In Genaro Ruiz, Sr. vs. Court of Appeals, the Supreme Court addressed the issue of conflicting rights over a parcel of land between a buyer with an unregistered deed of sale and a creditor who had the property attached. The Court ruled that knowledge of a prior unregistered sale is equivalent to registration, thus favoring the buyer’s right over the attaching creditor’s claim. This decision underscores the importance of good faith and awareness in property transactions and highlights that the Torrens system cannot be used to shield fraudulent actions.

When an Unrecorded Deal Trumps a Registered Claim: The Ruiz vs. Hong Land Battle

The consolidated cases revolve around a parcel of land in Tabunok, Talisay, Cebu, originally owned by Genaro Ruiz, Sr. To cover his medical expenses, Genaro Ruiz, Sr. obtained loans from his neighbor, Honorato Hong, using the land as collateral. Eventually, on April 23, 1986, Ruiz, Sr. sold the land to Hong for P350,000, with a notarized deed of sale. Hong paid part of the purchase price. However, the transfer of title to Hong’s name was not immediately undertaken. Later, a separate issue arose when Genaro Ruiz, Sr.’s wife, Amor Ruiz, also borrowed money from Hong, using the same land as security, and retained the title for safekeeping.

Complications arose when Amor Ruiz, estranged from her husband, filed a case for Support against Genaro Ruiz, Sr. and had the same land attached. Hong filed a third-party claim, asserting his ownership based on the prior sale. Subsequently, Hong filed a case for Specific Performance to compel the delivery of the title. The trial court ruled in favor of Hong, declaring him the owner of the land and nullifying the writ of attachment. The Court of Appeals affirmed this decision. The petitioners, heirs of Genaro Ruiz, Sr., argued that their registered attachment should take precedence over Hong’s unregistered deed of sale, citing Section 1 of Presidential Decree (PD) 1521, asserting that the deed was not registered.

The Supreme Court affirmed the Court of Appeals’ decision, emphasizing the trial court’s factual findings, which are generally conclusive. The Court highlighted that Genaro Ruiz, Sr. had indeed sold the land to Honorato Hong as early as April 23, 1986, evidenced by a duly notarized deed of sale. The Court acknowledged the rule that a registered attachment generally prevails over an unregistered sale, because registration serves as notice to the world. However, the Court emphasized an exception: knowledge of a prior unregistered interest equates to registration. This principle is rooted in the concept that the Torrens system should not be used to perpetrate fraud.

The Court cited Fernandez v. Court of Appeals, which states:

Section 50 of Act No. 496 (now Sec. 51 of P.D. 1529), provides that the registration of the deed is the operative act to bind or affect the land insofar as third persons are concerned. But where the party has knowledge of a prior existing interest which is unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him. The torrens system cannot be used as a shield for the commission of fraud (Gustillo v. Maravilla, 48 Phil. 442). As far as private respondent Zenaida Angeles and her husband Justiniano are concerned, the non-registration of the affidavit admitting their sale of a portion of 110 square meters of the subject land to petitioners cannot be invoked as a defense because (K)nowledge of an unregistered sale is equivalent to registration (Winkleman v. Veluz, 43 Phil. 604).

In this case, the petitioners were aware of the prior sale to Hong. Evidence showed that Hong had introduced significant improvements to the land, indicating his ownership. Furthermore, Genaro Ruiz, Sr. himself admitted in his Answer to the Support case that he had sold the land to Hong. The Supreme Court also noted the significance of the notarized deeds of sale. Documents acknowledged before notaries public are public documents, admissible as evidence without preliminary proof. These documents carry a presumption of regularity, which can only be overcome by clear, convincing, and preponderant evidence.

The Court discredited the petitioners’ attempts to challenge the authenticity of the sale, upholding the trial court’s assessment of witness credibility. The trial court found Honorato Hong’s testimony credible, while finding Amor Ruiz’s demeanor untrustworthy. The Court also found that the action for Support was filed to adversely affect the conveyance of the land to Honorato Hong. The Supreme Court emphasized the provision of Section 35, Rule 39 of the Rules of Court, stating that a purchaser at an execution sale acquires only the rights, title, interest, and claim of the judgment debtor at the time of the levy. Since Genaro Ruiz, Sr. had already sold the land to Hong, he had no rights to pass on to his wife and children. Therefore, the attachment and subsequent sale in the Support case were invalid.

FAQs

What was the key issue in this case?	The central issue was determining who had a superior right to the land: Honorato Hong, the buyer with an unregistered deed of sale, or the heirs of Genaro Ruiz, Sr., who obtained a writ of attachment on the property.
What did the Supreme Court decide?	The Supreme Court ruled in favor of Honorato Hong, affirming that knowledge of a prior unregistered sale is equivalent to registration, thus giving him a preferred right over the attaching creditor.
Why was knowledge of the sale so important?	Knowledge of the prior sale prevented the petitioners from claiming they were innocent third parties. This knowledge effectively bound them to the unregistered sale as if it were registered.
What is the significance of a notarized deed of sale?	A notarized deed of sale is a public document that carries a presumption of regularity, making it admissible as evidence without preliminary proof of its authenticity and due execution.
What does it mean that “the Torrens system cannot be used as a shield for fraud”?	This means that the Torrens system, designed to ensure security in land ownership, cannot be used to protect someone who is acting in bad faith or with knowledge of a prior existing interest.
What is a writ of attachment?	A writ of attachment is a court order that allows a sheriff to seize property to secure a judgment in a pending lawsuit. It prevents the debtor from disposing of the property during the litigation.
How does Rule 39, Section 35 of the Rules of Court apply to this case?	This rule states that a purchaser at an execution sale acquires only the rights of the judgment debtor at the time of the levy. Since Genaro Ruiz, Sr. had already sold the land, he had no rights to transfer.
What was the impact of Genaro Ruiz, Sr.’s admission about the sale?	Genaro Ruiz, Sr.’s admission in the Support case was considered a declaration against interest, which the Court found credible and weighed heavily against the claims of his heirs.
What is specific performance?	Specific performance is a legal remedy that compels a party to fulfill the terms of a contract, particularly when monetary damages are inadequate, such as in real estate transactions.

This case highlights the critical role of good faith and awareness in land transactions. It also illustrates that the principle of notice, whether actual or constructive through registration, is paramount in determining priority of rights over real property. The Supreme Court’s decision underscores that even an unregistered sale can prevail over a subsequent attachment if the attaching creditor had knowledge of the prior transaction.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Genaro Ruiz, Sr. vs. Court of Appeals, G.R. No. 121298, July 31, 2001