CAPITOL SUBDIVISION, INC., PLAINTIFF AND APPELLANT, VS. PROVINCE OF NEGROS OCCIDENTAL, DEFENDANT AND APPELLEE.

Plaintiff, Capitol Subdivision, Inc., seeks to recover from
defendant, the Province of Negros Occidental , the possession of Lot
378 of the cadastral survey of Bacolod , Negros Occidental, and a
reasonable compensation for the use and occupation of said lot by the
defendant from November 8, 1935 , in addition to attorney’s fees and
costs. On June 28, 1951 , the Court of First Instance of Negros
Occidental rendered judgment for the plaintiff. On appeal taken by the
defendant, this judgment was, however, set aside by the Supreme Court
(see G.R. No. L-6204, decided on July 31, 1956), which, likewise,
ordered the case remanded to the lower court “for further trial”, after
which another decision was rendered by said court of first instance
dismissing plaintiff’s complaint and ordering plaintiff to execute a
deed conveying Lot 378 to the defendant. The case is, once again,
before us, this time on appeal by the plaintiff, the subject matter of
litigation being worth more than P200,000, exclusive of interest and
costs.

The main facts are not in dispute. Said Lot 378 is part of Hacienda
Mandalagan, consisting of Lots 378, 405, 407, 410, 1205, 1452 and 1641
of the aforementioned cadastral survey, with an aggregate area of over
502 hectares, originally registered ill the name of Agustin Amenabar
and Pilar Amenabar. Lot 378 has an area of 22,783 sq. meters, more or
less, and was covered by Original Certificate of Title No. 1776
(Exhibit 4), issued on August 25, 1916 , in the name of the Amenabars.
On November 30, 1920 , the latter sold the aforementioned Hacienda to
Jose Benares (also referred to in some documents as Jose Benares
Montelibano) for the sum of P300,000, payable in instalments, as set
forth in the deed of sale, Exhibit 21. On February 8, 1924 , said
Original Certificate of Title No. 1776 was cancelled and Jose Benares
obtained, in lieu thereof, Transfer Certificate of Title No. 6295 in
his name. Meanwhile, or on March 12, 1921 , the Hacienda, including Lot
378, had been mortgaged by Jose Benares to the Bacolod-Murcia Milling
Co. for the sum of P27,991.74 (Exhibit Y-2). On December 6, 1926 , Jose
Benares again mortgaged the Hacienda, including said Lot 378, to the
Philippine National Bank, subject to the first mortgage held by the
Bacolod-Murcia Milling Co. (Exhibit Y-1). These transactions were duly
recorded in the office of the Register of Deeds of Negros Occidental
and annotated on the corresponding certificates of title, including
said Transfer Certificate of Title No. 6295, covering Lot 378.

The mortgage in favor of the Bank was subsequently foreclosed, in
pursuance of a decision of the Court of First Instance of Negros
Occidental dated September 29, 1931 (Exhibit U-1), and the Bank
acquired the Hacienda, including Lot 378, as purchaser at the
foreclosure sale. Accordingly, said Transfer Certificate of Title No.
6295 was cancelled and, in its stead, Transfer Certificate of Title No.
17166—which, owing to its subsequent loss, had to be reconstituted as
Transfer Certificate of Title No. RT-1371—in the name of the Bank, was
issued on March 14, 1934 (Exhibit P). Soon, later, or on November 8,
1935 , the Bank agreed to sell the Hacienda to Carlos P. Benares, son
of Jose Benares, for the sum of P400,000, payable in annual
instalments, subject to the condition that, until full payment thereof,
title would remain in the Bank (Exhibit R). Thereafter, Carlos P.
Benares transferred his rights, under this contract with the Bank, to
plaintiff herein, which completed the payment of the instalments due to
the Bank in 1949. Hence, on September 29, 1949 , the Bank executed the
corresponding deed of absolute sale to the plaintiff (Exhibit Q) and
Transfer Certificate of Title No. 1798, covering Lot 378 was issued, in
lieu of Transfer Certificate of Title No. 17166 (or reconstituted
Transfer Certificate of Title RT-1371), in plaintiff’s name (Exhibit O).

At this juncture, it should be noted that, despite the acquisition
of the Hacienda in 1934 by the Bank, the latter did not take possession
of the property for Jose Benares claimed to be entitled to retain it
under an alleged right of lease. For this reason, the deed of promise
to sell, executed by the Bank in favor of Carlos P. Benares, contained
a caveat emptor stipulation. When, upon the execution of the
deed of absolute sale (Exhibit Q) by the Bank, on September 29, 1949 ,
plaintiff took steps to take possession of the Hacienda, it was
discovered that Lot 378 was the land occupied by the Provincial
Hospital of Negros Occidental. Immediately, thereafter, or on October
4, 1949 , plaintiff made representations with the proper officials to
clarify the status of said occupation and, not being satisfied with the
explanations given by said officials, it brought the present action on
June 10, 1950 .

In its answer dated June 24, 1950, defendant maintained that it had
acquired Lot 378 in the year 1924-1925, through expropriation
proceedings; that immediately after the commencement of said
proceedings in 1924, it took possession of said lot and began the
construction thereon of the provincial hospital, which was completed in
1926; that since then it had occupied said lot publicly, adversely,
notoriously and continuously as owner thereof; that, “for some reason
or other and for cause beyond comprehension of the defendant title
thereto was never transferred in the name of said defendant”; that said
lot had been placed in defendant’s name for assessment purposes under
Tax Declaration No. 16269 (dated December 31, 1937) ; and that
plaintiff had acted in bad faith in purchasing said lot from the Bank
in 1935, for plaintiff knew then that the provincial hospital was where
it is up to the present, and did not declare said lot in its name for
assessment purposes until 1950, aside from the fact that Alfredo
Montelibano, the controlling stockholder, president and general manager
of plaintiff corporation, was the first City Mayor of Bacolod, which
contributed to the support, operation and maintenance of said hospital.
In an amended answer, dated November 8, 1950, defendant alleged, also,
that the aforementioned expropriation ease was “amicably settled as
between the parties herein, in the sense that tho * * * Province of
Negros Occidental would pay * * * and did in fact pay to Jose Benares
the assessed value of Lot 378 * * * and whatever consideration
pertaining to said lot in excess of its assessed value which was paid
by the Province would be donated and was in fact donated by said * * * 
Jose Benares in favor of the Province purposely for Hospital site”.

The main question for determination in this case is whether or not
defendant herein had acquired Lot 378 in the aforementioned
expropriation proceedings. The decision appealed from in effect decided
this question in the affirmative and declared that plaintiff merely
holds it in trust for the defendant, in view of which it ordered the
former to convey said lot to the latter. This conclusion is predicated,
substantially, upon the following premises, namely; that case No. 3041
of the Court of First Instance of Negros Occidental, for the
expropriation of the hospital site of said province, was actually
commenced on January 26,

1924; that, among the lands sought to be expropriated in said case
was Lot 377 of the aforementioned cadastral survey, belonging to one
Anacleta Agsam, who sold it, on July 10, 1926, to the defendant
(Exhibit BB), in whose favor the corresponding transfer certificate of
title (Exhibit BB-2) was issued on July 12, 1S26; that, according to
the testimony of Jose Benares, the expropriation of Lot 378 was settled
amicably upon payment to him of the sum of PI2,000; and that
defendant’s failure to secure the corresponding transfer certificate of
title to Lot 378 was due to “the mistaken notion or belief that said
lot forms part of Lot No. 405-B” in the plan Exhibit X.

The testimony of Jose Benares does not deserve, however, full faith and credence, because:

1. Jose Benares appears to be strongly biased and
prejudiced against the plaintiff and its president, for the former
believes that the latter had “manipulated” to exclude him from
plaintiff corporation, and there have been four (4) litigations between
Jose Benares and plaintiff, all of which have been finally decided
against the former;

2. The testimony of Jose Benares is
extremely contradictory. Thus: (a) he testified to having been paid
P12,000 by the Government, although, at the rate of P1,000 a hectare at
which, he would have us believe, he agreed to sell Lot 378, he should
have received less than P3,000 for its 22,783 sq. meters; (b) he
claimed to have received said sum of P12,000.00 “in the year 1924 or
1925”, about “2 or 3 days” after the Government had taken possession of
the land, and to have sent the money the next day to Pilar Amenabar,
but the latter acknowledged to have received said sum of P12,000 on
November 7, 1928;

3. Said testimony was contradicted by that
of defendant’s witness Jose Marco, former deputy clerk of court of
Negros Occidental, for: (a) Jose Benares asserted that there was a
written compromise agreement between him and the Government, whereas
Marco averred that agreement was merely oral; and (b) Marco stated that
Benares had agreed to accept, as compensation for Lot 378, the assessed
value thereof, which was P430, and to donate to the Government the
difference between this sum and the true value of the property, but
Benares affirmed that he was first offered P300 per hectare which he
rejected, and that he later demanded P1,000 a hectare, which the
Government, agreed to pay, although, subsequently, he said that Rafael
Alunan and Mariano Yulo had prevailed upon him to accept P1.000 per
hectare;

4. Jose Benares was, also, contradicted by
defendant’s witness Ildefonso Coscolluela, the provincial treasurer of
Negros Occidental’ at the time of the expropriation, who positively
assured the Court that the expropriation case “was not yet terminated”
and that “negotiations were still pending” for the acquisition of Lot
378 by the Government when he retired from the service in 1934.

Upon the other hand, several circumstances strongly indicate that
no compromise agreement for the acquisition of the land by the
Government had been reached and that the expropriation had not been
consumated. For instance:

1. The only entries in the docket relative to the
expropriation case refer to its filing and the publication in the
newspaper of the corresponding notices (Exhibit 1);

2. The
registration of the deed of sale of Lot 377 by Anacleta Agsam to the
Government, followed by the cancellation of the certificate of title in
her name and the issuance, in lieu thereof, of another title in the
name of the Province, when contrasted with the absence of a similar
deed of assignment and of a transfer certificate of title in favor of
the Province as regards Lot 378, strongly suggest that no such
assignment or agreement with respect to Lot 378 had been made or
reached;

3. The property was mortgaged to the Bacolod-Murcia
Milling Co. since March 12, 1921 , and this mortgage, duly registered
and annotated, inter alia, on Transfer Certificate of Title No. 1776,
in the name of Jose Benares, was not cancelled until September 28,
1935, Moreover, Lot 378 could not have been expropriated without the
intervention of the Milling Go. Yet, the latter was not made a party in
the expropriation proceedings;

4. On December 26, 1926 ,
Jose Benares constituted a second mortgage in favor of the Bank, which
would not have accepted the mortgage had Lot 378 not belonged then to
the mortgagor. Neither could said lot have been expropriated
subsequently thereto without the Bank’s knowledge and participation.
What is more, in the deed executed by the Bank, on November 8, 1935
(Exhibit R), promising to sell the Hacienda Mandalagan to Carlos P.
Benares, it was explicitly stated that portions of Lots 405, 407 and
410, forming part of said Hacienda and designated as Lots 405-A, 407-A,
407-B and 410-A, had been expropriated by the Provincial Government of Negros Occidental, thus indicating, by necessary implication, that Lot 378 had not been expropriated.

The decision appealed from says:

“* * * it is evident that there were no further
proceedings in connection with the expropriation case and the chances
are that the case was dismissed. The Court had to examine carefully and
minutely every single piece of evidence adduced by both parties in
order to arrive at the correct solution of the mystery. The Court
believes that the failure of the government to secure the corresponding
transfer of title to Lot 378 lies in the mistaken notion or belief that
said lot forms a part of Lot 405—B. This conclusion was arrived at
after examining closely the plan, Exhibit X. The plan shows that while
all the subdivided lots were properly identified by lot numbers, that
particular portion at the lower corner of the plan encircled with red
pencil, marked Exhibit X—1, is not labelled with the corresponding lot
number and that portion is precisely lot No. 378, now in question,
where the hospital building”‘ was constructed. This plan was prepared
for the government on May 12, 1927 by public land surveyor, Mr.
Formento, embracing lots covering over 22 hectares for the Capitol and
hospital sites. The fact that this particular portion was not labelled
with the corresponding lot number might have misled the authorities to
believe that it formed a part of lot 405-B, which adjoins it, altho
separated by the creek. This lack of reasonable explanation why the
government failed to secure the corresponding certificate of title to
lot 378, when there is sufficient proof that Jose Benares was paid and
he executed the deed of sale in favor of the government.”

Although said decision appears to have been prepared with the
conscientiousness and moral courage that account for the well earned
reputation and prestige of the Philippine judiciary, we find ourselves
unable to concur in the foregoing view. To begin with, there is no
evidence, and defendant has not even tried to prove, that the
expropriation case had ever been dismissed insofar as Lot 378 is
concerned. Hence, the lower court merely speculated about the “chances
that the (expropriation) case was dismissed.” By the way, the contrary
was intimated by defendant’s witness, Ildefonso Coscolluela, for he
testified that the expropriation case was still pending in 1934, when
he ceased to be the provincial treasurer, and the record before us
suggests that since the Province took possession of the land in 1924 or
1925 and completed the construction of the hospital in 1926, there were
no further proceedings in said case.

With respect to the plan Exhibit X, there is, likewise, no evidence
whatsoever that the authorities had been ‘misled * * * to believe” that
the portion at the lower corner of said plan—which was enclosed, during
the trial, within a circle in red pencil, and marked as Exhibit
X-1—formed part of Lot 405-B, which had been expropriated by the
Province of Negros Occidental. In fact, said portion Exhibit X-1 is not
part of the land covered by the plan Exhibit X. A close examination of
the latter shows that the boundaries of said portion are not delimited
on the plan. More important still, on the right hand side of Exhibit X,
the following appears in bold letters: “Subdivision & Consolidation
PLAN of Lots Nos. 400, 401, 403, 405, 406, 407 and 410 Bacolod Cadastre
as surveyed for the Provincial Government of Bacolod, Negros Occidental
(Capitol site)”. The absence of Lot 378 from said enumeration and the
explicit statement in Exhibit X to the effect that it refers to the “Capitol Site“, negates the possibility of its being mistaken by any body, much less by government engineers, as including the hospital
site, and, hence, said Lot 378. Lastly, the very evidence for the
defendant herein, specially the assessor’s field sheets and
declarations of real property for tax purposes (Exhibits 9, 10, 11, 12
and 13) show that the Government had always regarded Lot 378, not Lot
405, as part of the Provincial Hospital Site. In any event, said
possibility of mistake, if any which would be remote, cannot suffice to
warrant—in the face of documentary evidence to the contrary the
conclusion that Lot 378 has already been acquired by the Government.

How about the P12,000 received by Jose Benares from the Government
and applied by him to the payment of his debt to Pilar Amenabar? Said
amount could not possibly be the price of Lot 378, for, at the rate of
P1,000 a hectare allegedly agreed therefor, its price could not have
exceeded P3,000.00 in this connection, it should be noted that, aside
from the expropriation proceedings for the hospital site, another
expropriation case for the Capitol site, affecting another property of
Jose Benares, appears to have been instituted in the Court of First
Instance of Negros Occidental. Jose Benares may have mistaken the
payment for his land included in the Capitol Site, as one intended for
Lot 378, which was affected by the hospital site. And this possibility
may amount to a probability when we consider that he erroneously
believed that there had been only one expropriation case, instead of two cases, against him, and that Lot 378 was
not included in the mortgage constituted by him in favor of the
Philippine National Bank. Evidently, he did not have, at least, an
accurate recollection of the events or transactions affecting his.
properties, and, hence, his testimony may not be relied upon.

Thus, the evidence on record is far from sufficient to establish
the alleged acquisition by the defendant of Lot 378, which must be
held, therefore, to be the exclusive property of plaintiff herein.

The lower court entertained no doubts about the veracity of the
testimony of plaintiff’s president to the effect that he did not know
until 1949 that the land on which the Provincial Hospital Building
stands is Lot 378. Yet, it held that plaintiff was “not a purchaser in
good faith for having constructive knowledge of defendant’s possession
of the property at the time it was bought by the plaintiff”, because
Carlos P. Benares—whose right to buy the Hacienda Mandalagan from the
Bank was acquired by plaintiff—”is a part owner of the Capitol
Subdivision and holds a responsible position therein”, because “the
hospital was already constructed in Lot 378 since 1926 and the lot was
declared in the name of the Government” and “when plaintiff bought the
lot in 1935, the purchaser should have inquired as to its location and
improvements”; because “it took the plaintiff 14 years to sleep over
their supposed rights to take possession of Lot No. 378”; and because
“of the overwhelming fact that Lot No. 378 was erroneously or
inadvertently included by the deeds of sale (Exhibits Q & R)
executed by the Philippine National Bank in favor of the plaintiff
subdivision and that same lot was occupied by the defendant government
for the provincial hospital for the last 34 years, as owner thereof.”

As above stated, however, and the lower court conceded, plaintiff’s
president did not know until 1949 that Lot 378 was the very land
occupied by the provincial hospital. Moreover, there is a total absence
of evidence that this fact was known to Carlos P. Benares before 1949.
Neither may such knowledge be deduced from the circumstances that he is
a son of its former owner, Jose Benares, for even the latter appears not to be well-posted on the status of his properties.
Indeed, Jose Benares did not apparently know that there were two (2)
expropriation proceedings affecting said properties; that the P12,000
received by him from the Government was not meant for Lot 378; and that
this lot was one of the properties mortgaged by him to the Bank.

Upon the other hand, the main purpose of the Torrens System is to
avoid possible conflicts of title in and to real estate, and to
facilitate transactions relative thereto by giving the public the right
to rely upon the face of a Torrens certificate of title and to dispense
with the need of inquiring further, except when the party concerned has
actual knowledge of facts and circumstances that should impel a
reasonably cautious man to make such further inquiry (Tiburcio vs.
PHHC, L-13479, October 31, 1959; Revilla vs. Galindez, G.R. No.
L-19940, March 30, 1960 ; Mañacop, Jr. vs. Cansino, G.R. No. L-13971,
February 27, 1961 ). In the case at bar plaintiff had no such actual
knowledge, it being an established fact that he was not aware until
1949 that the land on which the provincial hospital stood was Lot 378.
Furthermore, since the year 1921, or before the expropriation case for
the hospital site had begun, said lot was mortgaged to the
Bacolod-Murcia Milling Co., and the mortgage, duly registered, as well
as annotated on the corresponding, certificate of title, was not
cancelled until September 28, 1935. Prior to this date, or on December
26, 1926, Lot 378 was subjected to a second mortgage in favor of the
Bank, which acquired title thereto, thru foreclosure proceedings, in
1934. When the Bank agreed on November 8, 1935 , to sell the property
to Carlos P. Benares and the latter, subsequently, conveyed his rights
to plaintiff herein, as well as when the Bank executed the deed of
absolute sale in plaintiff’s favor on September 20, 1949, the title to
the property was in the name of the Bank. Considering that sugar
centrals as well as banks are known to have an array of experienced and
competent lawyers, it cannot be said that plaintiff was not justified
in assuming that said institutions had scrutinized the background of
Lot 378 and were satisfied that the same belonged to the mortgagor when
said mortgages were constituted, and to the. Bank when said deed of
sale was executed. In short, we find that plaintiff herein is a
purchaser in good faith and for value.

As regards the compensation that, as such, it may collect from the
defendant, we are of the opinion, and so hold, that, since the latter’s
right to expropriate Lot 378 is not contested, and is seemingly
conceded, the plaintiff may demand what is due by reason of the
expropriation of said lot. In short, plaintiff is entitled to recover
from the defendant the fair and full equivalent of Lot 378, as of the
time when possession thereof, was actually taken by the defendant, plus
consequential damages—including attorney’s fees—from which
consequential damages the consequential benefits, if any, should be
deducted, with interest, at the legal rate, on the aggregate sum due to
the plaintiff, from and after the date of said actual taking. The case
should be remanded, therefor, to the lower court for the reception of
evidence on the date of said actual taking and the amount of
compensation collectible from the defendant, and the rendition,
thereafter, of the corresponding decision thereon.

WHEREFORE, the decision appealed from is hereby reversed and the
records remanded to the lower court for further proceedings, as above
stated, with costs against the defendant. It is so ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador , Reyes, J.B.L., Barrera, Paredes, Dizon and Regala, JJ., concur.