Pudadera v. Magallanes
REITERATIONFacts
The Antecedents: Belen Consing Lazaro (Lazaro) was the owner of Lot 11-E. On March 13, 1979, Lazaro sold a 400 sq. m. portion to Daisy Teresa Cortel Magallanes (Magallanes) under a "Contract To Sale." On July 21, 1980, a "Deed of Definite Sale" was executed in favor of Magallanes. Magallanes fenced the lot and built a nipa hut. Lazaro also sold other portions of Lot 11-E to several buyers. On July 14, 1980, a "Partition Agreement" was executed, assigning Lot 11-E-8 (800 sq. m.) to Magallanes and Mario Gonzales, each owning 400 sq. m. Lazaro refused to turn over the mother title, TCT No. T-51250, preventing the buyers from titling their portions. Magallanes and others filed an adverse claim, annotated on April 29, 1981. Magallanes and Gonzales filed a motion to surrender title, causing a notice of lis pendens to be annotated on October 22, 1981. On November 23, 1981, Lazaro sold Lot 11-E-8 to her niece, Lynn Lazaro, and her husband, Rogelio Natividad (Spouses Natividad), resulting in TCT No. T-58606. Magallanes filed a civil case against Spouses Natividad, and a notice of lis pendens was annotated on TCT No. T-58606 on September 2, 1983. Spouses Natividad subdivided Lot 11-E-8 into Lot 11-E-8-A and Lot 11-E-8-B. The civil case filed by Magallanes was dismissed for lack of jurisdiction on September 16, 1985, inscribed on TCT No. T-58606 on July 7, 1986. On July 3, 1986, four days before the inscription of dismissal, Spouses Natividad sold Lot 11-E-8-A (subject lot) to petitioner Ramy Pudadera for ₱25,000.00, leading to TCT No. 72734 in his name. Magallanes constructed two houses on the subject lot. Petitioners filed a forcible entry case against Magallanes, which was dismissed on July 17, 1991. The MTCC found Magallanes to be the first possessor and noted that petitioner Ramy Pudadera had notice of someone else's possession when he bought the lot. Petitioners then filed the present action for Recovery of Ownership, Quieting of Title, and Damages against Magallanes and her husband. Petitioners claimed ownership of Lot 11-E-8-A, alleging Magallanes claimed a different lot and built houses without consent. Magallanes countered that she was the lawful owner of Lot 11-E-8-A, that petitioners had prior knowledge of her sale and possession, and prayed for the cancellation of petitioners' title. Daisy Teresa Cortel Magallanes passed away during the pendency of the case and was substituted by her heirs. Procedural History: The Regional Trial Court (RTC) of Iloilo City, Branch 39, ruled in favor of respondents, declaring Daisy Teresa Cortel Magallanes (substituted by her heirs) as the rightful owner of Lot 11-E-8-A and ordering petitioners to execute a deed of reconveyance. The RTC found petitioners were not buyers in good faith due to Magallanes' possession and the subsisting notice of lis pendens. The Court of Appeals (CA) affirmed the RTC decision. Petitioners sought reconsideration, which was denied. The Petition: Petitioners filed a Petition for Review on Certiorari seeking to reverse and set aside the CA's decision and resolution.
Issue(s)
Whether the Court of Appeals erred in not considering that Magallanes was claiming a different lot (Lot 11-E-8-B) and not Lot 11-E-8-A. Whether the Court of Appeals erred in applying the principle of innocent purchasers for value and in good faith to petitioners, and in finding that petitioners are not innocent purchasers for value. Whether the Court of Appeals erred in affirming the award of attorney's fees against the petitioners.
Ruling
The Supreme Court partially granted the petition, affirming the CA's decision with modifications. It ordered the cancellation of TCT No. T-72734 and the issuance of a new title in the names of the respondents. The award of attorney's fees in favor of respondents was deleted.
Ratio Decidendi
On the issue of claiming different lots: The Court found the petitioners' argument that Magallanes was claiming Lot 11-E-8-B and not Lot 11-E-8-A to be specious. The Court noted that Magallanes explicitly alleged in her Answer that she was the "absolute lawful owner of Lot 11-E-8-A." Furthermore, her actions of fencing Lot 11-E-8-A and constructing houses thereon, along with the relocation survey report in the forcible entry case, confirmed that she was claiming and occupying Lot 11-E-8-A. Therefore, both parties were asserting ownership over the same lot, Lot 11-E-8-A, despite any errors in Magallanes' zoning application or tax declarations. On the issue of petitioners as innocent purchasers in good faith: The Court affirmed the findings of the lower courts that petitioners were not buyers in good faith. While the notice of lis pendens was ordered cancelled prior to the sale, which would ordinarily remove its effect, the Court found other circumstances that should have alerted petitioners. Specifically, Magallanes had taken possession of the lot, fenced it, and built a hut on it long before petitioners purchased the property from Spouses Natividad. Petitioners visited the lot several times before the purchase and, therefore, were aware or should have been aware of Magallanes' prior physical possession and claim of ownership. The Court reiterated the principle that one who buys a property with knowledge of facts that should put them on inquiry or investigation as to a possible defect in the seller's title acts in bad faith. The Court emphasized that the burden of proof to establish the status of a purchaser in good faith lies with the buyer and cannot be discharged by mere invocation of the legal presumption of good faith. On the issue of attorney's fees: The Court agreed with the petitioners that the award of attorney's fees should be deleted for lack of basis. The Court stated that an award of attorney's fees is an exception rather than the rule and is not given merely because the defendant prevails, unless there was a deliberate intent to cause prejudice. The Court found the evidence of bad faith on the part of petitioners in instituting the subject action to be wanting. Therefore, the award of attorney's fees was deleted.
Main Doctrine
A buyer is considered in bad faith not only when they purchase real estate with knowledge of a defect or lack of title in their seller but also when they have knowledge of facts that should have alerted them to conduct further inquiry or investigation. The presence of physical structures on the lot and a subsisting notice of lis pendens at the time of sale are circumstances that should put a buyer on notice.