G.R. No. 222548 - Delos Santos vs. Commissioner of Internal Revenue

Case Summary (G.R. No. 222548)

Factual Background

Earlier in time, a house owned by Eulalia Leis (Leis) had been constructed on land owned by Filomena Gatchalian (Gatchalian) on San Jose Street, Antipolo, Rizal. Leis asserted her rights as early as 1949 through a Tax Declaration covering the subject house located on the subject land. While the house was first built using light materials and covered 25.25 square meters, it later underwent renovation by 1974, after which it was built with stronger materials and expanded its floor area. By that time, the house had been mortgaged to the Rural Bank of Teresa (Rizal), Inc. (RBTRI). Because the mortgagor later failed to pay and redeem, RBTRI eventually acquired ownership of the house. In 1980, respondent Isabelita—Leis’s daughter—purchased the house back from the bank under a deed of sale.

A different ownership trail attached to the subject land. The land was initially owned by Gatchalian when the house was constructed thereon. Later, ownership passed to Spouses Felipe Matawaran and Ofelia Oliveros (spouses Matawaran), though the records did not show how they acquired it. In 1980, the spouses Matawaran executed two real estate mortgage contracts with the Capitol City Development Bank (CCDB) covering the land together with the house as security for a loan of P200,000.00. The mortgage deeds described the mortgaged property as including a two-storey residential building with a floor area of 220 square meters. After nonpayment, CCDB foreclosed and acquired the mortgaged property in 1984. With no redemption made, CCDB consolidated title and was issued Transfer Certificate of Title (TCT) No. 115486 in its name.

In the meantime, respondent Isabelita, who had married respondent Danilo Alcantara, purchased in July 1983 from Florencio Oliveros a 76 square meter lot adjacent to the house, which she had earlier purchased from RBTRI. Although it was not clear whether the Alcantaras resided in the house, starting in 1987, they rented out the lower floors to petitioner Contreras, who resided there. From 1986 to 1990, CCDB advertised its intention to sell the subject land but found no buyers. In March 1990, CCDB and Contreras entered into a Contract to Sell involving the subject land “together with the improvements existing thereon.” This was followed by a Deed of Absolute Sale dated 13 November 1990, whereby Contreras purchased from CCDB for P212,400.00 the subject land “together with the improvements existing thereon.”

Even before the deed of absolute sale was executed, the Alcantaras had written CCDB about the contract to sell between CCDB and Contreras. They stated that they were the owners of the adjacent lot, that they were not aware of the contract until after its execution, and that they were willing to avail of their preferential right to purchase under the Civil Code. In 1991, the Alcantaras filed a complaint with the Regional Trial Court (RTC) of Antipolo, Rizal, seeking, among others, the annulment of the deed of absolute sale between Contreras and CCDB. The case was docketed as Civil Case No. 91-222 and assigned to Branch 71.

RTC Proceedings and the Parties’ Pleadings

In their complaint, the Alcantaras identified the lot on which the house stood as Lot A-4 of the subdivision plan (LRC) Psd-282785, which was identified in TCT No. N-37840 in the name of the spouses Matawaran and then in its replacement TCT No. 115486 in the name of CCDB. They asserted that they owned the house even though the land on which it stood belonged to another party. They argued that the spouses Matawaran had no capacity to include the house as part of the property mortgaged to CCDB because they were not owners of the structure. Consequently, they contended that CCDB could not have acquired ownership of the house through foreclosure. Based on those premises, they prayed for annulment of the deed of absolute sale between CCDB and Contreras, and they also demanded damages.

The Alcantaras further invoked their asserted ownership of the adjacent lot and claimed that they were entitled to the right of pre-emption and redemption under Article 1622 of the Civil Code, specifically praying that the trial court “[allow] the plaintiffs to exercise their right of pre-emption and redemption under Article 1622.” Contreras sought dismissal, but the RTC reconsidered and denied dismissal. Contreras then filed an answer with counterclaim for damages, asserting that the subject house was included in the sale between CCDB and Contreras. Her answer was filed by Atty. Melanio Zoreta in behalf of Contreras and all defendants except the Matawaran and Oliveros defendants. CCDB later filed an independent answer, while the Matawaran spouses also filed their own answer and admitted that the Alcantaras were the owners of the subject house, albeit built on their former property. The Matawarans also maintained that they never misrepresented to CCDB that they owned the house and that CCDB knew the house was actually owned by the Alcantaras.

During trial, Contreras died and was substituted by her parents, Francisco and Lourdes Pascual.

RTC Decision

On 15 April 1997, the RTC rendered a decision affirming the Alcantaras’ ownership over the subject house. It ordered surrender of possession of the house to the Alcantaras and declared the Deed of Absolute Sale dated 13 November 1990 null and void. It also ordered CCDB to convey the subject property described as Lot A-4 covered by TCT No. 115486 to the Alcantaras upon payment of P212,400.00, with the amount to be returned to defendants Francisco and Lourdes Pascual by CCDB.

In reaching these conclusions, the RTC held that the evidence sufficiently established the Alcantaras’ ownership of the subject house. It relied on the deed of sale between RBTRI and Isabelita, tax declarations, the testimony of Lourdes Pascual that petitioner had rented the house from the Alcantaras starting in 1987, and the Matawarans’ admission that they were not the owners of the house. The RTC characterized these findings as sufficient to “negate the general presumption that the accessory follows the principal.” It therefore considered it error for CCDB to include the subject house in the deed of sale to Contreras, given that the house was not included in the mortgage executed by the Matawarans and the Matawarans had no capacity to mortgage the house.

As to the Alcantaras’ asserted right under Article 1622, the RTC ruled that the owner of an adjoining land has a right of pre-emption when the land is to be sold, and it applied the principle even if the situation was not exactly that provided under Article 1622, in the absence of a specific law. The RTC reasoned that it was only fair to give the adjoining lot owners the preferential right to buy, particularly since they owned both the adjacent land and the house erected on a portion of it.

Appeal to the Court of Appeals and Petition to the Supreme Court

Petitioner appealed to the Court of Appeals. On 30 August 2002, the Court of Appeals affirmed the RTC decision in toto. It confirmed that the Alcantaras remained owners of the subject house, and thus the Matawarans could not have included the house in their mortgage. The Court of Appeals also ruled that because the ownership by the Alcantaras of the adjacent lot was not controverted, the RTC correctly applied Articles 1621 and 1622 of the Civil Code to sustain the right of pre-emption.

Before the Supreme Court, petitioner raised only two issues. The first questioned the Court of Appeals’ decision as allegedly not properly signed by the ponente and the members of the Twelfth Division. The second contended that the RTC exceeded jurisdiction by awarding relief not asked for by the Alcantaras, arguing that the complaint did not demand that the house and lot be sold to them for the price granted.

First Issue: Alleged Defect in the Court of Appeals’ Decision Signatures

Petitioner claimed that the copy she received of the Court of Appeals decision dated 30 August 2002 was not signed by the ponente and the concurring justices, invoking Section 1, Rule 36 of the Rules of Civil Procedure, which requires that a judgment or final order determining the merits be signed by the judge who prepared the decision. Petitioner supported the allegation by attaching Annex “A,” a seven-page copy purportedly showing an unsigned page. A cursory inspection showed that page six, meant to contain signatures, was unsigned, while the first five pages bore the initials of Associate Justice Elvi John Asuncion, the seventh page bore a signed certification of the Chairperson, Associate Justice Portia Alino-Hormachuelos, and the first page bore the signature of the Division Clerk of Court, Marie Claire Victoria Mabutas-Sordan.

The Court held that petitioner’s contention could have been troubling only if the decision as filed with the official records lacked the required signatures. That was not the case. The Court found that the decision in the official records bore the signatures of the ponente and the two concurring justices. Petitioner also admitted that a certified photocopy she obtained before filing the petition reflected complete signatures. The Court reasoned that the signature requirement exists to provide indubitable proof that the judges who prepared and concurred in the decision actually did so, and that proof existed in the official record. The Court further observed that there was no meaningful difference between the unsigned page six attached by petitioner and the signed page six in the record, with no alteration suggesting discrepancies in the decision the justices actually signed and the decision transmitted. The Court characterized the omission in petitioner’s copy as a clerical error in transmission, and it declined to nullify the decision on account of that formal defect.

Second Issue: Alleged Excess of Jurisdiction in the RTC’s Granted Relief

Petitioner argued that the RTC exceeded its jurisdiction by awarding relief not prayed for by the Alcantaras when it

Case Syllabus (G.R. No. 222548)

The petition for review was filed by Jerty Pascual Contreras (deceased), represented by her mother, Lourdes Pascual, challenging the rulings of the Court of Appeals, Former Twelfth Division.
The respondents were the Honorable Court of Appeals, Former Twelfth Division, and the spouses Danilo Alcantara and Isabelita Alcantara.
The controversy arose from a long-standing segregation of ownership between a house and the parcel of land on which it stood, and from subsequent mortgage, foreclosure, and sales that involved the land and the improvements.
The Court dismissed the petition for lack of merit.

Property Background and Ownership Split

A subject house owned by Eulalia Leis (Leis) was constructed on a subject land owned by Filomena Gatchalian (Gatchalian).
Leis claimed rights to the house as early as 1949 through a Tax Declaration.
The house was initially built with light materials and covered 25.25 square meters.
By 1974, the house had been renovated, built out of strong materials, and expanded in floor area.
The house was later mortgaged to the Rural Bank of Teresa (Rizal), Inc. (RBTRI), and RBTRI acquired ownership after the mortgagor failed to pay and redeem.
In 1980, respondent Isabelita Bumatay (Isabelita), Leis’s daughter, purchased the house back from the bank by deed of sale.
The ownership trail for the subject land was separate: it belonged to Gatchalian when the house was first constructed, then later passed to the spouses Felipe Matawaran and Ofelia Oliveros (spouses Matawaran).
The records did not show how the spouses Matawaran acquired the subject land.
In 1983, Isabelita purchased an adjacent 76-square meter lot from Florencio Oliveros, which she had earlier acquired from RBTRI.
It was unclear whether the spouses Alcantara resided in the house, but starting 1987, they rented out the lower floors to petitioner Contreras, who resided there.

Mortgages, Foreclosure, and Title Consolidation

In 1980, the spouses Matawaran executed two real estate mortgage contracts with the Capitol City Development Bank (CCDB) covering the land and, according to the mortgage deeds, also including the house as part of the mortgaged property.
The mortgage deeds described a two-storey residential building with a floor area of 220 sq. meters as included in the mortgaged property.
After the spouses Matawaran failed to pay the loan, CCDB foreclosed on the mortgage in 1984.
After no redemption was made, CCDB consolidated title in its name and issued Transfer Certificate of Title (TCT) No. 115486.
CCDB subsequently advertised its intention to sell the subject land.
There were no buyers from 1986 until 1990.

Contract to Sell and Deed of Absolute Sale

In March 1990, CCDB entered into a Contract to Sell with Contreras involving the subject land “together with the improvements existing thereon.”
On 13 November 1990, CCDB executed a Deed of Absolute Sale with Contreras.
Under the deed, Contreras bought the subject land “together with the improvements existing thereon” for P212,400.00.
Before the deed was executed, the spouses Alcantaras wrote CCDB regarding the Contract to Sell and asserted they were owners of the adjacent lot.
The spouses Alcantaras informed CCDB that they had not been made aware of the Contract to Sell until after execution.
They signaled willingness to avail themselves of their alleged preferential right to purchase under the Civil Code.
The subsequent litigation turned on whether CCDB lawfully acquired and sold the house as an “improvement” included in the mortgage foreclosure and sale.

The RTC Complaint and Claims

In 1991, the spouses Alcantaras filed a Complaint with the Regional Trial Court (RTC) of Antipolo, Rizal, seeking annulment of the Deed of Absolute Sale between Contreras and CCDB.
The case was docketed as Civil Case No. 91-222 and raffled to Branch 71.
The spouses Alcantaras identified the land under the house as Lot A-4 of the subdivision plan (LRC) Psd-282785, as reflected in TCT No. N-37840 in the name of the spouses Matawaran and its replacement in TCT No. 115486 issued in CCDB’s name.
The spouses Alcantaras asserted ownership of the house, while the land belonged to a different party.
They argued that the spouses Matawaran lacked capacity to include the house as part of the property mortgaged to CCDB because they were not owners of the structure.
They further argued that CCDB could not have acquired ownership of the house when it foreclosed on a mortgage that did not validly include a house owned by someone else.
They prayed for annulment of the Deed of Absolute Sale between CCDB and Contreras.
They also prayed for relief based on Article 1622 of the Civil Code, invoking pre-emption and redemption rights.
The complaint included a demand for damages.
The spouses Alcantaras specifically requested the trial court to “[allow] the plaintiffs to exercise their right of pre-emption and redemption under Article 1622 of the Civil Code of the Philippines.”

Answers, Substitution, and Trial Developments

Contreras sought dismissal initially, but the RTC reconsidered and allowed the case to proceed.
Contreras filed an answer with counterclaim for damages, asserting that the subject house was included in the sale between CCDB and Contreras.
Contreras’s answer was filed by Atty. Melanio Zoreta on behalf of Contreras and all defendants, “save Matawaran and Oliveros.”
CCDB filed its own separate answer and indicated it was unaware that Zoreta was acting for Contreras and also representing CCDB in other cases.
CCDB’s independent answer also requested dismissal and lodged a cross-claim against the Contreras and the Matawaran spouses “in the remote event” judgment was rendered against CCDB.
The spouses Matawaran filed an answer admitting that the Alcantaras owned the subject house even if it was built on their former property.
The spouses Matawaran asserted they never misrepresented to CCDB that they owned the house and insisted CCDB had known the house was actually owned by the Alcantaras.
During the trial, Contreras died, and the case proceeded with substitut