Ching vs. Enrile

An adverse claim annotated on a certificate of title does not automatically expire after the lapse of thirty days from its registration; it remains subsisting for as long as no verified petition for its cancellation has been filed. Furthermore, a person who deals with registered land with knowledge of a prior existing interest, whether through an annotated adverse claim or actual possession of the property, cannot claim the status of a purchaser in good faith, and such knowledge has the effect of registration as to him.

Petitioners spouses Jesus Ching and Lee Poe Tin purchased a 370-square meter lot in Barrio Tungtong, Las Piñas from Raymunda La Fuente, covered by TCT No. 83618. The conveyance was executed through a duly notarized Deed of Absolute Sale, but for reasons known only to petitioners, the sale was not registered with the Register of Deeds as prescribed by Section 51 of Presidential Decree 1529, the Property Registration Decree. Instead, petitioners recorded an Affidavit of Adverse Claim on the title and took physical possession of the property. Respondents spouses Adolfo and Arsenia Enrile were judgment creditors of La Fuente in a separate civil case before the RTC of Pasig.

On September 5, 1985, petitioners spouses Jesus Ching and Lee Poe Tin purchased from Raymunda La Fuente a 370-square meter lot located at Barrio Tungtong, Las Piñas, covered by TCT No. 83618. La Fuente delivered to petitioners a duly notarized Deed of Absolute Sale with the Owner's Duplicate Certificate of Title, and thereafter petitioners took physical possession of the subject property. For reasons known only to petitioners, the conveyance was not registered in the Register of Deeds as prescribed by Section 51 of PD 1529. Instead, on November 20, 1986, petitioners executed an Affidavit of Adverse Claim which was recorded and annotated at the back of TCT No. 83618, reflected in the Memorandum of Encumbrances under Entry No. 86-62262. In the meantime, petitioners peacefully and continuously possessed the subject property.

On August 19, 1988 — three years after they purchased the disputed property — petitioners received a Notice of Levy on Attachment and Writ of Execution issued by the RTC of Pasig in favor of respondents, in Civil Case No. 54617 entitled Sps. Adolfo Enrile and Arsenia Enrile vs. Raymunda La Fuente. The Notice of Levy on Attachment was recorded at the dorsal portion of TCT No. 83618 under Entry No. 3433-2, while the Writ of Execution was inscribed under Entry No. 3434-2. Also inscribed in the TCT was the Certificate of Sale dated January 26, 1989 covering the disputed property in favor of respondents.

On January 8, 1990, petitioners filed a Petition to Remove Cloud on or Quiet Title to Real Property asserting ownership of the disputed property. The RTC rendered judgment in favor of petitioners on May 11, 1993, upholding their superior right over the disputed property in view of the registration of the Affidavit of Adverse Claim prior to the Certificate of Sale annotated in favor of respondents. The RTC ordered the Register of Deeds to cancel all annotations of encumbrances in favor of respondents, and ordered respondents to pay petitioners ₱10,000.00 as compensatory damages by way of litigation expenses, ₱10,000.00 as attorney's fees, and the costs of the proceedings.

Respondents appealed to the CA, arguing that the prior conveyance by La Fuente to petitioners being a voluntary dealing with registered land, mere registration of their adverse claim was insufficient, and that they should have registered the Deed of Absolute Sale pursuant to Section 51 of PD 1529 rather than merely registering an adverse claim under Section 70 of the same law. Respondents insisted that the annotated Adverse Claim of petitioners had already expired after thirty days from registration, hence it offered no protection when respondents acquired the disputed property through execution sale. The CA reversed the RTC decision, holding that while the sale was perfected and consummated, petitioners failed to diligently protect their interests by failing to register the conveyance, and that the annotated adverse claim had already prescribed on December 20, 1986 after the lapse of 30 days from its registration on November 20, 1986. The CA further declared respondents as purchasers in good faith.

• Error in Ruling on the Adverse Claim: Petitioners argued that the CA gravely erred when it held that the levy on attachment LATER annotated shall prevail over the Adverse Claim EARLIER annotated at the back of the title by the mere lapse of 30 days and even without any petition in court for its cancellation.
• Error in Not Dismissing the Appeal: Petitioners argued that the CA should have dismissed the appeal because the questions raised were questions of law and no question of fact.

• Insufficiency of Adverse Claim: Respondents theorized that the prior conveyance of the disputed property made by La Fuente to petitioners being a voluntary dealing with a registered land, mere registration of their adverse claim was insufficient; petitioners should have registered the Deed of Absolute Sale with the Register of Deeds pursuant to Section 51 of PD 1529 and not merely register an adverse claim under Section 70 of the same law.
• Expiration of the Adverse Claim: Citing the second paragraph of Section 70 which provides that an adverse claim shall be effective for a period of thirty days from the date of registration, respondents insisted that the annotated Adverse Claim of petitioners had already expired, hence, it offered no protection when respondents acquired the disputed property through execution sale.

• Effectivity of the Adverse Claim: Whether the annotated adverse claim had prescribed by the mere lapse of 30 days from its registration under Section 70 of PD 1529.
• Status as Purchasers in Good Faith: Whether respondents were purchasers in good faith when they acquired the disputed lot despite the annotated adverse claim on the title and petitioners' actual possession of the property.

• Effectivity of the Adverse Claim: No. The adverse claim did not prescribe by the mere lapse of 30 days from its registration. Under Section 70 of PD 1529, the annotation of an adverse claim may be cancelled only upon filing of a verified petition therefor by the party in interest; for as long as there is yet no petition for its cancellation, the notice of adverse claim remains subsisting.
• Status as Purchasers in Good Faith: No. Respondents were not purchasers in good faith. The annotated adverse claim on the title coupled with petitioners' actual, physical, continuous and uninterrupted possession of the disputed property should have put respondents on guard and required them to ascertain whether the property had already been sold to another. A person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value.

• Effectivity of the Adverse Claim: The Court found that the CA committed reversible error when it ruled that the annotated adverse claim had already prescribed by the mere lapse of 30 days from its registration. Citing the 1996 case of Sajonas vs. Court of Appeals, the Court explained that Section 70 of PD 1529 cannot and should not be treated separately, but should be read in relation to the sentence following, which provides that after the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest. If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the lapse of thirty days, then it would not have been necessary to include the caveat to clarify and complete the rule, for then no adverse claim need be cancelled. In a petition for cancellation of adverse claim, a hearing must first be conducted, which affords the parties an opportunity to prove the propriety or impropriety of the adverse claim.

• Status as Purchasers in Good Faith: The Court ruled that the recourse rises or falls on the decisive question of whether respondents were purchasers in good faith when they acquired the disputed lot despite the annotated adverse claim on their title. The Court held that they were not. While the Court acknowledged the general rule that in case of conflict between a vendee and an attaching creditor, an attaching creditor who registers the order of attachment and the sale of the property to him as the highest bidder acquires a valid title to the property as against a vendee who had previously bought the same property but failed to register his deed of sale, this is because registration is the operative act that binds or affects the land insofar as third persons are concerned. However, where a party has knowledge of a prior existing interest, which is unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him. Knowledge of an unregistered sale is equivalent to registration. The Court cited Article 1544 of the Civil Code governing double sales, and the case of Bautista vs. Court of Appeals, holding that where the thing sold twice is an immovable, the one who acquires it and first registers it in the Registry of Property, in good faith, shall be the owner. Citing Leung Yee vs. F.L. Strong Machinery Co. and Williamson, the Court explained that one who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. The Court noted that it is beyond dispute that the property had already been sold by La Fuente to petitioners on September 5, 1985, and that petitioners immediately took possession thereof. When the Notice of Levy on Attachment was recorded and when the Writ of Execution and Certificate of Sale were inscribed in favor of respondents, petitioners had been, since September 5, 1985, in actual, physical, continuous and uninterrupted possession. The Court quoted with approval the RTC's observation that the annotation of the adverse claim was registered way ahead on November 20, 1986 compared to the Notice of Levy, Writ of Execution and Certificate of Sale in favor of respondents, and that before the registrations of the three documents purporting to be the rights and interests of respondents, the respondents and the whole world in general were given constructive notice that La Fuente had no more interest and rights to the property. The Court concluded that the particular circumstances of the case constrained it to rule that respondents were not purchasers in good faith and, as such, could not acquire good title to the property as against the former transferee.

• Subsisting Adverse Claim Doctrine — An adverse claim annotated on a certificate of title does not automatically expire after the lapse of thirty days from its registration under Section 70 of PD 1529. The provision must be read in relation to the sentence providing that after the lapse of said period, the annotation may be cancelled upon filing of a verified petition therefor by the party in interest. For as long as there is yet no petition for its cancellation, the notice of adverse claim remains subsisting. The Court applied this doctrine to reject the CA's ruling that the adverse claim had prescribed on December 20, 1986, thirty days after its registration on November 20, 1986.

• Knowledge Equivalent to Registration Doctrine — Where a party has knowledge of a prior existing interest which is unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him. Knowledge of an unregistered sale is equivalent to registration. The Court applied this doctrine to hold that respondents, who had constructive notice of the annotated adverse claim and actual notice through petitioners' possession, could not claim to be purchasers in good faith.

• Purchaser in Good Faith Doctrine — One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. A person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value. A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor. The Court applied this doctrine to find that the annotated adverse claim coupled with petitioners' actual possession should have put respondents on guard.

• "At first blush, the provision in question would seem to restrict the effectivity of the adverse claim to thirty days. But the above provision cannot and should not be treated separately, but should be read in relation to the sentence following, which reads: 'After the lapse of said period, the annotation of the adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest.' If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the lapse of thirty days, then it would not have been necessary to include the foregoing caveat to clarify and complete the rule. For then, no adverse claim need be cancelled. If it has been automatically terminated by mere lapse of time, the law would not have required the party in interest to do a useless act." — This passage, quoted from Sajonas v. Court of Appeals, articulates the Court's reasoning for holding that an adverse claim remains subsisting absent a petition for its cancellation.

• "But where a party has knowledge of a prior existing interest, as here, which is unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him. Knowledge of an unregistered sale is equivalent to registration." — This passage states the controlling doctrine that knowledge of a prior unregistered interest is equivalent to registration, which was decisive in holding that respondents were not purchasers in good faith.

• "Here, petitioners' adverse claim is annotated at the back of the title coupled with the fact that they are in possession of the disputed property. To us, these circumstances should have put respondents on guard and required them to ascertain the property being offered to them has already been sold to another to prevent injury to prior innocent buyers. A person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value." — This passage applies the purchaser in good faith doctrine to the facts of the case, identifying the annotated adverse claim and actual possession as circumstances that should have alerted respondents.

• Sajonas vs. Court of Appeals, G.R. No. 102377, July 5, 1996, 258 SCRA 79 — Controlling precedent on the effectivity of adverse claims; the Court relied on this case to hold that an adverse claim remains valid even after the lapse of the 30-day period provided by Section 70 of PD 1529, for as long as there is no petition for its cancellation.

• Leung Yee vs. F.L. Strong Machinery Co. and Williamson, No. 11658, 37 Phil. 644 (1918) — Early case cited for the definition of good faith in the context of purchasers of real estate; the Court quoted its explanation that one who purchases with knowledge of a defect or lack of title in his vendor cannot claim good faith.

• Bautista vs. Court of Appeals, G.R. No. 106042, February 28, 1994, 230 SCRA 446 — Cited for the rule that where the thing sold twice is an immovable, the one who acquires it and first registers it in the Registry of Property, in good faith, shall be the owner.

• Ruiz, Sr. vs. Court of Appeals, G.R. No. 121298, July 31, 2001, 362 SCRA 40 — Cited for the doctrine that knowledge of a prior unregistered interest has the effect of registration as to the party with such knowledge.

• Winkleman vs. Veluz, 43 Phil. 604 (1922) — Cited for the principle that knowledge of an unregistered sale is equivalent to registration.

• Rolando Y. Tan vs. The Court of Appeals, G.R. No. 135038, November 16, 2001, 369 SCRA 255 — Cited for the rule that in a petition for cancellation of adverse claim, a hearing must first be conducted to afford the parties an opportunity to prove the propriety or impropriety of the adverse claim.

• Section 51, Presidential Decree 1529 (The Property Registration Decree) — Provides that no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make registration. The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned. The Court acknowledged this provision but held that it did not defeat petitioners' rights because respondents had knowledge of the prior sale.

• Section 70, Presidential Decree 1529 (The Property Registration Decree) — Provides for the registration of adverse claims and states that the adverse claim shall be effective for a period of thirty days from the date of registration, after which the annotation may be cancelled upon filing of a verified petition therefor by the party in interest. The Court interpreted this provision to mean that the adverse claim does not automatically expire after thirty days absent a petition for cancellation.

• Article 1544, Civil Code — Governs cases of double sale of immovable property, providing that ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property; should there be no inscription, ownership shall pertain to the person who in good faith was first in possession; and in the absence thereof, to the person who presents the oldest title, provided there is good faith. The Court cited this provision in the context of determining who may be considered a purchaser in good faith.

Chief Justice Reynato S. Puno (Chairperson), Associate Justice Renato C. Corona, Associate Justice Conchita Carpio Morales, and Associate Justice Adolfo S. Azcuna concurred in the decision.