G.R. No. 47867 ; November 13, 1942
Carmen Garchitorena and Joaquin Perez, petitioners, vs. Vicente Sotelo, as judicial guardian of the Gatchalian y Jarata minors, respondent.

FACTS

The property involved is a house and lot in Manila originally owned by Asuncion Jarata, who mortgaged it to Perfecto Gabriel. Gabriel foreclosed the mortgage, bought the property at auction, and transferred it to Carmen Garchitorena, who then transferred it to Jesus Pellon, in whose name the Torrens title stands. Vicente Sotelo, as judicial guardian of Jarata’s eight minor children, filed an action to annul the foreclosure judgment and subsequent transfers, alleging fraud. The trial court annulled the transfers and ordered the title restored to the minors. The Court of Appeals affirmed with modifications, annulling the sales from Gabriel to Garchitorena and Garchitorena to Pellon, ordering cancellation of Pellon’s title and issuance of a new one in the minors’ names subject to an existing mortgage, and requiring Gabriel and Garchitorena to account for income from the property. Gabriel and Garchitorena appealed to the Supreme Court.
The factual background reveals that after Jarata’s death, Perfecto Gabriel, who prepared her will, was appointed guardian of her minor children. As guardian, he failed to disclose to the court that the minors’ property was mortgaged to him. He later arranged a scheme with the children’s father, Celerino Gatchalian, to foreclose the mortgage, with Gabriel bidding for the property at auction to later resell it to Gatchalian. Gabriel filed for foreclosure, Gatchalian admitted all allegations, and a quick judgment was obtained. Gabriel bought the property at the sheriff’s sale and, before court confirmation, agreed to sell it to Carmen Garchitorena. Gatchalian, realizing the scheme was not proceeding as promised, initially objected but later withdrew his opposition based on Gabriel’s renewed promise to resell. Garchitorena later transferred the property to Jesus Pellon after the lawsuit began.

ISSUE

Whether the foreclosure judgment and subsequent transfers of the property should be annulled due to fraud perpetrated by Perfecto Gabriel, and whether Carmen Garchitorena was an innocent purchaser for value.

RULING

The Supreme Court affirmed the decision of the Court of Appeals. The foreclosure judgment was obtained through fraud, as Gabriel, acting as both creditor and guardian of the minors, orchestrated a collusive foreclosure with Gatchalian to remove the property from court custody. Carmen Garchitorena was not an innocent purchaser for value. She agreed to purchase the property from Gabriel before he obtained a Torrens title, relying only on an unconfirmed sheriff’s certificate of sale. Her conduct in transferring the property to Jesus Pellon after the lawsuit commenced was inconsistent with good faith. The Court noted she did not file a cross-claim against Gabriel, which could suggest she acted as his dummy, but left open her right to pursue a separate action against him. The annulment of the sales and restoration of the title to the minors, subject to the existing mortgage, were upheld.