G.R. No. 147029 . February 27, 2004
SPOUSES LEONARDO P. DIMACULANGAN, et al., petitioners, vs. VIRGINIA AQUINO ROMASANTA, et al., substituted by ROYAL MOLUCCAN REALTY HOLDINGS, INC., respondents.

FACTS

Roman Aquino, owner of a parcel of land in Bulacan, executed a Deed of Absolute Sale in favor of spouses Juan and Esperanza Fabella on November 11, 1954. The true agreement, however, was one of mortgage to secure a loan. The Fabellas obtained title (TCT No. 15770) and later sold the land to the Liwanag group, who secured TCT No. 17592. On September 9, 1956, Valentina Bernardo Vda. de Aquino (Roman’s widow and administratrix) filed a complaint (Civil Case No. 1376-M) for reformation of the deed to a mortgage and cancellation of the titles. She annotated a Notice of Lis Pendens on TCT No. 17592 on October 9, 1956. The Liwanag group intervened. In 1968, the Fabellas filed a Manifestation confessing judgment, admitting the transaction was a mortgage, not a sale. The case experienced prolonged delays and was dismissed for failure to prosecute in 1976 but was later reinstated. Ultimately, the trial court rendered a 1988 Decision in favor of Valentina’s heirs, declaring the deed a mortgage and ordering title reconveyance.
Meanwhile, the Liwanag group sold portions of the land to petitioners Spouses Dimaculangan, et al., in 1977 and 1978. Petitioners obtained titles, which did not carry the lis pendens annotation because the Register of Deeds had earlier cancelled it in 1971, based on a mistaken belief that the 1972 dismissal order was final. Petitioners filed an action for quieting of title. The trial court ruled in their favor, declaring them buyers in good faith. The Court of Appeals reversed, holding the lis pendens was never validly cancelled and petitioners were not in good faith.

ISSUE

Whether petitioners are buyers in good faith, entitled to protection, despite the prior annotated notice of lis pendens.

RULING

No. Petitioners cannot be considered buyers in good faith. A notice of lis pendens serves as a warning to the whole world that a particular real property is in litigation, and any purchaser acquires the property subject to the outcome of the suit. The annotation on October 9, 1956, was valid and remained effective throughout the pendency of Civil Case No. 1376-M, which was terminated only in 1988. The cancellation of the annotation by the Register of Deeds in 1971 was erroneous and without legal effect, as it was based on a dismissal order that was subsequently reconsidered and set aside. The notice, therefore, was never lawfully removed from the title.
Consequently, petitioners are charged with constructive notice of the pending litigation affecting the property at the time of their purchase in 1977 and 1978. They cannot invoke good faith, as the law presumes they investigated the title and discovered the annotation. The prescriptive period for an action to reconvey based on an implied or constructive trust, which applies here as the sale was really an equitable mortgage, runs from the date of registration of the deed or issuance of the title to the transferee. However, given the continuous efficacy of the lis pendens, the period did not commence against respondents until the final resolution of the case in 1988. To rule otherwise would cause manifest injustice, as the rules on prescription and constructive notice are designed to prevent, not foster, injustice.