Armed Forces of the Philippines Retirement and Separation Benefits System v. Plastic King Industrial Corp.
REITERATIONFacts
The Antecedents: Atty. Nilo Flaviano (Atty. Flaviano), representing himself and his co-owners, executed an Exclusive Contract to Sell for Lot Y-2-C in favor of Evelyn Te and Alan Fausto V. Posadas. Evelyn Te offered the property to Plastic King Industrial Corporation (Plastic King), represented by Merlen Agabin. Atty. Flaviano subsequently executed a "Transfer of Rights" in favor of Plastic King for Lot Y-2-C and also for their rights over the foreshore area. A Memorandum of Agreement stipulated the real purchase price for Lot Y-2-C at PHP 15,200,000.00, with a down payment for titling expenses. The lot was subdivided into Lot Y-2-C-1, Lot Y-2-C-2, and Lot Y-2-C-3, and titles (OCT Nos. P-6208, P-6209, P-6210) were issued in the names of the Flavianos, not Plastic King. Plastic King demanded conveyance, but Atty. Flaviano failed to comply. Meanwhile, the AFP Retirement and Separation Benefits System (AFP-RSBS) negotiated with the Flavianos for the purchase of the same lots. On December 9, 1996, Sales Patent Nos. were issued in the names of the Flavianos. Subsequently, AFP-RSBS and Atty. Flaviano executed a Contract to Sell, later amended to PHP 40,010,000.00. On March 4, 1997, Atty. Flaviano executed a Deed of Absolute Sale in favor of AFP-RSBS, warranting valid titles and peaceful possession. AFP-RSBS alleged its verification showed clean titles. Plastic King countered that it had informed AFP-RSBS of the prior sale and that the titles bore a notice of lis pendens, but AFP-RSBS allegedly ignored this. On February 28, 1997, AFP-RSBS paid the full purchase price. On March 17, 1997, new titles (TCT Nos. T-77598, T-77599, T-77596) were issued in the name of AFP-RSBS. Procedural History: On March 12, 1997, Plastic King filed a complaint for specific performance, injunction, and damages against the Flavianos (Civil Case No. 25, 115-97), alleging the prior sale and subsequent sale to AFP-RSBS. Plastic King informed AFP-RSBS of the case and the lis pendens annotation. AFP-RSBS was impleaded as a co-defendant via a supplemental complaint. Plastic King prayed for the surrender of the titles and lots to it. AFP-RSBS claimed it was a buyer in good faith for value, as the contract was consummated and titles transferred before it received notice. The trial court ruled in favor of Plastic King, declaring the TCTs in AFP-RSBS's name void, ordering the Flavianos to deliver the lots to Plastic King, and to reimburse AFP-RSBS. The trial court found AFP-RSBS not an innocent purchaser for value due to prior notice. The Court of Appeals affirmed the trial court's decision, finding Evelyn Te's revocation of the sale invalid as she acted beyond her authority, and that AFP-RSBS was not a buyer in good faith due to notices of lis pendens and prior calls. The Petition: AFP-RSBS filed a Petition for Review on Certiorari assailing the Court of Appeals' decision and resolution, arguing that the cancellation of its titles was not prayed for, constituted a collateral attack, and that the Register of Deeds was not impleaded. It also maintained it was an innocent purchaser for value and that the judge's inhibition was improper.
Issue(s)
Whether the inhibition of Judge Carpio was proper and if it affected the validity of the judgment rendered by Judge Robillo. Whether the revocation of the contract of sale through agent Evelyn Te was valid. Whether AFP-RSBS was an innocent purchaser in good faith and for value.
Ruling
The Supreme Court denied the petition, affirming the Court of Appeals' decision with modification. The Court held that the inhibition of Judge Carpio was proper and did not invalidate the judgment rendered by Judge Robillo. The revocation of the sale by Evelyn Te was deemed invalid as she acted beyond her authority. Consequently, AFP-RSBS was not an innocent purchaser in good faith and for value, and the cancellation of its titles was warranted. The Court modified the directive to reinstate the Original Certificates of Title (OCTs) by ordering the Register of Deeds to directly issue new transfer certificates of title in the name of Plastic King Industrial Corporation.
Ratio Decidendi
On the inhibition of Judge Carpio: The Court held that the decision of Judge Carpio to voluntarily inhibit himself must be respected. His reason, the closeness of his son to Atty. Flaviano's son, was a valid ground for inhibition based on the judge's conscience and the potential for his motives or fairness to be impugned. Furthermore, the case was validly decided on the merits by Judge Robillo based on the records, as a judge who did not try the case in its entirety may decide it based on the records, without violating due process. On the validity of the revocation of the sale by agent Evelyn Te: The Court ruled that the revocation was invalid. Evelyn Te was appointed as an attorney-in-fact through a General Power of Attorney, which, under Article 1877 of the Civil Code, comprises only acts of administration. The "Memorandum of Revocation" she executed was an act of ownership, not administration, and thus beyond the scope of her authority. Article 1910 of the Civil Code states that an agent's act beyond their authority does not bind the principal unless ratified. Plastic King did not ratify Evelyn's act and promptly disowned it. The alleged refund through checks issued to Evelyn, deposited in her personal account, and denied by Plastic King, did not constitute valid proof of reimbursement to the principal. On whether AFP-RSBS was an innocent purchaser in good faith and for value: The Court found that AFP-RSBS was not an innocent purchaser. While the titles may have appeared clean at the time of the second sale, it was undisputed that by the time AFP-RSBS sought registration on March 17, 1997, the titles already bore notices of lis pendens dated March 14, 1997, which were also carried over to the TCTs issued in AFP-RSBS's name. These annotations served as notice that a court case was ongoing affecting the ownership of the lots. Under the ruling in Duenas v. MBTC, a buyer's good faith must persist until the registration of the conveyance. Since AFP-RSBS was aware of the prior sale and pending litigation before registration, its good faith ceased. The law does not protect a buyer in bad faith, and such a buyer is not conferred any right, rendering the registration ineffective.
Main Doctrine
A buyer who registers a sale even after obtaining knowledge of a previous sale is considered in bad faith. The law does not protect a buyer who is in bad faith, and such buyer is not conferred any right over the property, rendering the registration as if it were non-existent.