Peltan Development, Inc. v CA GR. No. 117029, March 19, 1997

Facts:

The respondents were applying for a free patent to a certain parcel of land which they have been occupying, cultivating, planting, staying, and introducing improvements thereon and neither one of petitioners was in possession thereof. They had the land surveyed but the processing and approval of their application were held in abeyance despite the absence of any opposition on grounds that there allegedly existing certificates of title on said land in the name of Peltan Development. Peltan allegedly obtained their title from spouses Lorenzo Gana and Maria Carlos, however the respondents assail that the title was spurious and fictitious. Prior to their application for a free patent, the improvements they introduced to the land were bulldozed by one of the petitioners. They filed a complaint that by virtue of the spurious title produced by the petitioners and the illegal destruction of the respondent’s plants and dwellings, their rights for a free patent to the land were substantially prejudiced by petitioners and hold them liable to pay for actual and compensatory damages. Peltan filed a motion for preliminary hearing on affirmative defense on grounds that the respondents have no cause of action against them and they are not the real party of interest in the action they sought to assert as they have no subsisting title to present over the disputed property. Their contention was based on a former jurisprudence that the government thru the Solicitor General should be the real party of interest to file a motion for cancellation of the certificate of title. In answer, the respondents re-asserted their cause of action to their complaint and showed their rights, interest and claims to have been violated thereby placing them to a status of real party of interest.

The lower court dismissed the complaint ruling that the respondents were not a real party of interest. This decision was reversed by the court of appeals ruling that the lower court should have treated the action as accion publiciana to determine which party has the right to possession. The petitioners now file a petition for review and pray for the cancellation of the notation of lis pendens on their certificate of title.

Issues:

Whether or not the respondents are the real party of interest in their action against the petitioners?

Ruling:

The SC reversed the decision of the appellate court. It is a well-settled rule that the cause of action is determined by the allegations in the complaint and to resolve the motion to dismiss based on failure to state cause of action, only the facts in the complaint must be considered. The court held that the CA failed to appreciate the fact that the title of the petitioners were validly upheld by the court in a court proceeding (G.R. No. 109490 and in G.R. No. 112038). Every court should take mandatory judicial notice to court decisions when resolving motion to dismiss as required by Rule 129, section 1 of the Rules of Court. The CA erred in recognizing the rights of the respondents as one based on their actual possession of the land and their pending application for a free patent thereof. It also committed a reversible error to treat the issue as one of accion publiciana since the decision has already been rendered by the court before upholding the title of the petitioners as valid and genuine. Therefore, it is no longer an option to treat the case as one.

The respondents are held not as real party of interest since although they were not praying for the reversion of the land to the government such complaint would still result to the same under the Regalian doctrine. The respondents have no right over the land as they admit that neither they nor their predecessors owned the land which is construed that the land in dispute remains to be a property of public domain. If there is any person with real interest to the land it should be the government. The SC reversed and set aside the decision of the CA and cancelled the annotation of lis pendens to the petitioners’ title.

Edilberto Cruz v Bancom Finance Corp. GR No. 147788, March 19, 2002

Innocent purchaser

Facts:

The petitioners are the registered owners of an agricultural land. Candelaria Sanchez introduced the petitioner to Norma Sulit who offered to buy the petitioner’s lot. The asking price for the property is P7000,000 but Norma only has P25,000 which the petitioner accepted as an earnest money with agreement that the title will be transferred in the name of Norma after she pays the remaining balance. Norma failed to pay the balance but negotiated to transfer the title in her name which the petitioner refused. However, through Candelaria Sanchez the title was transferred to Norma upon the execution of a deed of sale made by the petitioner in favor of Sanchez who obtained a bank loan using the petitioner’s land as collateral. She then executed on the same day another deed of sale in favor of Norma. Both deed of sales reflect the amount of only P150,000.00. Using the deed of sale Norma was able to register the property in her name. Norma obtained a loan from Bancom while mortgaging the land title. Meanwhile, a special agreement was entered into by petitioner and Norma. When Norma failed to pay the remaining balance stipulated in their special agreement, the petitioner filed a complaint for the reconveyance of the land. Bancom claimed priority as mortgagee in good faith. Norma defaulted payment with the bank and the property was foreclosed and auctioned with Bancom as the highest bidder.

Trial Court decision: The trial court held that the contract of sale between petitioner and Candelaria was absolutely simulated thereby producing no legal effect. Bancom was not a mortgagee in good faith cannot claim priority rights over the property.

Court of Appeals: Reversed the RTC decision holding the deed of sale as valid and binding and not simulated. The mortgage contract between Norma and Bancom is likewise valid and Bancom has a priority rights over the property. It also ruled that the petitioner intended to be bound by the sale and mortgage since they did not seek to annul the same but instead executed a special agreement to enforce payment of the remaining balance.

Issues:

Whether or not the sale and mortgage are valid?

Whether or not the respondent is an innocent mortgagee in good faith?

Ruling:

As a general rule, if the terms of the contract are clear and unambiguous its stipulations shall control but when its words contravene with the intention of the parties, the intention shall prevail over the words of the contract. Simulation of contract takes place when the parties do not want the express words of the contract to have its legal effect. It may be absolute or relative. When parties do not intend to be bound at all it is absolute simulated contract and considered void. When the parties conceal their true agreement, it is a relative simulated contract and binds the parties when it does not prejudice third persons and is not contrary to law, morals, good custom, public order, and public policy. It was shown that although a deed of absolute sale was executed in the amount of P150,000 no consideration was involved as no exchange of money took place between them. Norma and Candelaria also did not assert their right to ownership over the property. It was clear that the deed of sale was simulated in order to facilitate the bank loan to be secured by Candelaria using the property as collateral. The fact that Norma obtained registration of the property in her name does not entitle her to ownership since the simulated deed of sale produced no legal effect. A simulated contract is not a recognized mode of transferring ownership.

With the contention of Bancom that it is a mortgagee in good faith, the court ruled otherwise pointing out that it is a mortgagee-bank thus is expected to exercise greater care and prudence when dealing with registered lands. Failure to observe due diligence was shown with judicial notice that the bank did not conduct an ocular inspection on the property and did not send a representative to investigate the ownership of the land, these being a standard procedure before approving loans. It is also aware of the adverse claim because of the notice of lis pendens annotated to the title. Because it was established that the two deeds of sale were simulated thus null and void, it does not convey any right that may ripen into a valid title. The mortgage was also null and void because Norma was not the owner of the property. The property cannot be validly foreclosed by the respondent. The court declares the petitioner to remain as the valid owner of the property.