HEIRS OF JUAN ESQUIVEL, REPRESENTED BY LYDIA BARCE-SARZA, [DECEASED], SUBSTITUTED BY MA. CARMELITA SARZA-SULIT, PETITIONERS, VS. CHARLES PIELAGO CLEMENTE III, RESPONDENT.

Heirs of Juan Esquivel versus Clemente

The Case

This is a petition for review on certiorari brought by the Heirs of Juan Esquivel, represented by Lydia Barce-Sarza and later substituted by Ma. Carmelita Sarza-Sulit, against Charles Pielago Clemente III. The petitioners won a long, final judgment for reconveyance of registered land, and they now seek to enforce that judgment against a man who bought the land from the losing defendant while the case was still on appeal, and who was never impleaded in the suit. The case matters because it draws the exact boundary between two settled ideas: a final judgment binds the successors-in-interest of a party, and yet an innocent purchaser for value of registered land is protected unless the pending suit was registered as a notice of lis pendens or actually known to the buyer. It is a bar staple on transferees pendente lite, lis pendens, and the innocent purchaser for value.

Procedural History

The mother case was a complaint for reconveyance, legal redemption, and damages filed in 1999 with Branch 5 of the Regional Trial Court of Legazpi City. In a decision issued in February 2010, the trial court held that the land remained part of the estate of Ramon Esquivel and ordered the Register of Deeds to restore the original certificate of title and cancel the derivative titles, including those held by Allied Moulding Corporation. The Court of Appeals affirmed with modification in January 2014, and the Supreme Court, in a resolution dated January 26, 2015, dismissed the appeal for failure to show reversible error. That resolution became final and executory in October 2015.

When the petitioners moved for execution, the Register of Deeds could not restore the original title because the corporation's titles had already been cancelled and replaced by titles in the name of Clemente. The petitioners then filed with the trial court a motion to direct Clemente to produce his certificates of title. The trial court granted the motion in an order dated November 16, 2018, and denied reconsideration in an order dated February 28, 2019, reasoning that the notice of lis pendens annotated in 1999 charged Clemente with notice. Clemente went to the Court of Appeals on certiorari. The Court of Appeals granted his petition in a decision dated September 24, 2021, and denied reconsideration in a resolution dated March 15, 2022. The petitioners then elevated the matter to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

Lot No. 647 was covered by an original certificate of title in the names of Ramon Esquivel and Pia Altavano, the parents of Juan Esquivel. After Ramon died in 1930, his heirs inherited the lot in equal shares. In 1998, Gloria Esquivel-Samar and Roger Esquivel executed an extrajudicial settlement of estate and, through it, cancelled the original title and registered the property in their own names. The lot was then subdivided, and two of the resulting lots were sold to Allied Moulding Corporation, which received its own certificates of title.

In August 1999, the heirs of Juan Esquivel sued for reconveyance. On September 6, 1999, they caused a notice of lis pendens to be annotated on the corporation's titles. In May 2005, however, that annotation was cancelled by the Register of Deeds on the strength of a Supreme Court decision in a different case, one involving a certain Juan Sarza, which the registrar apparently mistook for this litigation. From then until December 2014, no notice of lis pendens stood on the titles.

On December 3, 2014, while the reconveyance case was still pending before the Supreme Court, Clemente bought the two lots from Allied Moulding Corporation. New certificates of title were issued in his name. When the judgment became final and the petitioners sought execution, the titles could not be restored because Clemente held the land. He refused to surrender his certificates, and the trial court ordered him to produce them.

Issues

• Whether or not Clemente may be deemed a transferee pendente lite of Allied Moulding Corporation, and thus bound by the final judgment in the reconveyance case even though he was never impleaded.
• Whether or not Clemente was a buyer in good faith and for value, so that the judgment cannot be enforced against him.
• Whether or not the trial court could summarily direct Clemente to surrender his certificates of title without a hearing and reception of evidence.

Applicable Provisions

Rule 39, Section 47 of the Rules of Court states the effect of a judgment in an action in personam:

SECTION 47. Effect of judgments or final orders. – The effect of a judgment or final order rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows: . . . . (b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity.

This is the hinge of the case: the judgment reaches successors-in-interest, but only those who litigate under the same title and with notice of the suit.

Section 44 of Presidential Decree No. 1529 protects the purchaser of registered land:

SECTION 44. Statutory Liens Affecting Title. – Every registered owner receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted in said certificate and any of the following encumbrances which may be subsisting, namely: . . . .

This is the statutory shield of the innocent purchaser for value, which the Court refuses to pierce without proof of notice.

Section 76 of the same decree governs the notice of lis pendens:

SECTION 76. Notice of Lis Pendens. – No action to recover possession of real estate, or to quiet title thereto, or to remove clouds upon the title thereof, or for partition, or other proceedings of any kind in court directly affecting the title to land or the use or occupation thereof or the buildings thereon, and no judgment, and no proceeding to vacate or reverse any judgment, shall have any effect upon registered land as against persons other than the parties thereto, unless a memorandum or notice stating the institution of such action or proceeding and the court wherein the same is pending, as well as the date of the institution thereof, together with a reference to the number of the certificate of title, and an adequate description of the land affected and the registered owner thereof, shall have been filed and registered.

This tells us that a judgment affects non-parties only through a registered notice.

Rule 13, Section 19 of the Rules of Court fixes when constructive notice arises:

SECTION 19. Notice of Lis Pendens. – In an action affecting the title or the right of possession of real property, the plaintiff and the defendant, when affirmative relief is claimed in his or her answer, may record in the office of the registry of deeds of the province in which the property is situated a notice of the pendency of the action. Said notice shall contain the names of the parties and the object of the action or defense, and a description of the property in that province affected thereby. Only from the time of filing such notice for record shall a purchaser, or encumbrancer of the property affected thereby, be deemed to have constructive notice of the pendency of the action, and only of its pendency against the parties designated by their real names.

This is decisive here, because the notice had been cancelled years before Clemente bought the land.

Ruling

The petition is partly meritorious. On the first issue, the Court holds that a reconveyance suit is an action in personam, binding only on the parties properly impleaded and their successors-in-interest by title subsequent to the commencement of the action. A transferee pendente lite need not be impleaded, because the law considers his interest joined in the pending action and his title subject to its outcome. But a subsequent purchaser not impleaded becomes bound only when he had actual or constructive knowledge of the pending litigation. The Court found that neither was sufficiently established against Clemente, so the Court of Appeals correctly held that the trial court gravely abused its discretion in ordering him to surrender his titles.

On actual knowledge, the Court holds that actual notice is equivalent to registration, because to hold otherwise would tolerate deceit and allow the Torrens system to shield fraud. But knowledge is a mental state that ordinarily requires evidence, and it may be taken as established only through judicial admissions or stipulations, which were absent here. Clemente disclaimed knowledge, so the judgment could not be summarily executed against him.

On constructive knowledge, the Court holds that the notice of lis pendens annotated in 1999 would have charged Clemente with notice, but that notice had been cancelled in 2005, more than nine years before his purchase, and no new annotation stood on the titles. The Court of Appeals therefore erred in saying that Clemente could look only at the four corners of the titles, and it gravely erred in declaring him an innocent purchaser for value without a hearing and trial. Whether the judgment may be enforced against him requires evidence on the reasonable precaution he exercised before buying, so the case must be remanded to the Court of Appeals for hearing and reception of evidence.

Doctrine

• A judgment in a reconveyance case, being an action in personam, binds only the parties impleaded and their successors-in-interest by title subsequent to the commencement of the action, under Rule 39, Section 47 of the Rules of Court.
• A transferee pendente lite need not be impleaded, but a purchaser not impleaded is bound only if he had actual or constructive knowledge of the pending suit, consistent with Section 44 of Presidential Decree No. 1529.
• Constructive notice arises only from the registration of a notice of lis pendens under Section 76 of Presidential Decree No. 1529 and Rule 13, Section 19 of the Rules of Court; a cancelled notice gives none.
• Actual knowledge is equivalent to registration, but it must be proved by evidence, judicial admission, or stipulation.
• The status of an innocent purchaser for value cannot be resolved summarily; it requires a hearing and reception of evidence.

Disposition

The petition was partly granted: the case was remanded to the Court of Appeals to hear the parties and receive evidence on the precaution Clemente exercised before purchasing the land, without prejudice to the final resolution of whether the reconveyance judgment may be enforced against him.

Remember This

Memorize this line: a final judgment binds a transferee pendente lite only through a registered notice of lis pendens or proven actual knowledge, and a cancelled notice protects the buyer. Examiners use this case to test the interplay of lis pendens, the innocent purchaser for value, and the rule that good faith is a question of fact requiring trial.