ASB REALTY CORPORATION, PETITIONER, VS. ORTIGAS & COMPANY LIMITED PARTNERSHIP, RESPONDENT.

ASB Realty versus Ortigas and Company

The Case

This is a petition for review brought by ASB Realty Corporation against Ortigas and Company Limited Partnership, arising from a complaint for specific performance and rescission concerning a parcel of land in Pasig City. Ortigas sold the land to Amethyst Pearl Corporation under a deed of sale burdened with covenants and restrictions, among them the obligation to complete a building within a fixed period. When the property later passed to ASB, Ortigas sued to rescind the sale and recover the land. The case matters because it teaches when a restriction annotated on a torrens title binds a subsequent purchaser, and when the original seller is estopped from enforcing that restriction against him.

Procedural History

Ortigas filed its complaint for specific performance before the Regional Trial Court of Pasig City. After trial on the merits, the trial court dismissed the complaint, holding that Ortigas was guilty of laches for failing to enforce the restrictions against Amethyst, that the covenants referred only to Amethyst as the vendee, and that rescission could not be decreed because Amethyst was not made a party.

Ortigas appealed to the Court of Appeals, which initially affirmed the trial court, ruling that Ortigas was estopped from enforcing the restriction because it had tolerated the non-compliance of other property owners similarly situated. On Ortigas's motion for reconsideration, however, the Court of Appeals issued an amended decision reversing itself, holding that Ortigas's action had been filed well within the ten-year prescriptive period and that estoppel could not be sustained on doubtful inference. It rescinded the deed of sale, ordered reconveyance of the property upon payment of the amount paid, and directed the cancellation of ASB's title. ASB's motion for reconsideration was denied for being filed out of time, and ASB elevated the matter to the Supreme Court by petition for review.

Facts

On June 29, 1994, Ortigas sold to Amethyst Pearl Corporation a parcel of land in Barrio Oranbo, Pasig City, for the consideration of 2,024,000 pesos. The deed of sale contained covenants, conditions and restrictions, among them that the building to be constructed would be of not more than fourteen storeys plus one penthouse, that the final plans and specifications would be submitted to Ortigas for approval not later than six months from the date of the deed, and that the vendee would finish construction of its building within four years from December 31, 1991. These conditions were annotated as encumbrances on the certificate of title issued to Amethyst.

On December 28, 1996, Amethyst assigned the property to its sole stockholder, ASB Realty Corporation, under a deed of assignment in liquidation, in consideration of 10,000 shares of ASB's outstanding capital stock. The property was transferred to ASB free from any liens or encumbrances except those duly annotated on the title, and a new certificate of title was issued in ASB's name with the same encumbrances annotated.

On July 7, 2000, Ortigas filed its complaint, alleging that the vendee had violated the deed by introducing commercial structures, violating the setbacks, failing to submit final plans and to complete construction within the stipulated periods, and putting up commercial signs and advertisements. Ortigas prayed for reconveyance of the property or, alternatively, for demolition of the structures, plus penalties, attorney's fees and costs.

Issues

• Whether or not ASB's motion for reconsideration of the amended decision of the Court of Appeals was filed on time.
• Whether or not Ortigas validly rescinded the deed of sale on the ground of the failure of Amethyst and its assignee, ASB, to fulfill the covenants under the deed of sale.

Applicable Provisions

Section 39 of Act Number 496, the Land Registration Act, provides:

Every person receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land who takes a certificate of title for value in good faith shall hold the same free of all encumbrances except those noted on said certificate.

This provision governs whether the covenants annotated on ASB's title bound ASB as a subsequent purchaser of registered land.

Ruling

On the first issue, the Court held that the motion for reconsideration was timely filed. The party asserting a fact bears the burden of proving it, and ASB discharged that burden by presenting the affidavit of its counsel's senior partner and a certification from the postmaster and letter carrier of the Mandaluyong Central Post Office showing that the copy of the amended decision was actually delivered to and received by counsel on January 18, 2012, not January 12, 2012 as stated in the registry return card. Counting fifteen days from January 18, the motion filed on January 30 was well within the period.

On the second issue, the Court held that Ortigas could not validly demand reconveyance or demolition through rescission. The deed of assignment in liquidation transferred to ASB only the tangible asset, the parcel of land, and did not assign the rights or duties Amethyst had assumed under the deed of sale. Ortigas, moreover, had recognized without reservation the issuance of a new title in Amethyst's name and the subsequent transfer to ASB, so it was estopped from assailing ASB's acquisition and ownership. The Court explained that estoppel rests on public policy, fair dealing, good faith and justice, and forbids a party to speak against his own act or omission to the injury of another who reasonably relied thereon.

The Court then clarified the effect of the annotations. While the annotations on ASB's title bound ASB, they did not render ASB liable for the non-performance of the covenants. An encumbrance is anything that impairs the use or transfer of property, a burden or charge upon property, a claim or lien upon property, and the purpose of the annotation is to charge the purchaser or title holder with notice of such burden and claims. By acquiring the land with notice of the covenants, ASB bound itself to acknowledge and respect the encumbrance, but it did not step into the shoes of Amethyst as a party to the deed of sale. The annotation did not give rise to liability on ASB's part as purchaser or successor-in-interest without its express assumption of the duties or obligations subject of the annotation.

Doctrine

A subsequent purchaser of registered land takes the title subject to the encumbrances noted on the certificate, and is charged with notice of them. But the annotation of covenants contained in the vendor's deed of sale does not, by itself, make the purchaser liable for the obligations of the original vendee. The purchaser does not step into the shoes of the vendee as a party to the deed, and liability for the covenants arises only upon his express assumption of the duties or obligations subject of the annotation. The seller who, without reservation, recognizes the transfer of the property and the issuance of new titles in the names of the vendee and the subsequent purchaser is estopped from later assailing that acquisition and ownership.

Disposition

The petition for review was granted; the amended decision and the resolution of the Court of Appeals were reversed and set aside, and the original decision of the Court of Appeals affirming the dismissal of Ortigas's complaint was reinstated.

Remember This

An annotation on a torrens title gives notice of an encumbrance but does not make a subsequent purchaser liable for the original vendee's covenants absent his express assumption of them. Examiners use this case to test the distinction between the notice effect of an annotation under Section 39 of the Land Registration Act and the personal liability that arises only from contract.