Title
Orduna vs. Fuentebella
Case
G.R. No. 176841
Decision Date
Jun 29, 2010
A verbal sale of a lot was partially executed, but Gabriel Jr. sold it to others. The Supreme Court ruled in favor of the Orduñas, upholding their possession and ordering reconveyance due to bad faith of subsequent buyers.
annulment of title
reclaim residential lot
multiple buyers

Case Summary (G.R. No. 176841)

Factual Background

The controversy concerned a residential lot of seventy-four square meters in Fairview Subdivision, Baguio City, originally covered by Transfer Certificate of Title No. 67181 in the name of Armando Gabriel, Sr. Petitioners alleged that sometime in 1996 or thereabouts Gabriel, Sr. sold the lot to Antonita Orduna by verbal contract with an agreed purchase price of PhP 125,000 payable in installments. Petitioners established possession and occupation of the lot as early as 1979, constructed a house thereon, declared the structure for tax purposes under Tax Declaration No. 96-04012-111087, and paid real property taxes. Partial payments were made to Gabriel, Sr. and, after his death, to his son Armando Gabriel, Jr., who recognized the payments by receipts and by correspondence acknowledging an aggregate payment of PhP 65,000 with a balance stated to be PhP 60,000. Gabriel, Jr. also authorized petitioners to fence the lot.

Subsequent Transfers and Respondents' Acquisitions

Despite petitioners' occupancy and partial payments, Armando Gabriel, Jr. allegedly borrowed PhP 50,000 from Bernard G. Banta, and upon default executed a Deed of Sale dated June 30, 1999 that resulted in issuance of TCT No. T-72782 in Bernard's name. Bernard then sold to Marcos S. Cid and Benjamin F. Cid for PhP 80,000, who in turn sold to Eduardo J. Fuentebella by a Deed of Absolute Sale dated May 11, 2000, culminating in issuance of TCT No. T-3276 in Eduardo's name on May 16, 2000. Each purchaser relied on the Registry's certificate of title and, they claimed, inspected the property and found it unoccupied.

Petitioners' Cause of Action and Relief Sought

After receiving a demand to vacate from Eduardo in May 2000 and learning from Teresita (the estranged wife of Gabriel, Jr.) that her signature on the June 30, 1999 deed might be forged, petitioners, joined by Teresita, filed the Complaint for Annulment of Title, Reconveyance with Damages on July 3, 2001. They prayed that TCT No. T-3276 in Eduardo's name be annulled, that Gabriel, Jr.'s title be reinstated, and that petitioners be declared entitled to ownership upon payment of the remaining purchase price.

Trial Court Proceedings and Disposition

The RTC dismissed the complaint by Decision dated May 26, 2003. The RTC held that Eduardo was a purchaser in good faith entitled to protection under Article 1544, that the verbal sale was unenforceable under the Statute of Frauds, that the verbal agreement lacked adequate consideration, and that petitioners’ action to assail the registry had prescribed one year from issuance of the title. The RTC also awarded moral and exemplary damages and attorney's fees against the plaintiffs as reflected in the dispositive portion of its decision.

Court of Appeals Ruling

The CA affirmed the RTC on December 4, 2006, reiterating that the oral sale was unenforceable for noncompliance with the Statute of Frauds, that subsequent purchasers acquired the property in good faith and had priority by registration, and that petitioners’ cause of action was time-barred. The CA dismissed petitioners’ appeal in CA-G.R. CV No. 79680, leading to this Petition for Review under Rule 45.

Issues Presented to the Supreme Court

The Supreme Court distilled the controversy into four core issues: first, whether the oral sale between Armando Gabriel, Sr. and Antonita was unenforceable under the Statute of Frauds; second, whether that sale had adequate consideration; third, whether petitioners’ action had prescribed; and fourth, whether the respondent-purchasers were bona fide purchasers entitled to protection.

Statute of Frauds and Partial Execution

The Court found the Statute of Frauds as expressed in Article 1403, par. (2) inapplicable to the sale because the contract had been partially executed. The Court reiterated that the Statute operates as an evidentiary or formal requirement applicable to executory contracts; where performance has been made, the contract is taken out of the Statute’s coverage. The records showed partial payments receipted by Gabriel, Jr., possession and occupation by petitioners, and acts by Gabriel, Jr. that acknowledged petitioners’ dominion over the land, such as authorizing fencing. The Court invoked Article 1405 to emphasize that contracts infringing the Statute are ratified by acceptance of benefits under them. Because petitioners had paid at least PhP 65,000 and had been in possession, the oral sale was enforceable and not barred by the Statute of Frauds.

Adequacy of Consideration

The Court rejected the lower courts’ suggestion that incomplete payment equated to inadequacy of consideration. It clarified the distinction between partial payment (a ground to rescind for nonperformance) and lesion or shocking inadequacy of price. The Court noted that the agreed price of PhP 125,000 was materially higher than the amounts for which subsequent transfers occurred—PhP 50,000 to Bernard and PhP 80,000 to the Cids—thereby undermining any contention of inadequate consideration or unconscionability as grounds to void the original sale.

Prescription and the Possessory Character of the Action

On prescription, the Court held that an action to annul a fraudulently issued certificate of title and to reconvey a registered land is imprescriptible when the plaintiff is in possession of the subject property. The Court relied on precedent recognizing that a reconveyance action grounded on fraud partakes of a quieting of title and is not barred when the suitor remains in actual possession. Since petitioners were in actual possession, their action was not time-barred despite the issuance of TCT No. T-3276 in Eduardo's name on May 16, 2000 and the filing of the complaint on July 3, 2001.

Good Faith of Respondent-Purchasers

The Court rejected the contention that the respondents were innocent purchasers for value. While acknowledging the general Torrens principle that one may rely upon the certificate of title, the Court emphasized that a purchaser confronted with the vendor’s lack of possession or with actual possession by third parties must inquire further. Here, the record showed that Gabriel, Jr. and subsequent vendors were not in possession, while petitioners were in actual occupation manifested by improvements, tax declaration, and prior payments. The Court reasoned that failure to investigate in such circumstances amounted to lack of good faith; therefore Bernard, the Cids, and Eduardo could not claim the protectio

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