G.R. No. 210607 . March 25, 2019.
SPOUSES EDILBERTO & EVELINE POZON; EDILBERTO POZON, deceased, substituted by his heirs, namely, wife EVELINE POZON and daughters GERALDINE MICHELLE POZON and ANGELICA EMILIA POZON, Petitioners, vs. DIANA JEANNE LOPEZ, Respondent.

FACTS

Respondent Diana Jeanne Lopez, assisted by Rodolfo Cuenca, purchased a property in Dasmariñas Village, Makati, from Enrique Zobel in 1980. She immediately took possession. Lopez and Cuenca engaged the Beltran Cuasay Law Office to document the sale and organize Paraiso Realty Corporation to hold the title for her. Instead, the law office fraudulently excluded Lopez, made its associates the stockholders of Paraiso, and orchestrated a series of simulated sales, ultimately transferring the title to Tradex Realty Development Corporation. Lopez remained in possession throughout.
In 1986, Tradex, through broker George Raymundo, agreed to sell the property to petitioners Spouses Pozon. The Pozons were aware Lopez was in possession and that she refused entry and claimed ownership. Relying on Tradex’s clean title, they proceeded with the purchase. When Tradex failed to deliver possession, the Pozons sued Tradex for specific performance. Lopez, not a party to that suit, filed the present action for quieting of title against the Pozons and others, seeking to nullify the titles derived from the fraudulent transactions.

ISSUE

Whether the action for quieting of title is proper and whether petitioners Spouses Pozon are buyers in good faith, such that their title should prevail over respondent Lopez’s claim.

RULING

The Supreme Court affirmed the lower courts’ rulings, granting the petition for quieting of title. The action was proper as Lopez, in possession of the property since 1980, demonstrated a prima facie claim of ownership based on her purchase from Zobel, which was clouded by the series of fraudulent titles issued to Paraiso, Tradex, and ultimately the Pozons.
The Court held the Pozons were not buyers in good faith. Good faith requires not only checking the certificate of title but also inquiring into the rights of the actual possessor. The Pozons were aware before the sale that Lopez was in possession, refused them entry, and asserted ownership. Their failure to investigate her claim further, despite these clear warning signs, constituted gross negligence equivalent to bad faith. Consequently, they cannot invoke the protection accorded to purchasers in good faith for value. The Torrens system does not protect those who purchase property with knowledge of a defect in the vendor’s title or a cloud upon it. Since the Pozons’ title originated from the fraudulent scheme perpetrated against Lopez, it is void and must be cancelled.