Bliss Development Corp. vs. Diaz

A person who acquires merely the right to purchase registered land through a chain of assignments cannot invoke the mirror doctrine to claim status as a buyer in good faith, because the doctrine of not going beyond the face of the title applies only to transfers of the land itself, not to assignments of personal rights to purchase; however, a vendor who accepts amortizations with prior knowledge of a conflicting claim acts in bad faith and cannot retain those payments without committing unjust enrichment.

Petitioner Bliss Development Corporation (BDC), subsequently reorganized as Home Guaranty Corporation, is the registered owner of Lot No. 27, Block 30, New Capitol Estates I, Quezon City, covered by TCT No. 331582. On October 19, 1984, BDC executed a Deed of Sale over the property in favor of Spouses Emiliano and Leonila Melgazo, both now deceased. The property became the subject of a series of transfers of rights — not title — culminating in competing claims by respondent Diaz and respondent Arreza, the latter asserting rights derived from the heirs of the Melgazo spouses. BDC initiated an interpleader action to resolve the conflicting claims, which produced a final and executory ruling that the Melgazo signatures on the deed transferring rights to Nacua were forgeries and that Arreza had the better right to the property.

Petitioner Bliss Development Corporation (BDC), later reorganized as Home Guaranty Corporation, is the registered owner of Lot No. 27, Block 30, New Capitol Estates I, Brgy. Matandang Balara, Diliman, Quezon City, covered by Transfer Certificate of Title No. 331582. On October 19, 1984, BDC executed a Deed of Sale over the property in favor of Spouses Emiliano and Leonila Melgazo, both now deceased. Before the property was fully paid, a series of transfers of rights — not title — occurred. On May 7, 1991, Rodolfo Nacua wrote to BDC stating that the Melgazo spouses had transferred their rights over the property to him and expressing willingness to pay their outstanding obligations. Nacua subsequently sold his rights to Olivia Garcia through a Deed of Transfer of Rights. Garcia then transferred her rights to Elizabeth Reyes, who in turn transferred them to Domingo Tapay. Tapay later sold his rights to respondent Montano Diaz for P600,000.

Diaz then paid BDC the amortizations due on the property, amounting to P406,915.15, and BDC issued a permit to occupy the property in his favor. Diaz introduced improvements on the property amounting to P700,000. On April 14, 1992, BDC executed a Contract to Sell in favor of Diaz. On April 15, 1994, however, BDC informed Diaz that respondent Edgar Arreza was claiming that the heirs of the Melgazo spouses had sold him the rights over the property. BDC thereupon placed Diaz's account on "inactive status." To resolve the conflicting claims, BDC filed a complaint for interpleader against Arreza and Diaz before the RTC, Makati City, Branch 146.

On March 27, 1996, the RTC Branch 146 ruled that the signatures of the Melgazo spouses on the deed transferring their rights to Nacua were forgeries, and accordingly held that Arreza had a better right over the property. That decision became final and executory. On August 27, 1996, Diaz filed the present complaint for sum of money against BDC before the RTC, Makati City, Branch 59, later amended to include Arreza and Tapay as defendants. Diaz alleged that BDC's and Tapay's representations led him to believe he had good title, but because of the interpleader ruling he was constrained to transfer the property to Arreza. He prayed for reimbursement of the P1,106,915.58 he paid for amortizations and improvements, the P600,000 he paid Tapay, moral and exemplary damages, and attorney's fees.

Both BDC and Tapay argued that their acts were lawful and done in good faith. Arreza moved to dismiss on the ground of res judicata, contending that Diaz's claim was a compulsory counterclaim that should have been pleaded in the interpleader case. The RTC denied the motion, the CA affirmed on certiorari, and the Supreme Court in G.R. No. 133113 ultimately ruled that the claim against Arreza was indeed barred by res judicata, resulting in the dismissal of the case against him. After trial, the RTC rendered its decision on November 21, 2011, dismissing Diaz's complaint for lack of merit, finding that Diaz failed to diligently inquire into the title of his predecessor and was therefore not an assignee in good faith. Diaz appealed to the CA, which reversed the RTC and held that Diaz was both a buyer and builder in good faith, ordering BDC to reimburse him and pay damages. BDC and Tapay moved for reconsideration, which the CA denied on June 27, 2014. BDC then elevated the matter to the Supreme Court via the present petition.

• Immutability of Judgment: Petitioner argued that the CA erred in not dismissing the appeal, invoking the doctrine of immutability of judgment in light of the Court's ruling in G.R. No. 133113, which had long become final.
• Bad Faith: Petitioner argued that the CA erred in declaring BDC in bad faith, contending that it did not act as seller to Diaz but merely acknowledged Diaz's presentation of deeds of transfer and accepted amortizations on that basis.
• Unjust Enrichment: Petitioner argued that the CA erred in declaring that there was unjust enrichment on the part of BDC.
• Contractual Bar to Reimbursement: Petitioner argued that Diaz could not claim reimbursement because the Contract to Sell contained an Additional Provision excusing BDC from reimbursing the monthly amortizations, and that Diaz's possession was in the nature of a lessor.
• Liability to Reimburse: Petitioner argued that it is not liable to reimburse Diaz for the amortizations paid or the value of improvements introduced, totaling P1,106,915.58.

• Entitlement to Reimbursement and Damages: Respondent Diaz maintained that BDC's and Tapay's representations led him to believe he had good title over the property, and that due to the interpleader ruling he was constrained to transfer the property to Arreza, entitling him to reimbursement of amortizations and improvements, as well as moral and exemplary damages and attorney's fees.
• Good Faith of Tapay: Respondent Tapay argued that he was not aware of the defect in the title sold to Diaz and therefore should not be made liable for the P600,000 that Diaz paid him.
• Res Judicata: Respondent Arreza argued that Diaz's claim was in the nature of a compulsory counterclaim that should have been pleaded in the interpleader case and was thus barred by res judicata.

• Immutability of Judgment: Whether the CA erred in not dismissing the appeal in view of the doctrine of immutability of judgment, given the Court's prior ruling in G.R. No. 133113.
• Bad Faith of BDC: Whether the CA erred in declaring BDC in bad faith in dealing with Diaz.
• Status of Diaz as Buyer in Good Faith: Whether the CA erred in declaring Diaz a purchaser for value and in good faith.
• Unjust Enrichment: Whether the CA erred in declaring that there was unjust enrichment on the part of BDC.
• Contractual Exemption from Reimbursement: Whether Diaz can still claim reimbursement despite the Contract to Sell's provision excusing BDC from reimbursing amortizations.
• Liability to Reimburse: Whether BDC is liable to reimburse Diaz the amount of P1,106,915.58 for amortizations paid and improvements introduced.

• Immutability of Judgment: No. The claim is not barred by the doctrine of immutability of judgment, because there is no identity of parties or subject matter between the interpleader case (Arreza vs. Diaz) and the present action (Diaz vs. BDC).
• Bad Faith of BDC: No error by the CA. BDC acted in bad faith because it was aware of Arreza's claim as early as 1991 and even received amortizations from Arreza, yet it accepted Diaz's deed of transfer and his amortization payments without disclosing the conflicting claim until 1994.
• Status of Diaz as Buyer in Good Faith: No. The CA committed reversible error. The mirror doctrine does not apply because what was transferred through the chain of assignments was not the lot itself but the personal right to purchase it; Diaz failed to diligently trace the source of the right, which originated from a forged deed.
• Unjust Enrichment: No error by the CA. Allowing BDC to retain the amortizations paid by Diaz constitutes unjust enrichment under Article 22 of the Civil Code, because the buyer-seller relationship was nullified by the final interpleader ruling, leaving no valid consideration for the payments.
• Contractual Exemption from Reimbursement: No. The Additional Provision in the Contract to Sell exempting the vendor from reimbursing amortizations is void when the vendor acted in bad faith, pursuant to the rule that any stipulation exempting the vendor from liability for eviction is void if the vendor acted in bad faith.
• Liability to Reimburse: Yes, but modified. BDC is liable to reimburse Diaz P1,106,915.58 for amortizations and improvements, but the awards for moral damages, exemplary damages, and attorney's fees were deleted because both parties acted in bad faith.

• Immutability of Judgment: The doctrine of immutability of judgment, as applied in G.R. No. 133113, barred only Diaz's claim against Arreza, not his claim against BDC. In G.R. No. 133113, the Court ruled that Diaz's claim against Arreza was barred by res judicata because it should have been alleged as a compulsory counterclaim in the interpleader case between them. The essential elements of res judicata — identity of parties and identity of subject matter — are absent in the present case. The interpleader case was between Arreza and Diaz, while the present action is between Diaz and BDC. The issues in the interpleader case revolved around the conflicting claims of Arreza and Diaz, not whatever claims either might have against BDC. Accordingly, the present claim is not barred.

• Bad Faith of BDC: BDC does not dispute that as early as 1991, even before Diaz presented his deeds of transfer, BDC was already aware of Arreza's claim and had even received amortization payments from Arreza. Despite this knowledge, BDC acknowledged the transfer to Diaz, accepted his amortization payments, and issued him a permit to occupy the property. It was only in 1994 — after Arreza followed up his claim — that BDC filed the interpleader case. This sequence of events demonstrates evident bad faith. BDC's contention that it merely passively accepted Diaz's representations is unavailing, because its prior knowledge of a conflicting claim imposed a duty to disclose or at least to await resolution before accepting payments.

• Status of Diaz as Buyer in Good Faith: A purchaser in good faith and for value is one who buys property without notice that another has a right to or interest in it and pays full and fair price at the time of purchase or before receiving notice of another's claim. The first element is lacking. The CA erroneously applied the mirror doctrine — that a buyer of registered land need not go beyond the face of the title — because what was subjected to the series of sales was not the lot itself but the right to purchase the lot from BDC. The several transfers were deeds of assignment of rights, not deeds of absolute sale; the subject was a personal right to purchase, not a real right over the property. It was incumbent upon Diaz to inquire not only into Tapay's right to transfer but also to trace the source of that right to its origin. Had he done so, he would have discovered that Nacua's right was founded on a forged deed. His failure to diligently inquire and trace the source of the right precludes a claim of good faith.

• Unjust Enrichment: Unjust enrichment exists when a person is unjustly benefited at the expense of or with damage to another. Allowing BDC to keep the amortizations paid by Diaz would result in BDC receiving payments without valid consideration, because the final interpleader ruling nullified the buyer-seller relationship between BDC and Diaz. Even if BDC could prove there was no overlap between payments by Diaz and Arreza, retaining Diaz's payments still amounts to unjust enrichment, since those payments were made under the impression that Diaz was the rightful buyer and there is no indication of intent to donate. Article 22 of the Civil Code mandates return of what was acquired without just or legal ground.

• Contractual Exemption from Reimbursement: The Additional Provision in the Contract to Sell exempting the vendor from reimbursing amortizations cannot shield BDC from liability because any stipulation exempting the vendor from answering for eviction is void if the vendor acted in bad faith. The vendor's bad faith consists in knowledge, at the time of the sale, of facts giving rise to eviction and their possible consequences. BDC knew of Arreza's claim in 1991, received payments from Arreza, yet executed the Contract to Sell with Diaz in 1992 without disclosing the conflicting claim. The contractual exemption is therefore unenforceable.

• Liability to Reimburse: BDC is liable to reimburse Diaz for both the amortizations paid and the value of improvements introduced. The reimbursement for amortizations rests on unjust enrichment. The reimbursement for improvements rests on Articles 448, 453, 546, and 548 of the Civil Code. Although Diaz was not a builder in good faith, BDC equally acted in bad faith; Article 453 provides that when both the builder and the landowner act in bad faith, their rights shall be the same as though both had acted in good faith. Under Article 448, the landowner is given the option to appropriate the improvements upon payment of indemnity or to sell the land to the builder; since the option of selling the land is no longer viable in light of the interpleader ruling, BDC must indemnify Diaz for the improvements. However, because the law treats both parties as if they acted in good faith, there is no basis for moral and exemplary damages or attorney's fees, and those awards were deleted.

• Unjust Enrichment (Article 22, Civil Code) — Unjust enrichment exists when a person is unjustly benefited and such benefit is derived at the expense of or with damage to another. The Court applied this doctrine to require BDC to return the amortizations paid by Diaz, because the final interpleader ruling nullified the buyer-seller relationship, leaving no valid consideration for the payments. Retaining them would amount to receiving benefits without just or legal ground.

• Purchaser in Good Faith and for Value — A purchaser in good faith and for value is one who buys property without notice that another has a right to or interest in it and pays full and fair price at the time of purchase or before receiving notice of another's claim. The two requisites are: (1) purchase without notice of another's right or interest, and (2) payment of full and fair price at the time of purchase or before notice. The Court held that Diaz failed the first requisite because he did not diligently trace the source of the right he purchased, which originated from a forged deed.

• Mirror Doctrine (Registered Land) — The doctrine that a buyer of registered land need not go beyond the face of the title to be considered a buyer in good faith. The Court held this doctrine inapplicable where the subject of the transfers was not the registered land itself but merely the personal right to purchase it from the registered owner, since the several transfers were deeds of assignment of rights, not deeds of absolute sale.

• Builder and Landowner Both in Bad Faith (Article 453, Civil Code) — When both the person who builds on the land of another and the owner of the land act in bad faith, the rights of one and the other shall be the same as though both had acted in good faith. The Court applied this provision to entitle Diaz to reimbursement for improvements under Articles 448, 546, and 548, while simultaneously eliminating any basis for moral and exemplary damages.

• Res Judicata — A prior final judgment is conclusive not only as to matters actually decided but also as to every matter which the parties could have properly set up in the prior suit. The Court distinguished the prior interpleader case (between Arreza and Diaz) from the present action (between Diaz and BDC), finding no identity of parties or subject matter, and thus no bar.

• Void Stipulation Exempting Vendor from Eviction Liability — Any stipulation exempting the vendor from the obligation to answer for eviction is void if the vendor acted in bad faith, which consists in knowledge beforehand, at the time of sale, of facts giving rise to eviction and their possible consequences. BDC knew of Arreza's claim in 1991 yet executed the Contract to Sell in 1992 without disclosure, rendering the exemption void.

• "while it is true that the subject lot is registered lot, the doctrine of not going beyond the face of the title does not apply in the case here, because what was subjected to a series of sales was not the lot itself but the right to purchase the lot from BDC." — This passage articulates the ratio decidendi on the inapplicability of the mirror doctrine to assignments of rights to purchase, distinguishing transfers of registered land from transfers of personal rights to acquire it.

• "Had he discharged this duty diligently, he would have found out that Nacua's right was without basis, because it was founded on a forged deed. For his failure to inquire diligently and trace the source of the right to purchase the property, Diaz cannot claim to be a purchaser in good faith and for value." — This defines the duty of a buyer of assigned rights to trace the chain of assignments to its origin, establishing that failure to do so precludes good-faith status.

• "Allowing BDC to keep the amortizations paid by Diaz is tantamount to unjust enrichment. It would result in BDC receiving amortizations twice the amount it should have received, that is, the amortizations paid by Diaz and Arreza." — This states the application of unjust enrichment to the facts, grounding the reimbursement obligation independently of Diaz's good-faith status.

• "because the law treats both parties as if they acted in good faith, the CA committed reversible error in awarding moral and exemplary damages, there being no basis therefor." — This explains why Article 453's equalization rule simultaneously entitles reimbursement for improvements and precludes damages, a key nuance for bar review.

• Arreza vs. Diaz, Jr., G.R. No. 133113, August 30, 2001, 364 SCRA 88 — Controlling precedent on the res judicata bar against Diaz's claim versus Arreza. The Court in the present case distinguished this ruling, holding that it barred only the claim against Arreza, not the claim against BDC, because of the absence of identity of parties and subject matter.

• Philippine National Bank vs. Heirs of Estanislao Militar, G.R. No. 164801, June 30, 2006, 494 SCRA 308 — Cited for the definition of a purchaser in good faith and for value as one who buys property without notice of another's right or interest and pays full and fair price.

• Tamani vs. Salvador, G.R. No. 171497, April 4, 2011, 647 SCRA 132 — Cited for the two requisites of purchaser in good faith: (1) purchase without notice of another's right or interest, and (2) payment of full and fair price at the time of purchase or before notice.

• Philippine Realty and Holdings Corporation vs. Ley Construction and Development Corporation, G.R. No. 165548, June 13, 2011, 651 SCRA 719 — Cited for the elements of unjust enrichment under Article 22 of the Civil Code: (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another.

• Article 22, Civil Code — Provides that every person who, through an act or performance by another or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same. Applied to require BDC to return the amortizations paid by Diaz, since the nullification of the buyer-seller relationship left no valid consideration for the payments.

• Article 448, Civil Code — Gives the landowner the right to appropriate improvements upon payment of indemnity, or to oblige the builder to pay the price of the land. Applied to determine BDC's obligation to indemnify Diaz for improvements, with the option to sell the land rendered unviable by the interpleader ruling.

• Article 453, Civil Code — Provides that when both the builder and the landowner act in bad faith, the rights of one and the other shall be the same as though both had acted in good faith. Applied to equalize the parties' positions, entitling Diaz to reimbursement for improvements while eliminating any basis for moral and exemplary damages.

• Article 546, Civil Code — Provides that necessary expenses shall be refunded to every possessor, but only the possessor in good faith may retain the thing until reimbursed; useful expenses shall be refunded only to the possessor in good faith. Applied in conjunction with Article 453 to entitle Diaz to reimbursement for necessary and useful expenses.

• Article 548, Civil Code — Provides that expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith, though ornaments may be removed if no injury results. Cited as part of the framework governing reimbursement for improvements.

Justices Peralta, Villarama Jr., Perez, and Jardeleza concurred. No separate concurring opinions were noted.