G.R. No. 70149 - Lu vs. Intermediate Appellate Court

The property in dispute consists of a parcel originally covering 1,760 square meters located at Barrio Carmen, Rosales, Pangasinan, evidenced by Transfer Certificate of Title (TCT) No. 45787 (13622-P).
The parcel was subdivided into several lots, one of which is Lot No. 6 of PLA LRC Pcs-7703, measuring approximately 102 square meters, evidenced by TCT No. 74567.

On February 3, 1967, defendant Josefina Alberto, owner of the property, leased the entire 1,760 square meters to Eusebio C. Lu by virtue of a notarized “Contract of Lease Agreement.”
Salient provisions of the lease include:

A lease period of 25 years commencing on February 2.
Annual rental fixed at P12,000.00 with the first-year rental advanced by the lessee.
Obligation for Lu to demolish the existing building and construct a new two-storey building at his own expense.
Requirement that the lessor eject all present tenants within one year, with rental collections to be turned over to Lu until such eviction.
A clause granting Lu the priority right to purchase the leased property should Alberto opt to sell, as explicitly stated in paragraph 8.

The one-year period for tenant ejection expired without compliance, and consequently, the planned demolition and construction did not proceed.
On July 12, 1967, Alberto granted Lu sole authority over matters concerning the tenants and the collection of rentals.
On April 27, 1968, the property was surveyed and subdivided, resulting in the issuance of separate titles, including TCT No. 74567 for Lot No. 6.

Santiago Bustos, who occupied a portion of Lot No. 6 under a long-term lease arrangement with Alberto, claimed that he had acquired a right over the disputed portion.
On June 8, 1968, Alberto sent a written note to Bustos requesting a loan of P2,000.00 to be deducted from the purchase price of the lot.
On July 21, 1968, Alberto executed a receipt acknowledging a partial payment of P5,000.00 by Bustos, leaving a balance of P8,000.00 as the purported purchase price.
Bustos later filed a complaint seeking annulment of the deed of sale to Lu and ordering Alberto to execute a sale in his favor upon payment of the P8,000.00 balance.

Alberto initiated an action for rescission of the contract and damages against Lu on August 16, 1968, leading to procedural moves such as Lu’s motion to dismiss and subsequent petition for prohibition in the Court of Appeals.
Lu registered an adverse claim over the entire property covered by TCT No. 45787 on September 3, 1968, which was annotated on the title as Entry No. 303600.
Concurrently, Bustos later registered his own adverse claim (Entry No. 359210) on February 21, 1972, after evidence of a transaction based on Exhibits “A” and “B” (i.e., the note and receipt) purportedly evidencing a contract of sale.

After multiple suits (including Civil Cases in Pangasinan and Manila) and four years of litigation, a compromise agreement between Lu and Alberto was reached and submitted on February 16, 1972, which led to:

The execution of a Deed of Absolute Sale in favor of Lu for a consideration of P125,000.00, and a separate Deed of Transfer for existing improvements for P1,000.00.
The cancellation of previous titles (including TCT No. 74567) and the issuance of a consolidated title, TCT No. 4485, in Lu’s name.

Amid these transactions, the issue of whose rights prevailed—Bustos’ belated adverse claim or Lu’s prior registration and priority right under the lease—became the central point of contention.

Whether the prior registration of the Contract of Lease Agreement and Lu’s adverse claim granted him a superior, preferential right to purchase the property over Bustos’ subsequent adverse claim.

The legal effect of registration in establishing priority over subsequent claims.
The chronological order of Lu’s and Bustos’ claims and its impact on the validity of the sale.

Whether Lu qualifies as an innocent purchaser in good faith and for value, having acquired the property based on the duly registered lease and subsequent sale.

The impact of Lu’s reliance on the title free of Bustos’ claim at the time of sale.
The consequences of registry omissions regarding adverse claims on a title.

Whether Bustos’ adverse claim, based solely on a written note and receipt, could perfect a contract of sale capable of defeating Lu’s prior rights.

The sufficiency of private receipts (Exhibits “A” and “B”) to evidence a perfected sale.
The condition precedent attached to Bustos’ alleged contract of sale.

Whether the sale to Lu should be annulled in a collateral proceeding given the existence of pending or prior litigation involving Bustos’ claim.

The doctrine of res judicata concerning the sale and ensuing compromise agreement.
The effect of multiple pending suits on the validity of the sale to Lu.

Whether the Court of Appeals, in issuing its decision without addressing certain contentions, acted within its jurisdiction or exceeded it by deciding questions of substance that are clearly contrary to law.