Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 114299 September 24, 1999

TRADERS ROYAL BANK, petitioner,

vs.
HON. COURT OF APPEALS, PATRIA, RUBY ANN, MARGARITA, ROSARIO, CYNTHIA, LINDA JOY, all surnamed CAPAY and
RAMON A. GONZALES, respondents.

G.R. No. 118862 September 24, 1999

PATRIA, RUBY ANN, MARGARITA, ROSARIO, CYNTHIA, LINDA JOY, all surnamed CAPAY, and RAMON A.
GONZALES, petitioners,
vs.
SPS. HONORATO D. SANTOS and MARIA CRISTINA S. SANTOS, SPS. CECILIO L. PE and JOSEFINA L. PE, FLORA LARON
WESCOMBE, SPS. TELESFORO P. ALFELOR II and LIZA R. ALFELOR, SPS. DEAN RODERICK FERNANDO and LAARNI
MAGDAMO FERNANDO, REMEDIOS OCA, DEVELOPMENT BANK OF THE PHILIPPINES and TRADERS ROYAL
BANK, respondents.

KAPUNAN, J.:

The present controversy has its roots in a mortgage executed by the spouses Maximo and Patria Capay in favor of Traders Royal Bank
(TRB) pursuant to a loan extended by the latter to the former. The mortgage covered several properties, including a parcel of land, the
subject of the present
dispute. 1 The loan became due on January 8, 1964 and the same having remained unpaid, TRB
instituted extra-judicial foreclosure proceedings upon the mortgaged property.

To prevent the property's sale by public auction, the Capays, on September 22, 1966, filed a petition
for prohibition with preliminary injunction (Civil Case No. Q-10453) before the Court of First Instance
(CFI) of Rizal, alleging that the mortgage was void since they did not receive the proceeds of the loan.
The trial court initially granted the Capays' prayer for preliminary injunction.

On March 17, 1967, the Capays caused to be filed in the Register of Deeds of Baguio City a notice
of lis pendens over the disputed property. Said notice was entered in the Day Book, as well as in the
Capays' certificate of title.

Subsequently, the injunction issued by the trial court was lifted thus allowing the foreclosure sale to
proceed. Foreclosure proceedings were initiated and on October 17, 1968, the property was sold to
TRB which was the highest bidder at the auction sale. A sheriff certificate of sale was issued in its
name on the same day. On February 25, 1970, the property was consolidated in the name of TRB,
the sole bidder in the sale. TCT No. T-6595 in the name of the Capay spouses was then cancelled
and a new one, TCT No. T-16272, 2 was entered in the bank's name. The notice of lis pendens,
however, was not carried over in the certificate of title issued in the name TRB.

Thereafter, the Capays filed with the CFI a supplemental complaint praying for the recovery of the
property with damages and attorney's fees. Trial in Civil Case No. Q-10453 proceeded and, on
October 3, 1977, the CFI rendered its decision declaring the mortgage void for want of consideration.
The CFI ordered, among other things, the cancellation of TCT No. T-16272 in the name of TRB and
the issuance of new certificates of title in the name of the Capay spouses.

TRB appealed to the Court of Appeals. While the case was pending in the Court of Appeals, TRB on
March 17, 1982 sold the land to Emelita Santiago in whose name a new certificate of title, TCT No.
33774, 3 was issued, also, without any notice of lis pendens annotated thereon. Santiago in turn
divided the land into six (6) lots and sold these to Marcial Alcantara, Armando Cruz and Artemio
Sanchez, who became co-owners thereof. 4 Alcantara and his co-owners developed the property and
thereafter sold the six (6) lots to seperate buyers who issued seperate titles, again, bearing no notice
of lis pendens. 5

On July 30, 1982, the Court of Appeals rendered its decision modifying the decision of the trial court
as to the award of damages but affirming the same in all other respects.

For having been filed out of time and for lack of merit, the petition for certiorari filed by TRB before this
Court 6 was denied in a Resolution dated September 12, 1983. TRB's motion for reconsideration was
similarly denied in a Resolution dated October 12, 1983. The Court's September 12, 1983 Resolution
having become final and executory on November 9, 1983, the trial court issued a writ of execution
directing the Register of Deeds of Baguio City to cancel TCT No. 16272 in the name of TRB, and to
issue a new one in the name of the Capay spouses.

Said writ, however, could not be implemented because of the successive subsequent transfers of the
subdivided property to buyers who obtained separate titles thereto. Thus, a complaint for recovery of
possession ownership dated 8 June 1985 was filed before the Quezon City Regional Trial Court
against TRB and the subsequent transferees of the property, the respondents in G.R. No. 118862
(hereinafter, "the non-bank respondents"). Plaintiffs in said case were Patria Capay, her children by
Maximo 7 who succeeded him upon his death on August 25, 1976, and Ramon Gonzales, counsel of
the spouses in Civil Case No. Q-10453 who become co-owner of the property to the extent of 35%
thereof as his attorney's fees (collectively, "the Capays"). On March 27, 1991, the trial court rendered
its decision, the dispositive portion of which states:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs against

the defendants and ordering the Register of Deeds for Baguio to cancel TCT
No. T-36177, Books 198, Page 177 in the names of defendants Spouses
Honorato D. Santos and Maria Cristina Santos; to cancel TCT No. 36707,
Book 201, Page 107 in the names of defendant Spouses Cecilio Pe and
Josefina L. Pe; to cancel TCT No. T-36051, Book 198, Page 51 in the name
of Flora Laron Wescombe, married to Kevin Lind Wescombe (now
deceased); to cancel TCT No. 36147, Book 198, page 147 in the names of
Spouses Telesforo P. Alfelor II and Liza R. Alfelor; to cancel TCT No. T-
36730, Book 201, Page 130 in the names of Spouses Dean Roderick
Fernando and Laarni Magdamo Fernando; to cancel TCT No. 37437, Book
205, Page 37 in the name of Remedios Oca, and issue new ones free from
all liens and encumbrances, together with all the improvements therein in the
names of plaintiffs sharing pro indiviso as follows: 35% to Ramon A.
Gonzales, married to Lilia Y. Gonzales, of legal age, with postal address at
23 Sunrise Hill, New Manila, Quezon City 37.92% to Patria B. Capay, of legal
age, widow, Filipino; 5.41% each to Ruby Ann Capay, of legal age, Filipino
married to Pokka Vainio, Finnish citizen; Chona Margarita Capay, of legal
age, Filipino, married to Waldo Flores; Rosario Capay of legal age, Filipino,
married to Jose Cuaycong, Jr.; Cynthia Capay, of legal age, Filipino, married
to Raul Flores; Linda Joy Capay, of legal age, Filipino, married to Pedro
Duran, all with postal address at 37 Sampaguita St., Capitolville Subd.,
Bacolod City, ordering said defendants to vacate the premises in question
and restoring plaintiffs thereto and for defendant Traders Royal Bank to pay
each of the plaintiffs moral damages in the amount of P100,000.00,
P40,000.00 in exemplary damages and P40,000.00 as attorney's fees, all
with legal interest from the filing of the complaint, with costs against
defendants.

SO ORDERED. 8

TRB and the non-bank respondents appealed to the Court of Appeals. In a Decision promulgated on
February 24, 1994 in CA-G.R. CV No. 33920, the appellate court affirmed the decision of the trial
court in toto. 9 It ruled that the non-bank respondents cannot be considered as purchasers for value
and in good faith, having purchased the property subsequent to the action in Civil Case No. Q-10453
and that while the notice of lis pendens was not carried over to TRB's certificate of title, as well as to
the subsequent transferees' titles, it was entered in the Day Book which is sufficient to constitute
registration and notice to all persons of such adverse claim, citing the cases of Villasor vs.
Camon, 10 Levin vs. Bass 11 and Director of Lands vs. Reyes. 12

As regard TRB, the Court of Appeals said that the bank was in bad faith when it sold the property
knowing that it was under the litigation and without informing the buyer of that fact.

On April 26, 1994, TRB filed with this Court a petition for review to set aside the CA decision,
docketed herein as G.R. No. 114299, invoking the following grounds:

I.

THE RESPONDENT HONORABLE COURT OF APPEALS

COMMITTED GRAVE AND SERIOUS ERROR OF LAW IN
PROMULGATING THE DISPUTED DECISION AND THEREBY
DECIDED A QUESTION OF SUBSTANCE WHOLLY CONTRARY
TO SETTLED JURISPRUDENCE AND TOTALLY NOT IN ACCORD
WITH APPLICABLE DECISION OF THIS HONORABLE SUPREME
COURT.

II.

THE RESPONDENT HONORABLE COURT OF APPEALS HAS

COMMITTED SO GRAVE AND SERIOUS ERRORS OF LAW IN
SANCTIONING A DEPARTURE FROM THE USUAL AND
ACCEPTED COURSE OF JUDICIAL PROCEEDING AS TO CALL
FOR THE EXERCISE OF THE POWER OF BY THIS HONORABLE
SUPREME COURT.

a) The public respondent has plainly and manifestly acted

whimsically, arbitrarily, capriciously, with grave abuse of discretion, in
excess of jurisdiction tantamount to lack of jurisdiction.

xxx xxx xxx

b) The public respondent erred in not finding that it was not the fault
of petitioner when the notice of lis pendens was not carried over to its
new title.

xxx xxx xxx

c) The public respondent erred in not finding that PD No. 1271 had
legally caused the invalidation of the Capay's property and the
subsequent validation of TRB's title over the same property was
effective even as against the Capays. 13

Meanwhile, the non-bank respondents moved for a reconsideration of the Court of Appeals' decision.
Convinced of the movants' arguments, the Court of Appeals in a Resolution promulgated on August
10, 1994 granted the motion for reconsideration and dismissed the complaint as against them. The
dispositive portion of the resolution states:

ACCORDINGLY, in view of the foregoing disquisitions and finding merit in the motion
for reconsideration, the same is hereby GRANTED. Consequently, the decision of
this Court, promulgated on February 24, 1994, is hereby RECONSIDERED. The
complaint filed against defendants-appellants with the court a quo is hereby ordered
DISMISSED, and the certificate of titles originally issued to them in their individual
 names are hereby ordered restored and duly respected. We make no pronouncement
as to costs.

SO ORDERED. 14

The Capays thus filed with this Court a petition for review, docketed as G.R. No. 118862 to set aside
the resolution of the Court of Appeals raising the following errors:

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT TUAZON VS. REYES, 48 PHIL. 814 AND RIVERA VS. MORAN, 48
PHIL. 836 ARE NOT APPLICABLE HEREOF, WHILE PINO VS. COURT OF
APPEALS, 198 SCRA 436, IS APPLICABLE.

II

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT ATUN VS. MUNOZ, 97 PHIL. 762 AND LAROZA VS. GUIA, 134
SCRA 34, ARE NOT APPLICABLE.

III

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT LEVIN VS. BASS, 91 PHIL. 419 VILLASOR VS. CAMON, 89 PHIL.
404 AND DIRECTOR OF LANDS VS. REYES, 68 SCRA 73, ARE NOT APPLICABLE
HEREOF.

IV

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT PETITIONERS ARE GUILTY OF LACHES.

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT THERE IS NO DISTINCTION IN THE REGISTRATION OF
VOLUNTARY INSTRUMENTS VIS-A-VISINVOLUNTARY INSTRUMENTS.

VI

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF BY NOW

HOLDING THAT RESPONDENTS WHO ARE LAWYERS, RESPONSIBLE
CITIZENS AND WELL-RESPECTED RESIDENTS IN THE COMMUNITY, ARE
EXEMPTED FROM THE EFFECTS OF THE CONSTRUCTIVE NOTICE ARISING
FROM REGISTRATION.

VII

THE COURT OF APPEALS PALPABLY ERRED IN REVERSING ITSELF WITH

REGARDS TO TRADERS ROYAL BANK, AFTER THE LATTER HAS PERFECTED
ITS APPEAL TO THE SUPREME COURT.

VIII
 THE COURT OF APPEALS PALPABLY ERRED IN NOT RULING ON THE
COUNTER-ASSIGNMENT OF ERROR THAT:

B) THE LOWER COURT ERRED IN NOT HOLDING THAT

DEFENDANTS ARE BOUND BY THE DECISION IN CIVIL CASE
NO. Q-10453.

Subsequently, G.R. No. 118862 was consolidated with G.R No. 114299, pursuant to this Court's
Resolution dated July 3, 1996. 15

The consolidated cases primarily involve two issues: (1) who, as between the Capays and the non-
bank respondents, has a better right to the disputed property, and (2) whether or not TRB is liable to
the Capays for damages.

On the first issue, we rule for the non-bank respondents.

First, when TRB purchased the property at the foreclosure sale, the notice of lis pendens that the
Capays caused to be annotated on their certificate of title was not carried to the new one issued to
TRB. Neither did the certificate of title of Emelita Santiago, who purchased the property from TRB,
contain any such notice. When Santiago caused the property to be divided, six (6) new certificates of
title were issued, none of which contained any notice of lis pendens. Santiago then sold the lots to
Marcial Alcantara and his co-owners who next sold each of these to the non-bank respondents. The
non-bank respondents, therefore, could not have been aware that the property in question was the
subject of litigation when they acquired their respective portions of said property. There was nothing in
the certificates of title or respective predecessors-in-interest that could have aroused their suspicion.
The non-bank respondents had a right to rely on what appeared on the face of the title of their
respective predecessors-in-interest, and were not bound to go beyond the same. To hold otherwise
would defeat one of the principal objects of the Torrens system of land registration, that is, to facilitate
transactions involving lands.

The main purpose of the Torrens system is to avoid possible conflicts of title
to real estate and to facilitate transactions relative thereto by giving the public
the right to rely upon the face of a Torrens certificate of title and to dispense
with the need of inquiring further, except when the party concerned has
actual knowledge of facts and circumstances that should impel a reasonably
cautious man to make such further inquiry. Where innocent third persons,
relying on the correctness of the certificate of title thus issued, acquire rights
over the property, the court cannot disregard such rights and order the total
cancellation of the certificate. The effect of such an outright cancellation
would be to impair public confidence in the certificate of title, for everyone
dealing with property registered under the Torrens system would have to
inquire in every instance as to whether the title has been regularly or
irregularly issued by the court. Every person dealing with registered land may
safely rely on the correctness of the certificate of title issued therefor and the
law will in no way oblige him to go beyond the certificate to determine the
condition of the property.

The Torrens system was adopted in this country because it was believed to
be the most effective measure to guarantee the integrity of land titles and to
protect their indefeasibility once the claim of ownership is established and
recognized. If a person purchases a piece of land on the assurance that the
seller's title thereto is valid, he should not run the risk of being told later that
his acquisition was ineffectual after all. This would not only be unfair to him.
What is worse is that if this were permitted, public confidence in the system
would be eroded and land transactions would have to be attended by
complicated and not necessarily conclusive investigations and proof of
 ownership. The further consequence would be that land conflicts could be
even more numerous and complex than they are now and possibly also more
abrasive, if not even violent. The Government, recognizing the worthy
purposes of the Torrens system, should be the first to accept the validity of
titles issued thereunder once the conditions laid down by the law are
satisfied. 16

Second, the foregoing rule notwithstanding, the non-bank respondents nevertheless physically
inspected the properties and inquired from the register of Deeds to ascertain the absence of any
defect in the title of the property they were purchasing — an exercise of diligence above that required
by law.

Thus, respondent Aida Fernando Meeks, who bought Lot 5 for her son Dean, testified:

Q How did you come to live in Baguio City, particulary in Kim. 2.5
San Luis, Baguio City?

A In one of my visits to my sister who has been residing here for

twelve (12) years now, I got interested in buying a property here.

Q How did you come to know of this property at Asin Road where
you now reside?

A My sister, Ruth Ann Valdez, sir.

Q When this particular property was bought by you, when was that?

A I do not remember the exact date, but it was in 1984, sir.

Q At the time when you went to see the place where you now reside,
how did it look?

A This particular property that I bought was then a small one (1)
room structure, it is a two (2)-storey one (1) bedroom structure.

Q What kind of structure with regards to material?

A It is a semi-concrete structure, sir.

Q And aside from this two (2)-storey one (1)-room structure, how did
the surrounding area look like at the time you visited?

A There were stone walls from the road and there were stone walls in
front of the property and beside the property.

Q At the time you went to see the property with your agent, rather
your sister Ruth Ann Valdez did you come to know the owner?

A We did because at the time we went there, Mr. Alcantara was there
supervising the workers.

Q And who?

A Amado Cruz sir.

Q After you saw this property, what else did you do?
A My first concern then was am I buying a property with a clean title.

Q In regards to this concern of yours, did you find an answer to this

concern of yours?

A At first; I asked Mr. Alcantara and I was answered by him.

Q What was his answer?

A That it was a property with a clean title, that he has shown me the
mother title and it is a clean title.

Q Aside from being informed that it is a property with a clean title, did
you do anything to answer your question?

A Yes, sit.

Q What did you do?

A Well, the first step I did was to go to the Land Registration Office.

Q Are you referring to the City Hall of Baguio?

A Yes, the City Hall of Baguio.

Q And what did you do in the Registry of Deeds?

A We looked for the title, the original title, sir.

Q When you say we, who was your companion?

A Mr. Alcantara and my present husband, sir.

Q The three (3) of you?

A Yes, sir.

Q What title did you see there?

A We saw the title that was made up in favor of Amado Cruz, sir.

Q And what was the result of your looking up for this title in the name
of Amado Cruz?

A We had to be reassured that it was a genuine one, so we asked

Atty. Diomampo who heads the office. We showed him a copy of that
title and we were also reassured by him that anything that was
signed by him was as good as it is.

Q Did this Atty. Diomampo reassure you that the title was good?

A He did.

Q After your conversation with the Register of Deeds, what did you
do?
 A The second step we did was to confer with our lawyer, a friend
from RCBC Binondo, Manila this is Atty. Nelson Waje.

Q What is your purpose in going to this lawyer?

A We wanted an assurance that we were getting a valid title just in

case we think of buying the property.

Q What was the result of your conference with this lawyer?

A He was absolutely certain that was a valid title.

Q Mrs. Meeks, after looking at the place, going to the Register of

Deeds, looking at the title and seeing your lawyer friend, what
decision did you finally make regarding the property?

A We wanted more reassurances, so we proceeded to Banaue, as

advised by that same lawyer, there is another office of the Bureau of
Lands. I cannot recall the office but it has something to do with
registration of the old.

Q What is your purpose in going to this Office in Banaue?

A I wanted more reassuances that I was getting a valid title.

Q What was the result of your visit to the Banaue Office?

A We found the title of this property and there was reassurance that it
was a clean title and we saw the mother title under the Hilario family.

Q Mrs. Meeks, when you say Banaue, what particular place is this
Banaue?

A It is in Banaue Street in Quezon City, sir.

Q And when you saw the title to this property and the mother title,
what was the result of your investigation, the investigation that you
made?

A We were reassured that we were purchasing a valid title, we had a

genuine title.

Q When you were able to determine that you had a valid, authentic
or genuine title, what did you do?

17
A That is when I finally thought of purchasing the property.

Telesforo Alfelor II, the purchaser of Lot 4, narrated going through a similar routine:

Q How did you come to know of this place as Asin Road where you
are presently residing?

A It was actually through Mrs. Flory Recto who is presently the

Branch Manager of CocoBank. She informed my wife that there is a
property for sale at Asin Road, and she was the one who introduced
to us Mr. Alcantara, sir.
Q When you were informed by Mrs. Recto and when you met with
Mr. Alcantara, did you see the property that was being offered for
sale?

A Yes, sir.

Q When did you specifically see the property, if you can recall?

A I would say it is around the third quarter of 1983, sir.

Q When you went to see the place, could you please describe what
you saw at that time?

A When we went there the area is still being developed by Mr.

Alcantara. As a matter of fact the road leading to the property is still
not passable considering that during that time it was rainy season
and it was muddy, we fell on our way going to the property and
walked to have an ocular inspection and physical check on the area,
sir.

xxx xxx xxx

Q What was the improvement, if any, that was in that parcel which
you are going to purchase?

A During that time, the riprap of the property is already there, the
one-half of the riprap sir.

Q Do you know who was making this improvement at the time that
you went there?

A I would understand that it was Marcial Alcantara, sir.

Q After you saw the place riprap and you were in the course of
deciding to purchase this property, what else did you do?

A First, I have to consider that the property is clean.

Q How did you go about determining whether the title of the property
is clean?

A Considering that Marcial Alcantara is a real estate broker, I went to

his office and checked the documents he has regarding the property.

Q And what was the result of your checking as to whether the title of
the property is clean?

A He showed me the copy of the title and it was clean, sir.

Q Aside from going to Mr. Alcantara to check up the title of the

property, what else did you do?

A Well, the next thing is I requested his wife to accompany me to the

Bureau of Lands or rather the Registry of Deeds, sir.

Q What registry of Deeds are you referring to?

 A The Registry of Deeds of Baguio City, sir.

Q And were you able to see the Register of Deeds regarding what
you would like to know?

A Yes, and we were given a certification regarding this particular

area that it was clean, sir.

Q What Certification are you referring to?

A It is a Certification duly signed by the employee of the Registry of

Deeds Adelina Tabangin, sir.

Q Do you have a copy of that Certification?

A Yes, I have, sir. 18

The testimonies of Honorato Santos 19 and Josefina Pe 20 were to the same effect.

The non-bank respondent predecessor-in-interest, Marcial Alcantara, was less thorough:

Q And will you give a brief description of what you do?

A I normally acquire land, quite big tract of land and subdivide it into
smaller lots and sold it to some interested parties.

Q Specifically, Mr. Alcantara will you please inform the Court in what
place in Baguio have you acquired and subdivided and sold lots?

A Dominican Hill, Leonila Hill, Cristal Cave and Asin Road, sir.

Q You mentioned Asin Road, what particular place in Asin Road are
you referring?

A That property I bought from Emelita Santiago, sir.

Q When you say you bought it from Emelita Santiago, how did you
come to know that Emelita Santiago is disposing of the property?

A Because of the father, he is the one who offered me the property,

sir, Armando Gabriel.

Q Is he also a resident of Baguio?

A He is from Buyagan, La Trinidad sir,

Q How did you come to know of this Armando Gabriel wanting to sell
a property in Asin?

A He approached me in the house, sir. He has acquired a title from

the Traders Royal Bank.

Q Can you inform the Honorable Court when you had this
conversation with Armando Gabriel on the sale of the property at
Asin Road?
A Later part of March, 1983, sir.

Q Now, when this Armando Gabriel informed you that he wants his
property to be sold, what did you do?

A I went to the place with the agent, sir.

Q When you say you went to the place with the agent, what place?

A Kilometer 2, Asin Road sir.

Q And when you went there to see the place, did you actually go
there to see the place?

A By walking, I parked my car a kilometer away, sir.

Q Is it my understanding that when you went to see the property

there were no roads?

A None, sir.

xxx xxx xxx

Q Mr. Alcantara, when you went to see this place at Asin Road last
week of March, 1983, will you please briefly describe how this place
looked like at that time?

A The place was mountainous, grassy, there were cogon trees, some
of the roads were eroding already, so we cannot possibly enter the
property, sir.

Q At the time you entered the place, was there any visible sign of
claim by anyone?

A None, sir.

Q In terms of fence in the area?

A There is no such, sir.

xxx xxx xxx

Q Aside from looking or going to the property, what else did you do to
this property prior to your purchase?

A I investigated it with the Register of Deeds, sir.

Q What is your purpose in investigating it with the Register of

Deeds?

A To see if the paper in clean and there are no encumbrances, sir.

Q To whom did you talk?

A To Atty. Ernesto Diomampo, sir.

Q And when you went to the Registry of Deeds to investigate and
check, did you have occasion to talk with Atty. Diomampo?

A Yes, sir.

Q And what was the result of your talk with Atty. Diomampo?

A The papers are clean except to the annotation at the back with the
road right of way, sir.

Q After making this investigation with the Register of Deeds and

talking with Atty. Diomampo, what else transpired?

A We bought the property, sir.

Q After purchasing the property from Emelita Santiago, could you

please tell the Honorable Court what you did with that deed of sale?

A We registered it with the Register of Deeds for the Certificate of

Title because at that time when we bought the property, Emelita
Santiago had it subdivided into six (6) lots, sir.

Q Is it our understanding that prior to your purchase the property was

subdivided into six (6) parcels?

A Yes, sir.

Q Could you please inform the Honorable Court if you have any
buyers in the subdivision of this property prior to your purchase?

A Yes, I have.

Q This subdivision of this property, to what office was it brought for

action?

A Bureau of Lands, San Fernando, La Union, sir.

Q Now, Mr. Alcantara, at the time that you had this property
subdivided by the owner, could you please inform the Court if there
was any claim by any other party opposing the subdivision or
claiming the property?

A None, sir.

Q When the Deed of Sale was executed and you said that you
presented it to the Register of Deeds and after the subdivision
already, what action did the Register of Deeds have regarding the
matter?

A They approved it and registered it already in six (6) titles, sir.

Q In whose names?

A One (1) title under my name, Amado Cruz and Dr. Sanchez, sir.
 Q Initially, Mr. Alcantara, you said that you are the sole purchaser of
this entire area of One Thousand Five Hundred Ninety One (1,591)
Square Meters. Now, you are informing this Honorable Court that
one Amado Cruz and one Dr. Sanchez were also issued two (2)
titles. Could you explain how these titles came into their possession?

A Actually, two (2) are our co-owners, sir.

Q So, is it our understanding that the Deed of Sale from Emelita

Santiago is in favor of these two (2) Atty. Cruz and Dr. Sanchez?

A Yes, sir. 21

Third, between two innocent persons, the one who made it possible for the wrong to be done should
be the one to bear the resulting loss. 22 The Capays filed the notice of lis pendens way back on March
17, 1967 but the same was not TRB's title. The Capays and their counsel Atty. Ramon A. Gonzales
knew in 1968 of the extra-judicial foreclosure sale of the property to TRB and the consolidation of title
in the bank's name following the lapse of the one-year period of redemption. But in the next fifteen
(15) years or so, they did not bother to find out the status of their title or whether the liens noted on
the original certificate of title were still existing considering that the property had already been
foreclosed. In the meantime, the subject property had undergone a series of transfers to buyers in
good and for value. It was not until after the land was subdivided and developed with the buyers
building their houses on the other lots when the Capays suddenly appeared and questioned the
occupants' titles. At the very least, the Capays are guilty of laches. Laches has been defined as the
failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising
due diligence could nor should have been done earlier; it is negligence or omission to assert a right
within a reasonable time, warranting presumption that the party entitled to it either has abandoned it
or declined to assert it. 23

Verily, the principle on prescription of actions is designed to cover situations such as

the case at bar, where there have been a series of transfers to innocent purchasers
for value. To set aside these transactions only to accommodate a party who has slept
on his rights is anathema to good order.

Independently of the principle of prescription of actions working against petitioners,

the doctrine of laches may further be counted against them, which latter tenet finds
application even to imprescriptible
actions. . . . 24

In De La Calzada-Cierras vs. Court of Appeals, 25 we held:

While it is true that under the law it is the act of registration of the deed of
conveyance that serves as the operative act to convey the land registered
under the Torrens System (Davao Grains, Inc. vs. Intermediate Appellate
Court, 171 SCRA 612), the petitioners cannot invoke said dictum because
their action to recover Lot 4362 is barred by the equitable doctrine of laches.

The act of registering the conveyance to Rosendo was constructive notice to

the whole world of the fact of such conveyance (Heirs of Maria Marasigan vs.
Intermediate Appellate Court, 152 SCRA 253).

But the petitioners' complaint to recover the title and possession of Lot 4362 was filed
only on July 21, 1981, twelve (12) years after the registration of the sale to Rosendo.
The petitioners failed and neglected for an unreasonably long time to assert their
right, if any, to the property in Rosendo's possession.

Being guilty of laches, the Capays cannot invoke the ruling in Villasor vs. Camon Levin
Bass and Director of Lands vs. Reyes 26 to the effect that entry of the notice of lis pendens in the day
book (primary entry book) is sufficient to constitute registration and such entry is notice to all persons
of such adverse claim. Certainly, it is most iniquitous for the Capays who, after sleeping on their rights
for fifteen years to assert ownership over the property that has undergone several transfers made in
good faith and for value and already subdivided into several lots with improvements introduced
thereon by their owners.

In the same vein, the cases cited by the Capays in their first two (2) assignment of errors, do not help
them any, as the transferees in said cases were not innocent purchasers for value and in good faith.
In Tuazon vs. Reyes and
Siochi, 27 where the land involved therein was sold by Petronilo David to Vicente Tuazon, it was with a
deed containing the recital that the land was in dispute between the vendor and Roberto Siochi.
Tuazon, who was merely subrogated to the rights of the vendor was aware of the dispute and,
furthermore, David did not warrant the title to the same. In Rivera vs. Moran, 28 Rivera acquired
interest in the land before the final decree was entered in the cadastral proceedings. Rivera, the
transferee, was aware of the pending litigation and, consequently, could not have been considered a
purchaser in good faith. Similarly, in Atun, et al. vs. Nuñez, et al. 29 and Laroza vs. Guia, 30 the buyers
of the property at the time of their acquisition knew of the existence of the notice of lis pendens. In
contrast to the cited cases, the non-bank respondents in the case at bar acquired their respective
portions of the land with clean title from their predecessors-in-interest.

II

We come now to TRB's liability towards the Capays.

The Bank unconvincingly tries to wash its hands off the present controversy, and attempts to shift the
blame on the Capays, thus:

xxx xxx xxx

23. The petitioner Bank, during all the time that it was holding the title for over
fourteen (14) years that there was no legal impediment for it to sell said property,
Central Bank regulations require that real properties of banks should not he held for
more than five (5) years:

24. The fault of the Register of Deeds in not carrying over the Notice of Lis
Pendens to the new title of the petitioner Bank should not be absorbed by the latter
considering that in all good faith, it was not aware of the existence of said annotation
during all the time that said title was in its possession for almost fourteen (14) years
before the property was sold to Emelita G. Santiago. . . . 31

TRB concludes that "(t)he inaction and negligence of private respondents allowing ownership to pass
for almost 15 years constitute prescription of action and/or laches." 32

Sec. 25 of the General Banking Act, 33 provides that no bank "shall hold the possession of any real
estate under mortgage or trust, deed, or the title and possession of any real estate purchased to
secure any debt due to it, for a longer period than five years." TRB, however, admits hoding on to the
foreclosed property for twelve (12) years after consolidating title in its name. The bank is, therefore,
estopped from involving banking laws and regulations to justify its belated disposition of the property.
It cannot be allowed to hide behind the law which it itself violated.

TRB cannot feign ignorance of the existence of the lis pendens because when the property was
foreclosed by it, the notice of lis pendens was annotated on the title. But when TCT No. T-6595 in the
name of the Capay spouses was cancelled after the foreclosure, TCT No. T-16272 which was issued
in place thereof in the name of TRB did not carry over the notice of lis pendens.

We do not find the Capays guilty of "inaction and negligence" as against TRB. It may be recalled that
upon the commencement of foreclosure proceedings by TRB, the Capays filed an action for
prohibition on September 22, 1966 against the TRB before the CFI to stop the foreclosure sale.
Failing in that attempt, the Capays filed a supplemental complaint for the recovery of the property.
The case reached this Court. Prescription or laches could not have worked against the Capays
because they had persistently pursued their suit against TRB to recover their property.

On the other hand, it is difficult to believe TRB's assertion that after holding on to the property for
more than ten (10) years, it suddenly realized that it was acting in violation of the General Bank Act.
What is apparent is that TRB took advantage of the absence of the notice of lis pendens at the back
of their certificate of title and sold the property to an unwary purchaser. This notwithstanding the
adverse decision of the trial court and the pendency of its appeal. TRB, whose timing indeed smacks
of bad faith, thus transferred caused the property without the lis pendens annotated on its title to put it
beyond the Capays' reach. Clearly, the bank acted in a manner contrary to morals, good customs and
public policy and should be held liable for damages. 34

Considering however, that the mortgage in favor of TRB had been declared null and void for want of
consideration and, consequently, the foreclosure proceedings did not have a valid effect, the Capays
would ordinarily be entitled to the recovery of their property. Nevertheless, this remedy is not now
available to the Capays inasmuch as title to said property has passed into the hands of third parties
who acquired the same in good faith and for value. Such being the case, TRB is duty bound to pay
the Capays the fair market value of the property at the time it was sold to Emelita Santiago, the
transferee of TRB.

WHEREFORE, the Decision of the Court of Appeals dated Frebruary 24, 1994 in CA-G.R. CV No.
33920, as modified by its Resolution dated August 10, 1994 is hereby AFFIRMED. In addition,
Traders Royal Bank is ordered to pay the Capays the fair market value of the property at the time it
was sold to Emelita Santiago.

This Decision is without prejudice to whatever criminal, civil or administrative action against the
Register of Deeds and or his assistants that may be taken by the party or parties prejudiced by the
failure of the former to carry over the notice of lis pendens to the certificate of title in the name of TRB.

SO ORDERED.

Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.

Footnotes

1 Said piece of land had been registered in the name of the Capay spouses since December
14, 1959 under TCT No. T-695 (Exh. "J"), and is more accurately described as follows:
A parcel of land (Lot 27-A-2-A of the subdivision plan (LRC) Psd- 24029, being a portion of
Lot 27-A-2, described on plan LRC Psd-23299, LRC (GLRO) Record No.-Civ. Res. 211),
situated in the Res. Sec. "L", Baguio City, Island of Luzon. Bounded on the SE., point 3 to 4
by Lot 27-C, (LRC) Psd-10738; on the SW., points 4 to 5, by Lot 27-C (LRC) Psd-10738, and
points 5 to 1 by Lot 27-A-2-B of the Subdivision plan; and on the NW., and NE., points 1 to 3,
by Lot 27-A-2-B of the subdivision plan. . . . containing an area of ONE THOUSAND FIVE
HUNDRED AND NINETY ONE (1,591) SQUARE METERS, more or less.
2 Exhibit "K."
3 Exhibit "L."
4 TSN, March 29, 1989, p. 12.
5 Lot 27-A-2-A-1 with an area of 225 sq. meters sold to Honorato Santos, who was issued
TCT No. 36177 (Exhibit "M"). The Santoses later mortgaged said lot to the Development
Bank of the Philippines.
Lot 27-A-2-A-2 with an area of 290 sq. meters was sold to Cecilio Pe, who was issued TCT
No. 36707 (Exhibit "N").
Lot 27-A-2-4-3 with an area of 330 sq. meters was sold to Flora Laron Escumbre, who was
issued TCT No. T-36051 (Exhibit "O").
Lot 27-A-2-A-4 with an area of 280 sq. meters was sold to Telesforo Alfelor II who was issued
TCT No. T-36147 (Exhibit "P"). The Alfelors later mortgaged the same to the Development
Bank of the Philippines.
TCT No. T-36730 (Exhibit "Q") covering Lot 27-A-2-A-5 with an area of 235 sq. meters was
issued to Dean Roderick Fernando.
Lot 27-A-2-A-6 with an area of 231 sq. meters was sold to Remedies Oca TCT No. T-37437
(Exhibit "R") was issued to the latter.
6 G.R. No. 62744.
7 Namely, Ruby Ann Margarita Rosario, Cynthia Linda Joy, all surnamed Capay.
8 Branch 74, presided by Judge Leonardo M. Rivera.
9 Rollo, G.R. No. 118862, pp. 49-57.
10 89 Phil. 404 (1951).
11 91 Phil. 419 (1952).
12 68 SCRA 177 (1975).
13 Rollo, G.R. No. 114299, pp. 14-17.
14 Rollo, G.R. No. 118862, p. 63.
15 Id., at 240.
16 Tenio-Obsequio vs. Court of Appeals, 230 SCRA 550 (1994).
17 TSN, March 29, 1989, pp. 22-26.
18 TSN, March 30, 1989, pp. 3-4, 6-7.
19 Id., at 22-23.
20 TSN, June 1, 1989, pp. 4-5.
21 TSN, March 29, 1989, pp. 5-6; 8-9; 10-12.
22 Bacaltos Coal Mines vs. Court of Appeals, 245 SCRA 460 (1995).
23 Republic vs. Sandiganbayan, 255 SCRA 438 (1996); Catholic Bishops of Balanga vs.
Court of Appeals, 264 SCRA 181 (1996).
24 Buenaventura vs. Court of Appeals, 216 SCRA 819 (1992).
25 212 SCRA 390 (1992).
26 See Notes 10, 11, and 12.
27 48 Phil. 844 (1926).
28 48 Phil. 836 (1976).
29 97 Phil. 762 (1955).
30 143 SCRA 341 (1985).
31 Rollo, G.R. No. 114299, p. 75.
32 Ibid.
33 Republic Act No. 337, as amended.
34 Art. 21, Civil Code.