Ching v. Enrile
REITERATIONFacts
The Antecedents: Spouses Jesus and Lee Poe Tin Ching purchased a 370-square meter lot from Raymunda La Fuente on September 5, 1985, receiving the Deed of Absolute Sale and the Owner's Duplicate Certificate of Title. They took physical possession of the property. However, they failed to register the conveyance with the Register of Deeds. Instead, on November 20, 1986, they executed and registered an Affidavit of Adverse Claim, which was annotated on the property's Transfer Certificate of Title (TCT No. 83618). Subsequently, on August 19, 1988, Spouses Adolfo and Arsenia Enrile, as attaching creditors in a separate case against Raymunda La Fuente, caused a Notice of Levy on Attachment and a Writ of Execution to be annotated on the same TCT No. 83618. A Certificate of Sale in favor of the Enriles was later inscribed on January 26, 1989. Procedural History: On January 8, 1990, the Chings filed a Petition to Remove Cloud on or Quiet Title to Real Property against the Enriles. The Regional Trial Court (RTC) of Makati City, Branch 135, ruled in favor of the Chings on May 11, 1993, upholding their superior right due to the earlier annotation of their adverse claim compared to the Enriles' certificate of sale. The RTC ordered the cancellation of the encumbrances in favor of the Enriles and awarded damages and attorney's fees to the Chings. The Enriles appealed to the Court of Appeals (CA), arguing that the Chings' failure to register the Deed of Absolute Sale, and the purported expiration of their adverse claim after 30 days, rendered their interest subordinate to the Enriles' registered levy and sale. The CA reversed the RTC's decision on August 29, 2002, finding that the Enriles, as attaching creditors who registered their levy and sale, had a preferential right. The CA denied the Chings' motion for reconsideration on November 21, 2002. The Petition: The Chings filed a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the CA's decision and resolution. They contend that the CA gravely erred in holding that the levy on attachment, annotated later, should prevail over their earlier annotated adverse claim, solely based on the lapse of 30 days without a petition for cancellation. They also argue that the CA erred in not dismissing the appeal, as the issues raised were questions of law. The Supreme Court granted the petition, finding that an adverse claim does not automatically lose its validity after 30 days and can only be cancelled upon a verified petition and hearing. Furthermore, the Court held that the Enriles were not purchasers in good faith because the annotated adverse claim and the Chings' physical possession of the property should have put them on notice of the prior sale, thus subordinating their rights as attaching creditors to the Chings' earlier unregistered sale.
Issue(s)
Whether an annotated adverse claim ipso facto expires after 30 days under Section 70 of PD 1529. Whether respondents can be considered purchasers in good faith despite the annotated adverse claim and petitioners' actual possession.
Ruling
The petition is GRANTED. The Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati City, Branch 135, dated May 11, 1993, is REVIVED and AFFIRMED in toto.
Ratio Decidendi
On Issue 1: The Supreme Court ruled that an adverse claim does not automatically lose its force and effect after the lapse of thirty days. Applying the doctrine in Sajonas v. Court of Appeals, the Court explained that Section 70 of Presidential Decree No. 1529 (PD 1529) must be read in its entirety, specifically the provision stating that 'after the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor.' If the law intended for the claim to expire automatically, the requirement for a verified petition for cancellation would be a 'useless act.' Therefore, for as long as no petition for cancellation is filed and no judicial hearing is conducted to prove the impropriety of the claim, the notice of adverse claim remains subsisting and valid. In this case, since no such petition was filed by the respondents or the registered owner, the petitioners' adverse claim remained a valid encumbrance on the title. On Issue 2: The Court held that the respondents were not purchasers in good faith. While the general rule is that an attaching creditor who registers their lien prevails over a prior unregistered sale, an exception exists when the party has knowledge of the prior interest. The Court emphasized that knowledge of an unregistered sale is equivalent to registration. Here, the petitioners' adverse claim was annotated on the title on November 20, 1986, nearly two years before the respondents' levy on attachment on August 19, 1988. This annotation, combined with the petitioners' actual, physical, and continuous possession of the property since 1985, constituted constructive notice to the respondents. A purchaser cannot 'close his eyes to facts which should put a reasonable man upon his guard' and then claim good faith. Consequently, the respondents were charged with notice of the petitioners' prior right, and their interest is subordinated to that of the petitioners.
Main Doctrine
The Court clarifies that the 30-day effectivity period for an adverse claim under Section 70 of Presidential Decree No. 1529 (PD 1529) does not result in its automatic cancellation. For the annotation to lose its effect, a party in interest must file a verified petition for cancellation and a hearing must be conducted to determine the propriety of the claim. Consequently, an existing annotation of an adverse claim, even if beyond the 30-day period, serves as constructive notice to subsequent purchasers or creditors. In the context of double sales or conflicting interests, a party who has knowledge of a prior unregistered interest—whether through the registry or by observing actual possession—is bound by that interest, as such knowledge is equivalent to registration.