Traders Royal Bank vs. Court of Appeals, Patria Capay, et al G.R. No. 118862, Sept. 24, 1999 (315 SCRA 190)

"Torrens System"
"latches"

Facts:

A parcel of land owned by the spouses Capay was mortgage to and subsequently extrajudicially foreclosed by Traders Royal Bank (TRB). To prevent property sale in public auction, the Capays filed a petition for preliminary injunction alleging the mortgage was void because they did not receive the proceeds of the loan. A notice of lis pendens (suit pending) was filed before the Register of Deeds with the notice recorded in the Day Book. Meanwhile, a foreclosure sale proceeded with the TRB as the sole and winning bidder. The Capays title was cancelled and a new one was entered in TRB’s name without the notice of lis pendens carried over the title. The Capays filed recovery of the property and damages. Court rendered a decision declaring the mortgage was void for want of consideration and thus cancelled TRB’s title and issued a new cert. of title for the Capays.

Pending its appeal before the court, TRB sold the land to Santiago who subsequently subdivided and sold to buyers who were issued title to the land. Court ruled that the subsequent buyers cannot be considered purchasers for value and in good faith since they purchase the land after it became a subject in a pending suit before the court. Although the lis pendens notice was not carried over the titles, its recording in the Day Book constitutes registering of the land and notice to all persons with adverse claim over the property. TRB was held to be in bad faith upon selling the property while knowing it is pending for litigation. The Capays were issued the cert. of title of the land in dispute while TRB is to pay damages to Capays.

Issue:

1. Who has the better right over the land in dispute?
2. Whether or not TRB is liable for damages

Ruling:

The court ruled that a Torrens title is presumed to be valid which purpose is to avoid conflicts of title to real properties. When the subsequent buyers bought the property there was no lis pendens annotated on the title. Every person dealing with a registered land may safely rely on the correctness of the title and is not obliged to interpret what is beyond the face of the registered title. Hence the court ruled that the subsequent buyers obtained the property from a clean title in good faith and for value. On one hand, the Capays are guilty of latches. After they filed the notice for lis pendens, the same was not annotated in the TRB title. They did not take any action for 15 years to find out the status of the title upon knowing the foreclosure of the property. In consideration to the declaration of the mortgage as null and void for want of consideration, the foreclosure proceeding has no legal effect. However, in as much as the Capays remain to be the real owner of the property it has already been passed to purchasers in good faith and for value. Therefore, the property cannot be taken away to their prejudice. Thus, TRB is duty bound to pay the Capays the fair market value of the property at the time they sold it to Santiago.