Spouses Eduardo Arenas Domingo & Josefina Chavez Domingo vs. Lilia Montinola Roces, et al.

A purchaser of registered land whose certificate of title bears an annotation under Section 4, Rule 74 of the Rules of Court is charged with notice of the limitation on the vendor's right to dispose of the property and cannot be considered an innocent purchaser for value or a purchaser in good faith; the annotation's effects are not limited to heirs or original distributees but affect any transferee. Laches and estoppel require lengthy and unreasonable delay; four months from discovery to filing is not unreasonable.

The dispute concerns two contiguous parcels on Arayat Street, Mandaluyong, originally registered in the names of Spouses Cesar and Lilia Roces. Respondents are Lilia and her children; petitioner Spouses Domingo later acquired one parcel from Reynaldo L. Montinola, Lilia's nephew. Section 4, Rule 74 of the Rules of Court supplies the statutory backdrop: it charges real estate distributed in an estate with liability to creditors, heirs, or other persons for two years after settlement and distribution, notwithstanding any transfers.

Spouses Cesar and Lilia Roces owned two contiguous parcels of land on Arayat Street, Mandaluyong, covered by Transfer Certificates of Title Nos. 57217 and 57218. On November 13, 1962, the Government Service Insurance System caused the annotation of an affidavit of adverse claim on the titles, alleging that the spouses had mortgaged the properties to it. GSIS later demanded that Cesar Roces surrender the owner's duplicates of the titles; when he failed to comply, GSIS filed a petition with the then Court of First Instance of Rizal, docketed as Civil Case No. R-1359, praying that the owner's duplicates in Roces' possession be declared null and void and that the Register of Deeds of Pasig be directed to issue new owner's duplicates to GSIS. On September 5, 1977, the Court of First Instance granted the petition, and the order became final and executory; TCT Nos. 57217 (11663) and 57218 (11664) were issued in the name of GSIS. Cesar Roces died intestate on January 26, 1980, survived by his widow Lilia Roces and their children, who are the respondents in this case.

On July 22, 1992, Reynaldo L. Montinola, a nephew of Lilia Roces, executed an affidavit of self-adjudication over the Arayat properties. He alleged that the properties were owned by Spouses Cesar and Lilia Roces, both of whom died intestate on September 13, 1987 and June 27, 1989, respectively; that the properties were acquired during the existence of their marriage; that the spouses left no heirs except the brother of Lilia Roces, who was his father; that neither spouse left a will or debts; and that he was the sole heir of the Roces spouses. On January 5, 1993, Montinola filed a petition against GSIS with the Regional Trial Court of Pasig, docketed as Civil Case No. R-4743, praying for the cancellation of TCT Nos. 57217 (11663) and 57218 (11664). During trial, GSIS failed to produce any document evidencing the alleged real estate mortgage by Roces of the properties. The trial court thus rendered judgment in favor of Montinola, declaring the owner's duplicates of TCT Nos. 57217 (11663) and 57218 (11664) null and void and ordering the Registry of Deeds of Mandaluyong to issue new owner's duplicates. GSIS did not appeal, and the judgment became final and executory; the Registry of Deeds of Mandaluyong issued TCT No. 7299 in the name of Montinola in lieu of TCT No. 57218 (11664).

Sometime in July 1993, Montinola executed a deed of absolute sale of the property covered by TCT No. 7299 in favor of petitioner spouses Eduardo and Josefina Domingo. Thereafter, TCT No. 7673 was issued in the names of petitioners. Both TCT Nos. 7299 and 7673 contained the following annotation: "Subject to the provision of Section 4, Rule 74 of the Rules of Court with respect to the inheritance left by the deceased SPS. CESAR ROCES & LILIA MONTINOLA."

When respondents learned of the sale of the property to petitioners, they filed a complaint against Montinola and petitioners with the Regional Trial Court of Pasig. They argued that the affidavit of self-adjudication was fraudulent because Montinola was not an heir of the Roces spouses and it was not true that Lilia Roces was dead; therefore, the affidavit of self-adjudication, the deed of absolute sale, TCT No. 7299, and TCT No. 7673 were null and void. In their answer, petitioners alleged that they were buyers in good faith and that the action was barred by estoppel and laches. The facts were not in dispute, and the case proceeded on the fraudulent character of Montinola's self-adjudication and the fact that Lilia Roces was not dead.

• Annotation under Rule 74, Section 4: Petitioners argued that the Court of Appeals erred in holding that the annotation in the title regarding Section 4, Rule 74 is an encumbrance which disqualifies them from being innocent purchasers for value.
• Respondents' Responsibility for the Fraud: Petitioners maintained that the Court of Appeals erred in not holding that it was respondents who made it possible for Reynaldo Montinola to perpetrate the fraud and, therefore, should bear the resulting damage.
• Respondents' Existing Interest: Petitioners argued that the Court of Appeals erred in not holding that respondents have no existing interest in the property since it was previously mortgaged and foreclosed by GSIS.
• Attorney's Fees: Petitioners argued that the Court of Appeals erred in holding them liable to respondents for attorney's fees, thereby adding more injury to their misfortune.

• Fraudulent Self-Adjudication and Nullity: Respondents maintained, in their complaint, that the affidavit of self-adjudication was fraudulent because Montinola was not an heir of the Roces spouses and it was not true that Lilia Roces was dead, so the affidavit, the deed of absolute sale, TCT No. 7299, and TCT No. 7673 were null and void.

• Annotation as Notice / Innocent Purchaser: Whether the annotation on TCT Nos. 7299 and 7673 referring to Section 4, Rule 74 of the Rules of Court disqualified petitioners from being innocent purchasers for value.
• Estoppel and Laches: Whether respondents were barred by estoppel and laches.
• Respondents' Interest / Prior GSIS Mortgage: Whether respondents had no existing interest in the property because it had been previously mortgaged and foreclosed by GSIS.
• Attorney's Fees: Whether petitioners may be held liable to respondents for attorney's fees.

• Annotation as Notice / Innocent Purchaser: No. The annotation under Section 4, Rule 74 of the Rules of Court was sufficient notice to petitioners of the limitation on Montinola's right to dispose of the property, so they cannot be considered innocent purchasers for value.
• Estoppel and Laches: No. Only four months elapsed from respondents' discovery of the fraudulent acts in May 1993 to the filing of the complaint on September 6, 1993; the delay was not lengthy and unreasonable.
• Respondents' Interest / Prior GSIS Mortgage: No. The petition was denied and the Court of Appeals' decision was affirmed in toto; the text does not separately discuss this assigned error.
• Attorney's Fees: Yes. The Court of Appeals' award of P50,000.00 attorney's fees was affirmed in toto; the text does not separately discuss this assigned error.

• Annotation as Notice / Innocent Purchaser: One who deals with property registered under the Torrens system need not go beyond the title and is charged with notice only of such burdens and claims as are annotated on the title. This principle does not apply, however, when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make inquiry, or when the purchaser has knowledge of a defect or lack of title in his vendor or sufficient facts to induce a reasonably prudent man to inquire into the status of the title. Section 4, Rule 74 of the Rules of Court provides that real estate remains charged with liability to creditors, heirs, or other persons for two years after distribution, notwithstanding any transfers of real estate. The Court held that the rule covers transfers to any person and is not limited to heirs or original distributees but affects any transferee. The annotation at the back of TCT No. 7299 referring to Rule 74, Section 4 was sufficient notice to petitioners of the limitation on Montinola's right to dispose of the property. Purchasers of registered land are bound by annotations found at the back of the certificate of title. Thus, petitioners cannot be considered buyers in good faith and cannot avoid the consequences of Rule 74, Section 4.
• Estoppel and Laches: Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. Its essential elements are: (1) conduct on the part of the defendant or one under whom he claims, giving rise to the situation complained of; (2) delay in asserting complainant's right after he had knowledge of the defendant's conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant. Estoppel by laches arises from the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. Only four months elapsed from the time respondents discovered Montinola's fraudulent acts, sometime in May 1993, to the time they filed their complaint on September 6, 1993. This relatively short span can hardly be called unreasonable, especially since respondents used the period to investigate the transfers. Delay is an indispensable requisite for estoppel by laches, but the delay must be lengthy and unreasonable. No unreasonable delay can be attributed to respondents.
• Respondents' Interest / Prior GSIS Mortgage: No separate reasoning is stated in the text for this assigned error; the denial of the petition rested on the annotation and laches grounds.
• Attorney's Fees: No separate reasoning is stated in the text for this assigned error; the Court of Appeals' award of attorney's fees was affirmed in toto.

• Torrens System and Innocent Purchaser for Value — A person dealing with registered land may rely on the certificate of title and is charged with notice only of burdens and claims annotated on the title. The exception is when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to inquire, or when the purchaser has knowledge of a defect or lack of title in the vendor or sufficient facts to induce a reasonably prudent man to inquire into the status of the title. One who falls within the exception cannot be denominated an innocent purchaser for value or a purchaser in good faith. The Court applied this exception because the titles of petitioners contained an annotation under Section 4, Rule 74 of the Rules of Court.
• Rule 74, Section 4 Annotation as Notice and Liability — Under Section 4, Rule 74 of the Rules of Court, real estate distributed in an estate remains charged with liability to creditors, heirs, or other persons for two years after settlement and distribution, notwithstanding any transfers of real estate. The rule covers transfers to any person and is not limited to heirs or original distributees; it affects any transferee. An annotation of this provision on the certificate of title is sufficient notice to a purchaser of the limitation on the vendor's right to dispose of the property, and purchasers of registered land are bound by annotations found at the back of the certificate of title.
• Laches and Estoppel by Laches — Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. Its elements are: (1) conduct on the part of the defendant or one under whom he claims, giving rise to the situation complained of; (2) delay in asserting complainant's right after he had knowledge of the defendant's conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant. Estoppel by laches arises from the negligence or omission to assert a right within a reasonable time. Delay is indispensable, but it must be lengthy and unreasonable. Four months from discovery to filing was not unreasonable.

• "It is true that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the title. He is charged with notice only of such burdens and claims as are annotated on the title. However, this principle does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. One who falls within the exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith." — This passage states the general Torrens system rule and its exception, which the Court applied to disqualify petitioners as innocent purchasers for value.
• "The foregoing rule clearly covers transfers of real property to any person, as long as the deprived heir or creditor vindicates his rights within two years from the date of the settlement and distribution of estate. Contrary to petitioners' contention, the effects of this provision are not limited to the heirs or original distributees of the estate properties, but shall affect any transferee of the properties." — This passage defines the scope of Section 4, Rule 74, holding that its effects extend to any transferee and not merely to heirs or original distributees.
• "In David v. Malay, it was held that the buyer of real property the title of which contain an annotation pursuant to Rule 74, Section 4 of the Rules of Court cannot be considered innocent purchasers for value. In the same vein, the annotation at the back of TCT No. 7299 in this case referring to Rule 74, Section 4 of the Rules of Court was sufficient notice to petitioners of the limitation on Montinola's right to dispose of the property." — This passage applies the controlling precedent and explains why the annotation on TCT No. 7299 charged petitioners with notice.
• "Delay is an indispensable requisite for a finding of estoppel by laches, but to be barred from bringing suit on grounds of estoppel and laches, the delay must be lengthy and unreasonable." — This passage states the standard for estoppel by laches, which the Court used to reject petitioners' defense because only four months had elapsed.

• David vs. Malay, G.R. No. 132644, 19 November 1999 — Controlling precedent cited for the rule that a buyer of real property whose title contains an annotation under Rule 74, Section 4 of the Rules of Court cannot be considered an innocent purchaser for value.
• Sandoval vs. Court of Appeals, 329 Phil. 48 (1996) — Cited for the Torrens system principle that a purchaser need not go beyond the title and is charged with notice only of annotated burdens and claims, subject to the exception for facts requiring inquiry.
• Vazquez vs. Court of Appeals, G.R. No. 83759, 12 July 1991, 199 SCRA 102 — Cited for the rule that purchasers of registered land are bound by annotations found at the back of the certificate of title.
• Philippine Bank of Communications vs. Court of Appeals, G.R. No. 109803, 20 April 1998, 289 SCRA 178 — Cited for the elements of laches.
• Philippine National Construction Corporation vs. National Labor Relations Commission, 366 Phil. 678 (1999) — Cited for estoppel by laches arising from negligence or omission to assert a right within a reasonable time.
• Pio Barreto Realty Development Corporation vs. Court of Appeals, G.R. No. 132362, 28 June 2001, 360 SCRA 127 — Cited for the requirement that delay for estoppel by laches be lengthy and unreasonable.

• Section 4, Rule 74, Rules of Court — Provides that if, within two years after settlement and distribution of an estate, it appears that an heir or other person has been unduly deprived of lawful participation, or that debts remain unpaid, the court may settle the amount and order contribution; the bond and real estate remain charged with liability to creditors, heirs, or other persons for two years after distribution, notwithstanding any transfers of real estate. The Court applied this provision by holding that it covers transfers to any person and affects any transferee, and that the annotation on TCT Nos. 7299 and 7673 was sufficient notice to petitioners of the limitation on Montinola's right to dispose of the property.

Davide, Jr., C.J. (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.