G.R. No. 219694 - EEG Development Corp. vs. Heirs of De Castro

The property in question is a registered parcel of land located at No. 19 Spencer St., Cubao, Quezon City, with an area of 480 square meters.
Originally registered under the name of Joseph De Castro, Sr. (De Castro, Sr.) via Transfer Certificate of Title (TCT) No. 67024; the title was reconstituted as TCT No. RT-54796 following the destruction of records in the 1987 City Hall fire.
The property had been used as the family home of De Castro, Sr. and his spouse Dionisia, along with their 13 children.

A mortgage was constitued on the property in April 1973 in favor of the Development Bank of the Philippines (DBP) to secure a loan.
DBP foreclosed the mortgage extrajudicially in January 1982 after the default.
After Dionisia passed away on October 25, 1990, the property was redeemed on December 14, 1990, nearly eight years beyond the reglementary period.
Later, in 1996, De Castro, Sr. obtained another loan from the International Exchange Bank (IBank) and mortgaged the property again.
Upon default, IBank extrajudicially foreclosed the mortgage, leading to a public auction where IBank became the highest bidder.

In July 1998, facing a low auction price, De Castro, Sr. and his sons (Alton and Hubert) offered to sell the property to petitioner Eduardo E. Gonzalez (Gonzalez) by paying the redemption price to IBank.
On July 29, 1998, Gonzalez paid P7,000,000.00 to settle the debt, evidenced by IBank’s Official Receipt No. 075111 dated July 20, 1998.
Following payment, IBank issued TCT No. N-161693 to Gonzalez, free from encumbrances except for the existing mortgage, which was promptly cancelled on July 21, 1998.
De Castro, Sr. acknowledged the receipt of full payment by issuing an acknowledgment receipt on July 24, 1998.
On the same day, De Castro, Sr. executed an irrevocable special power of attorney, appointing Gonzalez as attorney-in-fact to settle his outstanding obligations with IBank and to secure the cancellation of encumbrances on the title.
Gonzalez then transferred the property to co-petitioner EEG Development Corporation (EEG) through a deed of sale dated July 24, 1998.
Due to EEG’s pending SEC incorporation, the initial deed was not immediately registered; however, after SEC approval, a subsequent deed of absolute sale was executed on August 14, 1998.
Ultimately, the title TCT No. N-161693 was cancelled and reissued as TCT No. N-194773 in the name of EEG.

On August 7, 1998, after the sale, De Castro, Sr. and his son Alton, along with personnel from the City Engineer’s Office and law enforcement, proceeded to demolish the house on the property based on a demolition permit dated July 10, 1998.
Respondents, comprising heirs of Victor C. De Castro (deceased) and his siblings—among whom was Don Emil—were alarmed by the demolition and intervened by seeking assistance from then Quezon City Mayor Ismael G. Mathay.
Learning on August 8, 1998, that the property had been sold to the petitioners, the respondents claimed that De Castro, Sr. acted without the consent of all co-owners.
Consequently, on August 12, 1998, respondents annotated an adverse claim on the title, asserting that they inherited a share of the property from their mother.

On April 7, 1999, five of De Castro, Sr.’s children (respondents Victor, Francis, Don Emil, Egino, and Andre) initiated a suit for the quieting of title, nullity of documents, prohibition, and damages against the petitioners in the RTC of Quezon City.
The RTC, through its judgment on February 11, 2011, declared:

The sale between Gonzalez and De Castro, Sr. void for lack of authority.
Petitioners (buyers) as buyers in bad faith based on their alleged knowledge of the adverse claim.
Specific orders to cancel the involved titles and to issue a new title in the name of De Castro, Sr. and his 13 children as co-owners pro-Aindiviso.

The Court of Appeals (CA) affirmed the RTC’s ruling on April 28, 2015, though it reduced the moral damages award from P400,000.00 to P100,000.00.

The central question is if petitioners, having purchased the property from De Castro, Sr., can be considered innocent purchasers for value.
It is questioned whether they had any knowledge or notice of the respondents’ adverse claim or any defect in the seller’s title.
The inquiry also involves whether petitioners fulfilled the conditions required for protection under the Torrens system.