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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.

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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.

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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

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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,
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

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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.

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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.

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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.

11
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. T30407 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 appeaR.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 wellfounded 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. C3489 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.

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. 370MN. 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 CAG.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
A certain Lorenzo Montano was the original registered owner of a large tract of land with an area
of 188,212 sq. meters, more or less, situated in Barrio Mabini Cadiz, Negros Occidental. Her
ownership was evidenced b Original Certificate of Title No. F-1670 entered under her name
pursuant to Free Patent V-4415 issued to her on June 13, 1956.
However, prior to March 25, 1960, the area in controversy was part of the forestal zone. This
notwithstanding and before its release from the forestal zone, a certain Graciano Lamis entered
the same and from then on, was known to be in continuous and uninterrupted possession and
occupation thereof, continuing the cultivation of the land begun by the Alegres (defendants in Civil
Case No. 223). On March 25, 1960, that area was released from the forestal zone and declared
part of the disposable patrimony of the State.
On September 6, 1962, Lorenzo Montano sold her land to the petitioner herein as a consequence
of which her Original Certificate of Title was cancelled and in lieu thereof Transfer Certificate of
Title No. T-33012 was issued in the name of petitioner, Jose O. Barrios, by the Register of Deeds
of Negros Occidental.
On March 27, 1963, Graciano Lamis sold his rights over the area in controversy to a certain
Virgilio Butaz. However, on March 5, 1964, Lamis repurchased the same from Butaz and on the
same day, Lamis sold all his rights and interests in the controverted area and all the improvements
found therein to respondents Villacins, the sale being unsupported by any kind of evidence of title
of the vendor, Lamis.
Meanwhile, petitioner received information that his land was being sold by one Valentine Botas,
whom he erroneously thought to be the vendor, to Mayor Heracleo Villacin, Sr. of Cadiz City and
the father of herein respondents. On March 31, 1964, petitioner thru his lawyer, sent a letter to
Mayor Villacin informing the later of the true ownership of the land, to wit,
Bacolod City
March 31, 1964
The Honorable
Mayor Heracleo Villacin
Cadiz, Negros Occidental
Dear Mayor Villacin:
Last week, my client Mr. Jose 0. Barrios informed me that he received an
information that you bought from a certain Valentine Botas a piece of land located
at Barrio Mabini, Cadiz, Negros Occidental. That incidentally, the land sold to you
by this person who professes to be the owner thereof is Lot No. 209 covered by
Transfer Certificate of Title No. T-33012 issued in the name of my client, Mr. Jose
O. Barrios. Hence this letter.
To protect your rights and interest, I suggest that you make an inquiry from the
Office of the Register of Deeds, Bacolod City, about the description and ownership
of the property sold to you by this Valentine Botas Otherwise, you will be left
holding an empty bag.
I am sending you a photostatic copy of Transfer Certificate of Title No. T-33012
issued in a name of Mr. Barrios to help guide you in determining whether the land

31
sold to you by Mr. Valentine Botas located at Bario MAbini, Cadiz, is the very one
described therein or not. May you guided accordingly.

(SGD) RAYMUNDO M.
LOZADA, JR.
(p. 14, Rollo, Exhibit B)
Despite this letter, the ,mayor's men using tractors bearing the mayor's initials, entered and
occupied, on April 7, 1964, nine(9) hectares of the middle portion of the petitioners property and
threatened petitionr's encargado, Bienvenido C. Artegen a, with bodily harm unless he vacates the
premises.
On April 15, 1964, another letter was sent by the petitioner reiterating his ownership and
demanding that the mayor vacate the premises, to wit:
B
a
c
o
l
o
d
C
i
t
y
A
p
r
i
l
1
5
,
1
9
6
4
The Honorable
Mayor Heracleo Villacin

32
Cadiz, Negros Occidental

Dear Mayor Villacin:

I have been informed by Jose O. Barrios that his land situated at Barrio Mabini,
Cadiz, Negros Occidental, isbeing worked by your men with the use of two tractors.
Thisis lamentable because notwithstanding my letter toyou dated March 31, 1964,
in which you were fully apprised of the ownership of the land as eviddence by
Transfer Certificte of Title No. T-33012 issued in the name of Mr. Jose O. Barrios,
you presisted in forcibly entering the place with intent to gain. Consequently, this is
manifestly an act done in bad faith.
Please consider this letter as a demand to vacate the premises immediately and to
return to the owner the peaceful possession and occupation thereof. We will be
expecting your wise judgement to guide you in this matter before we will be forced,
much toour regret, to invoke the law to protect the rights and interest of our client.
Y
o
u
r
s
T
u
l
y
,
(SGD) RAYMUNDO M.
LOZADA, JR.
(p. 15,
Rollo,
Exhibit C)
There being non-compliance with said demand, petitioner filed Civil Case No. 472 before the
Municipal Court against the Mayor for forcible entry. The inferior Court dismissed the complaint
upon agreement of the parties and for the purpose of filing the proper pleading before the
competent court; and on July 16, 1965, petitioner filed Civil Case No. 229 in the Court of First
Instance of Silay City, Negros Occidental against Mayor Villacin, the complaint later amended to
include the sons of the Mayor, Heracleo Jr. and Vicente, as the real defendants.
In his brief, petitioner makes the following assignment of errors to wit:
I. The Court of Appeals erred in holding the respondent buyers and possessors in good faith of the
land in dispute.
II. The Court of Appeals erred in ordering petitioner to exercise the option under Article 448 of the
New Civil Code either by appropriating the improvements introduced by the respondents or to
compel them to pay the price of the land.
III. The Court of Appeals erred in disregarding the letters sent to respondent's father, Mayor
Heracleo Villacin advising him of the ownership of the land in dispute.

33
After perusal of this assignment of errors and considering that all are closely related, We deem
that the lone issue presented to Us is whether or not the Court of Appeals was correct in
interpreting the facts and circumstances attending To possession of the. Villacins of the area in
question as constituting possession in good faith.
At the very outset, We must hold that there is no merit to the contention of the respondents
Villacins that the aforesaid issue is a question of fact, the finding of the Court of Appeals being
binding on this Court. True, except for some exceptions, findings of facts made by the Court of
Appeals are conclusive on this Court. But in the case at bar, whether or not the facts, as found by
the Court of Appeals, are constitutive of possession in good faith or possession in bad faith, is a
question of law which may properly be brought before Us.
The Court of Appeals in imputing good faith to respondents Villacins declared, and We Quote:
Consequently, considering that portion B of the plan Exhibit F had been n the
possession of Graciano Lamis publicly and continuously since time immemorial,
without anyone disturbing him in his possession, and considering further that this
particular parcel was released from the forestal zone only on March 5, 1960,
defendants Villacins had certainly no reason to suspect that such land could have
been included in the free patent of Lorenzo Montano issued in 1956. Under these
circumstances, when they bought the rights of Lamis over that land on March 5,
1964, they must have done so in good faith. This is especially so in view of the fact
that the evidence has not clearly proved the bad faith of sad defendants. (p. 38,
Rollo)
We do not agree. Several facts, as disclosed by the records and taken together, are reasonably
suspicious to have put the respondents Villacins in inquiry as to the alleged rights of the vendor,
Lamis, over the area in controversy.
Firstly, when respondents bought the land from Lamis, the latter could not and did not at any time
produce any title or application to said land.
Well settled is the rule that,
The law protects to a greater degree a purchaser who buys from the registered
owner himself. Corollarily, it requires a higher degree of prudence from one who
buys from a person who is not the registered owner, although the land object of the
transaction is registered. While one who buys from the registered owner does not
have to look behind the certificate of title, one who buys from one who is not the
registered owner is expected to examine not only the Certificate of Title bull all
factual circumstances necessary, for him to determine if there are any flaws in the
title of the transferor, or in his capacity to transfer the land. 2
If such a degree of prudence is required of a purchaser of registered land from one who shows a
Certificate of Title but who appears not to be the registered owner, more so should the law require
the utmost caution from a purchaser of registered land from one who could not show any title nor
any evidence of his capacity to transfer the land. Failing to exercise caution of and kind
whatsoever, as in the case of the respondents Villacins, is tantamount to bad faith.
Secondly, petitioner sent letters to the father of the respondents informing him of the true
ownership of the aforesaid land. The Court of Appeals in disregarding this fact said, to wit:
The registered letter dated March 31, 1964 ... is not proof that herein defendants
Villacin's were also apprised of the information supposedly given by said plaintiff to
the Mayor, It will be observed that Mayor Villacin is not a party to this case and is a

34
person different from the herein two defendants Villacins. Moreover, such advise
was given after defendants Villacins had already bought the rights of Lamis over the
controverted area on March 5, 1964. (p. 21, Rollo)
We deem this untenable. In the normal course of daily life, it is very probable, if not decidedly
certain, that sons and father had occasion to talk about the aforesaid letters containing this
information. It must be noted that it was never controverted in the trial that men of the mayor
entered the premises of the petitioner and that land tractors bearing the initials of the mayor were
used. This being so, the mayor had knowledge that his sons bought the land and it is difficult for
Us to imagine that he withheld the information of the true ownership of the land from his sons,
unless he was not acting in their interest, which is quite remote. Learning of this information, the
more must We require of the respondents that exercise of prudence required by law in inquiring as
to the status of the land they bought. But instead, they did nothing but took possession of the land
and started planting sugar cane thereon. Of a case similarly situated, the Supreme Court ruled:
Defendant's bad faith began after the warning given in a letter by the plaintiff's
daughter in March 1909, for after having received it, she then had ground to doubt
that Sotera and Juan Cano could transfer any title of possession in the following
December.3
Thirdly, respondents herein knew of the case of forcible entry brought by petitioner against their
father, Mayor Villacin, Sr., under the impression that the latter was the vendee. Such knowledge
was a warning to them that the land they bought is subject to the claim of other parties, but again
they continued in their possession of the land and planting thereon.
Considering these facts, We are constrained to hold that the respondents cannot now come to this
Court claiming the benefit of being purchasers of registered land in good faith.
Art. 256 of the New Civil Code is clear.
Art. 526: He is deemed a possessor in good faith who is not aware that there exists
in his title or mode of acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case contrary to the
foregoing.
In interpreting the above quoted provision, We have repeatedly ruled that if circumstances exist
that require a prudent man to investigate, and he does not, he is deemed to have acted in mala
fide. A party's mere refusal. to believe that a defect exists or his willful closing of his eyes to the
possibility of the existence of a defect in his vendor's title will not make him an innocent purchaser
for value, if it afterwards develops that the title was in fact defective. 4 Similarly, a buyer of
registered land who fails to act with the diligence of a prudent man cannot be a purchaser in good
faith. 5
Lastly, as a special defense in the proceedings below, respondents Villacins alleged the nonefficacy and nullity of the title of Lorenzo Montano from which the title of the petitioner stemmed.
We need not pass upon this. The Court of Appeals is correct in holding that this is a collateral
attack on a Torrens Title which under our laws and established jurisprudence is not permitted and
cannot be legally done. 6
Premises considered, We now apply Arts. 449, 450, 451 and 452, New Civil Code.
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses
that is built, planted, or sown without right to indemnity.

35
Art. 450. The owner of the land on which anything has been built, planted or sown
in bad faith may demand the demolition of the work, or that the planting or sowing
be removed, in order to replace things in their former condition at the expense of
the person who built, planted or sowed or he may compel the builder or planter to
pay the price of the land and the sower the proper rent.
Art. 451. In the cases of the two preceding articles, the landowner is entitled to
damages from the builder, planter or sower.
Art. 452. The builder, planter, or sower in bad faith is entitled to reimbursement for
the necessary expenses of the preservation of the land.
As the records show that the Villacins planted sugar cane which is harvested every crop year and,
therefore, cannot be considered as a necessary expense for the preservation of the land, they are
not entitled to any such reimbursement of amount expended by them.
The records also indicate that the parties, at the pre-trial hearing, agreed to the payment of
liquidated damages to the prevailing party the amount of P18,000.00 per year until the final
adjudication of the case (Record on Appeal, pp. 37-38), which the trial court incorporated in its
modified Decision dated June 16, 1966, ordering the Villacins to pay liquidated damages of
P18,000.00 per year beginning 1964. (Record on Appeal, pp. 8490). We hold that the amount
agreed as liquidated damages complies with Art. 451 of the New Civil Code.
WHEREFORE, the decision of the Court of Appeals is reversed and another one is entered
declaring the Villacins to be purchasers s and possessors n bad faith without tight to limit to that
built planted or sown by them on the land, further ordering said respondents to restore, possession
of the land to the petitioner and to pay to the petitioner liquidated damages in the amount of
P18,000.00 per year beginning 1964 until the time same is restored to the possession of the
respondent's Villacin's shall also pay the petitioner the amount of P3,000.00 for and as attorney's
fees plus costs. The Villacins liability this judgment is declared joint and several.
SO ORDERED.
Teehankee (Chairman), Makasiar, Mu;oz-Palma, Martin and Fernandez, JJ., concur.
PRIVATE DEVT CORP OF THE PHILS V. CA
THIRD DIVISION

PRIVATE
DEVELOPMENT
CORPORATION OF THE PHILIPPINES,
PELAGIO TOLOSA, in his capacity as
Register of Deeds, General Santos City,
and ATANACIO M. VILLEGAS,

G.R. No. 136897

Present:

Petitioners,
PANGANIBAN, J., Chairman
- versus -

SANDOVAL-GUTIERREZ,

36
CORONA,
THE COURT OF APPEALS and
GENERAL SANTOS DOCTORS
HOSPITAL, INC.,

CARPIO MORALES, and

GARCIA, JJ.

Respondents.

Promulgated:

November 22, 2005

x------------------------------------------------------------------------------------x

DECISION

GARCIA, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners Private
Development Corporation of the Philippines and Atanacio M. Villegas seek the reversal and setting
aside of the following issuances of the Court of Appeals in CA-G.R. CV No. 52542, to wit:

1.
Decision dated July 16, 1998,[1] affirming an earlier decision of
the Regional Trial Court at General Santos City which ordered the petitioners, in
particular petitioner Atanacio M. Villegas, to present before the Register of Deeds of
General Santos City TCT No. T-32610 covering Lot 908-B-6-L-4-B for the annotation
thereon of a Memorandum of Agreement establishing an easement of right-of-way in
favor of private respondent General Santos Doctors Hospital, Inc.; and

37
2.
Resolution dated January 8, 1999,[2] denying petitioners motion
for reconsideration.

Culled from the records are the following factual antecedents:

The spouses Agustin Narciso and Aurora Narciso (the Narcisos, for short) were the original
owners of two (2) lots situated at Barrio Lagao, General Santos City, Cotabato.

The first lot, which is a portion of a bigger parcel of land known as Lot No. 908-B-6-L-3 and
covered by TCT No. 22608, is identified as Lot No. 908-B-6-L-3-A, hereinafter referred to as the
interior lot, with an area of one (1) hectare. Adjacent to this lot and abutting the national highway
is the second lot, Lot No. 908-B-6-L-4-B, hereinafter referred to as the exterior lot, covered by TCT
No. 13550.[3]

On September 6, 1968, the Narcisos executed in favor of herein respondent, General

Santos Doctors Hospital, Inc. (GSDHI) an Option to Buy[4] the interior lot, subject, among
others, to the condition that:

5.

The vendors shall construct a 10 meter wide road commencing from the
National Highway, traversing the property of the Vendors and terminating
perpendicularly at the mid-point of the Southern boundary of the property
subject of this Option, facing the national highway. Additionally, the vendors
shall also construct a 10 meter wide road alongside the same southern
boundary of the subject land, forming a right angle with the road first above
described. The Vendors shall also provide drainage facilities.[5]

True enough, on September 25, 1968, the interior lot was bought by GSDHI, as evidenced
by a Deed of Absolute Sale.[6]

On the same day of the sale, a Memorandum of Agreement[7] was executed by and between
the Narcisos and GSDHI, paragraph 7 of which practically reproduced the same condition,
supra, appearing in the earlier Option to Buy, thus:

38
7.

The vendors [Narcisos] also known as Party of the First Part, shall construct
a ten (10) meter wide road commencing from the National Highway,
traversing the property of the vendors and terminating perpendicularly at the
mid-point of the Southern boundary of the property subject of the sale facing
the National Highway. Additionally, the vendors or party of the first part, shall
also construct a ten (10) meter wide road alongside the same Southern
boundary of the subject land, forming a right angle with the road first abovedescribed. The vendors shall also provide drainage facilities.[8]

Years later, or on September 30, 1977, the exterior lot was mortgaged by the Narcisos to
one of the petitioners herein, Private Development Corporation of the Philippines (PDCP). Upon
the Narcisos failure to pay the mortgage obligation, the mortgage was foreclosed and the mortgaged
property (exterior lot) sold at a public auction on June 21, 1982 with PDCP as the lone bidder.
Accordingly, the Narcisos title covering the exterior lot was cancelled and in lieu thereof TCT No.
23202 was issued in the name of PDCP.

On April 18, 1988, in the Regional Trial Court at General Santos City, respondent GSDHI,
claiming that it has an easement of right-of-way over the foreclosed property (exterior lot), filed a
complaint for specific performance against PDCP, therein impleading the Register of Deeds of
General Santos City, Pelagio T. Tolosa, as a nominal party-defendant, to compel PDCP to present
before the Register of Deeds its duplicate copy of TCT No. 23202 over the exterior lot for the
annotation thereon of the Memorandum of Agreement establishing an easement of right-of-way in
favor of GSDHI.

In its complaint, docketed with the trial court as Civil Case No. 4128, respondent GSDHI, as
plaintiff, alleged that the easement was a condition and primary consideration for its purchase from
the Narcisos of the interior lot so that the hospital it intends to build thereat would have an access
to the national highway; that the grant is evidenced by two (2) public documents executed between
it and the Narcisos, i.e., Option to Buy[9] the interior lot dated September 6, 1968 and
Memorandum of Agreement[10] dated September 25, 1968; that the portion covered by the
easement was inadvertently and erroneously included in the mortgage of the exterior lot as the
same was not segregated from the mother title; that upon informing PDCP of the easement on
January 27, 1983, it (respondent) even offered to buy the whole exterior lot so as to
avoid future litigation but although negotiations lasted until August of 1988, no agreement was
reached on the price, hence, it (respondent) opted to continue and preserve the easement of rightof-way established in its favor since 1968.

39

In its Answer, PDCP denied any knowledge of the alleged easement of right-of-way, averring
that it was not a party to any of the transactions between respondent and the Narcisos. PDCP argued
that the Option to Buy and Memorandum of Agreement cannot by themselves constitute a valid
agreement to create and vest in favor on respondent an easement of right-of-way in the absence of
terms providing for, among others, the amount of consideration therefor. And, even assuming that
the Memorandum of Agreement created such an easement, PDCP contended that it cannot be
bound thereby because said agreement was not duly inscribed and registered with the Registry of
Deeds. Furthermore, PDCP asserted that it is an innocent purchaser for value and in good faith,
hence, the alleged easement cannot be enforced against it.

Meanwhile, during the pendency of the case, or sometime in January, 1989, PDCP sold the
exterior lot to the other petitioner herein, Atanacio M. Villegas. On account thereof, PDCPs title
over the exterior lot was cancelled and TCT No. 32610 issued in the name of Villegas.

Consequently, respondent GSDHI amended its complaint by impleading Villegas as

additional party-defendant.

For his part, Villegas formally adopted PDCPs aforementioned

allegations and defenses in its Answer.

Eventually, in a decision dated December 15, 1998,[11] the trial court rendered judgment for
plaintiff GSDHI and against defendants PDCP and Villegas, to wit:

Accordingly, judgment is rendered for the plaintiff and against the defendants
ordering the latter, particularly Atanacio M. Villegas to present before the Register of
Deeds of General Santos City Transfer Certificate of Title No. T-32610 for annotation
of the Memorandum of Agreement establishing the casement of right-of-way in favor
of the plaintiff.
SO ORDERED.
Explains the trial court in its decision:

The long and short of the seeming complexity of the issues raised by the
parties is summed up by the question of whether or not the plaintiff under the
circumstances is entitled to compel the defendants particularly Atanacio M. Villegas

40
to respect and annotate in the certificate of title the easement of right of way, or
conversely whether the defendants are innocent mortgagor or purchaser for value,
hence not bound by it.
The dominion of the plaintiff over the disputed road that virtually cut into two
lot 908-B-6-L-4-B comprising a total area of 1,000 square (10 m x 100m) was
elucidated and clarified by Agustin N. Narciso, the source of plaintiffs rights. (Exhibits
A and B) When Lot 908-B-L-3-A was sold by Narciso to GSDHI way back on
September 25, 1963 the imperfection of the document of absolute sale was
discovered at once. (Exhibit D) So a Memorandum of Agreement was executed
that same day to rectify the omission and put in black and white the agreement
regarding the direct access road to the national highway passing through the
adjoining lot 908-B-6-L-4-B then owned by Narciso. (Exhibit E) The relevant portion
of the agreement provides:
xxx 7. The vendors also known as Party of the First Part, shall
construct a ten (10) meter wide road commencing from the
National Highway, traversing the property of the vendors and
terminating perpendicularly at the mid-point of the Southern
boundary of the property subject of the sale facing the National
Highway. Additionally, the vendors or party of the first part, shall
also construct a ten (10) meter wide road alongside the same
Southern boundary of the subject land, forming a right angle with
the road first above-described. The vendors shall also provide
drainage facilities. xxx
Prior to the execution of the Deed of Absolute Sale and the Memorandum of
Agreement, the Narcisos and the plaintiff executed a document denominated Option
to Buy on September 6, 1968, the pertinent portion of which provides:
xxx 5. The vendors shall construct a 10 meter wide road commencing
from the National Highway, traversing the property of the Vendors and
terminating perpendicularly at the mid-point of the Southern boundary
of the property subject of this Option, facing the national highway.
Additionally, the vendors shall also construct a 10 meter wide road
alongside the same southern boundary of the subject land, forming a
right angle with the road first above described. The Vendors shall also
provide drainage facilities. xxx
In keeping with their agreement with the plaintiff, the Narcisos caused to be
constructed a 10 meter wide road starting from the National Highway passing through
Lot 908-B-6-L-4-B until the mid-point of the Southern boundary of Lot 908-B-L-3-A
which was the property sold to the plaintiff. He also had a 10 meter wide road
alongside the southern boundary of the land sold to the plaintiff forming an angle with
the road that commenced from the national highway.
These undertakings of the Narcisos were in compliance with their agreement
with the plaintiff to guarantee direct access to the national highway from the hospital
that was to be constructed by the plaintiff on inner Lot 908-B-L-3-A. The total
consideration for the sale of Lot 908-B-L-3-A covering an area of one hectare was
P100,000.00 and an additional of P10,000.00 was paid for the 10 meter wide road
right-of-way from the southern boundary of the property straight to the national
highway with an approximate length of 100 meters. This was not specifically
mentioned in the Deed of Absolute Sale but this was in pursuance of their agreement
that the one hectare lot was priced at P10.00 per square meter, or for P100,000.00.
Narcisos agreement with the plaintiff for the construction of the road right-of-way was
for its use in perpetuity by the plaintiff as well as the public. The road right-of-way
was constructed immediately upon execution of the Deed of Sale but it is being

41
maintained ever since by the plaintiff. The road was located in the shortest distance
between the national highway and the hospital of the plaintiff and because of it the
property over which the easement of road right-of-way passing through at the middle
was substantially benefited making it commercial.

Sometime in 1976 or 1977, the Narcisos mortgaged Lot 908-B-6-L-4-B which

was the servient estate to PDCP thru its branch office in Davao City. As a
requirement, the Narcisos submitted to PDCP the title of the land, the map and the
sketch on the easement that was granted by the plaintiff to the CSDHI. When the
property was inspected, Agustin Narciso showed the extent of the property offered
as collateral and together with the manager and other officers of the PDCP even
passed through the road right-of-way in question. The metes and bounds of the
Narcisos property was also shown to the officers of the PDCP including the signboard
along the national highway leading to the hospital. Thereafter the loan was approved.
On cross-examination, Agustin Narciso admitted having mortgaged the
property covered by his title but excluding the 10 X 100 meter road which was paid
for by the plaintiff. The Memorandum of Agreement, however, and the Option to
Buy which embodied the meeting of minds of the plaintiff and the Narcisos regarding
the easement of right-of-way over Lot 908-B-6-L-4-B was not registered or
annotated. Agustin Narciso reiterated that when the property mortgaged to PDCP
was verified, several personnel of PDCP came, a certain Mr. Rey Feria, Mr. Lim, Mr.
Alcantara and a certain Mr. Delgado. He did not, however, furnish them copies of
the Option to Buy and the Memorandum of Agreement.
The importance of the road right-of-way to the plaintiff was underscored by
officers of the plaintiff. Acquisition of the hospital site was premised on the grant by
the then owner and seller Agustin Narciso of the ten meter wide access road through
the servient property owned by the seller. It was a condition sine qua non of the
contract between plaintiff and the Narcisos because the plaintiff wanted the site to be
a bit far from the national highway but with easy and direct access to the highway
because of the nature of the business they were putting up. The hospital having been
constructed sometime in 1968, plaintiff maintained the 10 x 100 meters road to the
highway and used it including the public openly, continuously and notoriously without
being challenged by any party.

When the Narcisos failed to pay their account with the defendant PDCP Lot
908-B-L-3-B which was put up as guarantee thereof was foreclosed and in the
subsequent public auction sale the defendant PDCP was the lone bidder and
therefore it became the owner.
The plaintiff learned of the acquisition by PDCP of the property previously
owned by the Narcisos and steps were taken by the plaintiff to buy peace when it
was realized that the Memorandum of Agreement as well as the Option to Buy
evidencing their ownership of the road right-of-way of 10 x 100 meters was only duly
recorded with the Register of Deeds. Negotiations were had with the defendant
PDCP but no agreement was reached because of the wide gap between the offers
and counter offers made.
In the meantime, the defendant PDCP never asserted that it is the rightful
owner of the road right-of-way, neither did it interrupt the continued use by the plaintiff
and the general public of the road in question.

42

Requests were made of the defendant PDCP to allow the plaintiff to have its
right over the road right-of-way annotated in the title of the said defendant but it was
ignored. Overtures were made by the plaintiff to buy peace or as gesture of
compromise to the defendant PDCP but those were fruitless.
The defendants, particularly the original and one of the principal defendants,
did not challenge the genuiness and authenticity of the documents in the possession
of the plaintiff and presented in evidence like the Option to Buy, Memorandum of
Agreement and the Deed of Absolute Sale. The centerpiece of PDCPs defense was
the nonregistration of the Option to Buy and Memorandum of Agreement
embodying the right of the plaintiff over the contested road right of way.
The defendant Atanacio M. Villegas relied entirely on the defenses put up by
its predecessor-in-interest PDCP.
It was the contention also of the defendant PDCP that had it known of the
existence of the road right-of-way over the property mortgaged and subsequently
acquired by it in a public auction sale, they would not have paid the big amount for
the property considering that with the existence of the road right-of-way the value of
the property was very much diminished.
Considering, however, that the defendant PDCP is a banking institution and
it is normal business practice that when loan is granted the property offered as
security is invariably inspected, it would be unlikely cr unrealistic that the defendant
PDCP accepted Lot-908-B-6-L-4-B without knowing its actual state. The evidence
also disclosed that when the loan was contracted by the previous owner Agustin
Narciso several officers of the bank repaired to the area and made an on-the-spot
verification of the land.
On the part of Atanacio Villegas, his attorney-in-fact who took the witness
stand affirmed that the road right-of-way has been in existence way back in the late
1960s and he noticed it when he frequently traveled to General Santos City even
when this was still a rustic community as reflected in his testimony.
In the light of the undisputed facts obtaining that the road right-of-way is
conspicuously situated and has been in existence and in constant use for a long
period of time, or for over 25 years failure of the plaintiff to cause the registration of
its road right-of-way did not in the face of reality militate against its right over the
casement.[12]

From the trial courts decision, petitioners went to the Court of Appeals (CA) whereat their
appellate recourse was docketed as CA-G.R. CV No. 52542.

In the herein assailed Decision dated July 16, 1998, the CA affirmed that of the trial court.

With their motion for reconsideration having been denied by the appellate court in its equally
challenged Resolution of January 8, 1999, petitioners are now with us via this petition for review,
imputing error to the CA: (1) in affirming the lower courts decision without first resolving the issue

43
of whether or not respondent is entitled to an easement of right-of-way; (2) in finding and concluding
that petitioners are not innocent mortgagees or purchasers for value; and (3) in not holding that
respondent GSDHI is not entitled to a legal easement of right-of-way.

The petition is bereft of merit.

At bottom, the issues are: (1) whether or not respondent GSDHI has an easement of rightof-way over the exterior lot (Lot No. 908-B-6-L-4-B); and (2) whether or not petitioners are innocent
mortgagees/purchasers for value of the same lot.

We resolve both issues in favor of respondent.

As defined, an easement is a real right on anothers property, corporeal and immovable,

whereby the owner of the latter must refrain from doing or allow somebody else to do or something
to be done on his property, for the benefit of another person or tenement.[13] Easements are
established either by law or by the will of the owner. The former are called legal, and the latter,
voluntary easements.[14]

As correctly found by the trial court, the easement of right-of-way over the exterior lot in
favor of respondent GSDHI was voluntarily constituted by agreement between the latter and the
original owner thereof, the Narcisos.

It is beyond cavil that the Narcisos did intend to establish an easement of right-of-way over
the exterior lot for the respondents benefit. This is very evident from the fact that in the Option to
Buy in connection with the interior lot, one of the conditions stipulated upon is that the Narcisos will
construct two (2) ten-meter wide roads along the exterior lot from the interior lot leading to the
national highway.[15]

True, the Deed of Absolute Sale between respondent and the Narcisos covering the interior
lot did not embody the aforementioned condition. It was precisely to cure this deficiency, however,

44
that on the very same day the deed of sale was executed, the Narcisos and respondent forged a
Memorandum of Agreement to reflect what they failed to state in the document of sale. In the
precise words of the trial court: xxx the imperfection of the document of absolute sale was discussed
at once (Exhibit D). So a Memorandum of Agreement was executed that same day to rectify the
omission and put in black and white the agreement regarding the direct access road to the national
highway passing through the adjoining lot 908-B-6-L-4-B then owned by Narciso.

Moreover,

contrary

to

the

petitioners

assertion,

the

Narcisos grant of the easement to respondent was for a valuable consideration. Again, we quote
from the trial courts decision:

The total consideration for the sale of Lot 908-B-L-3-A covering an area of
one hectare was P100,000.00 and an additional of P10,000.00 was paid for the 10
meter wide road right-of-way from the southern boundary of the property straight to
the national highway with an approximate length of 100 meters. This was not
specifically mentioned in the Deed of Absolute Sale but this was in pursuance of
their agreement that the one hectare lot was priced at P10.00 per square meter, or
for P100,000.00.[16]

In any event, it bears stressing that the two courts below are one in their common factual
finding about the existence of the conventional easement of right of way in favor of respondent.
Absent, as here, of any credible evidence to the contrary, the Court is not inclined to disturb such a
finding. After all, this Court is not a trier of facts.

Having ruled on the existence of an easement of right of way, we now come to the second
issue.

It is petitioners posture that they cannot be bound by the subject easement because the
Memorandum of Agreement establishing the same was not annotated in the certificate of title of the
exterior lot and registered with the Registry of Deeds. Having relied on a title which does not reflect
any easement thereon, petitioner PDCP contends that it was an innocent mortgagee and later an
innocent purchaser for value. Chanting the same tone, petitioner Villegas insists that he, too, is an
innocent purchaser of said lot.

45

We are unimpressed.

Concededly, a person, be he a buyer or mortgagee, dealing with a titled property, as the

exterior lot is, is not required to go beyond what appears on the face of the covering title itself.[17]
Section 39 of Act 496 or the Land Registration Decree[18]says as much.
Unfortunately for petitioner PDCP, however, the aforementioned rule does not apply to
banks,[19] of which PDCP is. So it is that in Robles vs. CA,[20] this Court, citing Tomas vs.
Tomas,[21] ruled:

xxx Banks, indeed, should exercise more care and prudence in dealing even with
registered lands, than private individuals, for their business is one affected with public
interest, keeping in trust money belonging to their depositors, which they should
guard against loss by not committing any act of negligence which amounts to lack of
good faith by which they would be denied the protective mantle of land registration
statute, Act 496, extended only to purchasers for value and in good faith, as well as
to mortgagees of the same character and description. xxx

Considering the foregoing, and bearing in mind that judicial notice is taken of the standard
practice for banks, before approving a loan, to send representatives to the premises of the land
offered as collateral,[22] PDCPs feigned ignorance of the road right-of-way, much less of the
existence of the road itself along the exterior lot, is simply ridiculous, to say the least, more so in the
light of the factual findings of the two courts below that PDCP, contrary to its assertion, had indeed
sent its personnel to inspect the land when the same was mortgaged to it by the Narcisos. For sure,
as found by the appellate court, no less than PDCPs own Legal Officer, Virgilio Lagunilla, admitted
that an appraisal was conducted by the bank on the exterior lot before accepting the mortgage
thereof. Says the appellate court in this respect:

We have the confirmation on cross examination of the PDCP Legal Officer,

Virgilio Lagunilla, in the matter of PDCPs practice of appraising the property, being
offered as collateral, which calls for an actual examination of the condition of the
property. He even admitted that an appraisal was conducted by the bank on the
exterior lot before the mortgage, the reason being that it is the Central Banks
requirement to limit the loans of commercial banks to only 70% of the appraise value
of the security being offered. As for PDCP, there was an uncharacteristic silence
on the result of the appraisal of the exterior lot which presupposes the observation
that the bank, at the time of the mortgage, knew about the existence of the
easement. The nature alone of the easement of right-of-way, which is ten meters

46
wide and open to the public for its use continuously supports the observation that its
easement was never overlooked by the bank at the time of the propertys
appraisal. We cannot allow actual notice of knowledge of the burden on the property
to be denied on the mere pretension alone that the title does not bear any annotation
of such burden.

Equally unworthy of belief is petitioner Villegas protestation of innocence of the easement in

question.

It is a matter of record that prior to his purchase of the exterior lot, Villegas, through his
attorney-in-fact, Benjamin Miranda, was very much aware of the existence of a road over said lot
since the 1960s. Again, to quote from the assailed decision of the appellate court:

xxx His (Mirandas) other admission was that Villegas knew of the easement
before purchasing the property. He even added that he was consulted by Villegas
himself before the purchase and he told him (Villegas) that there was an existing road
from the hospital leading to the national highway.

In Lagandaon vs. CA,[23] we said:

As a general rule, every buyer of a registered land who takes a certificate of

title for value and in good faith shall hold the same free of all encumbrances except
those noted on said certificate. It has been held, however, that where the party has
knowledge of a prior existing interest which is unregistered at the time he acquired a
right to the same land, his knowledge of that prior unregistered interest has the effect
of registration as to him. xxx

WHEREFORE, the assailed issuances of the appellate court are AFFIRMED and this petition
DISMISSED for lack of merit.
Costs against petitioners.
SO ORDERED.

47

48
REPUBLIC V. AGUNOY
G.R. NO. 155394

THIRD DIVISION
[G.R. No. 155394. February 17, 2005]
REPUBLIC OF THE PHILIPPINES, petitioner, vs. GREGORIO AGUNOY, SR., Et al., SPOUSES
EDUARDO and ARCELITA MARQUEZ and RURAL BANK OF GAPAN, NUEVA ECIJA,
respondents.
DECISION
GARCIA, J.:
Interplaying in this case are two (2) counter-balancing doctrines in the law of land titles: one, the
doctrine of fraus et jus nunquam cohabitant, which basically means that no one may enjoy the
fruits of fraud,[1] and the other, the doctrine that a fraudulent title may be the root of valid title in
the name of an innocent buyer for value and in good faith.[2]
Invoking the first, petitioner Republic of the Philippines in this petition for review on certiorari under
Rule 45 of the Rules of Court, seeks to nullify and set aside the decision dated September 26,
2002[3] of the Court of Appeals in CA-G.R. CV No. 55732, which reversed an earlier decision of
the Regional Trial Court at Cabanatuan City, Branch 25, in its Civil Case No. 831-AF, an action for
cancellation of free patent, original certificate of title and derivative transfer certificates of title,
thereat filed by the petitioner against, among others, the herein respondents.
The facts are well laid out in the decision under review:
On May 26, 1958, Gregorio Agunoy, Sr. filed his application for Free Patent No. 5-1414 covering
two parcels of land identified as Lot Nos. 1341 and 1342, Cad 269, Sta. Rosa Cadastre, Nueva
Ecija, containing an aggregate area of 18.6486 hectares with the Bureau of Lands. On January 18,
1967, he was issued Free Patent No. 314450 by the Director of Lands.
On February 6, 1967, the Register of Deeds of Nueva Ecija registered Free Patent No. 314450
and issued the corresponding Original Certificate of Title (OCT) No. P-4522 in the name of
Gregorio Agunoy, Sr.
On March 10, 1967, the heirs of Eusebio Perez, represented by Francisca Perez, caused the
annotation on the said OCT of an adverse claim in their favor over a portion of 15.1593 hectares of
the property.
On July 30, 1975, the said heirs of Eusebio Perez filed a formal protest docketed as B.L. Claim
No. 760 (n) with the Bureau of Lands alleging that Lot 1341 of the Sta. Rosa Cadastre, Nueva
Ecija, covered by Original Certificate of Title No-P4522 is identical to Lots 1 and 2 of Plan Psu47200 which had been adjudicated as private property of said protestant pursuant to a decision
promulgated on October 24, 1960 by the Court of First Instance of Nueva Ecija in Land
Registration Case No. 430, LRC Records No. 14876.
On May 3, 1976, the chief of the Legal Division, Bureau of Lands, conducted a formal investigation
and ocular inspection of the premises and it was ascertained that Free Patent No. 314450 and its
corresponding OCT No. P-4522 were improperly and fraudulently issued (Records, p.78)

49
On July 31, 1979, upon the death of the wife of Gregorio Agunoy, Sr., the heirs, namely Gregorio
Sr., Tomas, Lilian, Angelito and Gregorio, Jr., executed a Deed of Extrajudicial Partition with Sale
in favor of Joaquin Sangabol for and in consideration of the sum of Twenty Thousand Pesos
(P20,000.00).
The Original Certificate of Title No. P-4522 was cancelled by the Register of Deeds of Nueva Ecija
and Transfer Certificate of Title (TCT) No. 166270 was issued in favor of the aforenamed heirs.
Said TCT No. 166270 was again cancelled by reason of the concurrent sale to Joaquin Sangabol
in whose favor TCT No. NT- 166271 was issued.
On August 1, 1979, Joaquin Sangabol sold an undivided portion of three (3) hectares of the
property described as Lot 1341 in TCT No. NT-166271 to Fortunato Para for and in consideration
of the sum of Three Thousand Five Hundred Pesos (3,500.00)
The following day, he sold the property described as Lot 1342 in TCT No. NT-166271 to Virginia P.
Jimenez for and in consideration of the sum of One Thousand Five Hundred Pesos (P1,500.00) in
whose favor TCT No. N-166287 was issued.
On May 12, 1980, the adverse claim of Francisca Perez, et al. annotated at the back of the OCT
was cancelled by the Register of Deeds of Nueva Ecija (Exhibit G).
On January 16, 1981, Joaquin Sangabol subdivided the property described as Lot 1341 in TCT
No. NT-166271 into three lots designated as Lot Nos. 1341-A, 1341-B, and 1341-C of plan Psd299875 duly approved by the Land Registration Commission.
TCT No. NT-166271 was cancelled and TCT No. NT-168972 covering Lot No. 1341-A was issued
to spouses Fortunato Para and Araceli Sena. TCT Nos. NT-168973 and NT-168974 covering Lot
Nos. 1341-B and 1341-C were issued in favor of Joaquin Sangabol.
On June 15, 1982, Virginia P. Jimenez sold the property covered by TCT No. NT-166287 in favor
of spouses Blandino and Josefina A. Salva Cruz for Eleven Thousand Five Hundred Pesos
(P11,500.00) where TCT No. 174634 was issued in favor of said spouses. On June 17, 1982,
Josefina A. Salva Cruz effected the subdivision of the property into thirteen (13) lots designated as
Lot Nos. 1342-A t0 1342-M as per subdivision plan Psd-03-004756 thereby canceling TCT No.
NT-174634 and TCT Nos. NT- 174635 to 174647 were issued in lieu thereof.
On November 2, 1982, Fortunato Para, through his attorney-in-fact Gloria Bergonia, mortgaged
the property covered by TCT No. NT-168972 in favor of the Perpetual Finance and Investment,
Inc. in the amount of One Hundred Twenty Five Thousand Pesos (P125,000.00). The mortgage
was foreclosed and the property was sold at public auction. Thereafter, the corresponding
certificate of sale was executed in favor of Perpetual Finance and Credit, Inc.
On March 3, 1983, the properties covered by TCT Nos. NT-174643 and NT- 174644 were
mortgaged with the Rural Bank of Gapan for Forty Thousand Pesos (P40,000.00). On February
25, 1985, the mortgage was likewise foreclosed and the properties were sold at public auction in
favor of the said bank.
On December 16, 1986, Joaquin Sangabol sold the property covered by TCT No. NT-168974 to
Eduardo R. Dee for and in consideration of the sum of One Hundred Twenty [Thousand] Pesos
(P120,000.00). Subsequently, TCT No. NT-168974 was cancelled and TCT No. 196579 was
issued in the name of Eduardo R. Dee.
On January 5, 1988, the heirs of Ruperto Perez (oldest son of Eusebio), now represented by
Sabina P. Hernandez, filed a supplemental protest alleging that:

50
a)

Lot Nos. 1341 and 1342, Cad 269 of the Sta. Rosa Cadatre have been exclusively
occupied and cultivated by them and their immediate predecessors-in-interest who
have introduced permanent improvements thereon consisting of irrigated ricelands,
mango trees, bamboo groves and other crops;

b)

Gregorio Agunoy, Sr. never occupied and cultivated said parcels of land in the
manner and for the period required by law;

c)

Said parcels of land are identical to Lots 1, 3 and a portion of 87,674 square meters
of Lot 4 of the amended plan-47200 Amd. as shown by the relocation survey
conducted by Geodetic Engineer Deogracias L. Javier on July 29, 1977;

d)

The patent and title issued to Gregorio Agunoy, Sr. were obtained through fraud
and misrepresentation. (Records pp. 9-10)

The Bureau of Lands conducted anew an investigation and ocular inspection of Lot 1342, Cad.
269 of Sta. Rosa Cadastre, Nueva Ecija, and came out with the following findings, to wit:
a)

Lot 1342, Cad. 269 of Sta Rosa Cadastre, Nueva Ecija is located at Barangay
Imbunia (formerly Marawa), Municipality of Jaen, Nueva Ecija;

b)

Said lot was originally registered in the Office of the Register of Deeds of
Cabanatuan City on May 23, 1914 under OCT No. 125 issued in the name of
Valeriano Espiritu, pursuant to Decree No. 15733 issued on May 20, 1914 in Land
Registration Case No. 9552;

c)

On May 13, 1952, said property was conveyed in favor of Isaias Carlos under TCT
No. 11554 and the latter conveyed the same in favor of the spouses Santiago
Mateo and Leogarda Juliano;

d)

TCT No. 11554 was cancelled and in lieu thereof, TCT No. 17471 was issued in the
name of Santiago Mateo. (Records, pp. 13;78)

On May 10, 1988, the Chief of the Legal Division recommended to the Director of Lands that court
action be instituted for the cancellation of Free Patent No. 314450 and its corresponding Original
Certificate of Title No. P-4522 in the name Gregorio Agunoy, Sr., as well as other subsequent
transfer certificates of title issued therefrom based on the foregoing findings (Underscoring
supplied).
It was against the foregoing backdrop of events when, on May 24, 1990, in the Regional Trial
Court at Gapan, Nueva Ecija petitioner Republic of the Philippines, thru the Office of the Solicitor
General, filed the complaint[4] in this case against several defendants, among whom are the
herein respondents Gregorio Agunoy, Sr., his children, the spouses Eduardo Dee and Arcelita
Marquez-Dee and the Rural Bank of Gapan, Nueva Ecija. In its complaint, docketed as Civil Case
No. 831-AF, petitioner Republic alleged, inter alia, as follows:
30. Free Patent No. 314450 and its corresponding Original Certificate of Title No. P-4522 were
procured by defendant Gregorio Agunoy, Sr., through fraud, deceit and misrepresentation since
the property in question (Lots 1341 and 1342) at the time the patent and the title were issued was
already adjudicated as private property of the heirs of Eusebio Perez and Valeriano Espiritu,
respectively. Consequently, the then Bureau of Lands, now Lands Management Bureau, no
longer had any jurisdiction and control over the same. xxx xxx.
31.
The fraudulent acts and misrepresentation of defendant Gregorio Agunoy, Sr. had misled
the then Bureau of Lands in issuing said patent. Since the property in question was no longer a

51
disposable public land, Free Patent No. 314450 and its corresponding Original Certificate of Title
No. P-4522 issued to defendant Gregorio Agunoy, Sr. are null and void and should be cancelled.
Moreover, Gregorio Agunoy, Sr. has not occupied and cultivated the land in the manner and for
the length of time required by law (C.A. 141 as amended; see also RA 782) (Emphasis supplied),
and accordingly prayed for a judgment 1.
Declaring Free Patent No. 314450 and the corresponding Original Certificate of Title No. P4522 in the name of Gregorio Agunoy, as well as all other subsequent transfer certificates of title
emanating therefrom, i.e., Transfer Certificates of Title Nos. NT-168972, NT-168973, NT-196579,
NT-174635 to NT-174647 (inclusive), including all liens and encumbrances annotated thereon, null
and void;
2.
Ordering defendants to surrender their owners duplicate copies of all subsequent transfer
certificates of title emanating from Original Certificate of Title No. P-4522 to the Register of Deeds
of Nueva Ecija;
3.

Directing the Register of Deeds of Nueva Ecija to cancel the aforesaid certificates of title;

4.
Ordering defendants and all those claiming under them to desist from exercising or
representing acts of ownership and/or possession in the premises (Underscoring supplied).
xxx

xxx

xxx

Eventually, in a decision dated September 9, 1996,[5] the trial court rendered judgment for the
Republic, thus:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiff and against the
defendants as follows:
1.

Declaring as null and void Free Patent No. 314450 and the corresponding Original
Certificate of Title No. P-4522 in the name of Gregorio Agunoy, as well as all other
subsequent transfer certificates of titles emanating therefrom (TCT Nos. NT166270, NT-166271, NT- 168972, NT-168973, NT-168974, NT-166287 and NT174634 to NT-174647, inclusive, of the Registry of Deeds of Nueva Ecija) including
all liens and encumbrances annotated thereon;

2.

Ordering defendants to surrender their owner's duplicate copies of all the said
subsequent transfer certificates of titles emanating from Original Certificate of Title
No. P-4522 to the Register of Deeds of Nueva Ecija, and ordering the Register of
Deeds to cancel the aforesaid certificates of titles;

3.

Ordering reversion of the pieces of land embraced in Free Patent No. 314450 and
OCT No. P-4522 of the Registry of Deeds of Nueva Ecija, to the mass of public
domain except the pieces of land which were already the subject of land registration
proceedings;

4.

Ordering that henceforth the defendants and all those claiming under them to desist
from disturbing the ownership of the government over the said pieces of land, and

5.

To pay costs of suits.

For lack of evidence, the third-party complaint filed by the Rural Bank of Gapan, Inc. against
defendants-Spouses Blandino Salva Cruz and Josefina Salva Cruz is hereby dismissed without
pronouncement as to costs.

52
SO ORDERED (Underscoring supplied).
Therefrom, the spouses Eduardo Dee and Arcelita Marquez-Dee and the Rural Bank of Gapan,
Nueva Ecija went to the Court of Appeals, whereat their recourse was docketed as CA-G.R. CV
No. 55732.
As earlier stated herein, the appellate court, in a decision dated September 26, 2002,[6] reversed
and set aside the appealed decision of the trial court, to wit:
WHEREFORE, premises considered, the appeal is GRANTED and the decision of the trial court is
REVERSED and SET ASIDE. A new judgment is hereby rendered to read as follows:
1.
Defendant Gregorio Agunoy, Sr. is declared to have validly and properly acquired Free
Patent No. 314450 and the corresponding Original Certificate of Title No. P-4522 over Lot Nos.
1341 and 1342, Cad 269, Sta. Rosa Cadastre, Nueva Ecija; and
2.
The title over the portion of Lot No. 1342, now covered by TCT No. 196579 in the name of
defendants-appellants Spouses Dee is likewise declared valid for having acquired in good faith
and for value.
SO ORDERED.
Hence, this recourse by the petitioner, submitting for our resolution the following issues[7]:
I.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING THAT PETITIONER IS
NOT THE REAL PARTY-IN-INTEREST IN THIS CASE AND THAT GREGORIO AGUNOY, SR.
HAD VALIDLY ACQUIRED FREE PATENT NO. 314450 AND ORIGINAL CERTIFICATE OF
TITLE NO. P-4522 OVER LOT NOS. 1341 AND 1342, CAD. 269, STA. ROSA CADASTRE,
NUEVA ECIJA.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING THAT THE TITLE
OVER THE PORTION OF LOT NO. 1342, NOW COVERED BY TCT NO. 196579 IN THE NAMES
OF RESPONDENTS SPOUSES EDUARDO DEE AND ARCELITA MARQUEZ IS VALID FOR
HAVING BEEN ACQUIRED IN GOOD FAITH AND FOR VALUE.
We DENY.
To begin with, we agree with the Court of Appeals that petitioner Republic is not the real party-ininterest in this case.
Basic it is in the law of procedure that every action must be prosecuted or defended in the name of
the real party-in-interest, meaning the party who stands to be benefited or injured by the judgment
in the suit, or the party entitled to the avails of the suit,[8] a procedural rule reechoed in a long line
of cases decided by this Court. For sure, not too long ago, in Shipside, Inc. vs. Court of
Appeals,[9] citing earlier cases, we wrote:
xxx. Consequently, the Republic is not a real party in interest and it may not institute the instant
action. Nor may it raise the defense of imprescriptibility, the same being applicable only in cases
where the government is a party in interest. Under Section 2 of Rule 3 of the 1997 Rules of Civil
Procedure, "every action must be prosecuted or defended in the name of the real party in
interest." To qualify a person to be a real party in interest in whose name an action must be

53
prosecuted, he must appear to be the present real owner of the right sought to enforced (Pioneer
Insurance v. CA, 175 SCRA 668 [1989]). A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. And
by real interest is meant a present substantial interest, as distinguished from a mere expectancy,
or a future, contingent, subordinate or consequential interest.
The very complaint in this case, supra, filed by petitioner Republic before the trial court
unmistakably alleges that at the time Free Patent No. 31445 and its corresponding Original
Certificate of Title No. P-45222 were issued to Gregorio Agunoy, Sr., the property in question
(Lots 1341 and 1342) xxx was already adjudicated as private property of the heirs of Eusebio
Perez and Valeriano Espiritu, and that at that time, the property in question was no longer a
disposable public land. In fact, in paragraph 27(f) of the same complaint, petitioner further
alleged:
f)
Furthermore, it was found that prior to the issuance of Free Patent No. 314450 on January
18, 1967, Lot 1341 of Sta. Rosa Cadastre, Nueva Ecija, which was one of the two (2) parcels of
land applied for by Gregorio Agunoy, Sr., was already the subject of an application for registration
filed by the heirs of Eusebio Perez in 1958 before the Court of First Instance of Nueva Ecija,
docketed as LRC Case No. 430, LRC Record No. 14876, and wherein a Decision was
promulgated on October 24, 1960 adjudicating Lots 1 and 2 of Plan Psu-47200 as private
properties of said heirs-claimants. The aforesaid Decision was already final and executory at the
time the patent was issued to defendant Gregorio Agunoy, Sr. (Except for the underscoring on as
private properties, the rest are of the petitioner itself).
With the very admissions by the petitioner itself in its basic pleading that Lots No. 1341 and 1342
are already private properties of the heirs of Eusebio Perez and Valeriano Espiritu, and are,
therefore, no longer disposable public land over which the then Bureau of Lands, now Lands
Management Bureau, no longer had any jurisdiction and control, we are simply at a loss to
understand how petitioner Republic can still profess to be the real party-in-interest in this case,
and insists that the disputed properties are still part of the public domain. If ever, the real party-ininterest could be none other than the heirs of Eusebio Perez and Valeriano Espiritu, but certainly
not the petitioner.
Then, too, it is striking to note that even as the complaint is basically one for reversion of private
property to the mass of public domain, petitioner did not implead either the heirs of Eusebio Perez
or that of Valeriano Espiritu. Without doubt, if our decision hereon were to be in favor of petitioner,
the real beneficiary thereof is not the State. And because, as no less admitted by the petitioner,
the lands subject of this case are no longer part of the public domain, the nullification of Agunoys
Free Patent P-314450 and OCT No. P-4522 would not result in the reversion of the lands subject
thereof to the mass of public land. And the government, not being the real party-in-interest, is
without personality to institute reversion proceedings. So it is that in an earlier case,[10] we had an
occasion to say:
There is no merit in petitioners' contention that only the State may bring an action for
reconveyance of the lots in dispute. To reiterate, Lot 2344 is a private property in open,
continuous, exclusive and notorious possession of the Santiago family. The nullification of its free
patent and title would not therefore result in its reversion to the public domain. Hence, the State,
represented by the Solicitor General, is not the real party in interest.
We could have, at this point, already written finis to this decision. Nonetheless, for the peace of
mind of those concerned, we have opted to address the second issue raised in the petition:
whether the appellate court erred in declaring as valid for having been acquired for value and in
good faith the title over the portion of Lot No. 1342, covered by TCT No. 196579 in the name of the
respondent spouses Eduardo Dee and Arcelita Marquez-Dee.

54
After sleeping for an unreasonably long period of time lasting for decades, the heirs of Eusebio
Perez can longer defeat the better right arising from the Torrens titles in the names of the present
transferees of the properties, unless and until anyone succeeds in overcoming the presumption of
good faith in securing their respective titles.
For one, even granting as true the petitioners allegation of a prior cadastral case - LRC Case No.
430, LRC Rec. No. 148 - involving a portion of the lots subject of Agunoys Free Patent, wherein a
decision was allegedly promulgated on October 24, 1960 in favor of the heirs of Eusebio Perez,
which decision, according to petitioner, was already final and executory, we are greatly bothered
by the fact that none of the heirs of Eusebio Perez could show having exerted due diligence
towards at least attempting to accomplish the registration of the properties involved in the said
cadastral case, which properties, according to petitioner and the Perezes, are identical to Lot Nos.
1341 and 1342. Verily, were we to believe the allegations of the heirs of Eusebio Perez in their
own protest with the Bureau of Lands dated July 30, 1975,[11] there is an express order for
registration in LRC Case No. 430, as follows:
WHEREFORE, decision is hereby rendered affirming the order of general default heretofore
entered and ordering the registration of Lots Nos. 1 and 2 of Plan Psu-47200, situated in the Barrio
of Marawa, Municipality of Jaen, Nueva Ecija, containing a total area of 21.9284 hectares in the
following manner:
xxx

xxx

xxx

From as early as October 24, 1960, when the aforequoted decision in LRC Case No. 430 was
promulgated, to as late as February 6, 1967, when OCT No. P-4522 of Gregorio Agunoy, Sr. was
issued, or a slumber lasting for more than six (6) years, the heirs of Eusebio Perez had numerous
opportunities to cause the implementation of the said registration order. Inexplicably, they let this
chance passed by. Vigilantibus, sed non dormientibus, jura subveniunt, the law aids the vigilant,
not those who sleep on their rights.[12] And speaking of rights, one may not sleep on a right while
expecting to preserve it in its pristine purity.[13]
For another, Jose Mendigoria, Public Lands Inspector and Investigator of the Bureau of Lands,
made the following remarks in his certification dated February 28, 1966:[14]
10.
Remarks: Attached hereto is the certification of the Clerk of Court and the Register of
Deeds, Cabanatuan City for ready references in connection with the speedy issuance of
patent in favor of the applicant.
It is informed in this connection that the survey claimants of these Lots, 1341 for Eusebio
Perez and 1342 for Valenciano Espiritu could not be located in the locality. The lots were
already abandoned by them so that in the year 1941, the present applicant took possession
of the land thru his tenants.
Countering the foregoing certification, petitioner Republic claims that a more recent verification
survey conducted on February 15, 1988 by Geodetic Engineer Melencio Mangahas, also of the
Bureau of Lands, reveals an anomaly in the issuance of Agunoy, Sr.s Free Patent No. 314450.
Again, we quote from petitioners complaint, particularly paragraph 27 (c) thereof, to wit:
c)
The results of the verification survey conducted by Geodetic Engineer Melencio Mangahas
of the Bureau of Lands on February 15, 1988 on the premises confirmed the earlier findings of
said Office that Lot 1341 Cad. 269 of Sta. Rosa Cadastre, Nueva Ecija, covered by Free Patent
No. 314450 and OCT No. P-4522 in the name of Gregorio Agunoy, Sr., is identical to Lots 1, 3 and
a portion of 87,674 square meters of Lot 4 of the amended Plan Psu-47200 which was surveyed
and approved on January 21, 1966 in the name of Eusebio Perez. It was verified likewise that Lot
1341 is within Barrio Marawa, Jaen, Nueva Ecija.

55
As between the February 28, 1966 certification of Jose Mendigoria, supra, which led to the
issuance of Agunoys OCT No. P-4522 and numerous derivative titles descending therefrom, and
the February 15, 1988 verification survey of Geodetic Engineer Melencio Mangahas, cited in the
aforequoted paragraph of petitioners complaint, which led to nothing, suffice it to quote herein
what this Court has said in PEZA vs. Fernandez:[15]
xxx. Indeed, the inevitable consequences of the Torrens system of land registration must be
upheld in order to give stability to it and provide finality to land disputes,
and in Heirs of Brusas vs. Court of Appeals:[16]
The real purpose of the Torrens System of land registration is to quiet title to land and stop forever
any question as to its legality. Once a title is registered the owner may rest secure without the
necessity of waiting in the portals of the court, or sitting on the mirador de su casa, to avoid the
possibility of losing his land. Indeed, titles over lands under the Torrens system should be given
stability for on it greatly depends the stability of the country's economy. Interest reipublicae ut sit
finis litium.
If at all, the discrepancy in the two (2) separate survey reports of Mendigoria and Mangahas can
only be imputable to either the past or more recent officials of the Bureau of Lands.
Of course, we are well aware of the rule reiterated in Republic vs. Court of Appeals and
Santos,[17] that, generally, the State cannot be put in estoppel by the mistakes or errors of its
officials or agents. In that very case, however, citing 31 CJS 675-676, we went further by saying xxx. Nevertheless, the government must not be allowed to deal dishonorably or capriciously with
its citizens, and must not play an ignoble part or do a shabby thing; and subject to limitations xxx,
the doctrine of equitable estoppel may be invoked against public authorities as well as against
private individuals
In any event, the verification survey conducted by Geodetic Engineer Melencio Mangahas on
February 15, 1988 came almost twenty-two (22) years after the February 28, 1966 certification of
Jose Mendigoria; more than twenty-one (21) years after the issuance of Agunoy Sr.s Free Patent
No. 314450 on January 18, 1967 and its registration as Original Certificate of Title No. P-4522 on
February 6, 1967; and more than eight (8) years reckoned from July 31, 1979 when, upon the
death of the wife of Gregorio Agunoy, Sr., the heirs executed a Deed of Extrajudicial Partition with
Sale in favor of Joaquin Sangabol. In the meanwhile, for about half a decade thereafter, ownership
over the properties transferred from one buyer to another, with each and every transferee enjoying
the presumption of good faith. If only on this score alone that the present petition must fall.
There can be no debate at all on petitioners submission that no amount of legal technicality may
serve as a solid foundation for the enjoyment of the fruits of fraud. It is thus understandable why
petitioner chants the dogma of fraus et jus nunquam cohabitant.
Significantly, however, in the cases cited by petitioner Republic,[18] as well as in those other
cases[19] where the doctrine of fraus et jus nunquam cohabitant was applied against a patent and
title procured thru fraud or misrepresentation, we note that the land covered thereby is either a part
of the forest zone which is definitely non-disposable, as in Animas, or that said patent and title are
still in the name of the person who committed the fraud or misrepresentation, as in Acot, Animas,
Republic vs. CA and Del Mundo and Director of Lands vs. Abanilla, et al. and, in either
instance, there were yet no innocent third parties standing in the way.
Here, it bears stressing that, by petitioners own judicial admission, the lots in dispute are no
longer part of the public domain, and there are numerous third, fourth, fifth and more parties

56
holding Torrens titles in their favor and enjoying the presumption of good faith. This brings to mind
what we have reechoed in Pino vs. Court of Appeals[20] and the cases[21] therein cited:
[E]ven on the supposition that the sale was void, the general rule 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.
It is even worse in this case because here, there is no forger to speak of. The remark of Land
Inspector Jose Mendigoria about the abandonment by Eusebio Perez and Valenciano Espiritu
cannot, by itself, be fraudulent. And, for all we know, that remark may even turn out to be the
truth. What petitioner perceives as fraud may be nothing more than the differences of professional
opinions between Land Inspector Jose Mendigoria and Geodetic Engineer Melencio
Mangahas. But regardless of who between the two is correct, the hard reality is that the properties
in question are no longer floating objects on a spring that cannot rise higher than its source, as
they are now very much ashore and firmly standing on the high solid ground of the Torrens system
of land registration.
WHEREFORE, the assailed decision of the Court of Appeals is hereby AFFIRMED and this
petition DENIED.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.