(Property, Sales, and LTD)

BANK OF THE PHILIPPINE ISLANDS V. SANCHEZ, et al

GR NOs. 179518, 179835, 179954

November 19, 2014

VELASCO, J.

FACTS:

The case stemmed from a transaction entered into by private respondents

Vicente Victor, Kenneth Nereo, and Imelda all surnamed Sanchez (Sanchezes) with
Jesus Garcia (Garcia) doing business under the name TransAmerican Sales and
Exposition, Inc. (TSEI) over the a property located at No. 10 Panay Avenue, Quezon
City (subject property) covered by TCT 156254 for the amount of Php 1.8 million on
October 10, 1988. The initial terms was subsequently amended with modification of
the amount from Php 1.8 million to Php 1.850 million and an agreement that Garcia
shall take care of all the registration and transfer of the name of the property. As
such, Felisa Yap (Yap), the widow of Kenneth Nereo turned over TCT 156254 to
Garcia. Afterwards, Yap required the occupants of the subject property to vacate
the premises. Thereafter, without the knowledge and consent of the Sanchezes and
Yap, after the property was vacated, Garcia installed his own caretaker with an
instruction not to let anyone enter the premises. It was also during this time that
Garcia started advertising in the Manila Bulletin about TSEI's selling of townhouses.
On December 1988, Garcia informed Yap that the checks were ready, however, it
must be Vicente who needs to pick it up from the office. 6 checks were given, the
first 4 amounted to Php 250,000.00 each and the latter 2 amounted to Php
400,000.00 each. The first 4 were cleared, but the latter 2 bounced due to
insufficiency of funds. Garcia was informed to replace the checks, which he failed to
do so. Yap then wrote to Garcia informing him that she and Vicente decided to
rescind the contract, to which Garcia replied offering 2 MCs with an aggregate
amount of Php 300,000.00 as replacement of the checks, the Sanchezes refused the
offer.

Later on, it came to the knowledge of the Sanchezes of the advertisement of

Garcia/TSEI of the Townhouse in the subject property, they immediately went to
HLURB contesting the license of TSEI in selling and informing HLURB that the selling
is illegal and that they are still the registered owner of the subject property. HLURB
issued a Cease and Desist Order (CDO) to TSEI, however, despite the CDO TSEI still
continued to construct the townhouses.

To further protect their interests, Yap and Sanchezes inquired with the City
Hall regarding the Building Permit of Garcia, and found out that the construction was
indeed illegal. On February 1990, private respondents filed a formal complaint
before the RTC Quezon City for the rescission of the contract, restitution, and
damages with prayer for TRO/preliminary injunction against TSEI and Garcia.
Meanwhile, Garcia was able to cancel TCT 156254 and replaced it with TCT 383697
in the name of TSEI. However, the date of issuance of the "replacement" bore June
9, 1988, way before the parties agreed on the sale. This was apparently used by
Garcia to entice some buyers.

Claiming to have bought the townhouses sometime in 1989, the following

intervened in the instant case: Sps. Caminas, Generoso Tulagan (Tulagan), Varied
Traders Concept, Inc. (VTCI), and Arturo Marquez (Marquez). Except VTCI, the other
interveners where shown TCT 156254 under the name of the Sanchezes.

The subject property was also used as a security for a loan by Garcia/TSEI
with FEBTC (which was later on acquired by BPI). Due to failure to pay the said loan,
BPI foreclosed the mortgage.

Intervenors and BPI all claimed to have acted in good faith and thus should
benefit from the application of Article 448 of the Civil Code.

RTC ruled in favor of the Sanchezes and ordering Garcia/TSEI and all
intervenors or persons claiming rights under them to surrender the peaceful
possession of the property.

CA affirmed RTC's ruling with modification in ruling that Sanchezes are as

equally in bad faith with Garcia/TSEI, therefore giving the Sanchezes the option of
either appropriating the townhouses for themselves by paying the price for it or to
oblige Garcia/TSEI to pay the price of land.

ISSUE/s:

1. WON all the parties acted in bad faith;

2. WON there was a valid rescission of the Agreement between the
Sanchezes and TSEI/Garcia;
3. WON TCT 383697 in the name of TSEI may be cancelled.

HELD:

ON THE ISSUE OF GOOD FAITH

Sanchezes are not guilty of negligence nor acted in bad faith

The SC took note of the fact that the issue of negligence was never raised in
pre-trial and thus cannot be raised in appeal. And even if it was an issue, it cannot
also be said that the Sanchezes were negligent. The fact that the they gave the
owner's duplicate of TCT 156254 thus ultimately leading to it fraudulent cancellation
is not due to negligence but because of Garcia's assurance upon their agreement
that the latter will take care of the registration and transfer, they are just complying
with the agreement. With regards to the possession of the subject property, it must
be noted that the Sanchezes had no knowledge of Garcia's acts, in fact upon their
knowledge they immediately informed HLURB and took steps to protect their
interests.

It was argued that due to the fact that the Sanchezes did not forestall the
construction of the townhouses by filing an injunction is indicative of their bad faith.
Pertinent provision of Art. 453 of the Civil Code states that:

Article 453. If there was bad faith, not only on the part of the
person who built, planted or sowed on the land of another, but
also on the part of the owner of such land, the rights of one and
the other shall be the same as though both had acted in good
faith.

It is understood that there is bad faith on the part of the

landowner whenever the act was done with his
knowledge and without opposition on his part.

Hence, the law did not prescribed any form of opposition on the part of the
landowner. The fact of the matter is that the Sanchezes took action to oppose the
construction by writing their opposition with the project to HLURB and the City
Building Official of Quezon City.

Garcia, TSEI, BPI and the intervenors acted in bad faith

On the part of Garcia/TSEI, the fact that they knew that the subject property
still belonged to the Sanchezes and yet continued to construct to townhouses not
only without the knowledge of the landowners but also against their will, buttressed
their lack of good faith on the case.

On the part of intervenors Sps. Caminas, Maniwang, Tulagan, and Marquez,

they were first shown a title registered under the name of the Sanchezes, while the
law prescribes that a buyer does not need to inquire beyond the title of a property,
the fact that TCT 156254 was not even registered under Garcia/TSEI should have
placed the said intervenors on alert. Hence, had they communicated with the
Sanchezes they could have known that Garcia/TSEI was not holding a valid title over
the property; this fact destroys their argument that they are buyers in good faith.

On the part of VCTI, notwithstanding that it was shown the TCT 383697 SC
still held that VCTI is a purchaser in bad faith. In its decision SC ruled that, despite
the fact that HLURB issued a CDO on the construction of the townhouses, its
publication of notices in the major dailies (Manila Bulleting and Philipppine Daily
Inquirer) and Garcia/TSEI stopping the construction, VCTI unheeded the warnings
still paid the full amount for the 3 townhouses. Ordinarily, the buyer should have
visited the projects that it buys, had it done so it would have known that there are
irregularities on the project. Also, for a large tract of property, the price that VCTI
paid for all 3 townhouses is a uniform amount of Php 700,000.00 when in fact a
bigger area would entail a higher price is a badge of bad faith on the part of VCTI.

Finally BPI as a successor of FEBTC is not a mortgagee in good faith, when

Garcia/TSEI presented TCT 152654 as a security it indubitably showed that
Garcia/TSEI did not yet owned the subject property however, FEBTC did not required
Garcia/TSEI to submit a Special Power of Attorney in authorizing them to mortgage
the property and receive the proceeds. Also, despite the fact that by the time
Garcia/TSEI mortgaged the property, the selling of the townhouses already begun,
FEBTC was remiss in not requiring the submission of the approval of HLURB on the
selling of the townhouses. Had it done so, it would have found the irregularities.

THERES A VALID RESCISSION OF AGREEMENT

The effect of attributing bad faith to the intervenors, BPI, Garcia and TSEI

The rescission of the Agreement was not barred by subsequent transfer;

Article 1191 of the Civil Code states that rescission is available to a party in a
reciprocal obligation where one party fails to comply therewith.

The Sanchezes are to elect their options under Arts. 449-450 of the Civil Code
, to wit: (1) acquire the property with the townhouses and other buildings and
improvements that may be thereon without indemnifying TSEI or intervenors; (2) to
demolish what has been built at the expense of TSEI or intervenors; (3) ask the
intervenors to pay for the price of the land.

TCT 386697 MAY BE CANCELLED

PD 1529 provides that a title can only be a subject of a direct attack and not
a collateral attack, however, theres no collateral attack on TCT 383697 as
Garcia/TSEI argues. While the case initially is for rescission of the agreement it
became a direct attack on the title when the Sanchezes alleged on their answers
that the said title is a fake.