G.R. No. 204887 , March 03, 2021
ERNESTO R. SERRANO, PETITIONER, VS. SPOUSES LUZVIMINDA & ARNOLD GUZMAN, SPOUSES MARISSA AND EFREN CASTILLO, AND SPOUSES SAMUEL AND EDIVINA PACIS, RESPONDENTS.

FACTS

On September 26, 1983, petitioner Ernesto R. Serrano and the heirs of Juan M. Baligod executed a Deed of Sale over Lot No. 1, covered by OCT No. P-4235. Ernesto settled the seller’s loan with PNB as part of the purchase consideration, and TCT No. T-6309 was issued in his name. On September 15, 1998, Ernesto executed an Affidavit of Splitting for the subdivision of Lot No. 1 and a Deed of Reconveyance in favor of his sister, respondent Luzviminda Guzman, purportedly recognizing her as a co-owner because she contributed to the loan payment. TCT No. T-6724 for Lot No. 1-A was issued to Luzviminda, who further subdivided it into three lots. On November 22, 2001, Luzviminda sold two of these lots to respondents Marissa Castillo and Samuel Pacis. Ernesto filed an Affidavit of Adverse Claim on December 23, 2001, alleging fraud, and later filed a complaint for reconveyance. He claimed he signed blank sheets for subdivision purposes, which Luzviminda used to fabricate the Deed of Reconveyance. Respondents argued the documents were genuine and that the buyers were in good faith. The Regional Trial Court (RTC) ruled in favor of Ernesto, declaring the documents void and ordering reconveyance. The Court of Appeals (CA) reversed the RTC, dismissing the complaint.

ISSUE

Whether the Court of Appeals erred in reversing the RTC’s decision, specifically regarding: (1) the due execution and authenticity of the Deed of Reconveyance; (2) the existence of an implied trust in favor of Luzviminda; and (3) the good faith of the subsequent buyers, Spouses Castillo and Spouses Pacis.

RULING

The Supreme Court granted the petition, reversed the CA Decision, and reinstated the RTC Judgment with modification. The Court held:
1. The Deed of Reconveyance was not duly executed and was a forgery. The Court found Ernesto’s testimony credible that he signed blank sheets for subdivision, not a deed of reconveyance. Evidence contradicted the due execution: the notary public did not properly identify Ernesto, the witnesses did not see him sign, and the document contained an error (stating the lot was acquired in 1989 instead of 1983). The testimony of witness Elizabeth Manauis was unreliable due to bias, as she later purchased a portion of the disputed lot. The presumption of regularity of notarized documents was sufficiently overcome.
2. No implied trust under Article 1456 of the Civil Code was created. An implied trust arises if property is acquired through mistake or fraud. The Court found no evidence that Luzviminda contributed to the purchase price. Testimony from the seller’s attorney-in-fact, Mariano Baligod, and Ernesto’s brother, Victor Serrano, established that Ernesto solely paid for the lot. Luzviminda’s claim of contribution was unsubstantiated. Therefore, no implied trust existed in her favor.
3. Spouses Castillo and Spouses Pacis were not innocent purchasers for value and in good faith. A purchaser cannot invoke good faith if the title bears an annotation of an adverse claim. Ernesto’s Affidavit of Adverse Claim was annotated on the titles of Spouses Castillo and Spouses Pacis (TCT Nos. T-8414 and T-8415) at the time of their purchase. This annotation served as constructive notice of a defect, requiring them to investigate further, which they failed to do. Consequently, they are not protected as innocent purchasers.
The Supreme Court declared the Deed of Reconveyance and all subsequent sale documents and titles null and void. It ordered the respondents to reconvey the subject lots to petitioner Ernesto R. Serrano. The Court modified the RTC’s dispositive portion by deleting the orders for the defendants to execute deeds of reconveyance, as the direct cancellation of the void titles suffices.