April 2009 Decisions on Civil Law

Here are selected April 2009 decisions of the Supreme Court on civil law and related laws:

Accretion.  Article 457 of the Civil Code requires the concurrence of the following requisites for accretion: (1) that the deposition of soil or sediment be gradual and imperceptible; (2) that it be the result of the action of the waters of the river; and (3) that the land where accretion takes place is adjacent to the banks of rivers.  Thus, it is not enough to be a riparian owner in order to enjoy the benefits of accretion.  One who claims the right of accretion must show by preponderant evidence that he has met all the conditions provided by law.  New Regent Sources, Inc. vs. Teofilo Victor Tanjuatco, Jr. and Vicente CuevasG.R. No. 168800, April 16, 2009.

Compensation; requisites. Under Article 1279 (1), it is necessary for compensation that the obligors “be bound principally, and that he be at the same time a principal creditor of the other.” There is, concededly, no mutual creditor-debtor relation between APT and UPSUMCO. However, we recognize the concept of conventional compensation, defined as occurring “when the parties agree to compensate their mutual obligations even if some requisite is lacking, such as that provided in Article 1282.” It is intended to eliminate or overcome obstacles which prevent ipso jure extinguishment of their obligations.

Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites. The only requisites of conventional compensation are (1) that each of the parties can dispose of the credit he seeks to compensate, and (2) that they agree to the mutual extinguishment of their credits. United Planters Sugar Milling Co., Inc. (UPSUMCO) vs. The Honorable Court of Appeals, et al., G.R. No. 126890, April 2, 2009.

Compromise agreement; binding effect.  A compromise agreement, as a contract, is binding only upon the parties to the compromise, and not upon non-parties.  This is the doctrine of relativity of contracts.  Consistent with this principle, a judgment based entirely on a compromise agreement is binding only on the parties to the compromise the court approved, and not upon the parties who did not take part in the compromise agreement and in the proceedings leading to its submission and approval by the court.  Otherwise stated, a court judgment made solely on the basis of a compromise agreement binds only the parties to the compromise, and cannot bind a party litigant who did not take part in the compromise agreement.   Philippine National Bank Vs. Marcelino Banatao, et al. and Marciano Carag, et al., G.R. No. 149221,  April 7, 2009.

Compromise agreement; validity.  The Compromise Agreement is in order and is not contrary to law, morals, good customs and public policy. Judicial approval thereof is in order. Guillermo Perciano vs. Heirs of Procopio Tumbali represented by Lydia TumbaliG.R. No. 177346, April 21, 2009.

Contracts; consideration. The Deed of Sale which states “receipt of which in full I hereby acknowledge to my entire satisfaction” is an acknowledgment receipt in itself. Moreover, the presumption that a contract has sufficient consideration cannot be overthrown by a mere assertion that it has no consideration. Serafin Naranja, et al. vs. The Honorable Court of Appeals, et al.,G.R. No. 160132,  April 17, 2009.

Contracts; simulated contract. The late registration of the Deed of Sale and Roque’s execution of the second deed of sale in favor of Dema-ala did not mean that the contract was simulated. We are convinced with the explanation given by respondent’s witnesses that the deed of sale was not immediately registered because Belardo did not have the money to pay for the fees. This explanation is, in fact, plausible considering that Belardo could barely support herself and her brother, Roque. As for the second deed of sale, Dema-ala, herself, attested before the trial court that she let Roque sign the second deed of sale because the title to the properties were still in his name. Serafin Naranja, et al. vs. The Honorable Court of Appeals, et al., G.R. No. 160132,  April 17, 2009.

Contracts; undue influence. Petitioners allege that Belardo unduly influenced Roque, who was already physically weak and senile at that time, into executing the deed of sale. Belardo allegedly took advantage of the fact that Roque was living in her house and was dependent on her for support.

There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. One who alleges any defect, or the lack of consent to a contract by reason of fraud or undue influence, must establish by full, clear and convincing evidence, such specific acts that vitiated the party’s consent; otherwise, the latter’s presumed consent to the contract prevails. For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own.

Petitioners adduced no proof that Roque had lost control of his mental faculties at the time of the sale. Undue influence is not to be inferred from age, sickness, or debility of body, if sufficient intelligence remains. The evidence presented pertained more to Roque’s physical condition rather than his mental condition. On the contrary, Atty. Sanicas, the notary public, attested that Roque was very healthy and mentally sound and sharp at the time of the execution of the deed of sale. Atty. Sanicas said that Roque also told him that he was a Law graduate. Serafin Naranja, et al. vs. The Honorable Court of Appeals, et al., G.R. No. 160132,  April 17, 2009.

Damages; actual damages.   Article 2206 of the Civil Code provides that in addition to the indemnity for death caused by a crime or quasi-delict, the “defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter, x x x.”  Compensation of this nature is awarded not for loss of earnings but for loss of capacity to earn money.  Hence, it is proper that compensation for loss of earning capacity should be awarded to the petitioners in accordance with the formula established in decided cases for computing net earning capacity, to wit:

The formula for the computation of unearned income is:

Net Earning Capacity = life expectancy x (gross annual income -reasonable and necessary living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 – age of deceased at the time of death]

Jurisprudence provides that the first factor, i.e., life expectancy, shall be computed by applying the formula (2/3 x [80 – age at death]) adopted in the American Expectancy Table of Mortality or the Actuarial of Combined Experience Table of Mortality. The Heirs of George Y. Poe Vs. Malayan Insurance Co. Inc., G.R. No. 156302, April 7, 2009.

Damages;  actual damages. Settled is the rule that only receipted expenses can be the basis of actual damages arising from funeral expenditures. All the prosecution presented was a receipt from the funeral parlor amounting to P15,000.  Since the receipted expenses of the victim’s family was less than P25,000, temperate damages in the said amount can be awarded in lieu of actual damages.  Accordingly, the heirs of the victim are not entitled to actual damages but to temperate damages in the amount of P25,000.as moral damages are mandatory in cases of murder (without need to allege and prove such damages), appellant is likewise ordered to indemnify the heirs of the victim P50,000.   People of the Philippines vs. Alejo Obligado y MagdaraogG.R. No. 171735,  April 16, 2009.

Damages;  exemplary.  Exemplary or corrective damages are imposed by way of example or correction for the public good in addition to the moral, temperate, liquidated or compensatory damages. While the amount of exemplary damages need not be proved, respondent must show proof of entitlement to moral, temperate or compensatory damages before the Court may consider awarding exemplary damages.  No such damages were prayed for, however, hence, the Court finds no basis to grant the prayer for exemplary damages.  De La Salle University, et al. Vs. De La Salle University Employees Association (DLSUEA-NAFTEU)G.R. No. 177283,  April 7, 2009.

Damages;  moral damages.   Petitioners’ testimonies reveal the intense suffering which they continue to experience as a result of George’s death.  It is not difficult to comprehend that the sudden and unexpected loss of a husband and father would cause mental anguish and serious anxiety in the wife and children he left behind. Moral damages in the amount of P100,000.00 are proper for George’s death.  The Heirs of George Y. Poe Vs. Malayan Insurance Co. Inc., G.R. No. 156302,  April 7, 2009.

Damages;  moral damages.  Article 19 of the Civil Code provides that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.  Article 21 of the Code states that any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.  And, lastly, Article 24 requires that in all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.

Clearly, Rajab, Becmen and White Falcon’s acts and omissions are against public policy because they undermine and subvert the interest and general welfare of our OFWs abroad, who are entitled to full protection under the law.  They set an awful example of how foreign employers and recruitment agencies should treat and act with respect to their distressed employees and workers abroad.  Their shabby and callous treatment of Jasmin’s case; their uncaring attitude; their unjustified failure and refusal to assist in the determination of the true circumstances surrounding her mysterious death, and instead finding satisfaction in the unreasonable insistence that she committed suicide just so they can conveniently avoid pecuniary liability; placing their own corporate interests above of the welfare of their employee’s – all these are contrary to morals, good customs and public policy, and constitute taking advantage of the poor employee and her family’s ignorance, helplessness, indigence and lack of power and resources to seek the truth and obtain justice for the death of a loved one..

The grant of moral damages to the employee by reason of misconduct on the part of the employer is sanctioned by Article 2219 of the Civil Code, which allows recovery of such damages in actions referred to in Article 21.  Becmen Services Exporter and Promotion, Inc. vs. Sps. Simplicio and Mila Cuaresma, et al./Sps. Simplicio and Mila Cuaresma Vs. White Falcon Services, Inc., et al.G.R. No. 182978-79/G.R. No. 174298-99,  April 7, 2009.

Damages; murder. When death occurs due to a crime, the following damages may be awarded: (1) civil indemnity ex delicto for the death of the victim; (2) actual or compensatory damages; (3) moral damages; (4) exemplary damages; and (5) temperate damages.

Civil indemnity is mandatory and granted to the heirs of the victim without need of proof other than the commission of the crime.  ]Under the prevailing jurisprudence, the award of P50,000.00 as civil indemnity for each count of murder, to be paid to the heirs of the victims, is proper.  As to actual damages, the heirs of the victims of murder are not entitled thereto because said damages were not duly proved with a reasonable degree of certainty. The award of P25,000.00 as temperate damages in homicide or murder cases is proper when no evidence of burial and funeral expenses is presented in the trial court.  Under Article 2224 of the Civil Code, temperate damages may be recovered, as it cannot be denied that the heirs of the victims suffered pecuniary loss although the exact amount was not proved.  Thus, this Court awards P25,000.00 as temperate damages for each count of murder.  Anent moral damages, the same are mandatory in cases of murder and homicide, without need of allegation and proof other than the death of the victim. The award by the Court of Appeals of P50,000.00 as moral damages for each count of murder, is proper. The Court of Appeals awarded exemplary damages in the amount of P75,000.00 for each count of murder.  Such award, following current jurisprudence, must be reduced to P25,000.00 since the qualifying circumstance of treachery was firmly established. People of the Philippines vs. Rolly Gidoc @ Bayeng, G.R. No. 185162.  April 24, 2009

Deed of sale; technical description. The Court does not agree with petitioners’ contention that a deed of sale must contain a technical description of the subject property in order to be valid. Petitioners anchor their theory on Section 127 of Act No. 496, which provides a sample form of a deed of sale that includes, in particular, a technical description of the subject property.

To be valid, a contract of sale need not contain a technical description of the subject property. Contracts of sale of real property have no prescribed form for their validity; they follow the general rule on contracts that they may be entered into in whatever form, provided all the essential requisites for their validity are present. The requisites of a valid contract of  sale under Article 1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent.

The failure of the parties to specify with absolute clarity the object of a contract by including its technical description is of no moment. What is important is that there is, in fact, an object that is determinate or at least determinable, as subject of the contract of sale. The form of a deed of sale provided in Section 127 of Act No. 496 is only a suggested form. It is not a mandatory form that must be strictly followed by the parties to a contract.

In the instant case, the deed of sale clearly identifies the subject properties by indicating their respective lot numbers, lot areas, and the certificate of title covering them. Resort can always be made to the technical description as stated in the certificates of title covering the two properties. Serafin Naranja, et al. vs. The Honorable Court of Appeals, et al., G.R. No. 160132,  April 17, 2009.

Easement. The owner of the dominant estate cannot violate any of the following prescribed restrictions on its rights on the servient estate, to wit:  (1) it can only exercise rights necessary for the use of the easement; (2) it cannot use the easement except for the benefit of the immovable originally contemplated; (3) it cannot exercise the easement in any other manner than that previously established; (4) it cannot construct anything on it which is not necessary for the use and preservation of the easement; (5) it cannot alter or make the easement more burdensome; (6) it must notify the servient estate owner of its intention to make necessary works on the servient estate; and (7) it should choose the most convenient time and manner to build said works so as to cause the least convenience to the owner of the servient estate.  Any violation of the above constitutes impairment of the easement. Golderes Realty Corp. Vs. Cypress Gardens etc., G.R. No. 171072, April 7, 2009.

Interest; legal rate. The claim in this case is one for reimbursement of the sum of money paid by FGU Insurance Corporation to RAGC.  This is not one for forbearance of money, goods or credit.  Forbearance in the context of the usury law is a contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable. Thus the interest rate should be as it is hereby fixed at 6%.  Moreover, the interest rate of 6% shall be computed from the date of filing of the complaint, i.e., April 10, 1995.  This is in accordance with the ruling that where the demand cannot be established with reasonable certainty, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained).  The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. International Container Terminal Services, Inc. vs. FGU Insurance Corporation, et al., G.R. No. 161539,  April 24, 2009.

Laches.  Laches has been defined as the failure of or neglect for an unreasonable and unexplained length of time to do that which by exercising due diligence, could or should have been done earlier, or to assert a right within reasonable time, warranting a presumption that the party entitled thereto has either abandoned it or declined to assert it.  Thus, the doctrine of laches presumes that the party guilty of negligence had the opportunity to do what should have been done, but failed to do so.

In the instant case, when Esquivel and Talens filed with the RTC their application for registration of the subject property on 5 March 1993, 28 years had passed since the execution by Hermogenes of the Quitclaim covering the subject property in favor of Hizon on 29 November 1965; and 25 years elapsed from the execution by Hizon of the Deed of Absolute Sale of the subject property in favor of Esquivel and Talens on 26 August 1968.  During these periods, without providing any reasons therefor, neither Hizon nor Esquivel and Talens took possession of the subject property or exercised in any other way their rights over the same. Marcelino Lopez, et al. vs. Hon. Court of Appeals, et al./ Noel Rubber and Development Corp, et al. vs. Jose Esquivel, Jr., et al., G.R. No. 168734/G.R. No. 170621, April 24, 2009.

Mortgage;  homestead patent. The mortgages cannot but be void ab initio.  . .  The rationale for the prohibition, reiterated in a line of cases,  first laid down in Pascua v. Talens states that “x x x homestead laws were designed to distribute disposable agricultural lots of the State to land-destitute citizens for their home and cultivation. Pursuant to such benevolent intention the State prohibits the sale or encumbrance of the homestead (Section 116, now Section 118) within five years after the grant of the patent. x x x. It aims to preserve and keep in the family of the homesteader that portion of public land which the State had gratuitously given to him.”  In the present case, the annotation of the mortgage liens occurred only months after the date of the issuance of the homestead patents.

Property;  prescription.  In complying with Section 14(2) of the Property Registration Decree, consider that under the Civil Code, prescription is recognized as a mode of acquiring ownership of patrimonial property. However, public domain lands become only patrimonial property not only with a declaration that these are alienable or disposable.  There must also be an express government manifestation that the property is already patrimonial or no longer retained for public service or the development of national wealth, under Article 422 of the Civil Code. And only when the property has become patrimonial can the prescriptive period for the acquisition of property of the public dominion begin to run.

(a)      Patrimonial property is private property of the government.  The person acquires ownership of patrimonial property by prescription under the Civil Code is entitled to secure registration thereof under Section 14(2) of the Property Registration Decree.

(b)     There are two kinds of prescription by which patrimonial property may be acquired, one ordinary and other extraordinary. Under ordinary acquisitive prescription, a person acquires ownership of a patrimonial property through possession for at least ten (10) years, in good faith and with just title. Under extraordinary acquisitive prescription, a person’s uninterrupted adverse possession of patrimonial property for at least thirty (30) years, regardless of good faith or just title, ripens into ownership. Heirs of Malabanan vs. Republic of the Philippines, G.R. No. 179987,  April 29, 2009.

Negligence; medical malpractice suits. For lack of a specific law geared towards the type of negligence committed by members of the medical profession, such claim for damages is almost always anchored on the alleged violation of Article 2176 of the Civil Code.

In medical negligence cases, also called medical malpractice suits, there exist a physician-patient relationship between the doctor and the victim.  But just like any other proceeding for damages, four essential (4) elements i.e., (1) duty; (2) breach; (3) injury; and (4) proximate causation, must be established by the plaintiff/s. All the four (4) elements must co-exist in order to find the physician negligent and, thus, liable for damages.

When a patient engages the services of a physician, a physician-patient relationship is generated. And in accepting a case, the physician, for all intents and purposes, represents that he has the needed training and skill possessed by physicians and surgeons practicing in the same field; and that he will employ such training, care, and skill in the treatment of the patient. Thus, in treating his patient, a physician is under a duty to [the former] to exercise that degree of care, skill and diligence which physicians in the same general neighborhood and in the same general line of practice ordinarily possess and exercise in like cases. Stated otherwise, the physician has the duty to use at least the same level of care that any other reasonably competent physician would use to treat the condition under similar circumstances.

This standard level of care, skill and diligence is a matter best addressed by expert medical testimony, because the standard of care in a medical malpractice case is a matter peculiarly within the knowledge of experts in the field.

There is breach of duty of care, skill and diligence, or the improper performance of such duty, by the attending physician when the patient is injured in body or in health [and this] constitutes the actionable malpractice.

Proof of such breach must likewise rest upon the testimony of an expert witness that the treatment accorded to the patient failed to meet the standard level of care, skill and diligence which physicians in the same general neighborhood and in the same general line of practice ordinarily possess and exercise in like cases.

Even so, proof of breach of duty on the part of the attending physician is insufficient, for there must be a causal connection between said breach and the resulting injury sustained by the patient. Put in another way, in order that there may be a recovery for an injury, it must be shown that the “injury for which recovery is sought must be the legitimate consequence of the wrong done; the connection between the negligence and the injury must be a direct and natural sequence of events, unbroken by intervening efficient causes”; that is, the negligence must be the proximate cause of the injury. And the proximate cause of an injury is that cause, which, in the natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.

Just as with the elements of duty and breach of the same, in order to establish the proximate cause [of the injury] by a preponderance of the evidence in a medical malpractice action, [the patient] must similarly use expert testimony, because the question of whether the alleged professional negligence caused [the patient’s] injury is generally one for specialized expert knowledge beyond the ken of the average layperson; using the specialized knowledge and training of his field, the expert’s role is to present to the [court] a realistic assessment of the likelihood that [the physician’s] alleged negligence caused [the patient’s] injury. Peter Paul Patrick Lucas, et al. vs. Dr. Prospero Ma. C. Tuaño, G.R. No. 178763,  April 21, 2009.

Property; lis pendens. A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, serving as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation over the said property. The filing of a notice of lis pendens charges all strangers with a notice of the particular litigation referred to therein and, therefore, any right they may thereafter acquire on the property is subject to the eventuality of the suit. Such announcement is founded upon public policy and necessity, the purpose of which is to keep the properties in litigation within the power of the court until the litigation is terminated and to prevent the defeat of the judgment or decree by subsequent alienation.

Under Section 77 of Presidential Decree (P.D.) No. 1529,a notice of lis pendens shall be deemed cancelled only upon the registration of a certificate of the clerk of court in which the action or proceeding was pending stating the manner of disposal thereof if there was a final judgment in favor of the defendant or the action was disposed of terminating finally all rights of the plaintiff over the property in litigation.  Isabelita Cunanan, Carolyn Cunanan and Carmencita F. Nemoto vs. Jumping Jap Trading Corporation, represented by Reuben M. Protacio, G.R. No. 173834,  April 24, 2009.

Property;  possession.  In connection with Section 14(1) of the Property Registration Decree, Section 48(b) of the Public Land Act recognizes and confirms that “those who by themselves or through their predecessors in interest have been in open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain, under a bona fide claim of acquisition of ownership, since June 12, 1945” have acquired ownership of, and registrable title to, such lands  based on the length and quality of their possession.

(a)      Since Section 48(b) merely requires possession since 12 June 1945 and does not require that the lands should have been alienable and disposable during the entire period of possession, the possessor is entitled to secure judicial confirmation of his title thereto as soon as it is declared alienable and disposable, subject to the timeframe imposed by Section 47 of the Public Land Act.

(b)     The right to register granted under Section 48(b) of the Public Land Act is further confirmed by Section 14(1) of the Property Registration Decree.  Heirs of Malabanan vs. Republic of the Philippines, G.R. No. 179987,  April 29, 2009.

Reconstitution. The following must be present for an order for reconstitution to issue:  (a) that the certificate of title had been lost or destroyed; (b) that the documents presented by petitioner are sufficient and proper to warrant reconstitution of the lost or destroyed certificate of title; (c) that the petitioner is the registered owner of the property or had an interest therein; (d) that the certificate of title was in force at the time it was lost and destroyed; and (e) that the description, area and boundaries of the property are substantially the same as those contained in the lost or destroyed certificate of title. Repubic of the Philippines vs. Macaria L. Tuastumban, G.R. No. 173210,  April 24, 2009.

Sale;  innocent purchaser for value.  An innocent purchaser for value is one who buys the property of another without notice that some other person has a right to or interest in that same property, and who pays a full and fair price at the time of the purchase or before receiving any notice of another person’s claim. Philippine National Bank Vs. Marcelino Banatao, et al. and Marciano Carag, et al., G.R. No. 149221, April 7, 2009.

Sale;  innocent purchaser for value.  The honesty of intention that constitutes good faith implies freedom from knowledge of circumstances that ought to put a prudent person on inquiry.  Good faith consists in the belief of the possessors that the persons from whom they received the thing are its rightful owners who could convey their title.  Good faith, while always presumed in the absence of proof to the contrary, requires this well-founded belief.   Spouses Juanito R. Villamil etc. et al. Vs. Lazaro Cruz-Villarosa, G.R. No. 177187,  April 7, 2009.

Sale;  Torrens title.  Well-settled is the rule that every person dealing with a registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate to determine the condition of the property.  Where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title upon its face indicates in quest for any hidden defects or inchoate right that may subsequently defeat his right thereto.

This principle does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation.  One who falls within the exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith.  Spouses Juanito R. Villamil etc. et al. Vs. Lazaro Cruz-Villarosa, G.R. No. 177187, April 7, 2009.

Sale;  Torrens title.  A forged or fraudulent document may become the root of a valid title if the property has already been transferred from the name of the owner to that of the forger.  This doctrine serves to emphasize that a person who deals with registered property in good faith will acquire good title from a forger and be absolutely protected by a Torrens title.   Having made the necessary inquiries and having found the title to be authentic, Villarosa need not go beyond the certificate of title.  When dealing with land that is registered and titled, as in this case, buyers are not required by the law to inquire further than what the Torrens certificate of title indicates on its face. He examined the transferor’s title, which was then under the name of Spouses Tolentino.  He did not have to scrutinize each and every title and previous owners of the property preceding Tolentino.  Spouses Juanito R. Villamil etc. et al. Vs. Lazaro Cruz-Villarosa, G.R. No. 177187, April 7, 2009.

Sale; Torrens title. It is true that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the face of the title.  He is charged with notice only of such burdens and claims as are annotated on the title.  However, this principle does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser or mortgagee has knowledge of a defect or the lack of title in his vendor or mortgagor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation.  One who falls within the exception can neither be denominated an innocent purchaser or mortgagee for value nor a purchaser or mortgagee in good faith.

In the present case, the fact that the orders dismissing the case and directing the cancellation of the notice of lis pendens was not yet final and executory should have impelled the Cunanans to be wary of further developments, as in fact plaintiff filed a motion for reconsideration and the RTC granted the same. In short, the Cunanans’ knowledge of the existence of a pending litigation involving the disputed property makes them mortgagees in bad faith. Hence, respondent could still recover the property from the Cunanans.  Isabelita Cunanan, Carolyn Cunanan and Carmencita F. Nemoto vs. Jumping Jap Trading Corporation, represented by Reuben M. Protacio, G.R. No. 173834,  April 24, 2009.

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