BANK OF THE PHILIPPINE ISLANDS v SANCHEZ G.R. No. 179518, November 19, 2014

FACTS Vicente Victor C. Sanchez (Vicente), Kenneth Nereo Sanchez and Imelda C. V da. De Sanchez owned a 900 square meter parcel of land and duly registered with Registry of Deeds of Quezon City. Jesus V. Garcia, doing business under the name TransAmerican Sales and Exposition, Inc. (TSEI), wrote a letter to Vicente offering to buy the Subject Property for One Million Eight Hundred Thousand Pesos (₱1,800,000). The offer was good for only seven (7) days. The period elapsed with the parties failing to come to an agreement. Sometime in the third week of October 1988, Felisa Yap, the widow of Kenneth Nereo Sanchez, and Garcia agreed to the sale of the subject property under Garcia shall buy the property for ₱1.850 million payable in cash immediately after the occupants shall have vacated the property and that he shall cause the demolition of the old house standing on the property and shall sell the scrap materials thereof for not less than ₱50,000.00. All proceeds to be realized on account of said demolition shall be turned over to the Sanchezes. Pursuant to this agreement, Yap turned over to Garcia the original owner’s copy of Transfer Certificate of Title, the copy of the filed Application for Restitution of Title to the property, and copies of all receipts for the payment of real estate taxes on the property, while Garcia paid Yap 50,000 as earnest money. Afterwards, Yap required the occupants of the subject property to vacate the same. Immediately after it was vacated, Garcia, without Yap’s knowledge and consent, took possession of the lot and installed his own caretaker thereon with strict instructions not to allow anyone to enter the property. Yap later learned that Garcia had also demolished the house on the property and advertised the construction and sale of "Trans American Townhouse V". The foregoing developments notwithstanding and despite numerous demands, Garcia failed to pay the balance of the purchase price as agreed upon. Yap was informed that the checks representing the purchase price of the subject property were ready but that Vicente must pick up his checks personally. Out of the six checks that were issued by Garcia, the first four (4) checks were deposited with no issue. However, the last two (2) checks, amounting to ₱400,000 each, were dishonored for the reason of "DAIF" or drawn against insufficient funds. Yap wrote a letter to Garcia informing him that the two (2) checks were dishonored and asking that the checks be replaced within five (5) days from receipt of the letter. Since the request was left unheeded, the petitioners informed Garcia in a letter that they were rescinding the Agreement. This prompted Garcia to offer two (2) manager’s checks in the aggregate amount of ₱300,000 which Yap flatly refused, reiterating the rescission of their Agreement and demanding for the return of all documents entrusted to him. The latter effectively refused to return the documents and to vacate the subject property. Later on, the petitioners discovered that Garcia is selling units at the Trans American Townhouse V situated at the subject property. Petitioners counsel wrote the Housing and Land Use Regulatory Board (HLURB) informing the latter of the existing public advertisement of TSEI offering for sale townhouses illegally constructed on the subject property and urging the HLURB to cancel any existing permit or license to sell the said townhouse units or to deny any application therefor. The HLURB issued a Cease and Desist Order (CDO) enjoining TSEI and Garcia from further developing and selling the townhouses. Respondents Garcia and TSEI were directed to immediately stop from further developing the project. Additionally, such cease and desist order as well as warnings to possible buyers of the townhouses were published with the Philippine Daily Inquirer and Manila Bulletin. In a delayed response to the CDO, TSEI wrote a letter to the HLURB alleging that only ground leveling works were being undertaken on the project. This was rebuffed by the HLURB in a letter dated May 8, 1989 stating that ocular inspections of the project revealed that 2nd floor construction on the townhouses were already being undertaken. Thus, the HLURB ordered TSEI to explain in writing why administrative sanctions should not be meted out against it and reiterating its earlier cease and desist order. Undeterred, TSEI continued its construction and selling activities for the townhouses. Thus, the HLURB issued an Order dated June 1, 1989 fining TSEI in the amount of ₱10,000. Yap and Vicente, in his own behalf and representing the heirs of Imelda C.Vda De Sanchez, filed before the Regional Trial Court (RTC) in Quezon City, for the rescission of contract, restitution and damages with prayer for TRO/preliminary injunction against TSEI and Garcia. Meanwhile, Garcia managed to cause the cancellation of Transfer Certificate of Title and replaced it in the name of TSEI. The records also revealed that a portion of the land was already sold to different buyers. TSEI left the townhouse units unfinished, leaving these intervenors to finish their townhouses by themselves. Far East Bank and Trust Company (FEBTC) entered into a Loan Agreement 44 dated May 22, 1989 with TSEI secured by a Real Estate Mortgage over TCT 156254.FEBTC later merged with the Bank of the Philippine with the latter as the surviving bank. Garcia explained to FEBTC that the parties were still in the process of transferring the title. Afterwards, Garcia submitted a copy of TCT 383697 in TSEI’s name. Upon default, FEBTC (now BPI) foreclosed the subject lot and had the Foreclosure Certificate of Sale annotated on TCT 383697. The RTC declared that the Sanchezes have the right to rescind the Agreement they entered into with Garcia and TSEI under proviso no. 6 of the Agreement. In fact, the RTC enunciated that because the Agreement is in the nature of a contract to sell, the ownership over the subject property remained with the Sanchezes as the suspensive condition––that the check payments shall be honored––was not complied with. Thus, the RTC concluded that there was not even any need for rescission in this case. Moreover, the RTC found that TSEI and Garcia were builders in bad faith as the Sanchezes never consented to the construction of the townhouses. Furthermore, the presentation by Garcia and TSEI to the intervenors of TCT 383697 in TSEI’s name sufficiently shows their bad faith. Anent the rights of intervenors, the RTC found the Sanchezes to have a better right over the subject property considering that the transactions between Garcia/TSEI and the intervenors suffered from several irregularities, which they, the intervenors, in bad faith, ignored. Upon appeal by the intervenors-appellants, the CA rendered, on November 6, 2006, the assailed Decision affirming the RTC Decision with modifications. Thus, the CA ordered the cancellation of TCT 383697 in TSEI’s name and the reinstatement of TCT 156254 in the names of the Sanchezes. However, the appellate court found the Sanchezes equally in bad faith with TSEI and Garcia, and gave the Sanchezes the option either to appropriate the townhouses by paying for them or to oblige TSEI and Garcia to pay the price of the land, unless the subject lot’s value is considerably more than that of the structures built thereon in which case TSEI and Garcia would have to pay the Sanchezes reasonable rent for the use of the subject property. Hence, these petitions under Rule 45 separately interposed by the intervenors. ISSUE: 1. Whether or not there’s negligence on the part of the Sanchezes when they turned over the owner’s original duplicate copy of TCT 156254 despite receiving only the ₱50,000 earnest money, which led to the fraudulent transfer of title over the subject lot by Garcia and the issuance of TCT 383697 in the name of TSEI. 2. Whether or not the intervenors are buyers in bad faith. 3. WON BPI can be considered a mortgagee in good faith RULING: 1. No, the Sanchezes are not guilty of negligence. It must be stated that the CA already ruled that the issue of the Sanchezes’ negligence was never raised at the pre-trial. As such, it can no longer be raised on appeal. Nevertheless, even if such issue were to be passed upon, the Sanchezes cannot be considered negligent, much less in bad faith. It must be noted that defendant Garcia committed himself that, upon full payment of the purchase price, he would personally undertake the preparation and execution of the Extrajudicial Settlement with Sale as well as the reconstitution of the original copy of TCT No. 156254 on file with the Register of Deeds of Quezon City. Thus, it was inevitably for plaintiff-appellant/appellee Felisa Yap to surrender to defendant Garcia the owner’s duplicate copy of the aforesaid title as well as the other documents pertinent for such documentation and reconstitution. The records would disclose that the plaintiffs appellants/appellees did not voluntarily surrender possession thereof to defendants. On the contrary, it was defendant Garcia who took possession of the subject property, without plaintiffs-appellants/appellees knowledge, posted his own caretaker therein with strict instructions not to allow anyone to enter the same. The latter also caused the demolition of the old house standing thereon and advertised the same for sale by placing a large billboard in front of the subject property. In fact, had it not been for persistent efforts of plaintiffs-appellants/appellees, the Agreement which eventually protected the latter’s rights over the subject property, could not have been executed. 2. The factual milieu of the case reveals that intervenors are buyers in bad faith. The following are the reasons why the acted in bad faith: 1. They should have gone to the Register of Deeds of Quezon City (RD) to verify if in fact TCT No. 156254 had already been cancelled and a new title has been issued to TSEI or Garcia. They should have asked for the deed of absolute sale filed and registered with the RD to find out if the Sanchezes indeed sold the lot in question to TSEI. They could have verified from the primary entry book of said office if the deed of absolute sale from the Sanchezes in favor of TSEI was registered in said book, which, under the Property Registration Decree (PD No. 1529), is considered as an effective and legal notice to third persons and the whole world of such transfer. Evidently, the intervenors failed to do so. 2. The intervenors know, based on the contract of sale or contract to sell, that the property isregistered under TCT No. 156254 in the name of the Sanchezes. As such, they should have insisted that they talk to the Sanchezes before executing said conveyances. Had they done so, they would have known that the Sanchezes have not executed a written deed of absolute sale in favor of TSEI for the latter’s failure to pay the consideration in full. Having failed to ferret out the truth from the Sanchezes, intervenors cannot be considered innocent purchasers for failure to exercise utmost caution and extra diligence in determining the true owner of the property. 3. Thirdly, the intervenors should havebeen suspicious of the explanation of Garcia that TCT No. 383697, reflecting TSEI as the owner of the property, has been burned and that he is in the process of reconstituting the title. Before signing the contract of sale or contract to sell, they should have asked Garcia where the reconstitution case has been filed or is pending and proceeded to verify with the said court the status of the reconstitution. Had they done so, they would have known that neither Garcia nor TSEI had a deed of absolute sale executed in their favor over the lot in question. The truth of the matter is that it is the duplicate certificate of title of TCT No. 156254 that has been lost or misplaced, and is being sought to be reconstituted, not TCT No. 383697. Had intervenors been prudent enough to verify with the court the status of the alleged TCT No. 383697, they would have known that Garcia planned to deceive them in the sale of the subject property. 4. Fourthly, the intervenors knew that they were buying a townhouse over a subdivision lot from TSEI and Garcia. Such being the case, they should have verified with the HLURB whether said project is registered with said housing agency and if a license to sell has been issued to TSEI or Garcia. Had they made such an inquiry, they would have known that instead of a permit for the project and a license to sell the property, a cease and desist order was issued by the HLURB precisely to enjoin TSEI and Garcia from selling said property to the public. Similarly, they could have inquired from the City Building Official of Quezon City if a building permit was issued to TSEI and Garcia for the construction of the townhouses, which would have yielded the same negative result. 3. Even as the intervenors have been found to be in bad faith, BPI, the successor of FEBTC, cannot be considered a mortgagee in good faith, considering the glaring anomalies in the loan transaction between TSEI and FEBTC. A. when Garcia gave TCT 156254 to FEBTC for the processing of a loan secured by a mortgage, it indubitably showed that Garcia/TSEI did not yet own the subject property as said title was in the name of the Sanchezes. But FEBTC did not require Garcia/TSEI to submit a Special Power of Attorney (SPA) in their favor authorizing them to mortgage the subject property covered by TCT 156254. b. considering that Garcia/TSEI were already selling the townhouse units to the public as early as January 1989, FEBTC was also remiss in not requiring Garcia/TSEI to submit a written approval from the HLURB for the mortgage of the subject property where the townhouse units were being constructed as required under Sec. 18 of Presidential Decree No. (PD) 957. c. considering further that Garcia presented the Agreement between the Sanchezes and Garcia/TSEI asbasis for ownership of the subject property covered by TCT 156254, FEBTC was remiss in neither ascertaining whether the full payment of the ₱1.8 million covered by six (6) checks in view of the proviso number 6 of the Agreement nor requiring the presentment of the EXTRA-JUDICIAL SETTLEMENT OF ESTATE WITH SALE from the Sanchezes in favor of Garcia/TSEI. d. FEBTC was again negligent in not scrutinizing the TCT 383697 considering that the title has the purported issuance date of June 9, 1988 way before the December Agreement was executed and when the loan was negotiated. More, the purported issuance of TCT 383697 was made more than six (6) months before Garcia/TSEI approached the bank for the loan. Thus, FEBTC should have been placed on guard as to why Garcia/TSEI initially gave it TCT 156254 in the name of the Sanchezes when TCTC 383697 was purportedly already issued and in Garcia’s possession way before the bank loan was negotiated. Again, FEBTC did not exercise the due diligence required of banks. e. the Court notes that FEBTC released portions of the loan proceeds in April even before it approved the loan secured by a real estate mortgage on May 22, 1989. And more anomalous is the fact that FEBTC had TCT 383697 verified for its veracity and genuineness way after it approved the loan to Garcia/TSEI. The Certification from the Register of Deeds was issued only on June 13, 1989 upon the request of GarciA.