Title
Homeowners Association of Talayan Village, Inc. vs. J.M. Tuason and Co., Inc.
Case
G.R. No. 203883
Decision Date
Nov 10, 2015
A 22,012 sqm lot in Quezon City, Block 494, was contested over its status as open space. The Supreme Court ruled the donation void, upheld its private ownership, and confirmed the mortgagee's good faith, reversing bad faith claims against the owners.

Case Summary (G.R. No. 203883)

Summary of Facts

Block 494 is a 22,012 square meter parcel initially registered under J.M. Tuason, part of Talayan Village subdivision developed in the 1950s under an approved subdivision plan PSD-52256. The plan designated Block 503, not Block 494, as the official open space/park. Block 494 remained undivided, was listed as open space in an undated certification by the developer’s representative, Araneta, and had various amenities such as a barangay hall, playground, and sports courts constructed at the expense of HATVI and Quezon City government.

In 1962, Quezon City passed Ordinance No. 5095 mandating subdivision owners to turn over open spaces equivalent to 6% of the development area to the city. J.M. Tuason executed a Deed of Donation over the open spaces, including Block 494, but there is no record that the donation was accepted by the city government.

Due to unpaid realty taxes, Block 494 was subjected to a tax delinquency sale in 1996, where J.M. Tuason repurchased it as the highest bidder. The property was subsequently sold unilaterally by J.M. Tuason to THI, subdivided into four lots, and encumbered by a mortgage in favor of Equitable Bank.

HATVI filed suit for annulment of the sale, cancellation of titles and mortgage, and damages, arguing that Block 494 was reserved as an open space and hence non-alienable, with the land effectively removed from commerce due to representation to buyers and its public use.

Trial Court Findings

The Regional Trial Court (RTC) ruled that Block 494 was not a designated open space; the Deed of Donation was null and void for non-acceptance and for failing to be notarized, and the property remained private. Equitable Bank was deemed a mortgagee in good faith. Consequently, HATVI’s complaint was dismissed.

Court of Appeals (CA) Ruling

The CA affirmed the RTC decision with modification, holding:

  • PD 1216 was not applicable as Talayan Village was developed in the 1950s; the governing law was the Land Registration Act supplemented by Quezon City ordinances, which J.M. Tuason complied with by designating sufficient open spaces (including Block 503).
  • The Deed of Donation, lacking acceptance by the city and notarization, was ineffective.
  • Block 494 remained private property and subject to tax delinquency sale; the sale was valid and J.M. Tuason legally reacquired the property.
  • Equitable Bank was a mortgagee in good faith as it relied on the title and conducted due diligence.
  • Although J.M. Tuason and THI were found owners in bad faith for permitting the construction of amenities on Block 494, damages were to be determined in separate proceedings.

Issues on Review

HATVI challenged the CA, asserting:

  1. The pivotal issue is whether Block 494 was reserved as open space, not the applicable law at the time of development.
  2. Estoppel should apply to prevent J.M. Tuason and THI from denying Block 494’s status as open space due to representations and public use.
  3. Non-acceptance of the donation does not affect the land’s nature as public/open space.
  4. The tax delinquency sale does not invalidate the land’s status.
  5. Equitable Bank should not be considered a mortgagee in good faith given its failure to detect the developments on the land.

J.M. Tuason and THI contended that the CA erred in ruling them owners in bad faith and in deciding on matters not raised in the parties’ appeal.

Supreme Court’s Analysis—Applicable Law and Validity of Donation

The Court agreed with the CA that the applicable law at the time of development was the Land Registration Act, not PD 1216, which is not retroactive. Accordingly, there was no legal requirement under the Land Registration Act for minimum reserved open spaces, a gap the Quezon City ordinances filled. J.M. Tuason complied with these by donating reserved open spaces to the city.

The critical point is that Block 494 was not the designated open space under Subdivision Plan PSD-52256; Block 503 was. The attempted donation of Block 494 was invalid because:

  • The Deed of Donation was not notarized as required by Article 749 of the Civil Code.
  • There was no acceptance by the donee (city government), violating Article 745, which renders the donation null and void. The purpose of acceptance is to notify the donor the donation has been accepted; without acceptance, the donation is ineffective.

Estoppel and Reservation of Block 494 as Open Space

The Court found estoppel inapplicable. Estoppel is an equitable doctrine invoked in exceptional cases where natural justice so demands. Unlike prior jurisprudence referenced by HATVI, this case has:

  • An approved subdivision plan clearly designating a different block (No. 503) as open space.
  • Evidence that J.M. Tuason already segregated more than the required open space elsewhere in the subdivision.

Thus, HATVI cannot rely on estoppel to convert Block 494 into an open space. Its use as a park and playground over the years, without valid donation or designation, does not remove it from commerce.

Tax Delinquency Sale and Ownership Rights

The Court held that since the donation was ineffective, Block 494 remained private property. The tax delinquency sale conducted by Quezon City in 1996 was valid. Laws on tax delinquency sales provide that once the redemption period lapses, title passes free of liens and encumbrances not noted on the certificate of title. J.M. Tuason’s reacquisition and subsequent sale to THI were lawful.

THI’s subdivision and mortgage of the lots followed legitimate ownership rights. The mortgagee bank, Equitable Bank, relied on the title and observed due diligence, including ocular inspection, so it qualifies as a mortgagee in good faith, protected under established jurisprudence.

Liability for Bad Faith and Damages

The CA’s declaration that J.M. Tuason and THI were owners in

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