JOSE YULO AGRICULTURAL CORPORATION, PETITIONER, VS. SPOUSES PERLA CABAYLO DAVIS AND SCOTT DAVIS, RESPONDENTS.

Jose Yulo Agricultural Corporation versus Spouses Davis

The Case

This is a petition for review on certiorari brought by Jose Yulo Agricultural Corporation against spouses Perla Cabaylo Davis and Scott Davis. The respondents sued to quiet title over three registered lots, claiming that a house and fence standing on their land encroached on neighboring parcels. The case matters because it gathers into one dispute three enduring land-law rules: the earlier certificate of title prevails over a later one covering the same land, a Torrens title cannot be attacked indirectly, and a builder in good faith is protected under Article 448 of the Civil Code.

Procedural History

The respondents filed a complaint for quieting of title and damages before the Regional Trial Court of Himamaylan City, Negros Occidental, Branch 55, against the Trajera spouses, the petitioner corporation, Nation Bank, and the Local Building Official. After trial, the Regional Trial Court ruled in favor of the respondents, confirming their titles to the overlapped portions and treating them as builders in good faith. The petitioner and the Trajeras appealed to the Court of Appeals, which affirmed the trial court's decision. The petitioner moved for reconsideration, and the Court of Appeals denied the motion. The petitioner then elevated the matter to the Supreme Court by petition for review on certiorari.

Facts

Lot 62-A in Binalbagan, Negros Occidental, was registered in the name of Jose L. Yulo and later subdivided. From these subdivisions came Lot 29, covered by a transfer certificate of title, which was further subdivided in 1969. Among the resulting lots were Lots 91, 92, and 96, for which titles were issued in 1971 in Yulo's name. Yulo sold these three lots to the Madrina spouses in 1975. The lots were later mortgaged to Nation Bank, which foreclosed and became the owner. In 1992, Nation Bank sold five lots, including Lots 91, 92, and 96, together with existing improvements, to the respondent spouses Davis. New titles were issued in their favor in December 1992.

On the other side, Lot 72, covered by a title issued in 1979 in the name of the petitioner corporation, was subdivided in 1982 into several lots, among them Lots 3, 4, and 5. Lot 5 was later sold to the Trajera spouses. In 1999, the respondents received demand letters from the petitioner and the Trajeras requiring them to remove a portion of the house and fence said to encroach on Lots 3, 4, and 5. A relocation survey showed an encroachment of sixteen square meters.

The trial court found that the whole of Lot 92 was overlapped by Lot 3, while Lots 91 and 96 were overlapped by Lots 4 and 5. Because the titles to Lots 91, 92, and 96 were issued earlier, the trial court held that the respondents owned the overlapped portions. It also held that the respondents were builders in good faith, since the house already existed when they bought the lots, and ordered the petitioner to sell the occupied portion and to pay actual damages, attorney's fees, and appearance fees.

Issues

• Whether or not the Court of Appeals erred in holding that the respondents have a better right to Lots 91, 92, and 96 because their titles trace back to certificates issued in 1971, earlier than the petitioner's titles.
• Whether or not the Court of Appeals erred in affirming the award of damages in the form of plane fare and attorney's fees.

Applicable Provisions

Article 448 of the Civil Code provides:

The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

This provision governs the rights of the respondents as builders in good faith whose house and fence encroached on the petitioner's land.

Ruling

On the first issue, the Court denied the petition and upheld the respondents' titles. The Court held that the findings of fact of the Court of Appeals are conclusive and that none of the recognized exceptions applies. Tracing the titles, the Court found that the respondents' titles descend from certificates issued in 1971, while the petitioner's titles descend from a mother title issued in 1979. The Court applied the settled rule that where two certificates of title purport to include the same land, the earlier in date prevails. The Court also held that the petitioner's claim that Lots 91, 92, and 96 are non-existent amounts to an indirect attack on Torrens titles, which cannot be altered, modified, or cancelled except in a direct proceeding.

On the second issue, the Court found no reversible error in the award of damages and attorney's fees. The petitioner did not raise the award as an issue in its appeal and questioned it only in its motion for reconsideration, so the award stands.

Doctrine

Where two certificates of title purport to include the same land, whether wholly or partly, the earlier in date prevails. The better approach is to trace the original certificates from which the titles were derived, and the person claiming under the prior certificate is entitled to the estate or interest. A certificate of title cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law, so a claim that certain lots are non-existent is an indirect attack that must fail. Finally, under Article 448 of the Civil Code, a builder in good faith is entitled to the benefits of that provision, and good faith is presumed.

Disposition

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals, which had affirmed the trial court's judgment in favor of the respondents.

Remember This

Memorize the line: where two certificates of title cover the same land, the earlier in date prevails, traced to its original certificate. Examiners use this case to test priority of Torrens titles, the prohibition on indirect attacks on a certificate of title, and the rights of a builder in good faith under Article 448.