1 Republic V. LOZADA

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-43852 May 31, 1979

REPUBLIC OF THE PHILIPPINES, petitioner-appellee, vs. TEODOCIA LOZADA, applicant-respondent-appellant.

TEEHANKEE, J.:

The Court affirms on appeal the decision of the Pasay City court of first instance granting the Republic's timely petition for review of the decree of registration and cancelling the certificate of title issued in favor of the applicant-appellant, since it clearly appears that actual fraud had been employed by the applicant in procuring the title over the lands in question which are part of the public domain (and not private property as falsely claimed by applicant) and the Republic is entitled to their reversion to the public domain.

On October 26, 1966 applicant-appellant Teodocia Lozada had filed an application in the Court of First Instance of Rizal for the registration of, and confirmation to, two parcels of land in Las Pias, Rizal (designated as Lots 2 and 3, Psu 218933, SWO- 40867 in the technical descriptions, with an area of about 390 square meters), asserting title thereto by right of inheritance from her deceased parents, couple with alleged continuous and exclusive possession. As related in the Court of Appeals' resolution of May 10, 1976 certifying applicant Lozada's appeal to us as involving only questions of law, said appellant originally succeeded on ex-parte evidence in securing registration of the property, as follows:

Under date of November 16, 1966, the court a quo issued a notice of initial hearing of the petition (Ibid, p. 19). The petition was opposed by the Provincial Government of Rizal and the Municipal Government of Las Pias Rizal (Ibid, p. 27). The Director of Lands did not deem it necessary at the time to file an opposition to Teodocia Lozada's petition (Ibid, p. 30) and returned the records of the case to the court a quo through the Solicitor General (Ibid, p. 29). However, the Director of Lands reserved the right to file his opposition thereto should it be found upon investigation that applicant Lozada is not entitled to the lots in question (Ibid, p. 30).

On April 25, 1967, an order of general default was issued by the court a quo, excepting therefrom the Provincial Government of Rizal and the Municipal Government of Las Pias Rizal (Amended Record on Appeal, pp. 9-10). On the same date, the court a quo referred the case to the Municipal Court of Las Pias Rizal because the value of the contested lots does not exceed P10,000.00, as shown in the tax declaration (Ibid, p. 10). On June 26, 1967, upon the ex-parte evidence presented by applicant Teodocia Lozada, the Municipal Court of Las Pias, Rizal, found applicant Lozada to have a registerable title to the two parcels of land. The said court confirmed her title thereto (Amended Record on appeal pp. 11-14). A month later, the municipal court ordered the issuance of the corresponding decree of registration (Ibid, pp. 14-15). On September 7, 1967,

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Original Certificate of Title No. 6314 (Exhibit 7, Folder of Exhibits, p. 100) in the name of Teodocia Lozada was issued by the Register of Deeds of Rizal.

The Solicitor General, however, well within one year from entry of the decree filed a petition for review of the decision and decree of registration on the ground that applicant Lozada had procured the same by actual fraud (1) because she deliberately concealed the fact that the lots in question were covered by Revocable Permit Application No. 15849 and Miscellaneous Sales Application No. V 76845, both in the name of her husband, Felix Cristobal, and that these applications were rejected by the Bureau of Lands since these lots were reserved for school site purposes pursuant to Resolution No. 114, Series of 1963, of the Municipal Council of Las Pinas, Rizal; and (2) these lots are portions of the public domain and as such belong to the State and are not subject to private appropriation and, therefore, not registerable under the Torrens System.

The court of first instance gave due course to the Republic's petition notwithstanding appellant Lozada's opposition contending inter alia that the petition raises the issue of ownership which should be brought up in a separate civil action and that the lands were private property. After reopening the case and holding several hearings at which both the applicant and the Republic presented their documentary and testimonial evidence, it found that "actual fraud was employed by the applicant in procuring title over the property subject of this application which are portions of the public domain."

It found inter alia in its decision upon the petition for review that before appellant Lozada's petition for registration her husband, Felix Cristobal, had filed with the Bureau of Lands a revocable permit application and a sales application which had been rejected on April 12, 1965 precisely because the lands had been reserved for school purposes and that the husband "by not so filing the application for registration of the property in question and by allowing his wife, applicant Teodocia Lozada, to file the application, the Bureau of Lands, representing the Republic of the Philippines, was misled. " The Court found that applicant Lozada and her husband had deliberately deceived the State, as follows:

The Court draws this conclusion from the very patent improbability that a fair and unprejudiced mind will accept. It is most improbable that the Bureau of Lands win not oppose the registration of a piece of land, but will oppose any application to purchase the same. These are two conflicting actions. Moreover, in the first instance, the land registration will result in the acquisition of the property without the Republic of the Philippines being paid for it. In the second instance, the approval of the sales application will result in the acquisition of the property with the Republic of the Philippines being paid for it. Why should the Bureau of Lands not file its opposition in the first instance and, on the other hand, reject the application for purchase in the second instance? The truth of the matter, in the opinion of the Court, is that had the application for registration been only filed by FELIX CRISTOBAL, the husband, the Bureau of Lands, representing the Republic of the Philippines, would have acted uniformly, that is (1) oppose the registration and (2) reject the sales application. Here again is clearly seen how the Republic of the Philippines, represented by the Bureau of Lands, through the act of applicant Teodocia Lozada of filing separately the application for registration and through the act of FELIX CRISTOBAL of applying for approval of a sales application for the same property, was effectively deprived of its day in court. It bears repeating that had the instant application for registration only been made by FELIX CRISTOBAL, the husband, who had already a record in the Bureau of Lands, as a person who had taken the initial step for the purchase of a certain public land, then the Bureau of Lands would have filed its opposition or would have taken steps appropriate to stop the registration thereof.

The lower court accordingly rendered judgment on March 30, 1973 in favor of the Republic, as follows:

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(1) Setting aside the decision of the Municipal Court of Las Pias Rizal of June 26, 1967, subject of the instant review proceedings, and the corresponding decree issued pursuant thereto;

(2) Declaring the property in question to be part of the public domain belonging to the Republic of the Philippines;

(3) Dismissing the registration application of Teodocia Lozada of October 16, 1962;

(4) Ordering applicant Teodocia Lozada to surrender Original Certificate of Title No. 6314 of the Province of Rizal to the Register of Deeds of said Province and that the same may be cancelled;

(5) Ordering the Register of Deeds of the Province of Rizal to cancel the aforementioned Original Certificate of Title No. 6314; and

(6) Ordering Felix Cristobal and Teodocia Lozada to vacate immediately the property in question so that the same may be used for the purpose it was reserved, that is, as a school site.

Applicant Lozada appealed to the Court of Appeals which, however, certified the appeal to us as involving only questions of law which it set forth in its resolution, as follows:

Applicant appealed to this Court and contends that the court a quo erred in:

1. Holding that there was actual and extrinsic fraud in obtaining applicant's original certificate of title over the lots applied for; and

2. Holding that the lots applied for by applicant form part of the public domain.

It is not denied that the lots in question were the subject of a revocable application and a miscellaneous sales application filed with the Bureau of Lands by Felix Cristobal (t.s.n., September 7, 1971, pp. 11, 12; June 22, 1972, pp. 4, 9), husband of applicant-appellant Teodocia Lozada, before she filed a petition for registration and that Cristobal's applications were denied by the Bureau of Lands (t.s.n.) September 7, 1971, p. 12; June 22, 1972, p. 4). And yet applicant-appellant made it appear under her oath that she had inherited the lots in question from her parents. There is also no question that the application for registration was filed in the name of Teodocia Lozada and not in the name of Felix Cristobal (Amended Record on Appeal p. 1).

We note that these material facts were not disclosed in the application for registration filed by Teodocia Lozada. Is this conduct within the kind of fraud contemplated in Section 38 of Act 496, as amended, to warrant the review of the decision of the Municipal Court of Las Pias and the nullification of the decree of registration?

It is not also denied that the lots in question are portions of the bed or foreshore of the Las Pias river (t.s.n., September 7, 1971, pp. 3, 4, 10, 15; June 22, 1972, p. 11). This, too, was not disclosed in the application for registration. Do they then form part of the public domain or not? 1

On the basis of the material facts above stated in the Court of Appeals' resolution which have not been disputed by appellant, the Court affirms the appealed judgment.

4 Appellant Lozada (and her husband Felix Cristobal) were clearly guilty of fraud (1) in not disclosing in her application for registration the vital facts that her husband's previous application for a revocable permit and to purchase the lands in question from the Bureau of Lands had been rejected, because the lands were already reserved as a site for school purposes; (2) in thus concealing the fact that the lands were part of the public domain and so known to them; (3) in stating the deliberate falsehood that the lands were allegedly inherited by her from her parents; and (4) in filing the application for registration in the name of appellant Lozada and not in that of her husband Felix Cristobal or the two of them jointly, thus suppressing the fact that Felix Cristobal already had a record in the Bureau of Lands of having filed a rejected application for the same lands, all of which misled the Bureau of Lands into not filing an opposition to her application and as aptly observed by the lower court "effectively deprived (the Republic) of its day in court.

Such fraud may well be deemed as "extrinsic or collateral fraud, as distinguished from intrinsic fraud [which] connotes any fraudulent scheme executed by a prevailing litigant outside the trial of a case against the defeated party, or his agents, attorneys or witnesses, whereby said defeated party is his agents, attorneys or witnesses, whereby said defeated party is prevent from presenting fully and fairly his side of the case." 2

But even assuming that such fraud could be technically considered as "intrinsic fraud [which] takes the form of acts of a party in a litigation during the trial, such as the use of forged instruments or perjured testimony, which did not affect the presentation of the case, but did prevent a fair and just determination of the case, " 3 it would not alter the result because the mistake and error into which the officials of the Bureau of Lands were misled by such a deliberately false application, suppressing the facts known to the applicant that the lands sought to be registered were lands of the public domain (and not private property) and having been reserved for a school site were not susceptible of private registration (as in fact her husband's application to purchase the same had been rejected) cannot operate to bar the Republic's timely petition to review and set aside the decree, since the State cannot be estopped by the mistake or error of its officials and agents. 4

Besides, the registration decree was properly voided by the lower court since it had no jurisdiction over the lands of the public domain subject matter of the proceedings which were portions of the bed or foreshore of the Las Pias river and were not open to registration proceedings.

Finally, as this Court unanimously stressed in Piero vs. Director of Lands 5 "It is to the Public interest that one who succeeds in fraudulently acquiring title to a public land should not be allowed to benefit therefrom, and the State should, therefore, have an ever existing authority, thru its duly authorized officers, to inquire into the circumstances surrounding the issuance of any such title, to the end that the Republic, thru the Solicitor General or any other officer who may be authorized by law, may file the corresponding action for the reversion of the land involved to the public domain, subject thereafter to disposal to other qualified persons in accordance with law. In other words, the indefeasibility of a title over land previously public is not a bar to an investigation by the Director of Lands as to how such title has been acquired, if the purpose of such investigation is to determine whether or not fraud had been committed in securing such title in order that the appropriate action for reversion may be filed by the Government."

ACCORDINGLY, the appealed decision is affirmed in toto.

Makasiar, Fernandez, Guerrero, De Castro and Melencio-Herrera, JJ., concur.

5 RODIL V. BENEDICTO

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-28616 January 22, 1980

TOMAS RODIL and the deceased spouse CATALINA CRUZ, substituted by her heirs, namely: VIVENCIO RODIL married to ZUEKO MATSUO CONSOLACION RODIL married to FRANCISCO HEMEDES DOMICIANO RODIL married to VIRGINIA MARALIT, CLARITA RODIL married to JUAN ALGIER NATALIA RODIL married to SILVINIANO ATIENZA, LYDIA RODIL married to CARLOS HORILLENO VEDASTO RODIL married to TESSIE MANGUBAT and CELIA RODIL married to MACARIO TIU JR., petitioners, vs. HON. JUDGE MARIANO V. BENEDICTO as Judge of the COURT OF FIRST INSTANCE OF NUEVA ECIJA, BRANCH V-GAPAN and the heirs of ALEJANDRO ABES, namely: ALEJO ABES, BIENVENIDO ABES, ROSITA ABES, married to MATEO MALLARI, FIDELA ABES, married to PONCIANO ATENIDO, DAVID ABES, MARCELO ABES, NICANOR ABES, SEVERINO ABES, JOVITA ABES, married to GIL CABRETA EUFROCINA ABES, married to ROMULO BOTE; LOURDES ABES, married to ALIPIO TAGNIPIS LUZ ABES, TEODORA ABES, EMITERIO ABES, JR., GREGORIO ABES, ERLINDA ABES, married to LUIS TAAL, RENATO ABES, ESTRELLITA TALPLACIDO REYNALDO ABES, TERESITA ABES, CAROLINA ABES, and FERNANDO ABES; the latter four who are minors are represented by their mother CRISPINA DOMINGO, respondents.

Montoya & Montoya for petitioners.

P. Maldia for respondents.

CONCEPCION JR., J.:

Petition for mandamus to direct the respondent Judge to order the issuance of a writ of possession against the respondents in Cadastral Case No. 61, LRC Rec. No. 1369, Lot Nos. 2417, 3423, 3424, 3753 and 3754 of the Cadastral Survey of Penaranda, Nueva Ecija.

In Cadastral Case No. 61, LRC Rec. No. 1369, Lot Nos. 2417, 3423, 3424, 3753 and 3754 of the Penaranda (Nueva Ecija) Cadastre were claimed and applied for by the spouses Tomas Rodil and Catalina Cruz. The claim was not contested, 1 and on October 11, 1958, the cadastral court adjudicated the aforesaid lots in favor of the applicants. Pursuant to the decree of registration, Original Certificate of Title No. 0-1719 was issued to the applicants on December 10, 1958. On February 26, 1959, the heirs of Alejandro Abes filed a petition with the court for the review of the registration decree upon the ground "that the petitioners are the true owners and are the ones in actual legal possession of the aforesaid land and that the award of said lots to claimant-spouses was secured thru fraud." The cadastral court gave due course to the petition and set the case for hearing, where oral and documentary evidence were presented by the petitioning heirs of Alejandro Abes. On July 7, 1961, the cadastral court denied the petition for review upon the ground that the petitioners failed to overcome the evidence of the claimants-adjudicatees. No appeal was taken from this order of July 7, 1961. Instead, on September 4, 1961, the heirs of Alejandro Abes filed an action against the registered owners for the reconveyance of title, claiming that Tomas Rodil and his wife procured registration of the land "thru fraud, misrepresentation and

6 the use of falsified deeds of sale." Essentially, this is the same ground of fraud they urged in their petition for review of the cadastral decree. The defendants therein filed a motion to dismiss the case upon the ground of res adjudicata and on December 13, 1962, the court dismissed the complaint with costs, The plaintiffs therein filed a motion for the reconsideration of the order, but the court denied the motion on January 16, 1963. Hence, an appeal was interposed with this Court, docketed herein as G.R. No. L-20996. On July 30, 1966, the Court rendered judgment, affirming the orders complained of, with costs. 2

Upon the return of the records to the lower court, Tomas Rodil and Catalina Cruz filed a petition for the issuance of a writ of possession asking that they be placed in possession of the lots and that the heirs of Alejandro Abes be evicted therefrom. 3

On April 11, 1967, the respondent Judge issued an order granting the petition only with respect to Alejo Abes, Bienvenido Abes, Teodora Vda. de Abes, and Cornelio Abes and denied the same with respect to the other respondents stating that he is completely at a loss as to who, aside from Alejo Abes, Cornelio Abes, Bienvenido Abes, and Teodora Abes, among the said respondents. were parties to the original cadastral proceeding or as to who were at least occupants of the properties in question prior to the issuance of the decree of registration. 4 Pursuant to said order, a writ of possession was issued on April 19, 1967. 5

On April 20, 1967, Alejo Abes, Bienvenido Abes, Teodora Vda. de Abes and Cornelio Abes filed a motion for the reconsideration of the order of April 11, 1967 upon the grounds that: (1) the petition for the issuance of a writ of possession was filed out of time; and (2) there is no allegation in the petition, and neither had it been proved, that the respondents were defeated in a registration proceeding, that the respondents were defeated in a registration proceeding, or that they were adversely occupying the land during the registration proceedings, or that they were unlawfully and adversely occupying the land at any time up to the issuance of the final decree, or that they were one of those against whom a writ of possession may be issued. 6

Finding "that no allegation was made, neither was evidence adduced to the effect that the herein respondents have been d in default during the original registration proceedings; neither was it alleged or proved that the herein respondents were occupants of the land during the registration proceedings, or prior to the promulgation of the final decree of registration, circumstances by the existence of which a writ of possession may not be validly issued," the respondent Judge set aside its order of April 11, 1967 and ordered the dissolution of the writ of possession issued pursuant thereto. 7

The spouses Tomas Rodil and Catalina Cruz filed a motion for the reconsideration of said order, 8 but the respondent Judge denied the motion on December 12, 1967. 9 Hence, the instant recourse.

After a careful study of the case We are convinced that the respondent Judge committed an error in denying the petition for the issuance of a writ of possession. The findings of the respondent Judge that a writ of possession cannot be issued in the cadastral case because the respondents were not parties in said registration proceedings, or that they were not occupants of the land during the registration proceedings prior to the issuance of the final decree of registration is not supported by the evidence and law. The respondent heirs of Alejandro Abes cannot be said to be strangers to the registration proceedings. A cadastral proceeding is a proceeding in rem and against everybody, including the respondents herein, who are deemed included in the general order of default entered in the case. Besides, it appears that the said respondent heirs of Alejandro Abes filed a petition for the review of the decree of registration, thereby becoming a direct party in the registration proceedings by their voluntary appearance.

The respondent heirs of Alejandro Abes cannot also be said to be not occupants of the land during the registration proceeding prior to the issuance of the final decree of registration. In their action for the reconveyance of title to the land in question, Alejo Abes and the other heirs of Alejandro

7 Abes stated: "that in the year 1914, said Alejandro Abes took possession personally, occupied and cultivated the aforementioned land, lived with his children and grandchildren therein, and that Alejandro Abes' children and grandchildren have continued in actual possession, occupation, and cultivation of the land. 10 In said action, "Bienvenido Abes ... testified that Alejandro Abes was his grandfather ... that he knows the land in question because the same belongs to his grandfather; that his grandfather died before the war, probably in 1938; ... that during the lifetime of his grandfather ... his possession of the lots in question was peaceful and undisturbed; that after the death of his grandfather, he was succeeded by his grandmother and the children of his deceased grandfather ... that after the death of his grandfather, the lands left by his grandfather was divided between bis uncle Alejo and the heirs of the deceased brothers of Alejo, who are in possession of their respective shares." 11

The respondent heirs of Alejandro Abes, being in possession of the lots in question, unlawfully and adversely, during the registration proceedings, may be judicially evicted by means of a writ of possession and it is the duty of the registration court to issue said writ when asked for by the successful claimant. 12

The respondents claim that the petition for the issuance of a writ of possession was filed out of time, the said petition having been filed more than five years after the issuance of the final decree of registration. In support of their contention, the respondents cite the case of Sorogon vs. Makalintal, 13 wherein the following was stated:

It is the law and well settled doctrine in this jurisdiction that a writ of possession must be issued within the same period of time in which a judgment in ordinary civil actions may be summarily executed (section 17, Act 496, as amended), upon the petition of the registered owner or his successors in interest and against all parties who claim a right to or interest in the land registered prior to the registration proceeding.

The better rule, however, is that enunciated in the case of Manlapas and Tolentino vs. Lorente, 14 which has not yet been abandoned, that the right of the applicant or a subsequent purchaser to ask for the issuance of a writ of possession of the land never prescribes. The Court therein said:

The second point alleged by the petitioners has reference to the prescription of the rights of the respondent corporation to ask for a writ of possession.

The law has not made applicable to the writ of possession provided for in section 17 of Act No. 496 and its amendments, the provisions of the Code of Civil Procedure regarding execution of judgments.

It cannot be held to have been the intention of the law to permit after five years the reinstitution of a registration proceeding, whether ordinary or cadastral, as the case may be, to revive a decree, which on the other hand, according to Act No. 496, is to exist forever, as provided in various sections of said Act, among which may be cited section 45 which says:

The obtaining of a decree of registration and the entry of a certificate of title shall be regarded as an agreement running with the land, and binding upon the applicant and all successors in title that the land shall be and always remain registered land, and subject to the provisions of this Act and all Acts amendatory thereof.

Nor could the law make said provisions of the Code of Civil Procedure applicable to a decree of registration, since the property rights and possession of a registered owner would be nugatory when they are imprescriptible under the conclusive provisions of Section 46 of said Act No. 496 which says:

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No title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse possession.

In a later case, 15 the Court also ruled that the provision in the Rules of Court to the effect that judgment may be enforced within five years by motion, and after five years but within ten years by an action (Section 6, Rule 39) refers to civil actions and is not applicable to special proceedings, such as land registration cases. The Court said:

The second assignment of error is as follows:

That the lower court That the lower court erred in ordering that the decision rendered in this land registration registration case on November 28, 1931 or twenty six years ago, has not yet become final and unenforceable.

We fail to understand the arguments of the appellant in support of the above assignment, except in so far as it supports his theory that after a decision in a land registration case has become final, it may not be enforced after the lapse of a period of 10 years, except by another proceeding to enforce the judgment or decision. Authority for this theory is the provision in the Rules of Court to the effect that judgment may be enforced within 5 years by motion, and after five years but within 10 years. by an action (Sec. 6, Rule 39). This provision of the Rules refers to civil actions and is not applicable to special proceedings, such as a land registration case. This is so because a party in a civil action must immediately enforce a judgment that is secured as against the adverse party, and his failure to act to enforce the same within a reasonable time as provided in the Rules makes the decision unenforceable against the losing party. In special proceedings the purpose is to establish a status, condition or fact; in land registration proceedings, the ownership by a person or a parcel of land is sought to be established. After the ownership has been proved and confirmed by judicial declaration, no further proceeding to enforce said ownership is necessary, except when the adverse or losing party had been in possession of the land and the winning party desires to oust him therefrom.

Furthermore, there is no provision in the Land Registration Act similar to Sec. 6, Rule 39. regarding the execution of a judgment in a civil action, except to place the winner in possession by virtue of a writ of possession. The decision in a land registration case, unless the adverse or losing party is in possession adverse or losing party, on. becomes final without any further action, upon the expiration of the period for perfecting an appear.

IN VIEW OF THE FOREGOING, the petition for mandamus is hereby granted and the respondent Judge or anyone acting in his stand is directed to issue said writ of possession over Lot Nos. 2417, 3423, 3424, 3753, and 3754 of the Penaranda Cadastre in favor of the petitioners. With costs against the private respondents.

Barredo (Chairman), Antonio, Aquino, Santos and Abad Santos, JJ., concur.

9 DY V. CA 204 SCRA 878

Republic of the Philippines SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 92989 July 8, 1991

PERFECTO DY, JR. petitioner, vs. COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V. GONZALES, respondents.

Zosa & Quijano Law Offices for petitioner.

Expedito P. Bugarin for respondent GELAC Trading, Inc.

GUTIERREZ, JR., J.:p

This is a petition for review on certiorari seeking the reversal of the March 23, 1990 decision of the Court of Appeals which ruled that the petitioner's purchase of a farm tractor was not validly consummated and ordered a complaint for its recovery dismissed.

The facts as established by the records are as follows:

The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979, Wilfredo Dy purchased a truck and a farm tractor through financing extended by Libra Finance and Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for the loan.

The petitioner wanted to buy the tractor from his brother so on August 20, 1979, he wrote a letter to Libra requesting that he be allowed to purchase from Wilfredo Dy the said tractor and assume the mortgage debt of the latter.

In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares approved the petitioner's request.

Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in favor of the petitioner over the tractor in question.

At this time, the subject tractor was in the possession of Libra Finance due to Wilfredo Dy's failure to pay the amortizations.

Despite the offer of full payment by the petitioner to Libra for the tractor, the immediate release could not be effected because Wilfredo Dy had obtained financing not only for said tractor but also for a truck and Libra insisted on full payment for both.

The petitioner was able to convince his sister, Carol Dy-Seno, to purchase the truck so that full payment could be made for both. On November 22, 1979, a PNB check was issued in the amount of P22,000.00 in favor of Libra, thus settling in full the indebtedness of Wilfredo Dy with the financing firm. Payment having been effected through an out-of-town check, Libra insisted that it be cleared first before Libra could release the chattels in question.

10 Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading, Inc. v. Wilfredo Dy", a collection case to recover the sum of P12,269.80 was pending in another court in Cebu.

On the strength of an alias writ of execution issued on December 27, 1979, the provincial sheriff was able to seize and levy on the tractor which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public auction where Gelac Trading was the lone bidder. Later, Gelac sold the tractor to one of its stockholders, Antonio Gonzales.

It was only when the check was cleared on January 17, 1980 that the petitioner learned about GELAC having already taken custody of the subject tractor. Consequently, the petitioner filed an action to recover the subject tractor against GELAC Trading with the Regional Trial Court of Cebu City.

On April 8, 1988, the RTC rendered judgment in favor of the petitioner. The dispositive portion of the decision reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, pronouncing that the plaintiff is the owner of the tractor, subject matter of this case, and directing the defendants Gelac Trading Corporation and Antonio Gonzales to return the same to the plaintiff herein; directing the defendants jointly and severally to pay to the plaintiff the amount of P1,541.00 as expenses for hiring a tractor; P50,000 for moral damages; P50,000 for exemplary damages; and to pay the cost. (Rollo, pp. 35-36)

On appeal, the Court of Appeals reversed the decision of the RTC and dismissed the complaint with costs against the petitioner. The Court of Appeals held that the tractor in question still belonged to Wilfredo Dy when it was seized and levied by the sheriff by virtue of the alias writ of execution issued in Civil Case No. R-16646.

The petitioner now comes to the Court raising the following questions:

A.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED THE FACTS AND ERRED IN NOT AFFIRMING THE TRIAL COURT'S FINDING THAT OWNERSHIP OF THE FARM TRACTOR HAD ALREADY PASSED TO HEREIN PETITIONER WHEN SAID TRACTOR WAS LEVIED ON BY THE SHERIFF PURSUANT TO AN ALIAS WRIT OF EXECUTION ISSUED IN ANOTHER CASE IN FAVOR OF RESPONDENT GELAC TRADING INC.

B.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS EMBARKED ON MERE CONJECTURE AND SURMISE IN HOLDING THAT THE SALE OF THE AFORESAID TRACTOR TO PETITIONER WAS DONE IN FRAUD OF WILFREDO DY'S CREDITORS, THERE BEING NO EVIDENCE OF SUCH FRAUD AS FOUND BY THE TRIAL COURT.

C.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED THE FACTS AND ERRED IN NOT SUSTAINING THE FINDING OF THE TRIAL COURT THAT THE SALE OF THE TRACTOR BY RESPONDENT GELAC TRADING TO ITS CO-RESPONDENT ANTONIO V.

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GONZALES ON AUGUST 2, 1980 AT WHICH TIME BOTH RESPONDENTS ALREADY KNEW OF THE FILING OF THE INSTANT CASE WAS VIOLATIVE OF THE HUMAN RELATIONS PROVISIONS OF THE CIVIL CODE AND RENDERED THEM LIABLE FOR THE MORAL AND EXEMPLARY DAMAGES SLAPPED AGAINST THEM BY THE TRIAL COURT. (Rollo, p. 13)

The respondents claim that at the time of the execution of the deed of sale, no constructive delivery was effected since the consummation of the sale depended upon the clearance and encashment of the check which was issued in payment of the subject tractor.

In the case of Servicewide Specialists Inc. v. Intermediate Appellate Court. (174 SCRA 80 [1989]), we stated that:

xxx xxx xxx

The rule is settled that the chattel mortgagor continues to be the owner of the property, and therefore, has the power to alienate the same; however, he is obliged under pain of penal liability, to secure the written consent of the mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court in the Philippines, (1972), Volume IV-B Part 1, p. 525). Thus, the instruments of mortgage are binding, while they subsist, not only upon the parties executing them but also upon those who later, by purchase or otherwise, acquire the properties referred to therein.

The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of a third person, therefore, affects not the validity of the sale but only the penal liability of the mortgagor under the Revised Penal Code and the binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage.

xxx xxx xxx

The mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. He had the right to sell it although he was under the obligation to secure the written consent of the mortgagee or he lays himself open to criminal prosecution under the provision of Article 319 par. 2 of the Revised Penal Code. And even if no consent was obtained from the mortgagee, the validity of the sale would still not be affected.

Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can not sell the subject tractor. There is no dispute that the consent of Libra Finance was obtained in the instant case. In a letter dated August 27, 1979, Libra allowed the petitioner to purchase the tractor and assume the mortgage debt of his brother. The sale between the brothers was therefore valid and binding as between them and to the mortgagee, as well.

Article 1496 of the Civil Code states that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501 or in any other manner signing an agreement that the possession is transferred from the vendor to the vendee. We agree with the petitioner that Articles 1498 and 1499 are applicable in the case at bar.

Article 1498 states:

Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

xxx xxx xxx

12 Article 1499 provides:

Article 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. (1463a)

In the instant case, actual delivery of the subject tractor could not be made. However, there was constructive delivery already upon the execution of the public instrument pursuant to Article 1498 and upon the consent or agreement of the parties when the thing sold cannot be immediately transferred to the possession of the vendee. (Art. 1499)

The respondent court avers that the vendor must first have control and possession of the thing before he could transfer ownership by constructive delivery. Here, it was Libra Finance which was in possession of the subject tractor due to Wilfredo's failure to pay the amortization as a preliminary step to foreclosure. As mortgagee, he has the right of foreclosure upon default by the mortgagor in the performance of the conditions mentioned in the contract of mortgage. The law implies that the mortgagee is entitled to possess the mortgaged property because possession is necessary in order to enable him to have the property sold.

While it is true that Wilfredo Dy was not in actual possession and control of the subject tractor, his right of ownership was not divested from him upon his default. Neither could it be said that Libra was the owner of the subject tractor because the mortgagee can not become the owner of or convert and appropriate to himself the property mortgaged. (Article 2088, Civil Code) Said property continues to belong to the mortgagor. The only remedy given to the mortgagee is to have said property sold at public auction and the proceeds of the sale applied to the payment of the obligation secured by the mortgagee. (See Martinez v. PNB, 93 Phil. 765, 767 [1953]) There is no showing that Libra Finance has already foreclosed the mortgage and that it was the new owner of the subject tractor. Undeniably, Libra gave its consent to the sale of the subject tractor to the petitioner. It was aware of the transfer of rights to the petitioner.

Where a third person purchases the mortgaged property, he automatically steps into the shoes of the original mortgagor. (See Industrial Finance Corp. v. Apostol, 177 SCRA 521 [1989]). His right of ownership shall be subject to the mortgage of the thing sold to him. In the case at bar, the petitioner was fully aware of the existing mortgage of the subject tractor to Libra. In fact, when he was obtaining Libra's consent to the sale, he volunteered to assume the remaining balance of the mortgage debt of Wilfredo Dy which Libra undeniably agreed to.

The payment of the check was actually intended to extinguish the mortgage obligation so that the tractor could be released to the petitioner. It was never intended nor could it be considered as payment of the purchase price because the relationship between Libra and the petitioner is not one of sale but still a mortgage. The clearing or encashment of the check which produced the effect of payment determined the full payment of the money obligation and the release of the chattel mortgage. It was not determinative of the consummation of the sale. The transaction between the brothers is distinct and apart from the transaction between Libra and the petitioner. The contention, therefore, that the consummation of the sale depended upon the encashment of the check is untenable.

The sale of the subject tractor was consummated upon the execution of the public instrument on September 4, 1979. At this time constructive delivery was already effected. Hence, the subject tractor was no longer owned by Wilfredo Dy when it was levied upon by the sheriff in December, 1979. Well settled is the rule that only properties unquestionably owned by the judgment debtor and which are not exempt by law from execution should be levied upon or sought to be levied upon. For the power of the court in the execution of its judgment extends only over properties belonging to the judgment debtor. (Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. No. 78771, January 23, 1991).

13 The respondents further claim that at that time the sheriff levied on the tractor and took legal custody thereof no one ever protested or filed a third party claim.

It is inconsequential whether a third party claim has been filed or not by the petitioner during the time the sheriff levied on the subject tractor. A person other than the judgment debtor who claims ownership or right over levied properties is not precluded, however, from taking other legal remedies to prosecute his claim. (Consolidated Bank and Trust Corp. v. Court of Appeals, supra) This is precisely what the petitioner did when he filed the action for replevin with the RTC.

Anent the second and third issues raised, the Court accords great respect and weight to the findings of fact of the trial court. There is no sufficient evidence to show that the sale of the tractor was in fraud of Wilfredo and creditors. While it is true that Wilfredo and Perfecto are brothers, this fact alone does not give rise to the presumption that the sale was fraudulent. Relationship is not a badge of fraud (Goquiolay v. Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be presumed; it must be established by clear convincing evidence.

We agree with the trial court's findings that the actuations of GELAC Trading were indeed violative of the provisions on human relations. As found by the trial court, GELAC knew very well of the transfer of the property to the petitioners on July 14, 1980 when it received summons based on the complaint for replevin filed with the RTC by the petitioner. Notwithstanding said summons, it continued to sell the subject tractor to one of its stockholders on August 2, 1980.

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals promulgated on March 23, 1990 is SET ASIDE and the decision of the Regional Trial Court dated April 8, 1988 is REINSTATED.

SO ORDERED.

Fernan, C.J., Feliciano and Bidin, JJ., concur.

Davide, Jr., J., took no part.

14 PINO V. CA

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 94114 June 19, 1991

FELICISIMA PINO, petitioner, vs. COURT OF APPEALS, DEMETRIA GAFFUD, ROMUALDO GAFFUD, ADOLFO GAFFUD & RAYMUNDO GAFFUD, respondents.

Ramon A. Barcelona for petitioner.

Eligio A. Labog for private respondents.

PARAS, J.:p

The decision of respondent Court of Appeals in CA-G.R. CV No. 21457 which affirmed in toto, the decision of the Regional Trial Court of Echague, Isabela, Branch 24 in Civil Case No. 24-0190, the dispositive portion of which latter decision reads:

WHEREFORE, premises considered, judgment is hereby rendered:

1. Declaring the Deed of Absolute Sale made by Rafaela Donato Vda. de Gaffud in favor of the defendant on June 10, 1970 over Lot 6-B of the subdivision plan (LRC) Psd-68395 being a portion of Lot 6 of the Echague Cadastre LRC Cad. Rec. No. 1063, containing an area of 11,095 square meters, more or less, null and void insofar as the shares of Cicero Gaffud and Raymundo Gaffud are concerned, which is one-half-thereof, or approximately 5,547.5 square meters, more or less;

2. Ordering the cancellation of TCT No. 49380 in the name of the defendant;

3. Ordering the defendant to reconvey one-half of the property subject of this proceeding to the plaintiffs within ten (10) days from finality of this Decision, failing which the same shall be done at the cost of the defendant by the Clerk of Court and such act, when so done, shall have like effect as if done by her;

4. Ordering the defendant to pay the plaintiffs P5,000.00 by way of attorney's fees.

No costs.

SO ORDERED. (pp. 20-21, Rollo)

is now being assailed in the instant petition for certiorari upon the ground

THAT RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION PETITION

15

I

WHEN IT ERRED IN CONCLUDING THAT THE PETITIONER IS NOT AN INNOCENT PURCHASER OF THE SUBJECT PROPERTY;

II

WHEN IT ERRED IN CONCLUDING THAT PRESCRIPTION WOULD NOT LIE TO BAR PRIVATE RESPONDENTS' ACTION; and

III

WHEN IT ERRED IN NOT DECLARING AS VALID THE TRANSFER OF THE SUBJECT PROPERTY FROM THE ORIGINAL REGISTERED OWNERS TO RAFAELA DONATO;

The pertinent background facts as found by the trial court and adopted by the respondent Court of Appeals in its now assailed decision are the following:

The property subject of the controversy is a parcel of land situated in Echague, Isabela, identified as Lot 6-B of the Subdivision Plan (LRC) Psd-68395, being a portion of Lot 6 containing an area of 11,095 square meters, more or less.

Lot 6 has an area of 12,799 square meters, more or less. It was acquired in 1924 by the spouses Juan Gaffud and Rafaela Donato. Juan Gaffud died in 1936. On January 11, 1938, Lot 6 was originally registered in the Registration Book of the Office of the Register of Deeds of Isabela, under Original Certificate of Title No. 4340 pursuant to Decree No. 650247 issued under L.R.C. Cadastral Record No. 1063 in the names of Rafaela Donato, Raymundo Gaffud and Cicero Gaffud (Raymundo and Cicero are the sons of the spouses) as co-owners thereof in fee simple subject to such of the incumbrances mentioned in Section 39 of said act and to Section 4, Rule 74, Rules of Court. The said lot was sold to Rafaela Donato through a Deed of Transfer which cancelled O.C.T. No. 4340 and in lieu thereof T.C.T. No. T-30407 was issued in the name of Rafaela Donato.

On February 25, 1967, Rafaela Donato sold a portion of said Lot 6, consisting of 1,704 sq. m., more or less in favor of Fortunato Pascua. The aforesaid sale caused the subdivision of the said Lot 6 into Lot 6-A containing an area of 1,704 sq. m., more or less, and Lot 6-B containing an area of 11,095 sq. m., more or less, under Subdivision Plan (LRC) Psd-68395.

Upon registration of said sale in favor of Fortunato Pascua, Transfer Certificate of Title No. T-30407 was cancelled, and in lieu thereof, Transfer Certificate of Title No. T-32683 was issued in the name of Rafaela Donato on March 2, 1967 covering the land designated as Lot 6-B of the subdivision Plan (LRC) Psd-68395, being a portion of Lot 6 of the Echague Cadastre, LRC Cad. Rec. No. 1063, containing an area of 11,095 sq.m., more or less, which is the subject land. (RTC Decision dated November 15, 1988, p. 310 Record).

On June 10, 1970 Rafaela Donato sold to petitioner Felicisima Pino said Lot 6-B in consideration of P10,000.00 as evidenced by the Deed of Absolute Sale she executed in favor of petitioner Felicisima Pino which was notarized by her lawyer, Atty. Concepcion Tagudin (Exh. 1).

Rafaela Donato undertook to register the Deed of Absolute Sale with the Register of Deeds of Isabela and on July 13, 1970 the sale was inscribed therein under Entry No. 9286 and Transfer Certificate of Title No. T-49380 was issued in the name of Felicisima Pino.

On September 30, 1980, Cicero Gaffud died survived by his wife Demetria Gaffud and sons Romualdo Gaffud and Adolfo Gaffud who are the private respondents herein.

16 On March 9, 1982, private respondents filed a complaint for nullity of sale and reconveyance against petitioner Felicisima Pino. Incidentally, the sale of the other portion (Lot A) of the same lot to Fortunato Pascua is not assailed by private respondents.

During the pendency of the case before the trial court, Rafaela Donato (who was not a party to the case) died on November her 26, 1982.

On November 5, 1988, the trial court rendered its decision (the dispositive portion of which was earlier quoted in this decision) which was affirmed on appeal by the Court of Appellant in its now assailed decision, the pertinent portion of which reads:

The defense of an innocent purchaser for value would be of no help to appellant in the absence of the document on extrajudicial partition indicating that the conjugal property has been adjudicated to Rafaela Donato Vda. de Gaffud and which would be the source of her authority in transferring the subject property to defendant. The sensible thing to do by any prudent person is to examine not only the certificate of title of said property but also all the factual circumstances necessary for him to determine if there are any flaw in vendor's capacity to transfer the land.

Nor would prescription of action lie. An ordinary action for reconveyance based on fraud prescribes in four (4) years (Lanera v. Lopos, 106 Phil. 70). Appellant was a party to the alleged fraudulent transfer of the subject property, consequently, appellees have four (4) years to file an action to annul the deed of sale from the discovery of the fraudulent act. In the case at bar, appellees learned about the fraud on July 6, 1981 when they received a letter from the appellant (Exhibit D). The filing, therefore, of the complaint on March 9, 1982 (p. 1. Rec.) was within the prescriptive period. (pp. 62-63, Rollo)

In elevating the judgment of the respondent Court of Appeals to Us for review petitioner prays that the appealed decision be reversed and another one entered declaring as valid (1) the sale of the subject property executed on June 10, 1970 in favor of petitioner Felicisima Pino by Rafaela Donato Vda. de Gaffud and (2) the Transfer Certificate of Title No. T-49380 issued in the name of petitioner by the Register of Deeds of Isabela on July 13, 1970 upon the grounds

(a) that private respondents has (sic) no cause of action against petitioner because she is an innocent purchaser for value of the subject property;

(b) that the action of private respondents was already barred by prescription when it was filed; and

(c) that the transfer of the subject property from the original registered owners to Rafaela Donato was valid. (pp. 61-62, Rollo)

The rule applicable to this controversy is well-settled. Where the certificate of title is in the name of the vendor when the land is sold, the vendee for value has the right to rely on what appears on the certificate of title. In the absence of anything to excite or arouse suspicion, said vendee is under no obligation to look beyond the certificate and investigate the title of the vendor appearing on the face of said certificate. The rationale for the rule is stated thus:

The main purpose of the Torrens' System is to avoid possible conflicts of title to real estate and to facilitate transactions relative thereto by giving the public the right to rely upon the face of a Torrens Certificate of Title and to dispense with the need of inquiring further, except when the party concerned had actual knowledge of facts and circumstances that should impel a reasonably cautious man to make such further inquiry. (Pascua v. Capuyoc, 77 SCRA 78) Thus, where innocent third

17

persons relying on the correctness of the certificate thus issued, acquire tights over the property, the court cannot disregard such rights. (Director of Land v. Abache, et al., 73 Phil. 606)

In the case at bar, the evidence on record discloses that when petitioner purchased the subject property on June 10, 1970, the title thereto (TCT No. T-32683) was in the name of her vendor Rafaela Donato alone. The said TCT No. T-32683 was shown to petitioner which shows on its face the following:

is registered in accordance with the provisions of the Land Registration Act in the name of

RAFAELA DONATO, Filipino, of legal age, widow and with residence and postal address at Centro, Echague, Isabela, Philippines as owner thereof in fee simple, subject to such of the encumbrances mentioned in Section 39 of said Act as may be subsisting, and to Section 4, Rule 74, of the Rules of Court. (Ex. A, p. 169, Record)

The lien imposed by Section 4, Rule 74, Rules of Court appears as cancelled on April 8, 1969 under the following entry:

Entry No. 2090 Petition for cancellation of Sec. 4 Rule 74 of the

D-340; P-75-1 Rules of Court executed by Rafaela D.Vda. de

B-4; S-1969 Gaffud. Hence, by virtue of which the lien appea-

R.M. Angubong, ring on the face of this title is now cancelled.

Notary Public

Date of Instrument March 11, 1969

Date of Inscription April 2, 1969

Time: 12:30 p.m.

(Sgd.) ANASTACIO J. PASCUA

ANASTACIO J. PASCUA

Deputy Register of Deeds V

(Emphasis supplied) (p. 15, Rollo)

Petitioner was advised by her lawyers that she could proceed to buy the property because the same was registered in the name of the vendor. Thus, on pp. 13 & 14 of the Transcript of Stenographic Notes of the hearing of December 12, 1986, petitioner testified as follows:

Atty. Mallabo:

18

Q Before you brought this property madam witness, were you shown a copy of the title of Rafaela Donato vda. de Gaffud on the property?

A Yes, sir, she showed me the title. And I saw that the title was in her name.

Q When the offer was made to you and the title was shown to you, do you remember if you have done anything?

A Yes, sir, before I bought the property, I showed the documents she bought to me to our lawyer, Custodia Villalva and Concepcion Tagudin.

Q Why did you show them the title Madam witness?

A To be sure that the title does not have any encumbrance and because I do not know anything about legal matters.

Q What did they advise you?

A Yes, Okey, I can proceed in buying the property, the title was registered in her name, it was her personal property. (pp. 15-16, Rollo)

In the case of Maguiling v. Umadhay, (33 SCRA 99, 103) this Court held:

However, while the Umadhay spouses cannot rely on the title, the same not being in the name of their grantor, respondent Crisanta S. Gumban stands on a different footing altogether. At the time she purchased the land the title thereto was already in the name of her vendors (T.C.T, 15522). She had the right to rely on what appeared on the face of said title. There is nothing in the record to indicate that she knew of any unregistered claims to or equities in the land pertaining to other persons, such as that of herein petitioner, or of any other circumstances which should put her on guard and cause her to inquire behind the certificate. According to the Court of Appeals she took all the necessary precautions to ascertain the true ownership of the property, having engaged the services of a lawyer for the specific purpose and, it was only after said counsel had assured her that everything was in order did she make the final arrangements to purchase the property. The appellate court's conclusion that respondent Crisanta S. Gumban was a purchaser in good faith and for value is correct, and the title she has thereof acquired is good and indefeasible.

Petitioner paid the sum of P10,000,00 in consideration of the sale which is fair and reasonable considering that in 1967 Fortunato Pascua paid the sum of P390.00 for the portion of the land consisting of 1,704 square meters. (Exhs. 1 and 5)

The court a quo, however, ruled and this was sustained by respondent Court of Appeals that petitioner was not an innocent purchaser.

The defense of an innocent purchaser for value could be of no help to appellant in the absence of the document on extra-judicial partition indicating that the conjugal property has been adjudicated to Rafaela Donato Vda. de Gaffud and which would be the source of her authority in transferring the subject property to defendant. The sensible thing to do by any prudent person is to examine not only the certificate of title of said property but also all the factual circumstances necessary for him to

19

determine if there are any flaws in vendor's capacity to transfer the land. (p. 10, Rollo)

We do not find any evidence in the record that would sustain such a finding. The extra-judicial partition adverted to in said ruling was executed by the heirs of Juan Gaffud prior to, and as the basis for, the issuance of the Original Certificate of Title No. 4340 in the names of the heirs of Juan Gaffud, as testified to by witness Demetria Gaffud in this wise:

Q Were you able to read the title that was kept by your brother in law?

A Yes, sir.

Q Who was the registered owner?

A Rafaela Donato, Raymundo Gaffud and Cicero Gaffud, co-owner.

Q In other words, the title you read appears that the owners were Raymundo, Cicero and Rafaela?

A Yes, sir.

Q Do you know what a title is ?

A Yes, it is thick.

Q You said that the property was bought by Juan Gaffud and Rafaela Gaffud, how come that there is no name Juan Gaffud in the title?

A Because he was already dead when I got married.

Q Do you have a knowledge how the title come to have the name of Raymundo, Rafaela and Cicero?

A Yes, sir. (p. 66, Rollo)

The extra-judicial settlement, upon which was based the lien imposed by Section 4, Rule 74, Rules of Court, was executed after the death of Juan Gaffud in 1936 but before the issuance of the original title on January 11, 1938 so that the title would be issued in the names of the heirs of Juan Gaffud, namely: Rafaela Donato, Raymundo Gaffud and Cicero Gaffud.

This conclusion is supported (a) by the fact that the subject property was registered only on January 11, 1938, which is around two (2) years after the death of Juan Gaffud in 1936, and therefore the title could not have been issued in the name of Juan Gaffud; (b) by the fact that the lien imposed by Section 4, Rule 74, Rules of Court was inscribed on the face of the title itself and was not entered on the Memorandum of Encumbrances as were done with the mortgages and their releases which were inscribed under their Entry Numbers on the page for Memorandum of Encumbrances and (c) by the fact that the Original Certificate of Title was issued in the names of the heirs of Juan Gaffud.

The extra-judicial settlement, therefore, has no bearing on whether or not there was fraud in the transfer of the subject property to Rafaela Donato.

20 On the other hand, it was a Deed of Transfer which transferred the subject property from the original owners to Rafaela Donato as stated in Exhibit 3 which is the petition to cancel the conditions imposed by Section 4, Rule 74, Rules of Court, to wit:

That since the time of the execution of the Deed of transfer from the original owners to herein petitioner in 1967, and also since the time of the registration of the said transfer at Register of Deeds of Isabela last March 2, 1967, more than two (2) years have already elapsed;

That from the time of the Deed of Transfer and within the period of two years thereafter, NO CLAIM WHATSOEVER has been filed against the herein petitioner with respect to the property thus sold to her . (p. 67, Rollo)

Even granting that the extra-judicial settlement was the document which transferred the subject property from the original owners to Rafaela Donato the non-production thereof (private respondents should have presented it, not petitioner) does not prove that there was fraud committed in its execution and neither does it prove that petitioner was a party thereto. There was no allegation, and much less any evidence, that the transfer of the subject property from the original owners to Rafaela Donato was fraudulent.

What private respondents allege as fraudulent was the extra-judicial settlement of the estate of Juan Gaffud. But it has been shown that this settlement was not the basis of the transfer of the subject property to Rafaela Donato, petitioner's vendor.

That petitioner is an innocent purchaser for value is within the scope of established jurisprudence.

The decision of the lower court would set at naught the settled doctrine that the holder of a certificate of title who acquired the property covered by the title in good faith and for value can rest assured that his title is perfect and incontrovertible. (Benin v. Tuason, 57 SCRA 531, 581)

xxx xxx xxx

Guided by previous decisions of this Court, good faith consists in the possessor's belief that the person from whom he received the thing was the owner of the same and could convey his title (Ariola v. Gomez dela Serna, 14 Phil. 627). Good faith, while it is always presumed in the absence of proof to the contrary, requires a well-founded belief that the person from whom title was received by himself the owner of the land, with the right to convey it (Santiago v. Cruz, 19 Phil. 148). There is good faith where there is an honest intention to abstain from taking any unconscientious advantage from another (Fule v. Legare, 7 SCRA 351). Otherwise stated, good faith is the opposite of fraud and it refers to the state of mind which is manifested by the acts of the individual concerned. In the case at bar, private respondents (petitioner in this case), in good faith relied on the certificate of title in the name of Fe S. Duran (Rafaela Donato in this case) and . . . "even on the supposition that the sale was void, the general rules that the direct result of a previous illegal contract cannot be valid (on the theory that the spring cannot rise higher than its source) cannot apply here for We are confronted with the functionings of the Torrens System of Registration. The doctrine to follow is simple enough: a fraudulent or forged document of sale may become the ROOT of a valid title if the certificate of title has already been transferred from the name of the true owner to the name of the forger or the name indicated by the forger. (Duran v. Intermediate Appellate Court, 138 SCRA 489, 494).

xxx xxx xxx

21

Thus, where innocent third persons relying on the correctness of the certificate of title issued, acquire rights over the property, the court cannot disregard such rights and order the total cancellation of the certificate for that would impair public confidence in the certificate of title; otherwise everyone dealing with property registered under the torrens system would have to inquire in every instance as to whether the title had been regularly or irregularly issued by the court. Indeed, this is contrary to the evident purpose of the law. Every person dealing with 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 behind the certificate to determine the condition of the property. Stated differently, an innocent purchaser for value relying on a torrens title issued is protected . . . (Duran v. Intermediate Appellate Court, 138 SCRA 489, 494-495). (pp. 68-70, Rollo)

In the case of Centeno v. Court of Appeals (139 SCRA 545, 555) the same rule was observed by this Court when it ruled

. . . Well settled is the rule that all persons dealing with property covered by torrens certificate of title are not required 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 encumbrance thereon, the purchaser is not required to explore further than what the torrens title upon its face indicates in quest or any hidden defect or inchoate right that may subsequently defeat his right thereto. (William Anderson v. Garcia, 64 Phil. 506; Fule v. Legare, 7 SCRA 351). (p. 71, Rollo)

Petitioner being an innocent purchaser for value, private respondents will have no cause of action against her. "The issue alone that petitioner is a purchase in good faith and for value sufficiently constitutes a bar to the complaint of private respondents . . ."(Medina v. Chanco, 117 SCRA 201, 205).

If an action for reconveyance based on constructive trust cannot reach an innocent purchaser for value, the remedy of the defrauded party is to bring an action for damages against those who caused the fraud or were instrumental in depriving him of the property. And it is now well-settled that such action prescribes in ten years from the issuance of the Torrens Title over the property. (Armerol v. Bagumbaran, 154 SCRA 396, 407; Caro v. Court of Appeals, 180 SCRA 401, 407; Walstron v. Mapa, Jr., 181 SCRA 431, 442).

Transfer Certificate of Title No. T-32683 was issued in the name of Rafaela Donato on March 2, 1967. The present action for reconveyance was filed only on March 9, 1982. Clearly then, the action has already prescribed because it was filed fifteen (15) years after the issuance of TCT No. T-32683. Even if the period were to be reckoned from the registration of the deed of absolute sale in favor of petitioner on July 13, 1970, which is also the date of the issuance of Transfer Certificate of Title No. T-49380 in the name of petitioner, the action of private respondents had already prescribed because a period of eleven (11) years, seven (7) months and twenty-six (26) days has elapsed from July 13, 1910 to March 9, 1982.

WHEREFORE, the petition is GRANTED; the assailed decision of the Court of Appeals is REVERSED and SET ASIDE and another one rendered dismissing Civil Case No. Br. V-756, of the Regional Trial Court, Branch 24, Echague, Isabela.

SO ORDERED.

Melencio-Herrera, Padilla and Regalado, JJ., concur.

Sarmiento, J., is on leave

22

23 CO V. CA

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 93687 May 6, 1991

ROMEO P. CO and MARCELITA CO, petitioners, vs. COURT OF APPEALS, EDUARDO R. MEMIJE and ADELAIDA H. MEMIJE, respondents.

Alicia A. Risos for petitioners.

Eriberto D. Ignacio for private respondents.

REGALADO, J.:p

From a coaptation of the records of this case, 1 it appears that sometime in 1965, petitioner Marcelita Co contracted to buy two parcels of land owned by Andres Gabriel at Malabon, Rizal. The sale was on installment basis and she paid the entire consideration. Upon completion of the installment payments in 1966, Andres Gabriel, who was to execute the final deed of sale of said properties, suggested that the titles to said properties be placed in the name of one who still had no real property registered in his name to avoid any difficulty in registering said properties. Consequently, Marcelita Co had the final deeds of sale executed in the name of her brother, Ruperto Padonan. This arrangement was to constitute Ruperto Padonan only as a trustee of said properties. One of the lots was later sold to one Hipolito Tamayo, while the other was titled in the name of Ruperto Padonan and a house was constructed thereon.

On January 28, 1973, in furtherance of said trust agreement, Ruperto Padonan simultaneously executed a deed of absolute sale in favor of petitioner Marcelita Co and a special power of attorney constituting petitioner Romeo Co as attorney-in-fact authorizing him to alienate and encumber said properties. It does not appear that the deed of sale in favor of petitioner Marcelita Co was registered.

On September 10, 1974, Ruperto Padonan executed a deed of absolute sale of the lot registered in his name, together with the house thereon, in favor of private respondent Eduardo Memije. Although Transfer Certificate of Title No. 457594 was issued for the lot in the names of private respondents, they were not able to take possession of said properties as they were occupied by petitioners. Hence, on March 5, 1975, private respondents sued petitioners in Civil Case No. C-3489 of the then Court of First Instance of Rizal, Branch XIV, Caloocan City, for recovery of possession and quieting of title involving said properties. That case was apparently not prosecuted but was dismissed.

Sometime in 1976, private respondents filed a petition for the issuance of a writ of possession in the original land registration proceeding (GLRO Rec. No. 1230 of the former Court of First Instance of Rizal) so that they could be placed in possession of the properties which they bought from Ruperto Padonan. Said writ was issued by the lower court but on March 18, 1983 the same was, however, set aside by this Court in G.R. No. L-46239. 2

24 Petitioners then filed Civil Case No. C-11063 in the Regional Trial Court, Branch 120, Caloocan City, for the annulment of the deed of sale and title involving the lot and house in question, with damages against private respondents. This case however, was dismissed on the ground of improper venue.

On November 14, 1983, private respondents filed Civil Case No. 370-MN in the Regional Trial Court of Malabon, Branch 170, against petitioners for the recovery of possession of the aforesaid residential lot and house registered in their names. Petitioners raised the affirmative defenses of fraud and their ownership over the land, and interposed the same as a compulsory counterclaim, instead of refiling a separate action for annulment of the deed of sale and title executed and issued in favor of private respondents.

After trial, the court a quo ruled against herein petitioners, as defendants, and rendered judgment on May 18, 1987 as follows:

WHEREFORE, in view of the foregoing judgment is hereby rendered ordering the defendants to vacate the property in question and deliver possession to plaintiffs as the lawful owners thereof, to pay plaintiffs the sum of P500.00 a month from September 15, 1974 as reasonable compensation for the use and occupation of said property until they shall have vacated the same and to pay plaintiffs P 5,000.00 as attorney's fees and the costs of the suit.

Defendants' counter-claims are dismissed for lack of merit. 3

On appeal to the Court of Appeals in CA-G.R. Civil Case No. 15050, said respondent court affirmed, with modifications, the aforequoted judgment of the court below in Civil Case No. 370-MN. It held that in an action recover possession of realty, attacking the transfer certificate of title by way of affirmative defenses on the ground that there was fraud committed by Ruperto Padonan when he sold the property in question to private respondents, is an improper procedure as this amounts to a collateral attack on the indefeasibility of a Torrens title; that petitioners should have pursued their original complaint for the annulment of the deed of sale and title which was dismissed without prejudice; and that private respondents appear to have a better right of possession considering that they are the registered owners of the property in question.

Accordingly, respondent Court of Appeals rendered judgment which reads:

WHEREFORE, the appealed decision is MODIFIED to read thus: In view of the foregoing, judgment is hereby rendered ordering the appellants (defendants) to vacate the property in question and deliver the possession thereof to the appellees (plaintiffs); to pay appellees P500.00 monthly from November 14, 1983 as reasonable compensation for the occupancy of said property until they shall have vacated it; and to pay the costs of the suit. The counterclaims are dismissed. No pronouncement as to costs. 4

Their motion for reconsideration having been denied, 5 petitioners are now before us, contending that respondent court acted without or in excess of its jurisdiction or with grave abuse of discretion in

a) totally disregarding the compulsory counterclaims of ownership and fraud even if undisputed, and in effect, limits the relief of a party-defendant in a recovery of possession case;

b) finding that the affirmative defense of fraud and at the same time raised as a compulsory counterclaim is a collateral attack on the indefeasibility of the transfer certificate of title;

25

c) summarily dismissing the counterclaims of the petitioner without stating the legal grounds for its dismissal;

d) disregarding the sentence of bad faith in the registration of the subject property; and

e) holding that there is a double sale in this case contrary to the evidence presented by the parties. 6

The counterclaim filed by petitioners in the aforesaid case was correctly dismissed by the trial court. A compulsory counterclaim is one which arises out of or is necessarily connected with the transaction or occurrence that is the subject matter of the opposing party's claim. In the case at bar, there appears to be two distinct transactions, namely, the sale in favor of petitioners which was not registered and the sale in favor of private respondents which was duly registered. The only apparent peculiarity is that the petitioners are in possession of the property in question.

Obviously, it would not be procedurally unsound for petitioners to resort to a separate case for the annulment of the deed of sale in question. They did file such a case but did not proceed with it to its ultimate conclusion. That is the plausible and available remedy at law which is open to them, not a counterclaim in a case based on a discrete cause of action. This is evident from the requisites of a compulsory counterclaim, viz.: (1) it arises out of, or is necessarily connected with, the transaction or occurrence which is the subject matter of the opposing party's claim; (2) it does not require for its adjudication the presence of third parties over whom the court cannot acquire jurisdiction; and (3) the court has jurisdiction to entertain the claim. 7

Anent the issue on whether the counterclaim attacking the validity of the Torrens title on the ground of fraud is a collateral attack, we distinguish between the two remedies against a judgment or final order. A direct attack against a judgment is made through an action or proceeding the main object of which is to annul set aside, or enjoin the enforcement of such judgment, if not yet carried into effect; or, if the property has been disposed of, the aggrieved party may sue for recovery. 8 A collateral attack is made when, in another action to obtain a different relief, an attack on the judgment is made as an incident in said action. This is proper only when the judgment, on its face, is null and void, as where it is patent that the court which rendered said judgment has no jurisdiction. 9

In their reply dated September 11, 1990, petitioners argue that the issues of fraud and ownership raised in their so-called compulsory counterclaim partake of the nature of an independent complaint which they may pursue for the purpose of assailing the validity of the transfer certificate of title of private respondents. That theory will not prosper.

While a counterclaim may be filed with a subject matter or for a relief different from those in the basic complaint in the case, it does not follow that such counterclaim is in the nature of a separate and independent action in itself. In fact, its allowance in the action is subject to explicit conditions, as above set forth, particularly in its required relation to the subject matter of the opposing party's claim. Failing in that respect, it cannot even be entertained as a counterclaim in the original case but must be filed and pursued as an altogether different and original action.

It is evident that the objective of such claim is to nullify the title of private respondents to the property in question, which thereby challenges the judgment pursuant to which the title was decreed. This is apparently a collateral attack which is not permitted under the principle of indefeasibility of a Torrens title. It is well settled that a Torrens title cannot be collaterally attacked. The issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be raised in an action expressly instituted for that purpose. 10 Hence, whether or not petitioners have the right to claim ownership of the land in question is beyond the province of the instant proceeding. That should be threshed out in a proper action. The two proceedings are distinct and should not be confused. 11

26 Keeping in mind that in CA-G.R. Civil Case No. 15050 herein petitioners were the appellants and herein respondents were the appellees, we quote the further disquisitions of respondent Court of Appeals on the position espoused by petitioners:

The rest of the affirmative defenses (pars. 13 to 16 of the answer), quoted above, are allegations attacking the validity of the deed of absolute sale over the subject property executed by Ruperto Padonan in favor of the appellees Memije, as well as attacking the validity of TCT No. 457594, covering the same property, issued by the Registry of Deeds of Rizal in appellees' name by virtue of deed of sale.

Obviously, in an action to recover possession of a realty, in the present case, attacking the TCT covering said property by way of affirmative defenses is an improper procedure. Appellants should have pursued the case they filed with the RTC Br. 120 at Caloocan City for "annulment of deed of sale and title with damages" after that court dismissed it on the ground of improper venue. In other words, after dismissal of their complaint, appellants should have filed the same action, as observed by that court, with the RTC at Malabon, Metro Manila, where the property is situated.

The affirmative defenses raised by appellants in the present case alleging fraudulent connivance between Ruperto Padonan and appellees in the sale of the subject property by the former cannot overcome the evidence of appellees' ownership over said property, i.e., a torrens title designated as TCT No. 457594 in their name. Hence, in the present case to recover possession of the realty as its registered owner, i.e., accion publiciana, appellees certainly have a better right to its possession than appellants.

In fine, whatever right of possession appellants may have over the subject property cannot prevail over that of appellees for the simple reason that appellants are not the registered owner, while appellees are. If, as appellants alleged, fraud had vitiated the sale between Ruperto Padonan and appellees, and consequently the issuance of said TCT No. 457594 in appellees' name by virtue of such sale is void, then their remedy was not to attack collaterally by way of affirmative defenses but to institute a proceeding purposely to attack directly such sale and torrens title.

It is a well-known doctrine that a torrens title, as a rule, is irrevocable and indefeasible, and the duty of the court is to see to it that this title is maintained and respected unless challenged in a direct proceeding. (Natalla Realty Corporation vs. Vallez, G.R. 78290-94, May 23, 1989; Gonzales vs. IAC, G.R. 69622, Jan. 29, 1988, 157 SCRA 587; Cimafranca vs. IAC, L-68687, Jan. 31, 1987, 147 SCRA 611; Barrios vs. Court of Appeals, L-32531, Aug. 31, 1977, 78 SCRA 427; Magay vs. Estandian L-28975, Feb. 27, 1976, 69 SCRA 456; Director of Lands vs. Gan Tan, L-2664, May 30, 1951, 89 Phil. 184). This, appellants failed to do. 12

Petitioners raise the issue of whether or not private respondents were in bad faith in registering the subject property. It has been held that a purchaser in good faith is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. 13 Also, in order that a purchaser of land with a Torrens title may be considered as a purchaser in good faith, it is enough that he examines the latest certificate of title which in this case was issued in the name of the immediate transferor. The purchaser is not bound by the original certificate but only by the certificate of title of the person from whom he has purchased the property. 14

Petitioners maintain that although respondent spouses are the registered owners of the subject property, they were, however, in bad faith when the land was purchased and subsequently

27 registered. But, as found by the trial court, the only evidence petitioners have to buttress their position is the self-serving statement of petitioner Marcelita Co that it is a known fact in Malabon that she is the owner of the said property, and the circumstance that Eduardo Memije was always with Ruperto Padonan during the trial of the criminal case filed against herein petitioners. 15 These do not suffice to prove prior knowledge of petitioners' claim as would attribute bad faith to respondent spouses.

Furthermore, as established by respondent Eduardo Memije without contradiction, the property was already paid in full and the deed was registered before respondent spouses learned of the supposed adverse claim of petitioners. In his testimony, said respondent declared that he and Padonan, after agreeing on the projected sale, went and paid the mortgage on the property and, thereafter, Padonan executed the deed of sale prepared by the counsel of said private respondent. On the basis of said deed of sale and the release of mortgage over the property, the Register of Deeds for the Province of Rizal issued Transfer Certificate of Title No. 457594 in the names of respondent spouses. It was subsequent thereto when the keys to the house had been given to respondents by Padonan and the former went to occupy the house that they were prevented from doing so by petitioners. Although respondent spouses duly reported that matter to Padonan and the latter promised to settle the matter, no further action was taken on their protest. 16 Consequently, private respondents had to take judicial recourse.

Finally, on the question of double sale, the pertinent provision of the Civil Code states:

Art. 1544. If the same thing should have been sold to different vendors, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

xxx xxx xxx

As earlier narrated, the final deed of sale of the land was executed in 1966 in the name of Ruperto Padonan. On January 28, 1973, Ruperto Padonan executed a deed of absolute sale in favor of petitioner Marcelita Co. Again on September 10, 1974, Ruperto Padonan executed a deed of absolute sale of the same property in favor of respondent Eduardo Memije. These facts disclose that there was indeed a double sale, hence the abovequoted provision of law finds application.

Petitioners, however, contend that no double sale may arise due to the fact that an implied trust was created between them and the alleged vendor, Ruperto Padonan. The trust agreement was indeed recognized by the trial court in its decision, thus:

Defendants' evidence that the purchase price for the acquisition of the property in question was paid by them has not been controverted. Consequently, said property, which was registered in the name of Ruperto Padonan was held in trust by the latter for the benefit of defendants. Thus, defendants claim that it was in compliance with the trust agreement that Ruperto Padonan executed a deed of sale covering the subject house and lot in favor of defendant Marcelita Co on January 28, 1983 (sic, 1973) in order that the title to said property could be transferred in the latter's name as the real owner thereof. 17

Nonetheless, despite the existence of a trust agreement, the conflict is between the Co spouses, on the one hand, and the Memije spouses, on the other. The trust agreement is between Ruperto Padonan and herein petitioner Marcelita Co. Private respondents are not in privity with petitioners or Ruperto Padonan as far as the trust agreement is concerned. Private respondents relied on a clean transfer certificate of title in the name of Padonan, which title does not contain any annotation concerning the trust agreement.

28 Under the present posture of this case, therefore, it appearing that private respondents are the duly registered owners of the land, without sufficient proof of any flaw in their title thereto having been adduced by petitioners, the right of the former to the possession thereof and to be protected therein has to be conceded and respected.

WHEREFORE, without prejudice to such appropriate remedies as petitioners may avail themselves of with respect to their claim of ownership of the property in question, the instant petition is DENIED and the judgment of respondent Court of Appeals is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.

29 BARRIOS V. CA

Republic of the Philippines SUPREME COURT

Manila

G.R. No. L-32531 August 31, 1977

JOSE O. BARRIOS (deceased) (substituted by son Joselito Barrios), petitioner, vs. COURT OF APPEALS, HERACLEO B. VILLACIN, JR. and VICENTE B. VILLACIN, respondents.

Raymundo M. Lozada, Jr. for petitioner.

Rodolfo S. Layumas for respondents.

GUERRERO, J.:

Appeal certiorari to review the Decision of the respondent Court of Appeals 1 in CA-G.R. No. 38142-R entitled "Jose O. Barrios versus Heracleo B. Villacin, Jr. and Vicente B. Villacin" and from its order denying the motion for reconsideration of the petitioner.

Originally., there were two (2) cases appealed to the Court of Appeals: 1. CA-G.R. No. 38138-R (Civil Case No. 223) entitled "Jose O. Barrios v. Apolonia Vda. de Alegre, et al. and 2. CA G.R. No 38142-R (Civil Case No. 229) entitled "Jose O. Barrios v. Heracleo B. Villacin, Jr. and Vicente Villacin." Both are ordinary actions for the recovery of possession of a parcel of land, damages and attorney's fees originating from the Court of

First Instance of Negros Occidental where they were tried jointly on the ground that the land in controversy is the same, although different portions thereof were respectively claimed by the two (2) sets of defendants, and the issues raised therein are Identical.

In a decision dated May 12, 1966 as modified on June 16, 1966, the trial court found the defendants in the said two cases as possessors in bad faith and ordered them to vacate the premises and to pay the plaintiff (petitioner herein) damages, which in the case of the present respondents is the sum of P18,000.00 per year from 1964 until they vacate the property.

On appeal by both the defendants, the Court of Appeals, in a decision dated May 15, 1970, affirmed the findings of the trial court in Civil Case No. 223 entitled "Jose Barrios v. Apolonia Vda. de Alegre, et al." declaring the defendants possessors in bad faith, but reversed that in Civil Case No. 229 entitled "Jose O. Barrios v. Heracleo B. Villacin, Jr. and Vicente Villacin. The Appellate Court now found the respondents Villacins possessors in good faith and ordered the petitioner to exercise the options available to him tinder Article 448 of the New Civil Code, that is, either to appropriate the improvements introduced by the said defendants on the area in ; controversy and to pay the value thereof in the amount f P22,000.00, or to compel these, defendants respondents herein to pay the reasonable price of that area.

Petitioner now comes to Us seeing the review only of the decision of the Court of Appeals in CA-G.R. No. 38142-R (Civil Case No. 229).

In said Civil case No, 229 entitled "Jose O. Barrios v. Heracleo B. Villacin Jr. and Vicente B. Villacin," the following facts appear.

30