Case Digest: Leong v. See, G.R. No. 194077, December 3, 2014

 Property | Property in Relation to Whom it Belongs (Arts. 420-426)

Facts:  

• Spouses Florentino and Carmelita Leong owned the property at No. 539–41 Z.P. De Guzman Street, Quiapo, Manila.
• Elena Leong is Florentino's sister-in-law, who lived on the property rental-free for two decades until the building they lived in was razed by fire.
• They then constructed makeshift houses, and the rental-free arrangement continued.
• Florentino and Carmelita immigrated to the United States and eventually had their marriage dissolved in Illinois.
• Florentino conveyed his right to the property to Carmelita as per their marital settlement agreement.
• In the lower margin of page 12 of the instrument was a long-hand scribbling of a proviso, purporting to be a footnote remark:
• Neither party shall evict or charge rent to relatives of the parties, or convey title, until it has been established that Florentino has clear title to the Malabon property. 
• Carmelita sold the property to Edna See.
• In lieu of Florentino's signature of conformity in the deed of absolute sale, Carmelita presented her father, witness Ernesto See, a waiver of interest notarized in Illinois where Florentino reiterated his quitclaim over his right, title, and interest to the land.
• Edna was aware of the Leong relatives staying in the makeshift houses on the land.
• Carmelita assured her that her nieces and nephews would move out, but demands to vacate were unheeded.
• Edna filed a complaint for recovery of possession against Elena and the other relatives of the Leong ex-spouses
• Florentino filed a separate complaint to declare the sale null and void.
• RTC: Ruled in favor of Edna, granting her possession and ownership of the property.
• CA: Affirmed the trial court's decision.

Issue: 

• Whether respondent Edna C. See is a buyer in good faith and for value. YES

Held:

Petitioners contend that the principle of indefeasibility of Torrens titles does not apply when fraud exists, and respondent was a buyer in bad faith. Respondent knew at the time of the purchase that Elena had actual possession of the property, thus, she should have made inquiries on their right to the property. 

Petitioners argue the conjugal nature of the property, evidenced by the title in the names of Florentino and Carmelita Leong, and the waiver relied upon by respondent. They cite Articles 336 and 15 of the Civil Code, and Articles 87 and 134 of the Family Code, to support their contention that respondent should have demanded Florentino’s consent to the sale.  Petitioners submit that Florentino’s waiver is void since donations between spouses are void. 

Petitioners argue that respondent should bear the loss of her negligence in purchasing the property without Florentino’s consent. They cite at length Aggabao v. Parulan, Jr. to support their argument that respondent failed to exercise the required due diligence in the purchase of the property. Consequently, petitioners submit that the lower courts erred in ruling that respondent was entitled to possession of the property.

Respondent counters that only questions of law can be raised in a petition for review on certiorari, and petitioners raise purely factual questions.

In any event, the lower courts correctly found that respondent is a purchaser in good faith for value who exercised the necessary diligence in purchasing the property.

First, good faith is presumed, and petitioners did not substantiate their bold allegation of fraud. 

Second, respondent did not rely on the clean title alone precisely because of the possession by third parties, thus, she also relied on Florentino’s waiver of interest. Respondent even verified the authenticity of the title at the Manila Register of Deeds with her father and Carmelita. These further inquiries prove respondent’s good faith.

Respondent submits that petitioners’ invocation of the Civil Code provisions misleads this court. Philippine laws cannot govern Florentino who was already an American citizen when he executed the waiver of interest, obtained a divorce, and signed a marital settlement agreement with Carmelita on July 8, 1994. The waiver was also a consequence of the separation of properties and not in the nature of a donation between spouses.

Lastly, respondent argues that "between possessors who are not owners and a buyer in good faith and for value, it is clear in this case that the Respondent Edna See, the buyer in good faith, has the greater right to possession over the subject property."

The sole issue for resolution is whether respondent Edna C. See is a buyer in good faith and for value.

We affirm the Court of Appeals.

The Torrens system was adopted to "obviate possible conflicts of title by giving the public the right to rely upon the face of the Torrens certificate and to dispense, as a rule, with the necessity of inquiring further." 

One need not inquire beyond the four corners of the certificate of title when dealing with registered property. Section 44 of Presidential Decree No. 1529 known as the Property Registration Decree recognizes innocent purchasers in good faith for value and their right to rely on a clean title:

Section 44. Statutory liens affecting title. - Every registered owner receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted in said certificate and any of the following encumbrances which may be subsisting, namely:

First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines which are not by law required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or encumbrances of record.

Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the acquisition of any right over the land by an innocent purchaser for value, without prejudice to the right of the government to collect taxes payable before that period from the delinquent taxpayer alone.

Third. Any public highway or private way established or recognized by law, or any government irrigation canal or lateral thereof, if the certificate of title does not state that the boundaries of such highway or irrigation canalor lateral thereof have been determined.

Fourth. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to, Presidential Decree No. 27 or any other law or regulations on agrarian reform. 

An innocent purchaser for value refers to someone who "buys the property of another without notice that some other person has a right to or interest in it, and who pays a full and fair price at the time of the purchase or before receiving any notice of another person’s claim." One claiming to be an innocent purchaser for value has the burden of proving such status.

The protection of innocent purchasers in good faith for value grounds on the social interest embedded in the legal concept granting indefeasibility of titles. Between the third party and the owner, the latter would be more familiar with the history and status of the titled property. Consequently, an owner would incur less costs to discover alleged invalidities relating to the property compared to a third party. Such costs are, thus, better borne by the owner to mitigate costs for the economy, lessen delays in transactions, and achieve a less optimal welfare level for the entire society.

Both lower courts found respondent to be an innocent purchaser in good faith for value. The trial court discussed:

By her overt acts, Edna See with her father verified the authenticity of Carmelita’s land title at the Registry of Deeds of Manila. There was no annotation on the same thus deemed a clean title (page 19, TSN, 12 January 2005). Also, she relied on the duly executed and notarized Certificate of Authority issued by the State of Illinois and Certificate of Authentication issued by the Consul of the Republic of the Philippines for Illinois in support to the Waiver of Interest incorporated in the Deed of Absolute Sale presented to her by Carmelita (Exhibit 2). Examination of the assailed Certificate of Authority shows that it is valid and regular on its face. It contains a notarial seal. . . .

. . . . The assailed Certificate of Authority is a notarized document and therefore, presumed to be validand duly executed. Thus, Edna See’s reliance on the notarial acknowledgment found in the duly notarized Certificate of Authority presented by Carmelita is sufficient evidence of good faith. . . .

A determination of whether a party is an innocent purchaser in good faith and for value involves a factual issue beyond the ambit of a petition for review on certiorari.

Generally, factual findings of lower courts are deemed conclusive and binding upon this court.66 No cogent reason exists to overturn the findings of both lower courts.

Petitioners raise that "actual possession of the property by a person other than the vendor should put the purchaser in inquiry and absen[t] such inquiry[,] he cannot be regarded as a bona fide purchaser against such possessors."

As discussed by the Court of Appeals, respondent did conduct further inquiry by relying not only on the certificate of title, but also on Florentino’s waiver.

Petitioners submit that respondent bought the property knowing that Florentino and Carmelita were married. They then invoke Civil Code and Family Code provisions on the nature of conjugal properties and the prohibition against donations between spouses.

Respondent counters that Florentino and Carmelita were already American citizens when they executed the marital settlement agreement. She even presented before the trial court Florentino’s special power of attorney executed on March 25, 1997 to prove Florentino’s citizenship.

The trial court disregarded petitioners’ argument on the applicability of our civil laws on the validity of the sale since it already deemed respondent to be an innocent purchaser in good faith and for value. The trial court added that since "[respondent] parted with a substantial amount of ₱4 Million, equity dictates that she shall have possession of the property[,] [n]onetheless, Florentino Leong shall get his one-half share of the purchase price."

On the other hand, the Court of Appeals discussed that Florentino was estopped from questioning the transfer of the property since he already waived all his rights, title, and interests over the same. The court also found that the intercalated proviso in the marital settlement agreement violated the mutuality of contracts principle.

The question of whether Florentino and Carmelita were already American citizens at the time of the property’s sale to Edna — thus no longer covered by our laws relating to family rights and duties — involves a factual question outside the ambit of a petition for review on certiorari. In any event, respondent exerted due diligence when she ascertained the authenticity of the documents attached to the deed of sale such as the marital settlement agreement with Florentino’s waiver of interest over the property. She did not rely solely on the title. She even went to the Registry of Deeds to verify the authenticity of the title. These further inquiries were considered by the lower courts in finding respondent to be an innocent purchaser in good faith and for value.

Lastly, an allegation of fraud must be substantiated. Rule 8, Section 5 of the Rules of Court provides:

SEC. 5. Fraud, mistake, condition of the mind. – In all averments of fraud or mistake, the circumstances constituting fraud or mistake must be stated with particularity. Malice intent, knowledge or other condition of the mind of a person may be averred generally. 

In petitioners’ memorandum before this court, they mentioned the rule of fraud as an exception to the indefeasibility of title principle, but failed to substantiate their allegation by immediately concluding as follows:

Petitioners beg to disagree with the ruling of the Honorable Trial Court and the Honorable Court of Appeals. Respondent Edna See is not a buyer in good faith. The ruling that every person can rely on the correctness of the certificate of title and that the buyer need not go beyond the four corners of the title to determine the condition of the property is not absolute and admits of exception. As held in the case of Remegia Feliciano vs. Sps. Zaldivar, G.R. No. 162593, 2006 Sep 26 the principle of indefeasibilty of a Torrens title does not apply where fraud attended the issuance of the title. The Torrens title does not furnish a shield for fraud. As such, a title issued based on void documents may be annulled.

Even assuming the procurement of title was tainted with fraud and misrepresentation, "such defective title may still be the source of a completely legal and valid title in the hands of an innocent purchaser for value."

Respondent, an innocent purchaser in good faith and for value with title in her name, has a better right to the property than Elena. Elena’s possession was neither adverse to nor in the concept of owner.

Article 428 of the Civil Code provides:

Art. 428. The owner has the right toenjoy and dispose of a thing, without other limitations than those established by law. The owner has also a right of action against the holder and possessor of the thing inorder to recover it.

Thus, respondent had every right to pursue her claims as she did.

WHEREFORE, premises considered, the Court of Appeals' decision in CA-G.R. CV No. 92289 is AFFIRMED.

SO ORDERED.