DARIO N. LOZANO, IN HIS CAPACITY AS ADMINISTRATOR OF THE ESTATE OF THE DECEASED AUGUSTO N. LOZANO, PATROCINIO DEL PRADO AND ANTONIO LOZANO, PLAINTIFFS-APPELLANTS, VS. IGNACIO BA…

Lozano versus Ballesteros

The Case

This is an appeal on pure questions of law brought by the Lozano heirs, as plaintiffs, against Ignacio Ballesteros, as defendant, in an action for reconveyance and recovery of possession of a registered parcel of land. The heirs had caused an adverse claim to be annotated on the certificate of title of their mother's vendee, and they now insist that this annotation bound every later purchaser, including Ballesteros, to a default judgment they had earlier obtained against that vendee. The case matters because it fixes the formal requisites of an adverse claim under the old Land Registration Act and teaches that a defective adverse claim is a nullity that warns no one and binds no one.

Procedural History

The Lozano heirs first sued Marciana de Dios for reconveyance in the Court of First Instance of Pangasinan and obtained a default judgment in their favor, but the judgment could not be satisfied because De Dios was insolvent and held no registered property. The heirs then filed several complaints for reconveyance and recovery of possession, including the present one against Ballesteros. The trial court dismissed the complaint for lack of merit, declared Ballesteros the absolute owner of the land, ordered the cancellation of the adverse claim, and awarded damages, attorney's fees, and costs against the plaintiffs. The heirs appealed to the Court of Appeals, which ruled that the matter submitted was purely a question of law beyond its jurisdiction and elevated the records to the Supreme Court, which decided the appeal.

Facts

Maria Nieves Nunez Tuazon, mother of the plaintiffs, was the original registered owner of several lots under a certificate of title, and only one lot is the subject of this action. In March 1958 she sold that lot by deed of absolute sale to Marciana de Dios. A transfer certificate of title was issued in the name of De Dios, who later mortgaged the land to a rural bank. In January 1963 the plaintiffs caused their adverse claim to be annotated at the back of the title.

Later, a petition for the settlement of the estate of Augusto Lozano was filed, and the administrator's inventory included the lot. In August 1966 De Dios sold the lot to Ignacio Ballesteros, and a new transfer certificate of title was issued in his name. The following month the plaintiffs sued De Dios for reconveyance and obtained a default judgment, but it was never satisfied because De Dios was insolvent.

Having failed to recover the lots from De Dios, the plaintiffs filed several complaints, including this action against Ballesteros, for reconveyance and recovery of possession. They argued that the adverse claim annotated on the titles bound Ballesteros, a subsequent purchaser, to the judgment against De Dios, and that he was a purchaser in bad faith. Ballesteros answered that the adverse claim did not comply with the formal requirements of the law and was therefore void, and that the judgment against De Dios could not bind him because he was never impleaded.

Issues

• Whether or not the adverse claim annotated at the back of the titles was valid and effective against subsequent purchasers.
• Whether or not Ballesteros, as a subsequent purchaser, was bound by the default judgment against Marciana de Dios.
• Whether or not Ballesteros was a purchaser in bad faith.
• Whether or not the award of damages and attorney's fees in favor of Ballesteros was proper.

Applicable Provisions

Section 110 of Act Number 496, the Land Registration Act, provides:

Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Act for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, and a reference to the volume and page of the certificate of title of the registered owner, and a description of the land in which the right or interest is claimed.

This provision supplies the formal requisites of an adverse claim, and the Court measures the plaintiffs' annotation against it.

Section 7 of Rule 3 of the Revised Rules of Court provides:

Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants.

This provision underlies the ruling that Ballesteros, as owner of the land sought to be reconveyed, was an indispensable party to the earlier case.

Ruling

On the first issue, the Court held that the adverse claim was void. A reading of the annotation shows that it failed to state how and under whom the heirs acquired their alleged right or interest, which Section 110 requires. The Court ruled that such non-compliance renders the adverse claim non-registrable and ineffective. It added that where an adverse claim does not fully comply with the formal requisites, it cannot be registered at all.

On the second issue, the Court held that Ballesteros was not bound by the default judgment against De Dios. The owners of property over which reconveyance is asserted are indispensable parties, without whom no relief is available and without whom the court can render no valid judgment. Since Ballesteros was not impleaded in the earlier case, that judgment was a nullity as against him.

On the third issue, the Court held that bad faith was inconsequential because of the ineffectiveness of the adverse claim. Even granting that Ballesteros knew of the plaintiffs' claims, the void annotation could not serve as notice or warning to third parties.

On the fourth issue, the Court held that the award of damages and attorney's fees was erroneous. The trial court failed to specify the type of damages awarded and stated no basis for the indemnity. Moral damages cannot be awarded without proof, exemplary damages cannot stand without compensatory damages, and attorney's fees must be justified by a statement of the reason for the award. The Court therefore deleted the awards.

Doctrine

An adverse claim under Section 110 of the Land Registration Act must state in writing the claimant's alleged right or interest, how and under whom it was acquired, a description of the land, and the certificate of title number; it must be signed and sworn to; and it must state the claimant's residence or the place where notices may be served. A claim that fails these requisites is non-registrable and ineffective, and it cannot serve as notice to subsequent purchasers. Owners of property over which reconveyance is asserted are indispensable parties, and a judgment rendered without them is void as to them. Damages and attorney's fees must rest on proof and on a stated justification.

Disposition

The Supreme Court affirmed the judgment of the trial court in favor of Ballesteros, with the modification that the awards of one thousand pesos in damages and five hundred pesos in attorney's fees were deleted.

Remember This

Memorize this line: a defective adverse claim is deemed not existent and unregistered, so it binds no subsequent purchaser. Examiners use this case to test the formal requisites of an adverse claim under the Torrens system and the indispensable party rule in actions for reconveyance.