In the case of Bliss Development Corp. v. Diaz, the Supreme Court addressed the complexities of unjust enrichment in property transactions where both parties acted in bad faith. The Court ruled that while Diaz was not a purchaser in good faith, Bliss Development Corporation was obligated to return the amortizations he paid due to its own bad faith and the principles of unjust enrichment. This decision underscores the importance of equitable considerations in property disputes, even when strict adherence to legal standards might suggest a different outcome, ensuring that no party unjustly benefits at the expense of another.

Double Dealing and Disputed Deeds: Who Pays When a Property Deal Turns Sour?

The heart of this case lies in a tangled web of property rights, conflicting claims, and allegations of bad faith. Bliss Development Corporation (BDC), later reorganized as Home Guaranty Corporation, found itself embroiled in a dispute between Montano Diaz and Edgar Arreza over a property initially sold to Spouses Emiliano and Leonila Melgazo. Diaz, believing he had legitimately acquired the rights to the property through a series of transfers, made substantial payments to BDC and introduced significant improvements. However, Arreza claimed a superior right based on the argument that the signatures of Sps. Melgazo transferring their rights to Nacua were mere forgeries, ultimately leading the court to rule in his favor. This situation raised critical questions about the responsibilities and liabilities of BDC, Diaz, and Domingo Tapay, one of the intermediaries in the transfer of rights.

The initial legal battle unfolded when BDC filed an interpleader case to resolve the conflicting claims between Arreza and Diaz. The Regional Trial Court (RTC) ruled in favor of Arreza, a decision that became final and executory. Subsequently, Diaz filed a complaint against BDC, Arreza, and Tapay, seeking reimbursement for the amounts he had paid and damages for the alleged misrepresentations. The RTC dismissed Diaz’s complaint, finding that he had failed to prove he was an assignee in good faith. However, the Court of Appeals (CA) reversed this decision, holding that Diaz was indeed a buyer and builder in good faith and was entitled to reimbursement and damages. BDC then elevated the case to the Supreme Court, questioning the CA’s findings and raising issues of res judicata and unjust enrichment.

The Supreme Court began by addressing the issue of res judicata, raised by BDC, arguing that the present claim was barred by the Court’s previous ruling in G.R. No. 133113. The Court clarified that the essential elements of res judicata were not present in this case.

In cases involving res adjudicata, the parties and the causes of action are identical or substantially the same in the prior as well as the subsequent action. The judgment in the first action is conclusive as to every matter offered and received therein and as to any other matter admissible therein and which might have been offered for that purpose, hence said judgment is an absolute bar to a subsequent action for the same cause.

The Court emphasized that the interpleader case was primarily between Arreza and Diaz, and the issues revolved around their conflicting claims, not any claims either might have against BDC. Thus, the principle of res judicata did not apply to the case at bar.

Building on this, the Court scrutinized BDC’s conduct in dealing with Diaz. The evidence revealed that BDC was aware of Arreza’s claim as early as 1991, even before Diaz presented his deeds of transfer. Despite this knowledge, BDC accepted payments from both Arreza and Diaz.

It is undisputed that Bliss knew about Arreza’s claim in 1991. It even received amortization payments from Arreza. Yet, Bliss acknowledged the transfer to Diaz and received the monthly amortizations paid by Diaz. Also, Bliss is aware that should Arreza pursue his claim in court, Diaz may be evicted from the property.

This behavior led the Court to conclude that BDC had acted in bad faith, as it had failed to disclose the conflicting claim to Diaz and had continued to accept his payments.

However, the Supreme Court disagreed with the CA’s assessment that Diaz was a purchaser in good faith and for value. The Court clarified that the doctrine of not going beyond the face of the title does not apply when what is being sold is not the land itself, but the right to purchase it. In this case, the transfers were assignments of rights to purchase the property from BDC. As such, Diaz was obligated to inquire into the validity of his predecessor’s title. The Court noted that Diaz failed to diligently inquire into the title of his predecessor before entering into the contract of sale, meaning he cannot be considered a buyer in good faith.

Despite Diaz’s lack of good faith, the Court invoked the principle of unjust enrichment to justify the return of the amortizations he had paid. Unjust enrichment exists when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity, and good conscience.

Article 22 of the Civil Code provides:

Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

Allowing BDC to retain the amortizations paid by Diaz would result in BDC receiving double payments, which is unjust and inequitable. Therefore, the Court held that BDC was liable to return the amortizations to Diaz.

The Court then addressed the issue of the improvements Diaz had introduced to the property. Given that both BDC and Diaz had acted in bad faith, the Court applied Article 453 of the Civil Code, which states that when both parties are in bad faith, their rights are the same as if they had acted in good faith. In such cases, Article 448 of the Civil Code comes into play:

The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent.

Consequently, BDC was liable to indemnify Diaz for the value of the improvements he had made on the property.

The Supreme Court emphasized that, because both parties acted in bad faith, there was no basis for awarding moral and exemplary damages, as well as attorney’s fees. The Court found it proper to delete the award of P100,000.00 as moral damages, P50,000.00 as exemplary damages, and P25,000.00 as attorney’s fees.

FAQs

What was the central issue in this case?	The central issue was whether Bliss Development Corporation (BDC) should reimburse Montano Diaz for payments and improvements made on a property, given that Diaz was later deemed not to have a valid claim to the property. The court also considered BDC’s knowledge of conflicting claims and its implications for unjust enrichment.
Why was Diaz not considered a buyer in good faith?	Diaz was not considered a buyer in good faith because he failed to diligently inquire into the title of his predecessor before entering into the contract of sale. The Court emphasized that the doctrine of not going beyond the face of the title does not apply when what is being sold is the right to purchase the property.
What is unjust enrichment, and how did it apply in this case?	Unjust enrichment occurs when a person unjustly retains a benefit to the loss of another without just or legal ground. The Supreme Court applied this principle by requiring BDC to return the amortizations paid by Diaz because allowing BDC to keep these payments would result in a double recovery for BDC.
What was the significance of BDC’s bad faith?	BDC’s bad faith was significant because it knew about Arreza’s claim as early as 1991, even before Diaz presented his deeds of transfer. Despite this knowledge, BDC accepted payments from both Arreza and Diaz, leading the Court to conclude that BDC had acted in bad faith by failing to disclose the conflicting claim to Diaz.
What is the legal basis for requiring BDC to pay for the improvements made by Diaz?	The legal basis for requiring BDC to pay for the improvements made by Diaz is Article 453 of the Civil Code. Because both BDC and Diaz acted in bad faith, their rights are the same as if they had acted in good faith. Thus, Article 448 of the Civil Code comes into play, which provides that the landowner must indemnify the builder for the improvements made.
Why were moral and exemplary damages not awarded in this case?	Moral and exemplary damages were not awarded because both parties acted in bad faith. The Court found that there was no legal basis for awarding these damages since the law treats both parties as if they had acted in good faith.
Did the principle of res judicata apply in this case?	No, the principle of res judicata did not apply in this case. The Court clarified that the interpleader case was primarily between Arreza and Diaz, and the issues revolved around their conflicting claims, not any claims either might have against BDC.
What was the ruling regarding Domingo Tapay’s liability?	The Court upheld the CA ruling that Domingo Tapay was liable to pay Diaz P600,000.00, which was the amount Diaz paid for the transfer of rights. However, Tapay did not appeal this ruling to the Supreme Court, so it remained binding on him.

In summary, the Supreme Court’s decision in Bliss Development Corp. v. Diaz underscores the importance of equitable considerations and the principle of unjust enrichment in property disputes. While Diaz was not a purchaser in good faith, BDC’s bad faith and the potential for unjust enrichment warranted the return of amortizations and indemnification for improvements. This case serves as a reminder of the need for transparency and fair dealing in property transactions, as well as the potential consequences of failing to disclose conflicting claims.

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: BLISS DEVELOPMENT CORP./HOME GUARANTY CORPORATION vs. MONTANO DIAZ, DOMINGO TAPAY, AND EDGAR H. ARREZA, G.R. No. 213233, August 05, 2015