Sps. Ernesto V. Yu and Elsie Ong Yu vs. Baltazar N. Pacleb

A purchaser who buys from one who is not the registered owner, although the land is registered, is held to a stricter standard of good faith and must examine not only the certificate of title but all factual circumstances necessary to determine flaws in the transferor's title or capacity to transfer; a judgment in an action for specific performance is in personam and binds only parties properly impleaded and duly heard.

Respondent Baltazar N. Pacleb and his late first wife, Angelita Chan, were the registered owners of an 18,000-square meter parcel of land in Barrio Langcaan, Dasmariñas, Cavite, covered by Transfer Certificate of Title No. T-118375. Petitioner spouses Ernesto V. Yu and Elsie Ong Yu asserted rights over the same property through a chain of unregistered transfers involving Rebecca Del Rosario and Ruperto L. Javier. Because the property remained registered in Pacleb's name and was in the possession of his son, Ramon, the dispute implicated the standards for innocent purchasers for value and the binding effect of a judgment obtained against Javier alone.

Respondent Baltazar N. Pacleb and his late first wife, Angelita Chan, were the registered owners of an 18,000-square meter parcel of land in Barrio Langcaan, Dasmariñas, Cavite, covered by Transfer Certificate of Title No. T-118375. In 1992, three documents purported to transfer ownership of the property. On February 27, 1992, a Deed of Absolute Sale was entered into between Spouses Baltazar N. Pacleb and Angelita Chan and Rebecca Del Rosario. On May 7, 1992, a Deed of Absolute Sale was entered into between Rebecca Del Rosario and Ruperto L. Javier. On November 10, 1992, a Contract to Sell was entered into between Javier and petitioner spouses Ernesto V. Yu and Elsie Ong Yu. Under the Contract to Sell, petitioners agreed to pay Javier a total consideration of P900,000; P600,000, consisting of P200,000 as previous payment and P400,000 to be paid upon execution of the contract, was acknowledged as received by Javier, leaving a balance of P300,000. Javier undertook to deliver possession of the Langcaan Property and to sign a deed of absolute sale within thirty days from execution of the contract. All the sales were not registered.

On April 23, 1993, petitioners filed with the Regional Trial Court of Imus, Cavite, a Complaint for specific performance and damages against Javier, docketed as Civil Case No. 741-93, to compel him to deliver ownership and possession, as well as title, to the Langcaan Property. In their Complaint, they alleged that Javier represented that the property was not tenanted; however, after they paid P200,000 as initial payment and entered into an Agreement dated September 11, 1992 for the sale of the property, they discovered it was tenanted by Ramon C. Pacleb. Petitioners demanded cancellation of their agreement and return of the initial payment. Thereafter, petitioners and Javier verified from Ramon whether he was willing to vacate the property, and Ramon was agreeable; Javier promised to make arrangements with Ramon to vacate and to pay his disturbance compensation. Petitioners and Javier then entered into a Contract to Sell canceling the Agreement, but Javier failed to comply with his obligations. Javier did not appear in the proceedings and was declared in default. On September 8, 1994, the trial court rendered a Decision for petitioners and against Javier, declaring them entitled to ownership and possession, directing Javier to pay P30,000 in damages including attorney's fees and expenses, and directing him to deliver the certificate of title to petitioners as transferees and new owners upon payment of the P300,000 balance with legal interest from date. The Decision and its Certificate of Finality were annotated on TCT No. T-118375 as Entry No. 2676-75 and Entry No. 2677-75, respectively.

On March 10, 1995, petitioners, Ramon, and Ramon's wife, Corazon Bodino, executed a "Kusangloob na Pagsasauli ng Lupang Sakahan at Pagpapahayag ng Pagtalikod sa Karapatan." Under that agreement, petitioners paid Ramon P500,000 in exchange for the waiver of his tenancy rights over the Langcaan Property. On October 12, 1995, respondent filed a Complaint for annulment of deed of sale and other documents arising from it, docketed as Civil Case No. 1199-95. He alleged that the deed of sale purportedly executed between him and his late first wife and Rebecca Del Rosario was spurious because their signatures thereon were forgeries. Respondent moved to have summons served upon Rebecca Del Rosario by publication since her address could not be found, but the trial court denied his motion. Respondent then moved to dismiss the case, and on April 11, 1996, the trial court granted the motion and dismissed the case without prejudice.

Meanwhile, on November 23, 1995, petitioners filed an action for forcible entry against respondent with the Municipal Trial Court. They alleged that they had prior physical possession of the Langcaan Property through their trustee, Ramon, until Ramon was ousted by respondent in September 1995. The MTC ruled in favor of petitioners, and the Regional Trial Court affirmed. The Court of Appeals, however, set aside the decisions of the lower courts and found that it was respondent who had prior physical possession of the property, as shown by his payment of real estate taxes thereon. On May 29, 1996, respondent filed the instant case for removal of cloud from title with damages to cancel Entry No. 2676-75 and Entry No. 2677-75, the annotated Decision in Civil Case No. 741-93 and its Certificate of Finality, from the title of the Langcaan Property. Respondent alleged that the deed of sale between him and his late first wife and Rebecca Del Rosario, who was not known to them, could not have been executed on February 27, 1992, the date appearing thereon, because on that date he was residing in the United States and his late first wife, Angelita Chan, had died twenty years earlier. On May 28, 1997, during the pendency of the instant case before the trial court, respondent died without having testified on the merits. He was substituted by his surviving spouse, Antonieta S. Pacleb, and Lorna Pacleb-Guerrero, Florencio C. Pacleb, and Myrla C. Pacleb, representing the children with the first wife.

The trial court found petitioners to be purchasers in good faith, while the Court of Appeals found that several circumstances should have put them on inquiry as to Javier's title. In the forcible entry case, the Court of Appeals found that respondent had prior physical possession of the Langcaan Property as shown by his payment of real estate taxes.

• Good Faith Purchase: Petitioners argued that they are purchasers in good faith; they inspected the property, talked with the registered tenant Ramon, relied on the duly notarized deeds of absolute sale, and had no notice of any claim or interest of another person despite diligent inquiry, so the alleged forgery of Angelita Chan's signature was of no moment.
• Misapprehension of Testimony: Petitioners contended that the Court of Appeals erred in finding that Ramon told Ernesto V. Yu that the property is owned by his father, Baltazar, and that he is the mere caretaker thereof, since Ramon clarified that his father was the former owner of the Langcaan Property.
• Conclusiveness of Civil Case No. 741-93: Petitioners argued that the decision of the Regional Trial Court in Civil Case No. 741-93 as to the rightful owner of the Langcaan Property is conclusive and binding upon respondent even if the latter was not a party thereto, since it involved the question of possession and ownership of real property and was thus not merely an action in personam but an action quasi in rem.

• Spurious Deed and Forgery: Respondent alleged that the deed of sale purportedly executed between him and his late first wife and Rebecca Del Rosario was spurious because their signatures thereon were forgeries.
• Impossibility of Execution: Respondent alleged that the deed of sale could not have been executed on February 27, 1992, the date appearing thereon, because on that date he was residing in the United States and his late first wife, Angelita Chan, had died twenty years earlier.
• Removal of Cloud from Title: Respondent sought cancellation of Entry No. 2676-75 and Entry No. 2677-75, the annotated Decision in Civil Case No. 741-93 and its Certificate of Finality, from the title of the Langcaan Property.

• Innocent Purchaser for Value and Good Faith: Whether petitioner spouses are innocent purchasers for value and in good faith.
• Binding Effect of Civil Case No. 741-93: Whether ownership over the Langcaan Property was properly vested in petitioner spouses by virtue of the Decision in Civil Case No. 741-93.

• Innocent Purchaser for Value and Good Faith: No. Petitioners cannot be considered innocent purchasers in good faith because they bought from a non-registered owner and several circumstances should have put them on inquiry; a buyer from a non-registered owner must examine not only the certificate of title but all factual circumstances affecting the transferor's title or capacity to transfer.
• Binding Effect of Civil Case No. 741-93: No. The judgment in Civil Case No. 741-93 did not vest ownership in petitioners as against respondent; an action for specific performance is in personam and binds only parties properly impleaded, and respondent was not a party or privy.

• Innocent Purchaser for Value and Good Faith: The claim of good faith was rejected. Petitioners' own testimony and pleadings were inconsistent: Ernesto V. Yu testified that he inspected the property and talked with Ramon before purchase, but in his complaint in Civil Case No. 741-93 he alleged that only after entering the Agreement and paying P200,000 did he discover that the property was tenanted by Ramon. This inconsistency cast grave doubt on whether petitioners personally inspected the property before purchasing it. More importantly, several facts should have put petitioners on inquiry: the property remained registered in respondent's name despite the two deeds of absolute sale; both deeds were not annotated on the title; the two deeds were executed only about two months apart and contained identical provisions; and the property was in the possession of Ramon, the son of the registered owner. Regardless of Ramon's representations, that bare fact alone should have made petitioners suspicious as to the veracity of Javier's alleged title. Petitioners could have easily verified the true status of the Langcaan Property from Ramon's wife, since the latter was their relative, as averred in paragraph 13 of their Answer in Civil Case No. 1199-95. The Court applied the settled rule that while a buyer from the registered owner need not look behind the certificate of title, one who buys from a non-registered owner is expected to examine not only the certificate of title but all factual circumstances necessary to determine flaws in the transferor's title or capacity to transfer; the stricter rule applies to the good faith of one who buys from a non-registered owner who exhibits a certificate of title. The dismissal of Civil Case No. 1199-95 could not validate the sale to petitioners because the dismissal was without prejudice, having been ordered because Rebecca Del Rosario and Javier could no longer be found. Thus, petitioners were not innocent purchasers in good faith.
• Binding Effect of Civil Case No. 741-93: The argument that the RTC decision in Civil Case No. 741-93 was conclusive and binding on respondent as a quasi in rem judgment was rejected. The character of an action is determined by its aim and object. A proceeding in personam enforces personal rights and obligations against the person and is based on jurisdiction over the person; it may involve property but seeks to impose liability directly on the defendant. A proceeding quasi in rem is brought against persons to subject their property to the discharge of claims; it deals with the status, ownership, or liability of particular property but operates only between the particular parties and binds only those who joined the action. Civil Case No. 741-93 was an action for specific performance and damages by petitioners against Javier to compel performance of his undertakings under their Contract to Sell—specifically to accept full payment of the purchase price and to execute a deed of absolute sale over the Langcaan Property in their favor. Javier's obligations under the contract to sell attached to him alone and did not burden the Langcaan Property. The Court noted its unbroken string of cases holding that an action for specific performance is in personam, citing Cabutihan vs. Landcenter Construction and Development Corporation, where an action for specific performance praying for the execution of a deed of sale in connection with an undertaking in a contract to sell was held to be in personam. Being a judgment in personam, the decision in Civil Case No. 741-93 bound only parties properly impleaded and duly heard or given an opportunity to be heard. It could not bind respondent, who was not a party, and he could not be considered a privy because his signature and that of his late first wife, Angelita Chan, were forged in the deed of sale. Consequently, as between respondent and petitioners, respondent had a better right over the Langcaan Property as the true owner.

• Innocent Purchaser for Value and Good Faith — The law protects to a greater degree a purchaser who buys from the registered owner himself. One who buys from a person who is not the registered owner, although the land object of the transaction is registered, is required to exercise a higher degree of prudence and is expected to examine not only the certificate of title but all factual circumstances necessary to determine if there are flaws in the title of the transferor or in his capacity to transfer the land. In this case, petitioners bought from Javier, who was not the registered owner; the unregistered deeds, their identical provisions, and the possession of the property by the registered owner's son should have prompted inquiry. Because petitioners failed to make the required inquiry, they were not innocent purchasers in good faith.
• Action in Personam vs. Action Quasi in Rem — The aim and object of an action determine its character. A proceeding in personam is one to enforce personal rights and obligations brought against the person and based on jurisdiction over the person; it may involve property but seeks to impose responsibility or liability directly upon the defendant. A proceeding quasi in rem is one brought against persons seeking to subject the property of such persons to the discharge of claims; it deals with the status, ownership, or liability of particular property but operates only between the particular parties and binds only those who joined the action. Civil Case No. 741-93 was an action for specific performance and damages against Javier; its object was to compel Javier to accept payment and execute a deed of absolute sale, obligations that attached to him alone and did not burden the Langcaan Property. It was therefore an action in personam.
• Specific Performance as an Action in Personam — An action for specific performance is an action in personam. The Court applied this rule to hold that the judgment in Civil Case No. 741-93 did not bind respondent, who was not a party to that case.
• Binding Effect of Judgment in Personam — A judgment in personam binds only upon the parties properly impleaded therein and duly heard or given an opportunity to be heard. Respondent was not a party to Civil Case No. 741-93, and he could not be considered a privy because his signature and that of his late first wife were forged in the deed of sale. The judgment therefore could not bind him.

• "The law protects to a greater degree a purchaser who buys from the registered owner himself. Corollarily, it requires a higher degree of prudence from one who buys from a person who is not the registered owner, although the land object of the transaction is registered. While one who buys from the registered owner does not need to look behind the certificate of title, one who buys from one who is not the registered owner is expected to examine not only the certificate of title but all factual circumstances necessary for him to determine if there are any flaws in the title of the transferor, or in his capacity to transfer the land. This Court has consistently applied the stricter rule when it comes to deciding the issue of good faith of one who buys from one who is not the registered owner, but who exhibits a certificate of title." — This passage states the controlling standard for good faith when the vendor is not the registered owner, which the Court applied to deny petitioners' claim of innocent purchaser status.
• "The settled rule is that the aim and object of an action determine its character. Whether a proceeding is in rem, or in personam, or quasi in rem for that matter, is determined by its nature and purpose, and by these only." — This is the canonical formulation used by the Court to characterize Civil Case No. 741-93 as an action in personam rather than quasi in rem.
• "Civil Case No. 741-93 is an action for specific performance and damages filed by petitioner spouses against Javier to compel performance of the latter's undertakings under their Contract to Sell. As correctly held by the Court of Appeals, its object is to compel Javier to accept the full payment of the purchase price, and to execute a deed of absolute sale over the Langcaan Property in their favor. The obligations of Javier under the contract to sell attach to him alone, and do not burden the Langcaan Property." — This passage supplies the ratio for the second issue: the specific performance case created obligations personal to Javier and did not bind the land or respondent.
• "Being a judgment in personam, Civil Case No. 741-93 is binding only upon the parties properly impleaded therein and duly heard or given an opportunity to be heard. Therefore, it cannot bind respondent since he was not a party therein. Neither can respondent be considered as privy thereto since his signature and that of his late first wife, Angelita Chan, were forged in the deed of sale." — This passage states the binding-effect rule that defeated petitioners' reliance on the final judgment in Civil Case No. 741-93.

• Revilla and Fajardo vs. Galindez, 107 Phil. 480, 485 (1960) — Cited for the rule that a higher degree of prudence is required of one who buys from a person who is not the registered owner, and that the stricter rule applies in deciding the good faith of such a buyer.
• Domagas vs. Jensen, G.R. No. 158407, January 17, 2005, 448 SCRA 663, 673-674 — Cited to distinguish actions in personam from actions quasi in rem and to explain that the aim and object of an action determine its character.
• Cabutihan vs. Landcenter Construction and Development Corporation, 432 Phil. 927 (2002) — Cited for the holding that an action for specific performance praying for the execution of a deed of sale in connection with an undertaking in a contract to sell is an action in personam.
• La Tondeña Distillera vs. Judge Ponferrada, 332 Phil. 593 (1996); Siasoco vs. Court of Appeals, 362 Phil. 525 (1999); Jose vs. Boyon, G.R. No. 147369, October 23, 2003, 414 SCRA 216 — Cited as part of the unbroken string of cases holding that an action for specific performance is an action in personam.
• Ching vs. Court of Appeals, G.R. No. 59731, January 11, 1990, 181 SCRA 9, 15-16 — Cited for the rule that a judgment in personam binds only upon the parties properly impleaded therein and duly heard or given an opportunity to be heard.

• Rule 45, Rules of Court — The petition was filed under Rule 45, assailing the Decision dated August 31, 2005 and the Resolution dated April 3, 2006 of the Court of Appeals. The Court resolved the petition on the merits and denied it.

Carpio, Corona, Leonardo-De Castro, and Brion, JJ., concur.