Vilbar vs. Opinion

Registration is the operative act which gives validity to the transfer or creates a lien upon the land; consequently, a duly registered levy on attachment takes preference over a prior unregistered sale, and a mortgagee or purchaser in good faith who relies on the face of a Torrens certificate of title acquires rights superior to those of an unregistered prior claimant, even if the latter is in actual possession.

Dulos Realty and Development Corporation owned Lots 20 and 21 in Airmen’s Village, Las Piñas City, covered by TCT Nos. S-39849 and S-39850. In 1979, Dulos Realty entered into Contracts to Sell with spouses Bernadette and Rodulfo Vilbar for both lots. Spouses Vilbar took possession of the properties in August 1979. On June 1, 1981, Dulos Realty executed a Deed of Absolute Sale covering Lot 20 in favor of spouses Vilbar and Elena Guingon, but the document was never registered or annotated on the mother title. For Lot 21, spouses Vilbar secured a housing loan from the Development Bank of the Philippines (DBP) in 1981, mortgaging the property, and obtained TCT No. 36777 issued in the name of Bernadette Vilbar on May 22, 1981, though no Deed of Absolute Sale was presented as basis for the transfer.

Meanwhile, Otilio Gorospe, Sr., former Chairman and CEO of Dulos Realty, obtained a judgment against the corporation for unpaid compensation and benefits. The judgment was rendered on April 1, 1982, and writs of execution were issued in 1982 and 1983. On October 31, 1984, the sheriff levied on Lots 20 and 21, among other properties of Dulos Realty. The lots were sold at public auction on June 24, 1985, where Gorospe, Sr. emerged as the highest bidder. On June 2, 1987, the Registry of Deeds issued TCT Nos. 117331 and 117330 in the names of Gorospe, Sr. and his wife. Upon the death of Gorospe, Sr.’s wife, new titles (TCT Nos. T-44796 and T-44797) were issued in the names of Gorospe, Sr. and his son, Otilio Gorospe, Jr.

On January 12, 1995, the Gorospes executed a Deed of Real Estate Mortgage over the subject lots in favor of Angelito L. Opinion to secure a loan of ₱440,000.00. When the Gorospes defaulted, Opinion filed for extrajudicial foreclosure, purchased the properties at auction on December 18, 1995, and secured TCT Nos. T-59010 and T-59011 on January 22, 1997.

• Nature of the Action: The case is an accion reinvindicatoria filed by Angelito L. Opinion to recover ownership and possession of Lots 20 and 21 from spouses Bernadette and Rodulfo Vilbar, Otilio Gorospe, Sr., Otilio Gorospe, Jr., and Elena Guingon.
• Spouses Vilbar’s Acquisition: On July 10, 1979, spouses Vilbar entered into a Contract to Sell with Dulos Realty for Lot 20-B (108 sqm) and Lot 21 (216 sqm) in Airmen’s Village, Las Piñas City. They took possession in August 1979. On June 1, 1981, Dulos Realty executed a Deed of Absolute Sale for Lot 20 in favor of spouses Vilbar and Elena Guingon. For Lot 21, spouses Vilbar obtained a DBP loan secured by a real estate mortgage, paid it in full by 1991, and received a Cancellation of Mortgage on March 25, 1991. They possessed TCT No. 36777 issued on May 22, 1981, in the name of Bernadette Vilbar for Lot 21, and the owner’s duplicate of TCT No. S-39849 for Lot 20.
• Failure to Register: Spouses Vilbar never registered the Deed of Absolute Sale for Lot 20 or annotated it on TCT No. S-39849. For Lot 21, no Deed of Absolute Sale was presented, only a Contract to Sell. The Registry of Deeds of Pasay City issued a 2nd Indorsement dated May 11, 1988, stating that TCT No. 36777 was presumed not validly issued because no inscription existed on the mother title (TCT No. S-39850) showing a deed of sale between Dulos Realty and spouses Vilbar.
• Gorospe’s Acquisition: Otilio Gorospe, Sr., former Chairman and CEO of Dulos Realty, secured a judgment against Dulos Realty on April 1, 1982, for unpaid compensation. Writs of execution were issued on May 7, 1982, and September 30, 1983. The sheriff levied on Lots 20 and 21 on October 31, 1984. The properties were sold at auction on June 24, 1985, where Gorospe, Sr. was the highest bidder. TCT Nos. 117331 and 117330 were issued to Gorospe, Sr. and his wife on June 2, 1987. After his wife’s death, TCT Nos. T-44796 and T-44797 were issued to Gorospe, Sr. and his son.
• Opinion’s Acquisition: On January 12, 1995, the Gorospes mortgaged the lots to Opinion for ₱440,000.00. Upon default, Opinion foreclosed extrajudicially, purchased the lots at auction on December 18, 1995, and secured TCT Nos. T-59010 and T-59011 on January 22, 1997.
• Opinion’s Investigation: Before executing the mortgage, Opinion inspected the properties once, saw occupants, but never spoke to them. He relied on Gorospe, Sr.’s representation that the occupants were mere tenants and did not request proof of tenancy or investigate further. He verified the titles with the Registry of Deeds and found them authentic and free from liens.
• Prior Litigation: Dulos Realty filed Civil Case No. 88-2800 on January 4, 1990, seeking nullification of the titles issued to Gorospe, Sr., but the case was dismissed for failure to prosecute.

• Superior Title: Spouses Vilbar maintained that they acquired Lots 20 and 21 through valid contracts with Dulos Realty in 1979 and 1981, respectively, and that they had been in actual, open, and peaceful possession since 1979. They argued that their possession and documentary evidence established ownership superior to Opinion’s.
• Bad Faith of Gorospe, Sr.: Petitioners contended that Gorospe, Sr. acted in bad faith when he levied on and purchased the properties at auction because, as former Chairman and CEO of Dulos Realty, he knew or should have known that the lots had already been sold to them.
• Bad Faith of Opinion: They argued that Opinion was not a buyer in good faith because he merely relied on Gorospe, Sr.’s representation that the occupants were tenants without verifying the nature of their possession or inquiring into potential adverse claims.
• Validity of TCT No. 36777: Petitioners asserted that TCT No. 36777 was validly issued and that the 2nd Indorsement from the Registry of Deeds was not conclusive proof of invalidity.

• Registered Title: Opinion countered that he acquired valid title through a registered mortgage, extrajudicial foreclosure, and consolidation proceedings. He argued that his titles (TCT Nos. T-59010 and T-59011) were issued in accordance with law and were evidence of indefeasible ownership.
• Innocent Purchaser Status: Respondent maintained that he was a mortgagee and purchaser in good faith who relied on the face of the certificates of title presented by the Gorospes, which were verified with the Registry of Deeds as authentic and free from encumbrances. He argued that he was not required to go beyond the face of the certificates of title.
• Defective Title of Spouses Vilbar: Opinion argued that spouses Vilbar’s TCT No. 36777 was defective because it did not indicate the title from which it was derived, and the 2nd Indorsement from the Registry of Deeds established it was presumed not validly issued. He also noted that spouses Vilbar never registered the Deed of Absolute Sale for Lot 20.
• Preference of Registered Levy: Respondent invoked the principle that a duly registered levy on attachment takes preference over a prior unregistered sale.

• Preference of Title: Whether respondent Opinion has a better title and preference over Lots 20 and 21 compared to spouses Vilbar.
• Bad Faith of Predecessors: Whether Gorospe, Sr., as predecessor-in-interest of Opinion, acted in bad faith when he levied on and purchased the properties at auction sale.
• Good Faith of Opinion: Whether respondent Opinion was a purchaser in good faith entitled to protection under the Torrens system.
• Ownership of Spouses Vilbar: Whether spouses Vilbar are the lawful owners of Lots 20 and 21 upon delivery thereof by Dulos Realty.
• Validity of TCT No. 36777: Whether TCT No. 36777 was validly issued in favor of spouses Vilbar.

• Preference of Title: Opinion has a better right over the subject properties. The registered titles in Opinion’s name (TCT Nos. T-59010 and T-59011) prevail over the unregistered claims of spouses Vilbar. Registration is the operative act that gives validity to the transfer; absent registration, the sale cannot bind third parties.
• Bad Faith of Predecessors: Gorospe, Sr. did not act in bad faith. Bad faith cannot be presumed and must be proven by clear and convincing evidence. Spouses Vilbar failed to prove that Gorospe, Sr. had actual knowledge of their transactions with Dulos Realty. The sales to spouses Vilbar were not annotated on the mother titles, and third parties dealing with the property had the right to rely on the face of the titles showing Dulos Realty as owner.
• Good Faith of Opinion: Opinion is a mortgagee and purchaser in good faith. He verified the titles with the Registry of Deeds, found them authentic and free from liens, and was not required to go beyond the face of the certificates of title. Even assuming the Gorospes’ titles were fraudulent, public policy protects a mortgagee in good faith who relies on the Torrens certificate.
• Ownership of Spouses Vilbar: Spouses Vilbar failed to establish ownership over Lot 20 because they never registered the Deed of Absolute Sale or annotated it on the mother title. For Lot 21, they could not present a Deed of Absolute Sale as basis for the transfer, and their TCT No. 36777 was presumed not validly issued per the Registry of Deeds’ 2nd Indorsement. Tax declarations and receipts are merely indicia of claim, not conclusive proof of ownership.
• Validity of TCT No. 36777: TCT No. 36777 is defective. It does not indicate the title from which it was derived, and the Registry of Deeds’ 2nd Indorsement dated May 11, 1988, established that no inscription existed on the mother title showing a deed of sale between Dulos Realty and spouses Vilbar.

• Registration as Operative Act — Under the Torrens system, registration is the operative act that gives validity to the transfer of land or creates a lien upon it. A certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therein. Any buyer or mortgagee is charged with notice only of such burdens and claims as are annotated on the title.
• Levy on Attachment vs. Unregistered Sale — A duly registered levy on attachment takes preference over a prior unregistered sale. This is a necessary consequence of the Torrens system, which requires registration for validity against third parties.
• Mortgagee/Buyer in Good Faith — A party dealing with property covered by a Torrens Certificate of Title is not required to go beyond what appears on the face of the title. Public policy protects a buyer or mortgagee who, in good faith, relies upon the face of the certificate of title, even if the mortgagor’s title is subsequently found to be fraudulent.
• Bad Faith Cannot Be Presumed — Bad faith is a question of fact that must be proven by clear and convincing evidence. The burden of proving bad faith rests on the one alleging it.
• Tax Declarations as Evidence — Tax declarations are not conclusive proofs of ownership; at best, they are merely indicia of a claim of ownership. They cannot prevail over a registered title.
• Surrender of Withheld Duplicate Certificates — Under Section 107 of Presidential Decree No. 1529 (Property Registration Decree), where a new certificate is issued pursuant to an involuntary instrument, the court may order the cancellation of the outstanding owner’s duplicate certificate and the issuance of new certificates in favor of purchasers at involuntary sales.

• "Registration is the operative act which gives validity to the transfer or creates a lien upon the land." — This principle underscores the entire ruling, establishing that unregistered transactions cannot defeat registered titles.
• "Bad faith cannot be presumed. It is a question of fact that must be proven by clear and convincing evidence. The burden of proving bad faith rests on the one alleging it." — Emphasizing the evidentiary standard required to establish bad faith in property transactions.
• "There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of ‘the mortgagee in good faith’ based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title." — Articulating the protection afforded to mortgagees in good faith under the Torrens system.
• "Tax declarations are not conclusive proofs of ownership, let alone of the private character of the land – at best, they are merely ‘indicia of a claim of ownership.’" — Clarifying the limited evidentiary value of tax declarations in land disputes.

• Valdevieso v. Damalerio, 492 Phil. 51 (2005) — Cited for the principle that registration is the operative act giving validity to transfers or creating liens, and that a duly registered levy takes preference over prior unregistered sales.
• Cavite Development Bank v. Spouses Lim, 381 Phil. 355 (2000) — Established the doctrine of the mortgagee in good faith under the Torrens system, protecting those who rely on the face of the certificate of title.
• Vda. de Retuerto v. Barz, 423 Phil. 1008 (2001) — Cited for the principle that a certificate of title is evidence of indefeasible and incontrovertible title.
• Clemente v. Razo, 493 Phil. 119 (2005) — Reinforced that buyers or mortgagees are charged with notice only of burdens annotated on the title.
• Valbuena v. Reyes, 84 Phil. 676 (1949) — Applied to justify the cancellation of withheld duplicate certificates and issuance of new titles to purchasers at execution sales.
• Seville v. National Development Company, 351 SCRA 112 — Cited for the rule that tax declarations are merely indicia of ownership, not conclusive proof.

• Section 107, Presidential Decree No. 1529 (Property Registration Decree) — Provides for the procedure to compel surrender of withheld duplicate certificates of title and the issuance of new certificates in favor of purchasers at involuntary sales.
• Presidential Decree No. 1529 (Property Registration Decree), various sections — Governs the Torrens system, registration requirements, and the effects of registration.

Antonio T. Carpio (Chairperson), Arturo D. Brion, Jose Portugal Perez, and Estela M. Perlas-Bernabe.