G.R. No. 142313. March 1, 2001.
SPOUSES MANUEL CHU, SR. and CATALINA B. CHU, et al., petitioners, vs. BENELDA ESTATE DEVELOPMENT CORPORATION, respondent.

FACTS

Petitioners, the registered owners of five parcels of land, executed a deed of sale with assumption of mortgage in favor of Trinidad Cunanan. The deed reflected full payment, but the true agreement was that ownership would remain with petitioners until Cunanan paid the substantial unpaid balance. This arrangement was to enable Cunanan to register the titles in her name, mortgage the properties, and pay the balance from the loan proceeds. Cunanan secured titles in her name but failed to pay the balance. Without petitioners’ knowledge, Cunanan sold two of the parcels to spouses Carlos, who subsequently sold them to respondent Benelda Estate Development Corporation.
Petitioners filed a complaint for reconveyance, later amended to implead respondent. They alleged the sales by Cunanan were void as she was never the true owner, and thus respondent acquired no valid title. Respondent moved to dismiss, arguing the amended complaint stated no cause of action against it, as it was a purchaser in good faith and for value relying on clean certificates of title. The trial court denied the motion to dismiss.

ISSUE

Whether the Court of Appeals correctly reversed the trial court and ordered the dismissal of the complaint against respondent for failure to state a cause of action.

RULING

Yes. The Supreme Court affirmed the Court of Appeals’ decision dismissing the complaint against respondent. For a complaint to state a cause of action, it must show a right of the plaintiff, a correlative obligation of the defendant, and an act or omission by the defendant violating that right. The amended complaint failed to allege any act or omission on the part of respondent that constituted a violation of a duty owed to petitioners. Crucially, there was no allegation that respondent participated in any fraud or that it purchased the properties in bad faith.
The legal logic centers on the principles of the Torrens system. When petitioners consented to the cancellation of their titles and the issuance of new ones in Cunanan’s name, they clothed Cunanan with the indicia of ownership. Respondent, as a subsequent purchaser, had the right to rely on the face of Cunanan’s certificates of title, which were free from any lien or encumbrance. An innocent purchaser for value of registered land acquires a valid title, and the prior unregistered agreement between petitioners and Cunanan cannot prevail against such a purchaser. Since the complaint contained no factual averment of respondent’s bad faith, it failed to state a cause of action against it. The trial court’s denial of the motion to dismiss, despite this fatal deficiency, constituted grave abuse of discretion correctible by certiorari.