San Agustin vs. Court of Appeals

Under Section 109 of Presidential Decree No. 1529, a petition for replacement of a lost owner's duplicate certificate of title requires notice only to the Register of Deeds and to persons whose interests are annotated in the memorandum of encumbrances; actual possession or an unannotated claim of heirship does not entitle one to personal notice. A five-year restrictive condition on resale imposed by GSIS in its deed of sale is a condition in favor of GSIS alone and may be invoked or waived only by GSIS; absent its action to annul, the sale remains valid between the parties, who are in pari delicto.

The lot in dispute originated from the Government Service Insurance System Low Cost Housing Project and was covered by a deed of absolute sale containing a five-year prohibition against sale, conveyance, lease, sublease, or encumbrance, annotated as a permanent encumbrance on TCT No. 436465. Petitioner Jesus San Agustin claimed to be the nephew, heir, and actual occupant of the original registered owner, Macaria Vda. de Caiquep; private respondent Maximo Menez, Jr. claimed the lot as purchaser from Macaria. The dispute required construction of Section 109 of P.D. 1529 on replacement of lost owner's duplicate certificates and Commonwealth Act No. 141, the Public Land Act, invoked to nullify the sale.

On February 11, 1974, the Government Service Insurance System sold to Macaria Vda. de Caiquep a 168-square-meter residential lot in Rosario, Pasig City, identified as Lot 13, Block 7, Pcs-5816 of the GSIS Low Cost Housing Project, by a Deed of Absolute Sale. On February 19, 1974, the Register of Deeds of Rizal issued TCT No. 436465 in Macaria's name. The title carried an annotated encumbrance stating that the sale was subject to conditions that were permanent encumbrances, that violation would entitle the vendor to cancel the deed and reenter the property, that the purpose of the sale was to aid the vendee in acquiring a lot and not to provide a means for speculation or profit by future assignment, resale, rent, lease, or subletting, and that the vendee could not sell, convey, lease, sublease, or otherwise encumber the property in favor of any other party within five years from the date final and absolute ownership vested, except in cases of hereditary succession or resale in favor of the vendor.

A day after the issuance of TCT No. 436465, or on February 20, 1974, Macaria sold the lot to private respondent Maximo Menez, Jr., as evidenced by a Deed of Absolute Sale marked as Exhibit "D." The deed was notarized but was not registered immediately upon its execution in 1974 because GSIS prohibited Menez from registering it in view of the five-year prohibition ending in 1979.

Sometime in 1979, an Arrest, Search and Seizure Order was issued against Menez for being suspected as a subversive. Military men ransacked his house in Cainta, Rizal. Upon learning that he was wanted by the military, he voluntarily surrendered and was detained for two years. When released, another order for his re-arrest was issued, so he hid in Mindanao for another four years, or until March 1984. In December 1990, he discovered that the subject TCT was missing. He consulted a lawyer, but the latter did not act immediately. Upon consulting a new counsel, an Affidavit of Loss was filed with the Register of Deeds of Pasig and a certified copy of TCT No. 436465 was issued. Menez also declared the property for tax purposes and obtained a certification from the Assessor's Office. He sent notices to the registered owner at the address appearing in the title and in the deed of sale, and with counsel searched for the registered owner in Metro Manila and Rizal and as far as Samar, Leyte, Calbayog City, Tacloban City, and Eastern and Northern Samar, but the search proved futile.

On July 8, 1992, Menez filed a petition docketed as LRC Case No. R-4659 with the RTC, Branch 154, Pasig, Metro Manila, for the issuance of an owner's duplicate copy of TCT No. 436465 to replace the lost one. To show ownership, he presented the Deed of Absolute Sale, Exhibit "D." The petition was set for hearing, and the court's order dated July 10, 1992 was published once in Malaya, a nationally circulated newspaper. During the hearing on September 3, 1992, only Menez and his counsel appeared; the Register of Deeds, who was not served notice, and the Office of the Solicitor General and the Provincial Prosecutor, who were notified, did not attend. On September 18, 1992, there being no opposition, Menez presented his evidence ex parte. The trial court granted the petition in its decision dated September 30, 1992, directing the Register of Deeds of Pasig to issue a new owner's duplicate copy of TCT No. 436465 based on the original on file, containing the memorandum of encumbrance and an additional memorandum that it was issued in place of the lost duplicate, and entitled to like faith and credit as the original; issuance was to be made only after the decision became final and executory, the lost owner's duplicate was declared null and void, and Menez was ordered to pay all legal fees. Copies were ordered furnished to Menez and to the registered owner at the address appearing in the title, deed of sale, and tax declaration, as well as to the Registry of Deeds of Pasig, the Office of the Solicitor General, and the Provincial Fiscal of Pasig.

On October 13, 1992, petitioner Jesus San Agustin received a copy of the decision. He claimed that this was the first time he became aware of the case of Macaria Vda. de Caiquep, who according to him died sometime in 1974. Claiming that he was the present occupant of the property and the heir of Macaria, he filed a Motion to Reopen Reconstitution Proceedings on October 27, 1992. The RTC denied the motion on December 3, 1992. Petitioner appealed to the Court of Appeals, which denied the appeal in its decision dated May 19, 1995; his motion for reconsideration was denied in a resolution dated September 11, 1995. The trial and appellate courts found that the lot was not homestead land and was owned by GSIS under TCT No. 10028 in its proprietary capacity.

• Notice to Actual Possessor: Petitioner argued that the Court of Appeals gravely erred in holding that LRC Case No. R-4659, being only a petition for issuance of a new owner's duplicate of title, required no personal notice to him, the actual possessor who had been paying real estate tax, despite private respondent's knowledge of his actual possession of and interest over the property covered by TCT No. 436465.
• Nullity Under Article 1409(7): Petitioner contended that the Court of Appeals gravely erred in holding that the sale between private respondent and Macaria Vda. de Caiquep was not null and void under Article 1409(7) of the Civil Code, which refers to contracts expressly prohibited or declared void by law, because the deed of sale was executed within the five-year prohibitory period under Commonwealth Act No. 141, the Public Land Act.
• Reliance on Alabang: Petitioner relied on Alabang Development Corporation vs. Valenzuela, which required actual and personal notice to actual owners and possessors in reconstitution proceedings.

• Inapplicability of Alabang: The Court of Appeals pointed out that petitioner's reliance on Alabang Development Corporation vs. Valenzuela was misplaced because that case was based on Republic Act No. 26, while the present case was based on Section 109 of P.D. 1529.
• Homestead Limitation: The Court of Appeals held that the proscription under Commonwealth Act No. 141 on sale within the five-year restrictive period refers to homestead lands only.
• Non-Impairment of Contracts: Private respondent pointed out that the contract of sale was protected by Section 10, Article III of the Constitution, which provides that no law impairing the obligation of contracts shall be passed.

• Notice in Replacement of Lost Duplicate Certificate: Whether petitioner, as alleged actual possessor and heir of the registered owner, was entitled to personal notice of the petition for issuance of a replacement owner's duplicate copy of TCT No. 436465 under Section 109 of P.D. 1529.
• Validity of Sale Within Five-Year Restrictive Period: Whether the Deed of Absolute Sale between Macaria Vda. de Caiquep and private respondent Maximo Menez, Jr. is null and void under Article 1409(7) of the Civil Code for having been executed within the five-year prohibitory period under Commonwealth Act No. 141, as amended.

• Notice in Replacement of Lost Duplicate Certificate: No. Under Section 109 of P.D. 1529, notice is required only to the Register of Deeds and persons whose interests appear in the memorandum of encumbrances; petitioner's unannotated claim as heir and occupant did not entitle him to personal notice, and publication sufficed as notice to the public.
• Validity of Sale Within Five-Year Restrictive Period: No. The five-year proscription under Commonwealth Act No. 141 applies to homestead lands, and the lot was not homestead land; moreover, the GSIS restriction was enforceable only by GSIS, which had not sued to annul the sale. The sale remained valid between the parties.

• Notice in Replacement of Lost Duplicate Certificate: Section 109 of P.D. 1529 governs. It requires due notice under oath to the Register of Deeds upon discovery of loss; upon petition of the registered owner or other person in interest, the court may, after notice and due hearing, direct the issuance of a new duplicate certificate. In Office of Court Administrator vs. Matas, Section 109 of P.D. 1529 was treated as practically the same as Section 109 of Act No. 496 governing reconstitution of a duplicate certificate lost or destroyed. Consequently, notice under Section 109 is sufficient if sent to the Register of Deeds and to those persons known to have, or appear to have, an interest in the property as shown in the memorandum of encumbrances at the back of the original or transfer certificate of title on file in the Register of Deeds. From a legal standpoint, no other interested parties should be notified, since they are the only ones deemed to have a claim to the property; a person dealing with registered land is not charged with notice of encumbrances not annotated on the back of the title. Here, petitioner did not appear to have an interest based on the memorandum of encumbrances annotated at the back of the title. His claim that he was an heir (nephew) of the original owner and the present occupant was not annotated in the memorandum of encumbrances, nor was his claim entered on the certificates of title in the name of the original or former owners on file with the Register of Deeds at the time of the filing or pendency of LRC Case No. R-4659. He was therefore not entitled to notice. Compliance with the RTC's order of publication in a newspaper of general circulation was sufficient notice to the public at large. Petitioner's reliance on Alabang Development Corporation vs. Valenzuela was misplaced. Alabang was based on Republic Act No. 26, which provides a special procedure for reconstitution of Torrens certificates of title lost or destroyed. Under R.A. No. 26, reconstitution is validly made only where the original copy of the certificate of title with the Register of Deeds is lost or destroyed; if no notice of the date of hearing is served on a possessor or one having interest in the property, he is deprived of his day in court and the order of reconstitution is null and void. The case at bar was not for reconstitution but merely for replacement of a lost duplicate certificate.
• Validity of Sale Within Five-Year Restrictive Period: Petitioner's contention that Exhibit "D" was null and void under Article 1409(7) of the Civil Code because it was executed within the five-year prohibitory period under Commonwealth Act No. 141 was without merit. The proscription under Commonwealth Act No. 141 on sale within the five-year restrictive period refers to homestead lands only. The lot in dispute was not homestead land, as found by the trial and appellate courts; it was owned by GSIS under TCT No. 10028 in its proprietary capacity. As to the violation of the five-year restrictive condition imposed by GSIS in its contract with petitioner's predecessor-in-interest, it was GSIS, and not petitioner, that had a cause of action against private respondent. In Sarmiento vs. Salud, the condition that the Sarmiento spouses could not resell the property except to the People's Homesite and Housing Corporation within 25 years after purchase was a condition in favor of PHHC, not in favor of the Sarmiento spouses. It conferred no actionable right on the Sarmientos; it operated as a restriction on their jus disponendi and limited their right of ownership. If the mortgage and foreclosure sale violated the condition, only PHHC was entitled to invoke it, not the Sarmientos; PHHC could also waive the condition and treat the sale as good, in which event the sale could not be assailed for breach of the condition. In this case, GSIS had not filed any action for annulment of Exhibit "D" or for forfeiture of the lot. The contract of sale remained valid between the parties unless and until annulled in the proper suit filed by the rightful party, GSIS. It was binding upon the heirs of Macaria Vda. de Caiquep, including petitioner who alleged to be one of her heirs, under the rule that heirs are bound by contracts entered into by their predecessors-in-interest. The Court noted the social justice policy of R.A. 8291, the Government Service Insurance Act of 1997, in granting housing assistance to less-privileged GSIS members and their dependents, which the five-year restrictive clause sought to implement. However, absent proper action by GSIS as the original vendor, the contract between petitioner's predecessor-in-interest and private respondent deserved to be upheld. It was protected by the Constitution under Section 10, Article III, which provides that no law impairing the obligation of contracts shall be passed. Following Sarmiento vs. Salud, even if the transaction between the original awardee and private respondent were wrongful, as between themselves the purchaser and seller were both in pari delicto, being participes criminis. Both were aware of the stipulated condition in favor of the original seller, GSIS, yet both entered into an agreement violating the condition and nullifying its effects. As Acting Chief Justice JBL Reyes concluded in Sarmiento, both parties being equally guilty, neither was entitled to complain against the other; having entered into the transaction with open eyes and having benefited from it, they should be held in estoppel to assail and annul their own deliberate acts.

• Replacement of Lost Owner's Duplicate Certificate under Section 109, P.D. 1529 — Section 109 allows the registered owner or other person in interest to petition the court for issuance of a new owner's duplicate certificate after notice and due hearing. Notice is sufficient if sent to the Register of Deeds and to persons known to have, or appearing to have, an interest in the property as shown in the memorandum of encumbrances at the back of the original or transfer certificate of title; a person dealing with registered land is not charged with notice of unannotated encumbrances. Actual possession or an unannotated claim of heirship does not entitle one to personal notice. In this case, petitioner's claim was not annotated, so he was not entitled to notice, and publication in a newspaper of general circulation sufficed as notice to the public.
• Distinction between Reconstitution under R.A. No. 26 and Replacement under Section 109, P.D. 1529 — Reconstitution under R.A. No. 26 is validly made only where the original copy of the certificate of title with the Register of Deeds is lost or destroyed, and failure to serve notice on a possessor or interested party deprives that party of his day in court and renders the reconstitution null and void. A petition under Section 109 of P.D. 1529 is merely for replacement of a lost owner's duplicate certificate, not reconstitution of the original. The Court applied this distinction to hold that Alabang Development Corporation vs. Valenzuela, which involved R.A. No. 26, did not govern.
• Five-Year Restrictive Condition in Favor of the Vendor — A restriction on resale or encumbrance within five years imposed by the original vendor in a deed of sale is a condition in favor of that vendor, not of the vendee or the vendee's heirs. Only the vendor may invoke or waive it. Absent an action by the vendor to annul the sale, the contract remains valid between the parties. The Court applied this to the GSIS restriction, holding that only GSIS could sue to annul the sale to private respondent.
• In Pari Delicto — Where both parties to a transaction are equally guilty of violating a legal or contractual restriction, neither may complain against the other, and both are estopped from assailing their own deliberate acts. The Court applied this to Macaria and private respondent, who both knew of the GSIS condition yet entered into the sale, and held that petitioner, as Macaria's alleged heir, could not use the violation to nullify the sale.
• Heirs Bound by Contracts of Predecessor-in-Interest — Under Article 1311 of the New Civil Code, contracts bind not only the parties but also their successors in interest, including heirs. The Court applied this to hold that petitioner, alleging to be an heir of Macaria, was bound by the deed of sale executed by Macaria in favor of private respondent.
• Non-Impairment of Contracts — Section 10, Article III of the Constitution provides that no law impairing the obligation of contracts shall be passed. The Court cited this in upholding the contract of sale absent proper action by GSIS to annul it.

• "Consequently, it is sufficient that the notice under Section 109 is sent to the Register of Deeds and to those persons who are known to have, or appear to have, an interest in the property as shown in the Memorandum of encumbrances at the back of the original or transfer certificate of title on file in the office of the Register of Deeds. From a legal standpoint, there are no other interested parties who should be notified, except those abovementioned since they are the only ones who may be deemed to have a claim to the property involved. A person dealing with registered is not charged with notice of encumbrances not annotated on the back of the title." — This passage states the controlling notice rule under Section 109 of P.D. 1529 and explains why petitioner's unannotated claim did not entitle him to personal notice.
• "The case at bar is not for reconstitution, but merely for replacement of lost duplicate certificate." — This passage distinguishes the present proceeding from reconstitution under R.A. No. 26 and disposes of petitioner's reliance on Alabang Development Corporation vs. Valenzuela.
• "In this case, the GSIS has not filed any action for the annulment of Exhibit "D", nor for the forfeiture of the lot in question. In our view, the contract of sale remains valid between the parties, unless and until annulled in the proper suit filed by the rightful party, the GSIS." — This passage states the ratio for upholding the sale despite the five-year restrictive condition: only GSIS, the original vendor, could seek annulment.
• "Both parties being equally guilty, neither is entitled to complain against the other. Having entered into the transaction with open eyes, and having benefited from it, said parties should be held in estoppel to assail and annul their own deliberate acts." — This passage articulates the in pari delicto and estoppel rationale that barred petitioner, as an alleged heir, from nullifying the sale.

• Office of Court Administrator vs. Matas, A.M. No. RTJ-92-836, 247 SCRA 9, 16-17 (1995) — Followed; construed Section 109 of P.D. 1529 as practically the same as Section 109 of Act No. 496 and held that notice is sufficient when sent to the Register of Deeds and to persons with interests appearing in the memorandum of encumbrances.
• Alabang Development Corporation vs. Valenzuela, G.R. No. L-54094, 116 SCRA 261, 277 (1982) — Cited by petitioner but distinguished; its requirement of actual and personal notice to actual owners and possessors applies to reconstitution under R.A. No. 26, not to replacement of a lost duplicate certificate under Section 109 of P.D. 1529.
• Sarmiento vs. Salud, G.R. No. L-25221, 45 SCRA 213, 215-216 (1972) — Followed; held that a resale restriction in favor of PHHC was a condition in favor of PHHC alone, which only PHHC could invoke or waive, and that parties who violated it were in pari delicto. Applied to the GSIS restriction.
• DKC Holdings Corporations vs. CA, G.R. No. 118248, 329 SCRA 666, 674 (2000) — Cited for the rule that heirs are bound by contracts entered into by their predecessors-in-interest.
• Manila Railroad Company vs. Hon. Jose M. Moya, et al., No. L-17913, 14 SCRA 358, 363 (1965) — Cited for the rule under R.A. No. 26 that failure to serve notice on a possessor or interested party in a reconstitution proceeding deprives that party of his day in court and renders the reconstitution null and void.
• Philippine Scrappers, Inc., et al., vs. Auditor General, 96 Phil. 454, 456-477 (1955) — Cited in connection with the in pari delicto principle relied upon in Sarmiento vs. Salud.

• Section 109, Presidential Decree No. 1529 (Property Registration Decree) — Governs notice and replacement of a lost owner's duplicate certificate of title. The Court applied it to hold that notice to the Register of Deeds and annotated interest holders, plus publication, was sufficient, and that petitioner was not entitled to personal notice.
• Article 1409(7), Civil Code — Declares contracts expressly prohibited or declared void by law as inexistent and void from the beginning. Petitioner invoked it to nullify the sale, but the Court held it inapplicable because the lot was not homestead land and the GSIS restriction was enforceable only by GSIS.
• Commonwealth Act No. 141, Sections 118 and 124 (Public Land Act) — Section 118 restricts encumbrance or alienation of lands acquired under free patent or homestead for five years; Section 124 makes violations unlawful and void. The Court held that the five-year proscription refers to homestead lands only and did not apply to the GSIS-owned lot.
• Article 1311, New Civil Code — Provides that contracts bind the parties and their successors in interest. The Court applied it to hold petitioner, as an alleged heir of Macaria, bound by the deed of sale.
• Section 10, Article III, 1987 Constitution — Provides that no law impairing the obligation of contracts shall be passed. The Court cited it in upholding the contract of sale absent proper action by GSIS to annul it.
• Republic Act No. 8291 (Government Service Insurance Act of 1997), Section 36 — Embodies the social justice policy of granting housing assistance to less-privileged GSIS members and their dependents. The Court noted that the five-year restrictive clause implemented this policy, but held that absent action by GSIS, the contract between the parties remained valid.
• Republic Act No. 26 — Provides a special procedure for reconstitution of Torrens certificates of title lost or destroyed. The Court distinguished it from Section 109 of P.D. 1529; under R.A. No. 26, failure to notify a possessor or interested party renders reconstitution null and void.

Justices Bellosillo, Mendoza, and De Leon, Jr. concurred. Justice Buena was on official leave.