitclaim transferred only that remaining 1/6 to Imelda and Adelaida, vesting them with ownership over the remaining 1/2 undivided portion.

• Effect of Nullity of Reconstituted Title: The second owner's duplicate of TCT No. 15296 had been declared void by the Court in Solis, having been procured through a fraudulent reconstitution petition when the original owner's duplicate was not in fact lost but in Josefina's possession. Following Pineda vs. CA and Gonzales, a certificate of title derived from a void owner's duplicate is itself void, and no valid transfer certificate of title can issue from a void one, unless an innocent purchaser for value has intervened. Section 53 of PD 1529 explicitly provides that any subsequent registration procured by the presentation of a forged or void duplicate certificate of title shall be null and void. Since TCT No. 269811 in the names of Imelda and Adelaida emanated from the void second owner's duplicate, it was void; and since the registration of the sale to spouses Badar was procured through that void title, the registration was likewise void and the sale was deemed unregistered. Both sales — to Josefina and to spouses Badar — being unregistered, the maxim prior est in tempore, potior est in jure applied: Josefina's 2001 sale, being earlier, enjoyed a preferred right over the 2003 sale with respect to the 1/2 undivided portion. Ownership was further transferred to Josefina by constructive delivery through the execution of the public instrument (Article 1498 in relation to Article 1477 of the Civil Code), coupled with the delivery of the owner's duplicate certificate.

• Good Faith of Spouses Badar: The testimony of spouses Badar's attorney-in-fact, Neil Tablada, was insufficient to establish good faith. His testimony was partly hearsay and uncorroborated, and as Remedios Badar's brother, he was not a disinterested witness. Spouses Badar never dealt directly with the sellers, Imelda and Adelaida, but only through an unidentified "Mr. Macaranas" whose interest in the property and authority were never explained. Neil admitted he did not read the annotations on TCT No. 269811, including the Section 4, Rule 74 encumbrance, yet reported the title as "clean." The dorsal page of TCT No. 15296 contained entries showing the affidavit of loss, the court decision ordering issuance of a second owner's duplicate, and the certificate of finality — all of which should have alerted a prudent buyer to investigate. Following Spouses Occena vs. Esponilla, a purchaser cannot close his eyes to facts that should put a reasonable person on guard and then claim good faith. Spouses Badar willfully ignored these suspicious circumstances, and their mere reliance on the presumption of good faith was insufficient to discharge their burden of proving innocent purchaser status by clear and convincing evidence.

• Alienation of Undivided Share by a Co-Owner (Article 493, Civil Code) — Each co-owner has full ownership of his or her aliquot part and may alienate, assign, or mortgage it without the consent of the other co-owners. The effect of the alienation, with respect to the co-owners, is limited to the portion that may be allotted to the disposing co-owner upon partition. A sale by a co-owner of a concrete or definite portion of co-owned property is not void but valid only to the extent of the seller's ideal or undivided share, pursuant to the maxim Quando res non valet ut ago, valeat quantum valere potest. The Court applied this doctrine to hold that Dorotea's sale of the south-western 1/2 portion to Josefina was valid to the extent of Dorotea's 1/2 undivided share.

• Nullity of Titles Derived from Fraudulently Reconstituted Owner's Duplicate (Section 53, PD 1529) — Any subsequent registration procured by the presentation of a forged, void, or nullified duplicate certificate of title is null and void. A certificate of title derived from a void owner's duplicate is itself void, and cannot be the source of legitimate rights and benefits, unless an innocent purchaser for value has intervened. The Court applied this to hold that TCT No. 269811 (issued to Imelda and Adelaida) and the registration of the sale to spouses Badar were void, having emanated from the fraudulently reconstituted second owner's duplicate of TCT No. 15296.

• Priority of Earlier Unregistered Sale (Prior est in tempore, potior est in jure) — Where two sales of the same property are both unregistered, the earlier sale creates a preferred right over the later sale. The Court applied this maxim to hold that Josefina's 2001 sale, being earlier than the 2003 sale to spouses Badar, enjoyed priority with respect to the 1/2 undivided portion.

• Constructive Delivery via Public Instrument (Article 1498, Civil Code) — When a sale is made through a public instrument, the execution thereof is equivalent to delivery of the thing sold, unless the deed provides otherwise. The Court held that ownership of the 1/2 undivided portion was transferred to Josefina by constructive delivery upon execution of the 2001 Deed of Absolute Sale, a public instrument, reinforced by the delivery of the owner's duplicate certificate of title.

• Innocent Purchaser for Value — Freedom from Knowledge of Circumstances Putting One on Inquiry — A purchaser in good faith is one who buys property without notice of another's adverse claim and pays a fair price before receiving notice. Good faith implies freedom from knowledge of circumstances that ought to put a person on inquiry. A purchaser cannot close his eyes to suspicious facts and later claim good faith. The Court found spouses Badar failed this standard because they ignored the reconstitution proceedings, the Section 4, Rule 74 annotation, the unidentified intermediary, and the failure to deal directly with the sellers.

• "While a Section 4, Rule 74 annotation or entry is recognized as an encumbrance on the property, it finds no application in the instant case. The said Section 4 speaks of an heir or other person, who has been unduly deprived of his or her lawful participation in the estate of a decedent, and an unpaid creditor of that estate." — This passage defines the scope and limits of Section 4, Rule 74, clarifying that the annotation protects only excluded heirs and unpaid creditors, and cannot be invoked by one who is neither.

• "Following Lopez and Heirs of Caburnay, the sale by Dorotea of a specific or definite 1/2 portion of the subject property, with an area of 3,447 square meters, is not void, but is valid to the extent of her 1/2 ideal or abstract share therein." — This states the ratio decidendi on the validity of a co-owner's sale of a concrete portion, applying Article 493 and the doctrine of partial validity.

• "Since TCT No. 269811 is void, the registration which gave rise to the issuance of TCT No. 274696 in the names of spouses Badar is perforce void. Consequently, pursuant to Section 53 of PD 1529, the sale between Imelda and Adelaida, as sellers, and spouses Badar, as buyers, had not been validly registered; and is deemed unregistered." — This articulates the chain of nullity from a void reconstituted owner's duplicate through derivative titles, and the consequence that the sale to spouses Badar was deemed unregistered, triggering the priority rule.

• "His mere refusal to believe that such defect exists or his willful closing of his eyes to the possibility of the existence of a defect in his vendor's title will not make him an innocent purchaser for value if it later develops that the title was in fact defective, and it appears that he would have notice of the defect had he acted with that measure of precaution which may reasonably be required of a prudent man in a similar situation." — This passage, quoted from Spouses Occena vs. Esponilla, defines the standard for good faith in property purchases and was applied to find spouses Badar acted in bad faith.

• Lopez vs. Vda. de Cuaycong, 74 Phil. 601 (1944) — Controlling precedent on the validity of a co-owner's sale of a concrete portion of co-owned property without the consent of the other co-owners. The Court relied on its interpretation of Article 399 of the old Civil Code (precursor of Article 493) to hold that such a sale is valid to the extent of the disposing co-owner's ideal or undivided share.

• Pineda vs. CA and Gonzales, 456 Phil. 732 (2003) — Controlling precedent on the nullity of titles derived from a fraudulently reconstituted owner's duplicate certificate. The Court followed its ruling that no valid transfer certificate of title can issue from a void certificate, unless an innocent purchaser for value has intervened.

• Spouses Domingo vs. Roces, 449 Phil. 189 (2003) — Cited for the proposition that the proviso in Section 4, Rule 74 — "notwithstanding any transfers of real estate that may have been made" — affects not only heirs or original distributees but any transferee of estate properties. The Court found this case counterproductive to Josefina's argument because no heir of Hilario was actually excluded.

• Tan vs. Benolirao, 619 Phil. 35 (2009) — Cited for the principle that a Section 4, Rule 74 annotation creates a legal encumbrance warning third persons of possible interests of excluded heirs or unpaid creditors. The Court found it inapplicable because Josefina was not an excluded heir.

• Heirs of Caburnay vs. Heirs of Sison, G.R. No. 230934, December 2, 2020 — Recent precedent reinforcing the Lopez doctrine on co-ownership and alienation of undivided shares.

• Spouses Occena vs. Esponilla, 474 Phil. 880 (2004) — Controlling precedent defining the standard for good faith in property purchases, particularly the requirement that a buyer must not close his eyes to suspicious circumstances.

• Josefina Billote vs. Imelda Solis, 760 Phil. 712 (2015) — Prior ruling by the Court declaring the second owner's duplicate of TCT No. 15296 void, which served as the foundation for the nullity of all derivative titles in the present case.

• Balatbat vs. Court of Appeals, 329 Phil. 858 (1996) — Cited for the doctrine of constructive delivery via a public instrument under Article 1498 of the Civil Code.

• Wee vs. Mardo, 735 Phil. 420 (2014) — Cited for the principle that ownership is different from a certificate of title, and that registration does not create or vest title.

• Article 493, Civil Code — Each co-owner has full ownership of his or her part and may alienate, assign, or mortgage it, but the effect of the alienation is limited to the portion that may be allotted upon partition. Applied to hold that Dorotea's sale of a specific portion was valid to the extent of her undivided share.

• Article 996, Civil Code — The surviving spouse has the same share as each of the children when a widow or widower and legitimate children are left. Applied to determine the successional shares upon Hilario's death.

• Article 1498, Civil Code — When a sale is made through a public instrument, the execution thereof is equivalent to delivery of the thing sold. Applied to hold that ownership transferred to Josefina by constructive delivery upon execution of the 2001 Deed of Absolute Sale.

• Article 1477, Civil Code — Ownership of the thing sold is transferred to the vendee upon actual or constructive delivery. Applied in conjunction with Article 1498.

• Section 53, Presidential Decree No. 1529 (Property Registration Decree) — No voluntary instrument shall be registered unless the owner's duplicate certificate is presented; any subsequent registration procured by the presentation of a forged or void duplicate certificate of title shall be null and void. Applied to hold that the registration of the sale to spouses Badar, procured through the void second owner's duplicate, was null and void.

• Section 4, Rule 74, Rules of Court — Prescribes the liability of distributees for the full period of two years after distribution, notwithstanding transfers of real estate. The Court found this provision inapplicable because Josefina was not an excluded heir of Hilario's estate.

• Section 44, PD 1529 — Enumerates statutory liens affecting title, including encumbrances noted on the certificate. Cited as appearing on the face of TCT No. 269811 together with the Section 4, Rule 74 annotation.

Inting, Gaerlan, Dimaampao, and Singh, JJ., concurred.