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VOL. 183, MARCH 15, 1990 207

Manzanilla vs. Court of Appeals

*
G.R. No. 75342. March 15, 1990.

SPOUSES CELEDONIO MANZANILLA and DOLORES

FUERTE, and INES CARPIO, petitioners, vs. HON.
COURT OF APPEALS and JUSTINA CAMPO,
respondents.

Civil Law; Mortgage; Bad Faith; Petitioners did not act in bad
faith; They had full knowledge of the existing mortgage of the
whole property in favor of GSIS prior to the sale of one-half
portion to them.—There is no sufficient basis for the trial court to
conclude that herein petitioners acted in bad faith in their
dealings with the Campo spouses. The latter had full knowledge
of the existing mortgage of the whole property in favor of GSIS
prior to the sale of the one-half portion to them. There is also no
showing that as one of the considerations of the sale, herein
petitioners undertook to release the property from the mortgage
at all costs. With this condition of the property at the time of the
sale, private respondents were forewarned of the consequences of
their transaction with the petitioners.
Same; Same; Right of redemption; Should petitioners let the
period of redemption lapse without exercising the right of
redemption, there was no guarantee that the same could be
reaquired by them from GSIS nor would GSIS be under any legal
duty to resell the property to them.—If it were true that petitioners
deliberately allowed the loan to lapse and the mortgage to be
foreclosed, We do not see how these circumstances can be utilized
by them to their advantage. There was no guarantee that
petitioners would be able to redeem the property in the event the
mortgage thereon was foreclosed as in fact they failed to redeem
because they had no money. On the other hand, had they opted to
eventually exercise their right of redemption after foreclosure,
they would be under a legal duty to convey one-half portion
thereof sold to the Campos spouses because by then, title to the
property would still be in their name. Either way, petitioners
were bound to lose either the entire property in case of failure to
redeem or the one-half portion thereof sold to private respondent

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in the case of redemption. Further, should petitioners let the

period of redemption lapse without exercising the right of
redemption, as what happened in this case, there was no
guarantee that the same could be re-acquired by them from GSIS
nor would GSIS be under any legal duty to resell the property to
them.

________________

* FIRST DIVISION.

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Manzanilla vs. Court of Appeals

Same; Same; Petitioners are under no legal obligation to

convey one-half portion of the property previously sold to them.—
There may be a moral duty on the part of petitioners to convey the
one-half portion of the property previously sold to private
respondents. However, they are under no legal obligation to do so.
Hence, the action to quiet title filed by private respondent must
fail.
Same; Same; Implied trust; There was no mistake nor fraud
on petitioners’ part when the property was reacquired from the
GSIS.—Article 1456 of the New Civil Code on implied trust has
no application in the case at bar. Article 1456 provides: x x x
“ART. 1456. If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property
comes.” There was no mistake nor fraud on the part of petitioners
when the subject property was re-acquired from the GSIS. The
fact that they previously sold one-half portion thereof has no more
significance in this re-acquisition. Private respondent’s right over
the one-half portion was obliterated when absolute ownership and
title passed on to the GSIS after the foreclosure sale. The property
as held by GSIS had a clean title. The property that was passed
on to petitioners retained that quality of title.
Same; Same; Buyer in good faith; There was no showing that
at the time of the sale to Ines Carpio of the subject property, she
knew of any lien on the property except the mortgage in favor of
Biñan Rural Bank.—As regards the rights of private respondent
Ines Carpio, she is a buyer in good faith and for value. There was
no showing that at the time of the sale to her of the subject
property, she knew of any lien on the property except the

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mortgage in favor of the Biñan Rural Bank. No other lien was

annotated on the certificate of title. She is also not required by
law to go beyond what appears on the face of the title. When there
is nothing on the certificate of title to indicate any cloud or vice in
the ownership of the property or any encumbrances thereon, the
purchaser is not required to explore further than what the
Torrens Title upon its face indicates in quest for any hidden defect
or inchoate right thereof (NGA v. IAC, G.R. No. 68741, January
28, 1988).

PETITION for certiorari to review the decision of the Court

of Appeals.

The facts are stated in the opinion of the Court.

     Basilio V. Lanoria for petitioners.
     Villamor J. Antonio for private respondent.

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VOL. 183, MARCH 15, 1990 209

Manzanilla vs. Court of Appeals

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision

(pp. 111-118, Rollo ) of the Intermediate Appellate Court,
now Court of Appeals, in AC-G.R. CV No. 00925 entitled
“Justina Campo, Plaintiff-Appellee, versus Sps. Celedonio
Manzanilla and Dolores Fuerte, and Ines Carpio,
Defendants-Appellants”, which affirmed the decision (pp.
55-56, Rollo ) of the Court of First Instance of Rizal, Branch
IX, Quezon City, now Regional Trial Court of Quezon City,
in Civil Case No. Q-28061.
The facts of the case are not disputed.
In 1963, spouses Celedonio and Dolores Manzanilla
(spouses Manzanilla) sold on installment an undivided one-
half portion of their residential house and lot covered by
TCT No. 59223 and located at No. 12, Casiana St., Santol,
Quezon City. At the time of the sale, the said property was
mortgaged to the Government Service Insurance System
(GSIS), which fact was known to the vendees, spouses
Magdaleno and Justina Campo. The Campo spouses took
possession of the premises upon payment of the first
installment on April 17, 1963 and up to the present. Some
payments (Exhibits “A” to “A-1”) were made to petitioners
while some were made directly to GSIS (Exhibits “A-10” to
“A-29”).

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On May 17, 1965, the GSIS filed its application to

foreclose the mortgage on the property for failure of the
Manzanilla spouses to pay their monthly amortizations.
On October 11, 1965, the property was sold at public
auction where GSIS was the highest bidder.
Two months before the expiration of the period to
redeem or on August 31, 1966, the Manzanilla spouses
executed a Deed of Absolute Sale (Exhibit “D”) of the
undivided one half portion of their property in favor of the
Campo spouses.
Upon the expiration of the period to redeem without the
Manzanilla spouses exercising their right of redemption,
title to the property was consolidated in favor of the GSIS
and a new title (TCT No. 135031) issued in its name.
In January 1969, the Manzanilla spouses made
representations and succeeded in re-acquiring the property
from the GSIS. Upon full payment of the purchase price, an
Absolute Deed of Sale was executed by GSIS in favor of the
Manzanilla spouses. Upon registration thereof on March
19, 1973, a new certificate

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Manzanilla vs. Court of Appeals

of title (TCT No.-188293) in the name of the Manzanilla

spouses was issued by the Register of Deeds of Quezon
City.
On May 14, 1973, the Manzanilla spouses mortgaged the
property to the Biñan Rural Bank. On September 7, 1973,
petitioner Ines Carpio purchased the property from the
Manzanilla spouses and agreed to assume the mortgage in
favor of Biñan Rural Bank.
On November 12, 1973, private respondent Justina
Campo registered her adverse claim over TCT No. 188293
with the Register of Deeds of Quezon City.
On October 3, 1977, petitioner Ines Carpio filed an
ejectment case against private respondent Justina Campo
in Civil Case No. 31350, with the City Court of Quezon
City.
On July 31, 1979, private respondent Justina Campo
(already a widow) filed a complaint (pp. 26-30, Rollo ) for
quieting of title against the Manzanilla spouses and Ines
Carpio with the Court of First Instance of Rizal, Branch,
IX, Quezon City, now the Regional Trial Court of Quezon
City and docketed as Civil Case No. Q-28061, praying
among others, for the issuance to her of a certificate of title
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over the undivided one-half portion of the property in

question. Civil Case No. Q-28061 is the subject of this
appeal.
After trial, a decision promulgated on September 30,
1982 was rendered in favor of the herein private
respondent, Justina Campo. The dispositive portion of the
decision reads:

“WHEREFORE, premises considered, judgment is rendered in

favor of the plaintiff Justina C. Campo and the defendants and/or
all persons claiming rights under them are ordered to desist from
exercising rights or ownerships over the half-portion of the
plaintiff. The mortgage of the property to the Biñan Rural Bank is
hereby cancelled in so far as the half-portion is concerned and
accordingly, the sale of defendant Ines Carpio regarding the half
portion of the plaintiff is hereby considered null and void. The
defendants, spouses Celedonio and Dolores Manzanilla are
ordered to surrender their owner’s duplicate copy of TCT No.
188293 to the Register of Deeds of Quezon City for its cancellation
in order that a new certificate of title could be issued in favor of
the plaintiff Justina C. Campo with regards to her half-portion
and to execute such document as is necessary to effect said
transfer.
“SO ORDERED.” (p. 56, Rollo )

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Manzanilla vs. Court of Appeals

The decision was appealed by petitioners, spouses

Manzanilla and Ines Carpio, to the Intermediate Appellate
Court, now Court of Appeals, which affirmed the said
decision of the trial court. Petitioners’ Motion For
Reconsideration filed with the Court of Appeals was denied
on July 16, 1986. Hence, this petition for review under Rule
45 of the Rules of Court on the following issues:

“1. WHETHER OR NOT A BUYER OF ONE-HALF

PORTION OF A MORTGAGED PROPERTY WITH
FULL KNOWLEDGE OF SAID MORTGAGE, MAY
DEMAND RECONVEYANCE FROM THE
SELLER/MORTGAGOR WHO WAS ABLE TO
BUY SAID PROPERTY FROM THE MORTGAGEE
AFTER IT WAS LEGALLY FORE-CLOSED AND
OWNERSHIP DULY CONSOLIDATED IN THE
NAME OF THE MORTGAGEE, UNDER THE
DOCTRINE OF IMPLIED TRUST.
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WHETHER OR NOT A PURCHASER OF REAL

“2.
PROPERTY IS BOUND TO GO BEYOND THE
TITLE THEREOF IN DETERMINING THE REAL
STATUS OF SAID PROPERTY TO BE
CONSIDERED A BUYER IN GOOD FAITH.
“3. WHETHER OR NOT PRIVATE RESPONDENT IS
GUILTY OF LACHES” (p. 12, Rollo ).

The main issue to be resolved in this case is whether,

under the facts stated, petitioners Manzanillas are under
any legal duty to reconvey the undivided one-half portion of
the property to private respondent Justina Campo.
It is petitioners’ contention that a buyer of one-half
portion of a mortgaged property who, at the time of the sale
had full knowledge of the existence of the mortgage, has no
legal right to demand reconveyance from the
seller/mortgagor who was able to buy said property from
the mortgagee after it was legally foreclosed and ownership
duly consolidated in the name of the latter.
Private respondent, on the other hand contends that
petitioners committed fraud upon them (Campo spouses) by
deliberately allowing the loan to lapse, the mortgage to be
foreclosed and the subsequent reacquisition of the same
after the expiration of the period of redemption without
exercising their right of redemption. Upon the re-
acquisition by the Manzanillas of the whole property from
GSIS, they are considered trustees of an

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Manzanilla vs. Court of Appeals

implied trust in favor of private respondent Campo.

Both the court a quo and respondent appellate court
share the view of private respondent. Both courts believe
that petitioners exercised fraud upon the Campo spouses
when they bought back the whole property believing that
as the GSIS acquired absolute ownership and title to the
property private respondent can no longer be entitled to the
same.
The petition is impressed with merit.
There is no sufficient basis for the trial court to conclude
that herein petitioners acted in bad faith in their dealings
with the Campo spouses. The latter had full knowledge of
the existing mortgage of the whole property in favor of
GSIS prior to the sale of the one-half portion to them.
There is also no showing that as one of the considerations
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of the sale, herein petitioners undertook to release the

property from the mortgage at all costs. With this condition
of the property at the time of the sale, private respondents
were forewarned of the consequences of their transaction
with the petitioners.
There is also no basis to conclude that petitioners
deliberately allowed the loan to lapse and the mortgage to
be foreclosed. No specific act or series of acts were
presented and proven from which it could be safely
concluded that the failure of petitioners to pay off their
loan was deliberate. They explained that their financial
condition prevented them from dutifully complying with
their obligations to the GSIS. In a display of their good
faith and fair dealing after the property was foreclosed, the
petitioners, realizing the imminent loss of the said
property, even granted the private respondent the right to
redeem it from the GSIS. This right was granted in the
Deed of Absolute Sale executed by petitioners in favor of
the Campo spouses. Moreover, it was also stipulated that
private respondent recognized the superior lien of GSIS on
the property and agreed to be bound by the terms and
conditions of the mortgage. These stipulations were all
contained in the Deed, as follows:

“x x x the VENDORS do hereby covenant and agree with the

VENDEES that they are lawfully seized in fee of said premises
and that they have a perfect right to convey the same and that
they will warrant and forever defend the same unto the said
vendees, their heirs and assigns against the lawful claim of all
persons whomsoever, subject to the mortgage lien in favor of the
Government Service

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Manzanilla vs. Court of Appeals

Insurance System aforementioned.

“That the VENDEES recognize the superior lien of the
Government Service Insurance System (GSIS) and agree to be
bound by the terms and conditions thereof, x x x.
“That the VENDORS likewise agree that in the event the
mortgagee, Government Service Insurance System should
foreclose the mortgage on the said property, the herein
VENDEES, Spouses Magdaleno Campo and Justina Cabuag,
their heirs or assigns, shall have the right to redeem or otherwise
deal with the Government Service Insurance System (GSIS) in
connection with this property. Vendees agree that vendors may

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repurchase the property within the time provided by law.” (pp. 74-
75, Rollo )

In view of the failure of either the Manzanilla spouses or

the Campo spouses to redeem the property from GSIS, title
to the property was consolidated in the name of GSIS. The
new title cancelled the old title in the name of the
Manzanilla spouses. GSIS at this point had a clean title
free from any lien in favor of any person including that of
the Campo spouses.
If it were true that petitioners deliberately allowed the
loan to lapse and the mortgage to be foreclosed, We do not
see how these circumstances can be utilized by them to
their advantage. There was no guarantee that petitioners
would be able to redeem the property in the event the
mortgage thereon was foreclosed as in fact they failed to
redeem because they had no money. On the other hand,
had they opted to eventually exercise their right of
redemption after foreclosure, they would be under a legal
duty to convey one-half portion thereof sold to the Campo
spouses because by then, title to the property would still be
in their name. Either way, petitioners were bound to lose
either the entire property in case of failure to redeem or the
one-half portion thereof sold to private respondent in the
case of redemption. Further, should petitioners let the
period of redemption lapse without exercising the right of
redemption, as what happened in this case, there was no
guarantee that the same could be re-acquired by them from
GSIS nor would GSIS be under any legal duty to resell the
property to them.
There may be a moral duty on the part of petitioners to
convey the one-half portion of the property previously sold
to private respondents. However, they are under no legal
obligation to do so. Hence, the action to quiet title filed by
private respondent
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Manzanilla vs. Court of Appeals

must fail.

“Justice is done according to law. As a rule, equity follows the law.

There may be a moral obligation, often regarded as an equitable
consideration (meaning compassion), but if there is no enforceable
legal duty, the action must fail although the disadvantaged party
deserves commiseration or sympathy.

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“The choice between what is legally just and what is morally

just, when these two options do not coincide, is explained by
Justice Moreland in Vales vs. Villa, 35 Phil. 769,788 where he
said:
‘Courts operate not because one person has been defeated or
overcome by another, but because he has been defeated or
overcome illegally. Men may do foolish things, make ridiculous
contracts, use miserable judgment, and lose money by them—
indeed, all they have in the world; but not for that alone can the
law intervene and restore. There must be in addition, a violation
of law, the commission of what the law knows as an actionable
wrong before the courts are authorized to lay hold of the situation
and remedy it.’ ” (Rural Bank of Parañaque, Inc. vs. Remolado,
62051, March 18, 1985) (135 SCRA 409, 412)

In the questioned decision, respondent appellate court

ruled that an implied trust exists in favor of private
respondents. We do not agree. Article 1456 of the New Civil
Code on implied trust has no application in the case at bar.
Article 1456 provides:

“ART. 1456. If property is acquired through mistake or fraud, the

person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property
comes.”

There was no mistake nor fraud on the part of petitioners

when the subject property was re-acquired from the GSIS.
The fact that they previously sold one-half portion thereof
has no more significance in this re-acquisition. Private
respondent’s right over the one-half portion was obliterated
when absolute ownership and title passed on to the GSIS
after the foreclosure sale. The property as held by GSIS
had a clean title. The property that was passed on to
petitioners retained that quality of title.
As regards the rights of private respondent Ines Carpio,
she is
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a buyer in good faith and for value. There was no showing

that at the time of the sale to her of the subject property,
she knew of any lien on the property except the mortgage
in favor of the Biñan Rural Bank. No other lien was
annotated on the certificate of title. She is also not required
by law to go beyond what appears on the face of the title.
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When there is nothing on the certificate of title to indicate

any cloud or vice in the ownership of the property or any
encumbrances thereon, the purchaser is not required to
explore further than what the Torrens Title upon its face
indicates in quest for any hidden defect or inchoate right
thereof (NGA v. IAC, G.R. No. 68741, January 28, 1988).
ACCORDINGLY, the petition is GRANTED. The
appealed decision of the Court of Appeals is hereby
REVERSED. Civil Case No. Q-28061 for quieting of title is
hereby DISMISSED.
SO ORDERED.

     Narvasa (Chairman), Gancayco and Griño-Aquino,

JJ., concur.
     Cruz, J., See dissent.

CRUZ, J., Dissenting:

I regret I cannot give my concurrence to the well-argued

ponencia of Mr. Justice Medialdea because, for all its
seemingly flawless logic, there is something in the
conclusion reached that does not sit well with my own
sense of justice. In Alonzo v. Intermediate Appellate Court,
150 SCRA 261, I had occasion to ponder a similar problem
when I thought aloud for the Court:

The question is sometimes asked in serious inquiry or in curious

conjecture, whether we are a court of law or a court of justice. Do
we apply the law even if it is unjust or do we administer justice
even against the law? Thus queried, we do not equivocate. The
answer is that we do neither because we are a court both of law
and of justice. We apply the law with justice for that is our
mission and purpose in the scheme of our Republic.

In the case at bar, I am not quite convinced that the Campo

spouses agreed to assume the mortgage debt (as otherwise
the deed of sale should have said so) or that they
understood they were supposed to do so as this has not
been clearly shown (in
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Manzanilla vs. Court of Appeals

which case the ambiguity should be resolved against the

one who caused it). The rights (and duties) of the parties
are really uncertain, if not rather baffling. Thus, the
petitioners “even granted the private respondent the right
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to redeem the property, from the GSIS,” as the ponencia

notes on p.6, even as the Deed of Absolute Sale also
stipulated, somewhat inconsistently, that the “Vendees
agree that the Vendors may repurchase the property
within the time provided by law.” It is possible that the
Vendees believed it was the Vendors who were supposed to
discharge the mortgage debt, more so since the widow
Campo was allowed to remain on the property by the
Manzanillas even after they had repurchased it from the
GSIS.
The law may really support the Manzanillas and Carpio
if it is strictly interpreted. But as Justice Holmes observed,
“Courts are apt to err by sticking too closely to the words of
a law where these words import a policy that goes beyond
them.” I fear we may be missing the lesson of this thought
by not applying the law, as I think we must, not with rigor
but with justice.
Petition granted; decision reversed.

Note.—Justice is done according to law. As a rule,

equity follows the law. There may be a moral obligation but
if there is no enforceable legal duty, the action for
reconveyance must fail. (Rural Bank of Parañaque, Inc. vs.
Remolado, 135 SCRA 409.)

———o0o———

217

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