Centeno vs. Court of Appeals

A buyer of real property covered by a Torrens title is bound by the doctrine of notice and is not required to go beyond what appears on the face of the title, and a purchaser is not required to explore further than what the Torrens title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. The Court also held that there is no privity of contract between the original owners and the sub-buyers where the original owners were not parties to the contracts of sale executed by the buyer, and the sub-buyers cannot compel the original owners to recognize such contracts absent any evidence of estoppel or receipt of the purchase price.

The respondents, Rufina C. Victoria and Daniel O. Victoria, were the original owners of an unregistered parcel of land in Hagonoy, Taguig, Rizal, covered by Tax Declaration No. 5685. In June 1969, the spouses Pedro M. Cruz and Rosanna Villar offered to purchase the property, disclosing their intention to subdivide it into residential lots for resale. The respondents agreed to sell, and on July 10, 1969, they executed a Contract to Sell in favor of the Cruz spouses, with the condition that ownership would remain with the Victorias until the downpayment was paid, at which point a deed of transfer with a first mortgage in favor of the Victorias would be executed to secure the balance.

The respondents, Rufina C. Victoria and Daniel O. Victoria, were the owners of an unregistered parcel of land in Hagonoy, Taguig, Rizal, covered by Tax Declaration No. 5685. In June 1969, the spouses Pedro M. Cruz and Rosanna Villar offered to purchase the property, disclosing their intention to subdivide it into residential lots to be sold later. On July 10, 1969, the Victorias executed a Contract to Sell in favor of the Cruz spouses, stipulating that while possession would be considered delivered to the buyers, ownership would remain with the Victorias until the downpayment of P70,000.00 was paid, at which point a deed of transfer with a first mortgage in favor of the Victorias would be executed to secure the balance.

The Cruz spouses subdivided the property into residential lots and Pedro M. Cruz entered into separate Contracts of Sale involving thirty-one residential lots with various persons, including the petitioners. In several of these contracts (Annexes B-2 through B-9), Cruz represented himself as "attorney-in-fact of the owner of a parcel of land situated in Hagonoy, Taguig, Rizal, which is more particularly described in Tax Declaration No. 5685," when in truth he had never been appointed as attorney-in-fact by either of the respondents. On March 11, 1970, the Victorias executed a "Deed of Sale with First Mortgage" in favor of the Cruz spouses, and ownership passed to them subject to the first mortgage. The Cruz spouses thereafter applied for registration of the land, and on August 14, 1970, the Court of First Instance of Rizal granted their application, issuing Original Certificate of Title No. 8626 in their name, with the first mortgage in favor of Rufina Cruz Victoria in the amount of P72,000.00 annotated thereon.

Because the Cruz spouses failed to comply with the terms of the mortgage, the Victorias caused the extrajudicial foreclosure of the mortgage on January 9, 1971, with the Provincial Sheriff giving notice of the auction sale set for February 15, 1971. On February 9, 1971, Pedro M. Cruz filed a petition for approval of the subdivision plan and cancellation of the title for each resulting lot. On February 15, 1971, the foreclosure sale was held, and the Victorias, being the highest bidders, were awarded the property, with a Certificate of Sale executed in their favor. The contracts of sale between Cruz and the petitioners were never registered with the Registry of Deeds nor annotated in the titles.

On April 17, 1971, the Victorias and the Cruz spouses entered into an "Interim Agreement Pending Expiration of Redemption Period," and on April 19, 1971, the Victorias, through their attorney-in-fact, expressed conformity to the approval of the subdivision plan and issuance of separate titles. The original certificate of title was cancelled, and individual titles were issued in the name of the Cruz spouses, each containing annotations of the first mortgage, the certificate of sale, the special power of attorney, and the interim agreement. The Cruz spouses failed to redeem the property within the one-year redemptive period, and the Victorias consolidated ownership, obtaining new Transfer Certificates of Title in their names, free from any liens and encumbrances. On April 11, 1972, and May 29, 1972, the Victorias gave written notices to all persons who had contracts to sell with Cruz, granting them the option to purchase the lots under stated terms. The petitioners filed their complaint on June 28, 1972, without having made any prior demand upon the respondents. The petitioners had not paid installments from February 1972 onward, nor made any tender of payment or consignation. Lot 4, Block 11, involved in the contract with petitioner Nestor Centeno, had been the subject of an earlier contract of sale in favor of Conrado P. Uy on May 26, 1969, which Uy later assigned to Centeno with Cruz's conformity.

• Knowledge of the Victorias: Petitioners argued that the Court of Appeals erred in not holding that from the combination of the undisputed circumstances, the Victorias knew of the sale by Pedro M. Cruz of the subdivided lots to the petitioners.
• Stepping into the Shoes of the Cruzes: Petitioners argued that the Court of Appeals erred in not holding that the Victorias merely stepped into the shoes of the Cruz spouses.
• Nullity of Foreclosure: Petitioners argued that the Court of Appeals erred in not holding that the extrajudicial foreclosure of the mortgage was a total nullity because the deed of mortgage did not contain a special power of attorney in favor of the mortgagees to sell the property at public auction.
• Unjust Enrichment: Petitioners argued that the Court of Appeals erred in holding that the Victorias were not unjustly enriched at the expense of the petitioners.
• Jurisdiction of the Court of Appeals: Petitioners argued that the Court of Appeals erred in not motu proprio holding that it had no jurisdiction over the appeal and in not elevating the appeal to the Supreme Court for determination.

N/A — The decision does not separately recount the respondents' arguments beyond the Court of Appeals' findings and the Court's own reasoning.

• Knowledge of the Victorias: Whether the Court of Appeals erred in not holding that the Victorias knew of the sale by Pedro M. Cruz of the subdivided lots to the petitioners.
• Privity of Contract: Whether the Court of Appeals erred in not holding that the Victorias merely stepped into the shoes of the Cruz spouses.
• Validity of Foreclosure: Whether the Court of Appeals erred in not holding that the extrajudicial foreclosure of the mortgage was a total nullity because the deed of mortgage did not contain a special power of attorney in favor of the mortgagees to sell the property at public auction.
• Unjust Enrichment: Whether the Court of Appeals erred in holding that the Victorias were not unjustly enriched at the expense of the petitioners.
• Jurisdiction of the Court of Appeals: Whether the Court of Appeals erred in not motu proprio holding that it had no jurisdiction over the appeal and in not elevating the appeal to the Supreme Court.

• Knowledge of the Victorias: No. The disclosure by the Cruz spouses of their intention to subdivide the property did not impose any legal obligation upon the Victorias to be bound by any sales made by Cruz before they became the owner of the property, nor did it bar them from asserting their legal rights as owners before they were fully paid the purchase price.
• Privity of Contract: No. The Victorias were not parties to the contracts of sale in favor of the petitioners, and since Pedro M. Cruz had never been appointed attorney-in-fact of the Victorias, there was no privity of contract between the petitioners and the Victorias, and the petitioners had no cause of action against them.
• Validity of Foreclosure: No. The extrajudicial foreclosure was not a nullity; the mortgagee's rights were annotated on the title from the beginning, and any sale executed by the Cruzes in favor of the petitioners would be subject to the rights of the mortgagee.
• Unjust Enrichment: No. There was no evidence that the Victorias had received any of the money paid by the petitioners to the Cruzes, nor that the petitioners were induced to buy lots by the acts or omissions of the Victorias.
• Jurisdiction of the Court of Appeals: No. The Court found no merit in the petitioners' claim that the Court of Appeals lacked jurisdiction over the appeal.

• Knowledge of the Victorias: The Court reasoned that the statement made by the Cruz spouses about their intention to subdivide the property was not necessarily proof that the Victorias had knowledge of the actual sales of the lots. Even granting that the Cruzes had told the Victorias of their plan to subdivide, that did not impose any legal obligation upon the Victorias to be bound by any sales made by Cruz before they became the owner of the property. Neither did that imply that subdivision and subsequent sale of the lots would bar the Victorias from asserting their legal rights as owners before they were fully paid the purchase price or their rights under any mortgage executed in their favor.
• Privity of Contract: The Court held that as the Victorias were not parties to the contracts of sale in favor of the petitioners, the same having been executed by Pedro M. Cruz and the petitioners, and since Pedro M. Cruz had never been appointed attorney-in-fact of the Victorias, there was no privity of contract between the petitioners and the Victorias. The petitioners had no cause of action against the Victorias since there was no evidence whatsoever to show that the petitioners, by acts or omissions of the Victorias, had been induced to buy lots. Neither was there any evidence that the Victorias had received any of the money paid by the petitioners to the Cruzes. The petitioners' recourse must be against the Cruzes.
• Validity of Foreclosure: The Court noted that when the property was sold at public auction, there was no annotation of any sale executed by the Cruzes in favor of the petitioners which would have placed on notice the bidders, including the Victorias. Well settled is the rule that all persons dealing with property covered by a Torrens certificate of title are not required to go beyond what appears on the face of the title. When there is nothing on the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. After Pedro M. Cruz had obtained a certificate of title over the property in his name, said title was subject to the mortgage in favor of the Victorias. Any sale executed by the Cruzes in favor of the petitioners would then be subject to the rights of the mortgagee of said property. Even if the petitioners had registered the deed in their favor, which they did not, their rights under said deed of sale could not prevail over the rights of the mortgagee which had been annotated on said property from the beginning.
• Unjust Enrichment: The Court found no evidence that the Victorias had received any of the money paid by the petitioners to the Cruzes for the lots bought by them, and no evidence that the petitioners were induced to buy lots by the acts or omissions of the Victorias.
• Jurisdiction of the Court of Appeals: The Court found no merit in the petitioners' claim regarding the Court of Appeals' jurisdiction, dismissing the petition for lack of merit.

• Torrens Title Doctrine of Notice — All persons dealing with property covered by a Torrens certificate of title are not required to go beyond what appears on the face of the title. When there is nothing on the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. The Court applied this doctrine to hold that the Victorias, as purchasers at the foreclosure sale, were not bound by the unregistered contracts of sale executed by the Cruzes in favor of the petitioners.
• Privity of Contract — There is no privity of contract between parties who were not parties to a contract. The Court applied this principle to hold that since the Victorias were not parties to the contracts of sale executed by Pedro M. Cruz in favor of the petitioners, and since Cruz had never been appointed attorney-in-fact of the Victorias, the petitioners had no cause of action against the Victorias.
• Estoppel — Estoppel requires that the party against whom it is invoked had knowledge of the facts and allowed the other party to act to their detriment. The Court held that the Victorias could not be estopped from asserting their rights because, according to the Stipulation of Facts, they came to know of the sales made by Pedro M. Cruz only after the property was sold to them at the foreclosure sale.

• "Well settled is the rule that all persons dealing with property covered by torrens certificate of title are not required to go beyond what appears on the face of the title. When there is nothing on the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the torrens title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto." — This passage articulates the controlling doctrine of the Torrens system, which the Court applied to protect the Victorias as purchasers at the foreclosure sale from the unregistered claims of the petitioners.
• "As the Victories were not parties to the contracts of sale in favor of petitioners, the same having been executed by Pedro M. Cruz and petitioners and according to the Stipulation of Facts Pedro M. Cruz had never been appointed attorney-in-fact of the Victories, there is no privity of contract between petitioners and the Victorias." — This passage states the ratio decidendi for the dismissal of the petitioners' claim, establishing the absence of privity of contract as the basis for the lack of cause of action.
• "Petitioners have no cause of action against the Victories since there is no evidence whatsoever to show that petitioners by acts or omissions of the Victories had been induced to buy lots to which the property had been subdivided by the Cruzes. Neither is there any evidence that the Victories had received any of the money paid by said petitioners to the Cruzes for the lots bought by them. Petitioners recourse must be against the Cruzes." — This passage defines the limits of the petitioners' remedy, directing them to pursue their claims against the party with whom they actually contracted.

• William Anderson vs. Garcia, 64 Phil., 506 — Cited as controlling precedent for the rule that persons dealing with property covered by a Torrens certificate of title are not required to go beyond what appears on the face of the title.
• Fulle vs. Legare, 7 SCRA 351 — Cited as controlling precedent for the same rule regarding the Torrens title doctrine of notice.

N/A — The decision does not cite specific constitutional provisions, statutes, codal articles, or procedural rules.

• Teehankee (Chairman)
• Melencio-Herrera
• Gutierrez, Jr.
• De la Fuente

N/A — The decision does not mention any dissenting opinions. Plana, J., took no part, and Relova, J., was on leave.