G.R. No. 231395 - AFP Retirement and Separation Benefits System vs. Plastic King Industrial Corp.

Case Summary (G.R. No. 231395)

Procedural Posture and Reliefs Challenged

This Rule 45 petition contests the Court of Appeals’ affirmance of the trial court’s judgment ordering: (a) the Flavianos to deliver the titles and possession of the subdivided portions of Lot Y‑2‑C to Plastic King; (b) the reimbursement to AFP‑RSBS of PHP 40,010,000.00 paid for the property; (c) payment by the Flavianos of moral damages (PHP 500,000), attorney’s fees (PHP 100,000), and litigation costs (PHP 20,000); (d) cancellation of TCT Nos. T‑77598, T‑77599, and T‑77596 in AFP‑RSBS’s name as void and reinstatement of OCT Nos. P‑6208, P‑6209, and P‑6210 in the Flavianos’ names. AFP‑RSBS also challenges the denial of its motion for reconsideration by the Court of Appeals.

Factual Background Relevant to Ownership and Competing Transactions

Atty. Flaviano executed an Exclusive Contract to Sell on August 8, 1995 appointing Evelyn Te and Alan Posadas to find a buyer. Evelyn offered the property to Plastic King, represented by Merlen Agabin. A Transfer of Rights executed by Atty. Flaviano conveyed Lot Y‑2‑C to Plastic King (for P500,000 consideration reflected in the instrument), and a Deed of Undertaking and a Memorandum of Agreement (real purchase price recorded at P15,200,000) were executed to effect titling in Plastic King’s name. The subject lot was later subdivided and Sales Patents/OCTs were issued in the names of the several Flaviano owners. Separately, AFP‑RSBS negotiated with the Flavianos, executed (amended) Contracts to Sell and a Deed of Absolute Sale to AFP‑RSBS, and paid the purchase price in full by February 28, 1997; the Register of Deeds issued TCTs in AFP‑RSBS’s name on March 17, 1997. Plastic King had earlier filed a specific performance action on March 12, 1997 seeking delivery of the lots, had caused a Notice of Lis Pendens to be annotated on the OCTs (noted as of March 14, 1997), and informed AFP‑RSBS of its prior claim by telephone calls and a March 23, 1997 letter. Plastic King alleged that the Transfer of Rights in its favor remained valid and that a later sale to AFP‑RSBS was a second sale of property already conveyed to Plastic King.

Trial Court Disposition (Branch 13)

After trial, the court found for Plastic King and ordered: (1) specific performance by the Flavianos to deliver the titles and possession of the subject lots to Plastic King; (2) declaration that TCT Nos. T‑77598, T‑77599, and T‑77596 (issued to AFP‑RSBS) are null and void and direction to cancel them and reinstate OCT Nos. P‑6208, P‑6209, and P‑6210; (3) reimbursement to AFP‑RSBS of PHP 40,010,000.00 by the Flavianos; (4) alternatively, if titles could not be delivered, reimbursement by the Flavianos to Plastic King of PHP 15,574,995.07 with 12% interest from filing of the complaint; and (5) award of moral damages, attorney’s fees, and costs. The trial court concluded AFP‑RSBS was not an innocent purchaser in good faith based on Plastic King’s letter, the lis pendens annotations, and telephone records evidencing attempts to notify AFP‑RSBS.

Arguments on Appeal and in the Petition

AFP‑RSBS argued: the trial court had no jurisdiction to cancel the TCTs because cancellation was not prayed for and the Register of Deeds was not impleaded; the cancellation amounted to a collateral attack on Torrens titles; AFP‑RSBS was an innocent purchaser for value entitled to protection under Article 1544 and Torrens principles; and the voluntary inhibition of the trial judge after evidence was presented was a grave abuse of discretion. The Flavianos contested findings on the invalidity of the alleged revocation and questioned the factual assessment of agent authority.

Supreme Court’s General Disposition

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision and resolution, with modification: the directive to reinstate OCT Nos. P‑6208, P‑6209, and P‑6210 in the Flavianos’ names was deleted and, for practicality, the Register of Deeds of General Santos City was ordered to directly issue the corresponding transfer certificates of title for Lot Y‑2‑C‑1, Y‑2‑C‑2, and Y‑2‑C‑3 in the name of Plastic King Industrial Corporation.

Legality of Judge Carpio’s Voluntary Inhibition and Effect on Validity of Subsequent Ruling

The Court applied Rule 137 Section 1 distinguishing compulsory and voluntary inhibition and recognized that voluntary inhibition lies in a judge’s discretion based on conscience and a rational assessment of circumstances. Judge Carpio voluntarily inhibited himself because of a close personal connection between his son and Atty. Flaviano’s son (fraternity brother and firing‑range companions), a circumstance that could reasonably impugn impartiality. The Court held this inhibition proper and not a ground to invalidate the decision of Judge Robillo who later resolved the case, noting precedents that permit a judge who did not preside over the entire trial to decide a case on the records without violating due process.

Invalidity of the Alleged Revocation Executed by Agent Evelyn Te

Plastic King had granted a General Power of Attorney to Evelyn dated November 11, 1996. The Court analyzed the scope of that power under Article 1877 of the Civil Code and concluded the power conferred related to acts of administration and did not authorize Evelyn to revoke a completed sale or effect acts of ownership such as rescission of the Transfer of Rights. Under Article 1910, actions of an agent beyond authority do not bind the principal absent ratification. No ratification occurred; the principal disowned the Memorandum of Revocation. The Flavianos’ proofs (checks issued in Evelyn’s name and deposited into Evelyn’s account) did not establish that Plastic King received a refund. Consequently, the Memorandum of Revocation was ineffective to cancel the Transfer of Rights in favor of Plastic King, and the original conveyance remained valid.

AFP‑RSBS Was Not an Innocent Purchaser in Good Faith

The Court applied the legal standard for a purchaser in good faith of registered land: reliance on the face of the title suffices only if (a) the seller is the registered owner, (b) the seller is in possession, and (c) the buyer was unaware of any claim or defect. The Court further applied the Duenas v. MBTC principle that good faith must persist until registration; discovery of a claim prior to registration destroys good faith. The OCTs bore Notices of Lis Pendens by March 14, 1997, and Plastic King’s communications and phone calls to AFP‑RSBS put AFP‑RSBS on notice before the registration of the conveyance in its favor on March 17, 1997. Because CFP‑RSBS sought registration after becoming aware of Plastic King’s prior claim and pending litigation, AFP‑RSBS was not a buyer in good faith and could not claim indefeasibility or protection against collateral attack. The Court held that a purchaser with notice of a prior conveyance assumes the risk and cannot obtain an effective title against the prior buyer’s superior right.

Indefeasibili

Case Syllabus (G.R. No. 231395)

Procedural Posture and Reliefs Sought

Petition for Review on Certiorari under Rule 45 assailing the Court of Appeals (CA) dispositions in CA-G.R. CV No. 02822-MIN:
- CA Decision dated October 21, 2016 affirming trial court directives that:
  - Respondent Atty. Nilo J. Flaviano (substituted by heirs Nelia and Letecia Flaviano) deliver titles for the entirety of Lot Y-2-C and the property to Plastic King Industrial Corp. (Plastic King);
  - The Flavianos reimburse AFP-RSBS the purchase price of PHP 40,010,000.00;
  - The Flavianos pay Plastic King PHP 500,000.00 moral damages, PHP 100,000.00 attorney’s fees, and PHP 20,000.00 litigation expenses and costs;
  - The Register of Deeds of General Santos City cancel TCT Nos. T-77598, T-77599, and T-77596 issued in the name of AFP-RSBS and reinstate OCT Nos. P-6208, P-6209, and P-6210 in the name of the Flavianos;
  - The CA also affirmed the trial court’s declaration that those AFP-RSBS TCTs are void.
- CA Resolution dated April 10, 2017 denying AFP-RSBS’s motion for reconsideration.
AFP-RSBS seeks reversal or modification of the CA Decision and Resolution on grounds including lack of prayer/relief for cancellation of TCTs, failure to implead Register of Deeds, assertion of buyer-in-good-faith status, and alleged improper inhibition of the trial judge.

Case Facts and Antecedent Transactions

August 8, 1995: Atty. Nilo J. Flaviano, on his own behalf and as attorney-in-fact for Johanna, Carlito, Nelia and Letecia Flaviano, executed an Exclusive Contract to Sell (effective six days until August 14, 1995) authorizing Evelyn Te and Alan Fausto V. Posadas to find a buyer for an untitled property (4,000 sq. m., Ex-Magsaysay Park, General Santos City) priced at PHP 6,000 per sq. m.
Evelyn offered the property to Plastic King, represented by Merlen Agabin (Agabin).
Atty. Flaviano subsequently executed a document titled “Transfer of Rights” in favor of Plastic King for Lot Y-2-C, reciting consideration of PHP 500,000.00 and warranting peaceful possession, ownership and protection against adverse claims for the described parcel (Lot Y-2-C containing 3,800 sq. m., with particular bearings and boundaries).
August 30, 1995: Atty. Flaviano executed another Transfer of Rights covering a foreshore area; on the same day he and Evelyn executed a Deed of Undertaking to cause titling in Plastic King’s name within six months (subject to extension for unforeseen delay).
Also on August 30, 1995 a Memorandum of Agreement between Atty. Flaviano and Plastic King recited a real purchase price for Lot Y-2-C of PHP 15,200,000.00 and that Plastic King would pay PHP 3,000,000.00 as down payment to cover taxes and titling expenses.

Subdivision, Titling, and Subsequent Transactions

Lot Y-2-C was subdivided into Lot Y-2-C-1, Y-2-C-2, and Y-2-C-3; OCT Nos. P-6208, P-6209, and P-6210 were issued respectively, but in the names of the Flavianos (P-6208: Atty. Flaviano and wife Johanna; P-6209: Carlito and Nelia; P-6210: Letecia).
Plastic King demanded a deed of conveyance to its name; Atty. Flaviano failed to deliver.
Wilfredo Pabalan, AFP-RSBS Assistant VP and Project Officer, negotiated with the Flavianos for AFP-RSBS purchase as part of a development project.
December 9, 1996: DENR issued Sales Patents Nos. 116303-96-523, 116303-96-522, and 116303-96-525 covering Lot Y-2-C-1 to Y-2-C-3 in the names of Atty. Flaviano, Johanna, Nelia, Carlito, and Letecia.
AFP-RSBS and the Flavianos executed a Contract to Sell, later amended December 23, 1996, fixing the purchase price at PHP 40,010,000.00.
March 4, 1997: Atty. Flaviano (with wife’s consent and as attorney-in-fact for Carlito and Letecia) executed a Deed of Absolute Sale to AFP-RSBS warranting valid titles, peaceful possession, and guarantee of titles free of liens and encumbrances.
AFP-RSBS claims internal verification by Project Engineer Alan Aguirre at the Register of Deeds showing clean titles prior to the transaction.

Plastic King’s Prior Sale, Notices, and Litigation

Plastic King asserts it was the prior buyer by virtue of the Transfer of Rights and related agreements; upon learning of AFP-RSBS transactions Plastic King advised AFP-RSBS by phone calls and sent correspondence warning of the prior sale.
Plastic King filed Civil Case No. 25, 115-97 (specific performance, injunction, and damages) against the Flavianos in the Regional Trial Court (RTC), Davao City, on March 12, 1997, seeking to restrain disposition of the subject lots and praying that titles and lots be surrendered.
Plastic King caused notice of lis pendens to be annotated on the OCTs of the subject properties; later, by March 14, 1997, notices of lis pendens were on the OCTs and these annotations carried over to subsequent TCTs issued to AFP-RSBS.
Plastic King sent a letter dated March 23, 1997 to AFP-RSBS informing it of the Transfer of Rights and the pending lawsuit, and suggesting communication with Plastic King’s counsel.

Register of Deeds Actions and AFP-RSBS Title Issuance

By March 17, 1997, after AFP-RSBS had paid the purchase price by February 28, 1997, the Register of Deeds cancelled the OCTs in the Flavianos’ names and issued TCT Nos. T-77598 (Lot Y-2-C-1), T-77599 (Lot Y-2-C-2), and T-77596 (Lot Y-2-C-3) in the name of AFP-RSBS; these TCTs were deposited in AFP-RSBS’s vault.

Parties’ Contentions in the Trial Court

Plastic King: asserted prior valid sale and Transfer of Rights from Atty. Flaviano; alleged Flavianos subdivided and titled the lot in kin’s names and sold to AFP-RSBS; sought delivery of titles and possession and other reliefs.
Flavianos: in answer denied sale to Plastic King, alleged the Transfer of Rights was forged or only executed to satisfy Evelyn; asserted they revoked the first sale and refunded purchase price via a Memorandum of Revocation signed by Evelyn (Plastic King’s purported agent) and relied on a General Power of Attorney granted by Plastic King to Evelyn.
AFP-RSBS: asserted it was a buyer in good faith for value in reliance on title and registries and that the transfer to it was consummated on March 17, 1997 prior to receipt of Plastic King’s March 23, 1997 letter; invoked Article 1544’s rule on double sale and claimed protection as an innocent purchaser.
Plastic King and Flavianos disputed receipt by Plastic King of refund checks allegedly issued to Evelyn; Plastic King denied receiving the funds.

Trial Court Findings and Decision (Branch 13)

Decision dated May 31, 2010 (Branch 13, Presiding Judge Isaac G. Robillo) ruled in favor of Plastic King:
- Ordered Flavianos to specifically comply and deliver titles and possession of the lots to Plastic King.
- Declared TCT Nos. T-77598, T-77599, and T-77596 in AFP-RSBS’s name null and void; directed Register of Deeds to cancel them and reinstate OCT Nos. P-6208, P-6209, and P-6210.
- Ordered Flavianos to reimburse AFP-RS
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