Case Summary (G.R. No. 179518)
Petitioners and Respondents
• Petitioners: BPI (successor to FEBTC), Generoso Tulagan, heirs of Arturo Marquez (represented by Rommel Marquez), Varied Traders Concept, Inc. (VTCI), and Reynaldo Maniwang.
• Respondents: Vicente Victor C. Sanchez and Felisa Garcia Yap, representing the heirs of Kenneth Nereo and Imelda C. Vda. de Sanchez.
Key Dates
• October–December 1988: Oral agreement and documentary check payments for sale at ₱1.85 million; demolition of the old house.
• December 1988–January 1989: Two post-dated checks totaling ₱800,000 dishonored; Yap and Sanchez rescind the contract.
• February 1989: HLURB issues Cease and Desist Orders; construction of townhouses halted.
• February 1990: Complaint for rescission, restitution, damages filed with RTC, Quezon City.
• July 14, 2004: RTC Decision grants rescission, awards damages, orders return of title and possession, and refunds intervenors.
• November 6, 2006: Court of Appeals affirms with modification (cancels TCT No. 383697, orders compliance with Art. 448).
• November 11, 2014: Supreme Court decision applying the 1987 Constitution.
Applicable Law
• 1987 Philippine Constitution (decision date post-1990).
• Civil Code:
– Art. 1191 (right to rescission for reciprocal obligations).
– Art. 1385 (rescission and third‐party holding).
– Arts. 448–450 (rights of owner and builder in good/bad faith).
• Property Registration Decree (PD No. 1529): “no collateral attack” on Torrens title, but direct attacks allowed.
• PD No. 957 Sec. 18 (HLURB approval for mortgages on subdivision units).
• HLURB regulations on unlicensed real estate projects.
Facts
Vicente and his siblings owned TCT No. 156254 in Quezon City. In October 1988, Garcia offered ₱1.8 million; negotiations produced a ₱1.85 million agreement, ₱50,000 earnest money paid, and the original owner’s copy of TCT No. 156254 was turned over. Garcia demolished the existing house and advertised a 20-unit townhouse project. Payments by check were to be made in six tranches; two checks for ₱400,000 each were dishonored. Yap and Sanchez rescinded in January 1989, demanded return of documents, and prevented Garcia’s continued possession. Garcia nevertheless obtained TCT No. 383697 (purportedly issued June 9, 1988) in TSEI’s name and sold townhouse units to intervening buyers. FEBTC (later BPI) made a mortgage loan secured by TCT No. 383697 and foreclosed when TSEI defaulted.
Procedural Posture
The RTC (2004) declared valid the extrajudicial rescission, ordered return of title/documents, restoration of possession, awarded moral, exemplary, attorney’s fees, restitution to intervenors, and dismissed all counterclaims. The CA (2006) affirmed, directed cancellation of TCT No. 383697, reinstated TCT No. 156254, but found the Sanchezes in bad faith and applied Art. 448 to improvements, granting them options to appropriate or to demand compensation. The Supreme Court consolidated Rule 45 petitions by BPI, Tulagan, VTCI, and Maniwang.
Issues
- Whether the Sanchezes were negligent or in bad faith in turning over the title and failing to enjoin construction.
- Whether rescission of the sale agreement was proper despite subsequent transfers.
- Whether TCT No. 383697 may be cancelled in a collateral or direct proceeding.
- Whether intervenors and BPI are innocent purchasers/mortgagees in good faith entitled to protection.
- Whether the Sanchezes must apply Art. 448 or have other remedies.
Ruling and Reasoning
• Sanchezes’ Negligence and Good Faith: The Court held they were not negligent in surrendering the title duplicate for documentation under the agreement and were deprived of possession by Garcia’s surreptitious takeover. Their opposition to unauthorized construction through letters to HLURB and the City Building Official defeated claims of bad faith under Art. 453.
• Garcia/TSEI in Bad Faith: They built and sold without title or owner’s consent, knowing the suspensive condition (honor of checks) had failed.
• Intervenors in Bad Faith: Purchasers showed title bearing TCT No. 156254 (owned by Sanchezes) rather than a valid vendor’s title; they failed to verify with the Register of Deeds, to inspect the pending reconstitution case, to confirm HLURB approval or building permits, and ignored published cease-and-desist orders. VTCI’s late-dated deeds, uniform pricing, and lack of inquiry likewise betrayed bad faith.
• BPI as Mortgagee in Bad Faith: FEBTC/BPI ignored anomalies: mortgage of a title still in Sanchezes’ names without SPA, lack of HLURB approval, absence of a deed of absolute sale, issuance date of TCT No. 383697 preceding the sale, disbursement before loan approval, and delayed title verification. Banks require higher due diligence.
• Rescission Validity: Under Art. 1191, the Sanchezes properly rescinded. Art. 1385 does not bar rescission because all transferees (intervenors, mortgagee) acted in bad faith.
• Remedies Under Arts. 449–450: Since improvements were made in bad faith, the San
Case Syllabus (G.R. No. 179518)
Procedural Posture
- Consolidated Petitions for Review on Certiorari under Rule 45 filed by Bank of the Philippine Islands (BPI), Generoso Tulagan, heirs of Arturo Marquez, Varied Traders Concept, Inc. (VTCI), and Reynaldo V. Maniwang
- Assailed Court of Appeals Decision dated November 6, 2006 in CA-G.R. No. 83236, which affirmed with modification the Regional Trial Court (RTC), Branch 89, Quezon City Decision of July 14, 2004 in Civil Case No. Q-90-4690
Factual Antecedents
- Original owners: Vicente Victor C. Sanchez, Kenneth Nereo Sanchez (deceased), Imelda C. Vda. de Sanchez (deceased) of a 900 sqm parcel at No. 10 Panay Avenue, Quezon City, covered by TCT No. 156254
- October 10, 1988: Jesus V. Garcia (doing business as TransAmerican Sales & Exposition, Inc. or TSEI) offered to buy for P1,800,000 with P50,000 earnest; seller to bear taxes and documentary stamps, buyer to cover registration and transfer costs
- Third week of October 1988: oral agreement with Felisa Yap (widow of Kenneth), sale price raised to P1,850,000, P50,000 earnest, duties allocated for title reconstitution, demolition, and turnover of proceeds
Preliminary Actions and Breach
- Yap delivered owner’s duplicate TCT 156254, reconstitution application and tax receipts; Garcia paid P50,000
- Without consent, Garcia took possession, demolished the old house, installed a caretaker, advertised “TransAmerican Townhouse V,” and failed to pay the balance
Written Agreement of December 8, 1988
- Six postdated RBC checks totaling P1,850,000: two for P250,000 (Dec 8), two for P250,000 (Dec 14), two for P400,000 (Dec 22)
- Conditions on extrajudicial settlement of estate with sale, reconstitution and transfer expenses, tax allocation, demolition proceeds, and rescission upon dishonor of checks
Dishonor of Checks and Rescission
- First four checks honored; last two (aggregate P800,000) dishonored for insufficient funds
- December 26, 1988: Yap demanded replacement of dishonored checks; no compliance
- January 10, 1989: Yap and Vicente rescinded the Agreement, demanded return of documents; Garcia’s partial offer of P300,000 refused
- Dispute over whether balance payment was conditional upon tax obligations
Administrative Interventions
- February 27, 1989: Yap alerted Housing and Land Use Regulatory Board (HLURB) to illegal townhouse sales; HLURB issued Cease and Desist Order on March 17, published April 16 and 19
- May 5, 1989: HLURB reiterated directive; June 1, 1989: HLURB imposed P10,000 fine
- Quezon City Building Official confirmed illegal construction at 5% stage (March 14, 1989)
- April 3, 1989: Yap advised Register of Deeds of missing TCT 156254 and requested prior clearances
Intervenors’ Transactions
- Garcia/TSEI caused cancellation of TCT 156254, issuance of TCT 383697 dated June 9, 1988 (predating the sale agreement)
- Early 19