G.R. No. 114299 & G.R. No. 118862, September 24, 1999
TRADERS ROYAL BANK, petitioner, vs. HON. COURT OF APPEALS, PATRIA, RUBY ANN, MARGARITA, ROSARIO, CYNTHIA, LINDA JOY, all surnamed CAPAY and RAMON A. GONZALES, respondents. ( G.R. No. 114299 )

PATRIA, RUBY ANN, MARGARITA, ROSARIO, CYNTHIA, LINDA JOY, all surnamed CAPAY, and RAMON A. GONZALES, petitioners, vs. SPS. HONORATO D. SANTOS and MARIA CRISTINA S. SANTOS, SPS. CECILIO L. PE and JOSEFINA L. PE, FLORA LARON WESCOMBE, SPS. TELESFORO P. ALFELOR II and LIZA R. ALFELOR, SPS. DEAN RODERICK FERNANDO and LAARNI MAGDAMO FERNANDO, REMEDIOS OCA, DEVELOPMENT BANK OF THE PHILIPPINES and TRADERS ROYAL BANK, respondents. (G.R. No. 118862)

FACTS

Spouses Maximo and Patria Capay mortgaged a parcel of land to Traders Royal Bank (TRB) to secure a loan. The loan became due on January 8, 1964 and remained unpaid, prompting TRB to institute extra-judicial foreclosure proceedings. To prevent the sale, the Capays filed a petition for prohibition with preliminary injunction (Civil Case No. Q-10453) on September 22, 1966, alleging the mortgage was void for lack of consideration. On March 17, 1967, the Capays caused the annotation of a notice of lis pendens on their certificate of title and its entry in the Register of Deeds’ Day Book. The injunction was later lifted, allowing the foreclosure sale to proceed. On October 17, 1968, the property was sold to TRB as the highest bidder. After consolidation, TCT No. T-6595 in the Capays’ name was cancelled and TCT No. T-16272 was issued in TRB’s name, but the notice of lis pendens was not carried over to the new title.
The Capays filed a supplemental complaint for recovery of the property. On October 3, 1977, the CFI declared the mortgage void and ordered the cancellation of TRB’s title and the issuance of new titles in the Capays’ name. TRB appealed to the Court of Appeals. Pending appeal, on March 17, 1982, TRB sold the land to Emelita Santiago, who obtained TCT No. 33774 without a lis pendens annotation. Santiago subdivided the land into six lots and sold them to various buyers, who also obtained titles without the notice.
On July 30, 1982, the Court of Appeals affirmed the trial court’s decision with modifications on damages. TRB’s petition for certiorari to the Supreme Court was denied, and the decision became final and executory on November 9, 1983. A writ of execution to cancel TRB’s title and issue a new one for the Capays could not be implemented due to the subsequent transfers. The Capays and their counsel, Ramon Gonzales (who had a 35% share as attorney’s fees), filed a complaint for recovery of possession and ownership against TRB and the subsequent transferees (non-bank respondents). The trial court ruled in favor of the Capays, ordering the cancellation of the transferees’ titles, restoration of possession, and awarding damages against TRB. The Court of Appeals initially affirmed this decision in toto on February 24, 1994, ruling the non-bank respondents were not purchasers in good faith and that the lis pendens entry in the Day Book constituted sufficient notice. TRB filed a petition for review ( G.R. No. 114299 ). The non-bank respondents moved for reconsideration. On August 10, 1994, the Court of Appeals granted the motion, reconsidered its decision, and dismissed the complaint against the non-bank respondents. The Capays and Gonzales filed a petition for review (G.R. No. 118862) against this resolution.

ISSUE

The primary issue is whether the subsequent transferees (non-bank respondents) are purchasers in good faith and for value, protected against the claim of the Capays, despite the annotation of the notice of lis pendens in the Day Book but not on the certificates of title from which they derived their ownership.

RULING

The Supreme Court denied the petition in G.R. No. 114299 and granted the petition in G.R. No. 118862. The Court reversed the Court of Appeals’ Resolution of August 10, 1994 and reinstated its Decision of February 24, 1994, which affirmed the trial court’s judgment against all defendants.
The Court held that the non-bank respondents cannot be considered innocent purchasers for value. A notice of lis pendens serves as a warning to prospective purchasers that the property is in litigation. The annotation of the notice in the Day Book of the Register of Deeds constitutes registration and is sufficient notice to all persons of such adverse claim. The subsequent transferees are bound by the outcome of the litigation (Civil Case No. Q-10453) because the lis pendens was annotated prior to the foreclosure sale and the subsequent transfers. Their titles, derived from TRB’s title, are subject to the final judgment declaring the mortgage void and restoring ownership to the Capays. TRB was in bad faith for selling the property pending litigation without informing the buyer. The Court found no merit in TRB’s claim that Presidential Decree No. 1271 validated its title, as the decree applies to banks’ acquisitions through foreclosure but does not protect a bank that acted in bad faith. The trial court’s award of damages against TRB was upheld.