SECOND DIVISION CARMELITA FUDOT, Petitioner, G.R. No. 171008 Present: - versus QUISUMBING, J.

, Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ. Promulgated: September 13, 2007 x-----------------------------------------------------------------------------------x DECISION TINGA, J.: For resolution is a petition that seeks to nullify the Decision [1] and Resolution[2] of the Court of Appeals dated 28 April 2005 and 11 January 2006, respectively, in C.A. G.R. CV No. 73025 which declared respondent as having a better right over a parcel of land located in Doljo, Panglao, Bohol.

CATTLEYA LAND, INC., Respondent.

The facts, as culled from the records, follow. Sometime in July 1992, Cattleya Land, Inc. (hereinafter referred to as respondent) asked someone to check, on its behalf, the titles of nine (9) lots, the subject land included, which it intended to buy from the spouses Troadio and Asuncion Tecson. Finding no defect on the titles, respondent purchased the nine lots through a Deed of Conditional

Sale on 6 November 1992. Subsequently, on 30 August 1993, respondent and the Tecsons executed a Deed of Absolute Sale over the same properties. The Deed of Conditional Sale and the Deed of Absolute Sale were registered with the Register of Deeds on 06 November 1992 and 04 October 1993, respectively.[3] The Register of Deeds, Atty. Narciso dela Serna, refused to actually annotate the deed of sale on the titles because of the existing notice of attachment in connection with Civil Case No. 3399 pending before the Regional Trial Court of Bohol. [4] The attachment was eventually cancelled by virtue of a compromise agreement between the Tecsons and their attaching creditor which was brokered by respondent. Titles to six (6) of the nine (9) lots were issued, but the Register of Deeds refused to issue titles to the remaining three (3) lots , because the titles covering the same were still unaccounted for. On 23 January 1995, petitioner presented for registration before the Register of Deeds the owners copy of the title of the subject property, together with the deed of sale purportedly executed by the Tecsons in favor of petitioner on 19 December 1986. On the following day, respondent sent a letter of protest/opposition to petitioners application. Much to its surprise, respondent learned that the Register of Deeds had already registered the deed of sale in favor of petitioner and issued a new title in her name.[5] On 5 May 1995, respondent filed its Complaint [6] for Quieting Of Title &/Or Recovery Of Ownership, Cancellation Of Title With Damages before the Regional Trial Courtof Tagbilaran City.[7] On 26 June 1995, Asuncion filed a complaint-in-intervention, claiming that she never signed any deed of sale covering any part of their conjugal property in favor of petitioner. She averred that her signature in petitioners deed of sale was forged thus, said deed should be declared null and void. [8] She also claimed that she has discovered only recently that there was an amorous relationship between her husband and petitioner.[9] Petitioner, for her part, alleged in her answer [10] that the spouses Tecson had sold to her the subject property for P20,000.00 and delivered to her the owners copy of the title on 26 December 1986. She claims that she subsequently presented the said title to the Register of Deeds but the latter refused to register the same because the property was still under attachment.

On 31 October 2001, the trial court rendered its decision: [11] (i) quieting the title or ownership of the subject land in favor of respondent; (ii) declaring the deed of sale between petitioner and spouses Tecson invalid; (iii) ordering the registration of the subject land in favor of respondent; (iv) dismissing respondents claim for damages against the Register of Deeds for insufficiency of evidence; (v) dismissing Asuncions claim for damages against petitioner for lack of factual basis; and (vi) dismissing petitioners counterclaim for lack of the required preponderance of evidence.[12] According to the trial court, respondent had recorded in good faith the deed of sale in its favor ahead of petitioner. Moreover, based on Asuncions convincing and unrebutted testimony, the trial court concluded that the purported signature of Asuncion in the deed of sale in favor of petitioner was forged, thereby rendering the sale void.[13] Petitioner sought recourse to the Court of Appeals, arguing in the main that the rule on double sale was applicable to the case. The appellate court, however, dismissed her appeal, holding that there was no double sale because the alleged sale to petitioner was null and void in view of the forgery of Asuncions purported signature in the deed. The appellate court noted that petitioner failed to rebut Asuncions testimony despite opportunities to do so.[14] Moreover, even if there was double sale, according to the appellate court, respondents claim would still prevail since it was able to register the second sale in its favor in good faith, had made inquiries before it purchased the lots, and was informed that the titles were free from encumbrance except the attachment on the property due to Civil Case No. 3399.[15] Petitioner sought reconsideration of the decision but the Court of Appeals denied her motion for reconsideration for lack of merit.[16] Petitioner thus presents before this Court the following issues for resolution: I. BETWEEN 2 BUYERS OF REGISTERED LAND, WHO HAS THE BETTER RIGHT-IS IT THE FIRST BUYER WHO WAS GIVEN THE OWNERS DUPLICATE TCT TOGETHER WITH A DEED OF SALE IN 1986, OR THE SECOND BUYER IN 1992 WITH ONLY A DEED OF SALE.

II. IS A BUYER OF REGISTERED LAND WHO DID NOT DEMAND OR REQUIRE THE DELIVERY OF THE OWNERS DUPLICATE TCT A BUYER IN GOOD FAITH. III. II. IN SUBSEQUENT REGISTRATION OF REGISTERED LANDS, AS BY SALE, WHICH LAW SHALL GOVERN, ARTICLE 1455 OF CIVIL CODE OR P.D. 1529 OR TORRENSSYSTEM.[17]

Petitioner avers that she was the first buyer in good faith and even had in her possession the owners copy of the title so much so that she was able to register the deed of sale in her favor and caused the issuance of a new title in her name. She argues that the presentation and surrender of the deed of sale and the owners copy carried with it the conclusive authority of Asuncion Tecson which cannot be overturned by the latters oral deposition.[18] Petitioner claims that respondent did not demand nor require delivery of the owners duplicate title from the spouses Tecson, neither did it investigate the circumstances surrounding the absence of the title. These indicate respondents knowledge of a defect in the title of the spouses and, thus, petitioner concludes that respondent was not a buyer in good faith.[19] Finally, petitioner insists that the applicable law in this case is P.D. No. 1529, a special law dealing precisely with the registration of registered lands or any subsequent sale thereof, and not Article 1544 of the Civil Code which deals with immovable property not covered by the Torrens System.[20] Respondent points out, on one hand, that petitioners first two issues which present an inquiry on who has a better right or which one is a buyer in good faith, are questions of fact not proper in a petition for review. The third issue, on the other hand, is ostensibly a question of law which had been unsuccessfully raised below. [21] Respondent maintains that there is no room to speak of petitioner as a buyer in good faith since she was never a buyer in the first place, as her claim is based on a null

and void deed of sale, so the court a quo found. Respondent also asserts that its status as a buyer in good faith was established and confirmed in the proceedings before the two courts below.[22] Lastly, respondent argues that P.D. No. 1529 finds no application in the instant case. The production of the owners duplicate certificate x x x being conclusive authority from the registered owner is only true as between the registration applicant and the register of deeds concerned, but never to third parties. Such conclusive authority, respondent adds, is only for the Register of Deeds to enter a new certificate or to make a memorandum of registration in accordance with such instrument. It cannot cure the fatal defect that the instrument from which such registration was effected is null and void ab initio, respondent concludes.[23] The petition is bereft of merit. Petitioners arguments, which rest on the assumption that there was a double sale, must fail. In the first place, there is no double sale to speak of. Art. 1544 of the Civil Code, [24] which provides the rule on double sale, applies only to a situation where the same property is validly sold to different vendees. In this case, there is only one sale to advert to, that between the spouses Tecson and respondent. In Remalante v. Tibe,[25] this Court ruled that the Civil Law provision on double sale is not applicable where there is only one valid sale, the previous sale having been found to be fraudulent. Likewise, in Espiritu and Apostol v. Valerio,[26] where the same parcel of land was purportedly sold to two different parties, the Court held that despite the fact that one deed of sale was registered ahead of the other, Art. 1544 of the Civil Code will not apply where said deed is found to be a forgery, the result of this being that the right of the other vendee should prevail. The trial court declared that the sale between the spouses Tecson and petitioner is invalid, as it bears the forged signature of Asuncion. Said finding is based on the unrebutted testimony of Asuncion and the trial courts visual analysis and comparison of the signatures in her Complaint-in-Intervention and the purported deed of sale. This finding was upheld by the Court of Appeals, as it ruled that the purported sale in

petitioners favor is null and void, taking into account Asuncions unrefuted deposition. In particular, the Court of Appeals noted petitioners failure to attend the taking of the oral deposition and to give written interrogatories. In short, she did not take the necessary steps to rebut Asuncions definitive assertion. The congruence of the wills of the spouses is essential for the valid disposition of conjugal property.[27] Thus, under Article 166 of the Civil Code[28] which was still in effect on 19 December 1986 when the deed of sale was purportedly executed, the husband cannot generally alienate or encumber any real property of the conjugal partnership without the wifes consent. In this case, following Article 173[29] of the Civil Code, on 26 June 1995, or eight and a half years (8 ) after the purported sale to petitioner, Asuncion filed her Complaint-in-Intervention seeking the nullification thereof, and while her marriage with Troadio was still subsisting. Both the Court of Appeals and the trial court found Asuncions signature in the deed of sale to have been forged, and consequently, the deed of sale void for lack of marital consent. We find no reason to disturb the findings of the trial court and the Court of Appeals. Findings of fact of lower courts are deemed conclusive and binding upon the Supreme Court subject to certain exceptions, [30] none of which are present in this case. Besides, it has long been recognized in our jurisprudence that a forged deed is a nullity and conveys no title.[31] Petitioner argues she has a better right over the property in question, as the holder of and the first one to present, the owners copy of the title for the issuance of a new TCT. The Court is not persuaded. The act of registration does not validate petitioners otherwise void contract. Registration is a mere ministerial act by which a deed, contract, or instrument is sought to be inscribed in the records of the Office of the Register of Deeds and annotated at the back of the certificate of title covering the land subject of the deed, contract, or instrument.While it operates as a notice of the deed, contract, or instrument to others, it does not add to its validity nor converts an invalid instrument into a valid one as between the parties,[32] nor amounts to a declaration by the state that the instrument is a valid and subsisting interest in the land.[33] The registration of petitioners void deed is not an impediment to a declaration by the courts of its invalidity.

Even assuming that there was double sale in this case, petitioner would still not prevail. The pertinent portion of Art. 1544 provides: Art. 1544. x x x. 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. x x x x.

In interpreting this provision, the Court declared that the governing principle is primus tempore, potior jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyers rights, except where the second buyer registers in good faith the second sale ahead of the first as provided by the aforequoted provision of the Civil Code. Such knowledge of the first buyer does not bar him from availing of his rights under the law, among them to register first his purchase as against the second buyer. However, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith.[34] It is thus essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale.[35] We agree with the trial court and the Court of Appeals that respondent was a buyer in good faith, having purchased the nine (9) lots, including the subject lot, without any notice of a previous sale, but only a notice of attachment relative to a pending civil case. In fact, in its desire to finally have the title to the properties transferred in its name, it persuaded the parties in the said case to settle the same so that the notice of attachment could be cancelled. Relevant to the discussion are the following provisions of P.D. No. 1529: Sec. 51. Conveyance and other dealings by registered owner . An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, lease or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease or other voluntary instrument, except a

will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make Registration. The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned , and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies. (Emphasis supplied)

Sec. 52. Constructive notice upon registration.Every conveyance, mortgage, lease, lien attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering.

It has been held that between two transactions concerning the same parcel of land, the registered transaction prevails over the earlier unregistered right. The act of registration operates to convey and affect the registered land so that a bona fide purchaser of such land acquires good title as against a prior transferee, if such prior transfer was unrecorded.[36] As found by the courts a quo, respondent was able to register its purchase ahead of petitioner. It will be recalled that respondent was able to register its Deed of Conditional Sale with the Register of Deeds as early as 6 November 1992, and its Deed of Absolute Sale on 14 October 1993. On the other hand, petitioner was able to present for registration her deed of sale and owners copy of the title only on 23 January 1995, or almost nine years after the purported sale. Why it took petitioner nine (9) years to present the deed and the owners copy, she had no credible explanation; but it is clear that when she finally did, she already had constructive notice of the deed of sale in respondents favor. Without a doubt, respondent had acquired a better title to the property.

Finally, anent petitioners claim that P.D. No. 1529 applies to registered lands or any subsequent sale thereof, while Art. 1544 of the Civil Code applies only to immovable property not covered by the Torrens System, suffice it to say that this quandary has already been answered by an eminent former member of this Court, Justice Jose Vitug, who explained that the registration contemplated under Art. 1544 has been held to refer to registration under P.D. No. 1529, thus: The registration contemplated under Art. 1544 has been held to refer to registration under Act 496 Land Registration Act (now PD 1529) which considers the act of registration as the operative act that binds the land (see Mediante v. Rosabal, 1 O.G. [12] 900, Garcia v. Rosabal, 73 Phil 694). On lands covered by the Torrens System, the purchaser acquires such rights and interest as they appear in the certificate of title, unaffected by any prior lien or encumbrance not noted therein. The purchaser is not required to explore farther than what the Torrens title, upon its face, indicates. The only exception is where the purchaser has actual knowledge of a flaw or defect in the title of the seller or of such liens or encumbrances which, as to him, is equivalent to registration (see Sec. 39, Act 496;Bernales v. IAC, G.R. 75336, 18 October 1988; Hernandez vs. Sales, 69 Phil 744; Tajonera s. Court of Appeals, L-26677, 27 March 1981) (Emphasis supplied)[37]

WHEREFORE, the petition is DENIED. The assailed decision and resolution of the Court of Appeals are affirmed. Costs against petitioner.

SO ORDERED.

DANTE O. TINGA Associate Justice WE CONCUR:

LEONARDO A. QUISUMBING Associate Justice Chairperson

ANTONIO T. CARPIO Associate Justice

CONCHITA CARPIO MORALES Associate Justice

PRESBITERO J. VELASCO, JR. Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING Associate Justice Chairperson, Second Division

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO Chief Justice

Rollo, pp. 22-32. Penned by Associate Justice Sesinando E. Villon, with Associate Justices Arsenio J. Magpale and Enrico A. Lanzanas, concurring.
[2]

[1]

Id. at 35.

Id. at 48-49. Vide Entry No. 83422 and Entry No. 87549, respectively of the Register of Deeds of Bohol.
[4]

[3]

Tantrade Corporation v. Troadio Tecson, et al. Rollo, pp. 51-52. Id. at 47-55.

[5]

[6]

Docketed as Civil Case No. 5781, Cattleya Land, Inc. v. Carmelita Fudot and Atty. Narciso dela Serna. The case was eventually raffled to Branch 4, 7 th Judicial Region, Tagbilaran City. Rollo, pp. 60-61. Asuncion Tecsons testimony was made through oral deposition; records, pp. 497-510.
[9] [8]

[7]

Records, Vol. 1, pp. 66-68; Complaint-in-Intervention; id. at 66. Volume 1, pp. 35-41; Answer with Counter Claim and Motion to Dismiss, Rollo, pp. 57-64. Id. at 64. Id. at 62-63.

[10]

Records.
[11]

[12]

[13]

[14]

Id. at 22-32, 28-29; CA Decision dated 28 April 2005. Rollo, p. 30. Supra note 2; Resolution dated 11 January 2006. Rollo, p. 12. Id. at 14. Id. at 15-16. Id. at 12-17. Id. at 67. Id. at 70-71. Id. at 72-73.

[15]

[16]

[17]

[18]

[19]

[20]

[21]

[22]

[23]

CIVIL CODE, Art. 1544. If the same thing should have been sold to different vendees, 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. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is good faith.
[25]

[24]

No. L-59514, 25 February 1988, 158 SCRA 138. 119 Phil. 69 (1963).

[26]

Abalos v. Macatangay, G.R. No. 155043, 30 September 2004, 439 SCRA 649, 661. Article 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership without the wifes consent. If she refuses unreasonably to give her consent, the court may compel her to grant the same.
[28]

[27]

This article shall not apply to property acquired by the conjugal partnership before the effective date of this Code. Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband. The exceptions are: when the findings are grounded on speculation, surmises or conjectures; when the inference made is manifestly mistaken, absurd or impossible; when there is grave abuse of discretion in the appreciation of facts; when the factual findings of the trial and appellate courts are conflicting; when the Court of Appeals, in making its findings, has gone beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; when the judgment of the appellate court is premised on a misapprehension of facts or when it has failed to notice certain relevant facts which, if properly considered, will justify a different conclusion; when the findings of fact are conclusions without citation of specific evidence upon which they are based; and when findings of fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the evidence on record. Solid Homes, Inc. v. Court of Appeals, 341 Phil. 261, 275 (1997). Salomon v. Intermediate Appellate Court, G.R. No. 70263, 14 May 1990, 185 SCRA 352.
[32] [31] [30] [29]

Pascua v. Court of Appeals, 401 Phil. 350, 367 (2000).

Agricultural Credit Cooperative Assn. of Hinigaran v. Yusay, et al. , 107 Phil 791 (1960). Ulep v. Court of Appeals , G.R. No. 125254, 11 October 2005, 472 SCRA 241, 253 citing Uraca v. Court of Appeals, 278 SCRA 702 (1997). Coronel, et al. v. Court of Appeals , 331 Phil. 294, 321-322 (1996) citing VITUG, COMPENDIUM OF CIVIL LAW AND JURISPRUDENCE, 1993 Ed., p. 604. Macadangdang v. Martinez, G.R. No. 158682, 31 January 2005, 450 SCRA 363, 368.
[36] [35] [34]

[33]

VITUG, COMPENDIUM OF CIVIL LAW AND JURISPRUDENCE (1993), p. 604, cited in Abrigo v. De Vera, G.R. No. 154409, 21 June 2004, 432 SCRA 544, 557.

[37]

RULE OF NOTICE THIRD DIVISION G.R. No. L-69303 July 23, 1987

HEIRS OF MARIA MARASIGAN, namely, Teofilo, Isabel, Maximina, Anicia, and Francisco, all surnamed Marasigan, petitioners, vs. THE INTERMEDIATE APPELLATE COURT and MARIA MARRON, respondents. GUTIERREZ, JR., J.: Who has a better right to the property in question, the party who bought it with a notice of lis pendens annotated at the back of her title or the party in whose favor the notice of lis pendens was made? The appellate court answered this question in favor of the party who had the notice annotated and who won the litigation over the property. We affirm. The disputed property in this case is a residential lot (Lot No. 2-A) covered by Transfer Certificate of Title No. 100612 issued by the Register of Deeds of the City of Manila in the name of one Fe Springael-Bazar, married to Felicisimo Bazar. The pertinent facts as disclosed by the record are as follows: On April 24, 1975, Civil Case No. 97479 entitled "Maria Marron v. Felicisimo Bazar and Fe S. Bazaar" was filed before the then Court of First Instance of Manila, Branch XIII. The action sought to compel defendants Bazar to execute a registrable Deed of Absolute Sale of their lot covered by T.C.T. No. 100612 in favor of Maria Marron. On January 27, 1976, while Civil Case No. 97479 was still pending, the private respondent caused the annotation of a notice of lis pendens at the back of T.C.T. No. 100612. On February 24, 1976, judgment was rendered in Civil Case No. 97479. The dispositive portion reads:

WHEREFORE, the Court hereby renders judgment in favor of the plaintiff and against the defendants as follows: a) Ordering the defendants Fe Springael Bazar and Felicisimo Bazar as vendors (1) to execute in favor of the plaintiff Maria Marron as vendee a Deed of Absolute Sale in a public instrument over the residential lot covered by Transfer Certificate of Title No. 100612 issued by the Registry of Deeds of the City of Manila to and in the name of Fe S. Bazar, married to Felicisimo Bazaar; and (2) to deliver to plaintiff sufficient copies of such deed of sale, together with the Owner's copy of said Transfer Certificate of Title No. 100612, in order that the plaintiff can register the Deed of Absolute Sale with the Registry of Deeds of the City of Manila and secure a transfer certificate of title for the land in her name. b) Ordering the defendants to pay to the plaintiff the sum of P500.00 Philippine Currency, as and for attorney's fees; and c) Ordering the defendants to pay the costs of the suit. (Rollo, p. 15). The above judgment became final and executory so Maria Marron filed a motion for execution which was granted. A writ of execution was issued by the court on July 12, 1976. The spouses Bazar, however, refused to surrender their title to the property in question and to execute the required deed of sale in Marron's favor. On November 29, 1978, the lower court finally ordered the Clerk of Court to execute the deed of sale in behalf of the erring spouses. When the said deed was presented to the Register of Deeds of Manila for registration, the Deputy Clerk of Court was advised to secure a court order in order that the new title issued in the name of herein petitioner Maria Marasigan could be cancelled. It appears that on December 18, 1974, a deed of absolute sale of Lot 2-A covered by T.C.T. No. 100612 was executed by Fe S. Bazar in favor of Maria Marasigan for and in consideration of the sum of Fifteen Thousand Pesos (P15,000.00). However, it was only on July 5, 1977 that said deed was registered with the Registry of Deeds of Manila. Consequently, T.C.T. No. 100612 was cancelled and a new title was issued in Maria Marasigan's name. When the Register of Deeds of Manila issued Transfer Certificate of Title No. 126056 naming Maria Marasigan as the new owner of Lot 2-A, the notice of lis pendens caused to be annotated by Marron on the Bazar's title was carried over on the said new title. Meanwhile, on May 26, 1977, the Bazaars filed a petition for relief from the judgment dated February 24, 1976 in Civil Case No. 97479. While their petition was still pending, they moved to set aside the said judgment on June 22, 1979 on the ground of lack of jurisdiction over their persons.

On the other hand, on February 24, 1979, Marron instituted L.R.C. Case No. 7680 captioned "Maria Marron v. Maria Marasigan" which prayed for a court order requiring the Register of Deeds of Manila to register the deed of sale executed by the Deputy Clerk of Court in behalf of the Bazaars pursuant to the order dated November 29, 1978 of the Court of First Instance, Manila, Branch XIII. L.R.C. Case No. 7680 was tried by the Court of First Instance of Manila, Branch IV acting as a land registration court. Said case was dismissed for the following reason: ... This court acting as a Land Registration Court, with limited and special jurisdiction cannot act on this petition under summary proceedings but (sic) should be ventilated before a court of general jurisdiction Branch XIII, which issued the aforesaid Order dated November 29, 1978, the said petition is hereby dismissed for lack of jurisdiction without prejudice on the part of the petitioner to institute the appropriate civil action before the proper court. ... (Annex "A," p. 4, Rollo, p. 138) On September 6, 1979, Marron filed another case docketed as Civil Case No. 126378 to have Marasigan's TCT 126056 cancelled conformably to the procedure outlined in the decision of the above land registration court. On July 30, 1980, the parties submitted said case for decision. On February 18, 1982, the Court of First Instance of Manila, Branch IV to which Civil Case No. 126378 was assigned dismissed Marron's complaint for being premature since the decision rendered by the CFI, Branch XIII in Civil Case No. 97479 had not yet become final and executory considering that it was still the subject of a petition for relief from judgment. On appeal, the Intermediate Appellate Court, on August 7, 1984, ruled that Marron is entitled to the property under litigation by virtue of the notice of lis pendens annotated at the back of Maria Marasigan's title. The appellate court further ruled that the decision in Civil Case No. 97479 had become final and executory because the petition for relief from judgment of the spouses Bazar was filed out of time. The dispositive portion of the appellate court's decision reads: WHEREFORE, the appealed decision is hereby REVERSED and another one entered (a) Ordering the Register of Deeds of Manila to cancel T.C.T. No. 126056 in the name of Maria Marasigan and issue another in the name of Maria Marron by virtue of the Deed of Sale executed by the Branch Clerk of Court of Branch XIII; (b) Ordering the said Register of Deeds, during the pendency of this case, to refrain from registering any deed of sale pertaining to T.C.T. No. 126056 in the name of Maria Marasigan other than that of the herein plaintiff; and

(c) Ordering the defendant Maria Marasigan to pay attorney's fees in the amount of P10,000.00. (IAC, Decision. Rollo, pp. 17-18). Maria Marasigan who died in the course of the proceedings is now represented by her heirs in the instant petition which assigns the following errors: I THAT THE INTERMEDIATE APPELLATE COURT FAILED TO APPREHEND THAT THE RIGHT OF ACTION OF RESPONDENT MARIA MARRON (AS PLAINTIFF) IN CIVIL CASE NO. 97479 HAD PRESCRIBED AND SHE INCURRED IN LACHES. II THAT THE INTERMEDIATE APPELLATE COURT FAILED TO APPREHEND THAT RESPONDENT ABANDONED OR WAIVED HER PROPERTY RIGHTS AND EFFECTS TO/OF THE DECISION IN CIVIL CASE NO. 97479, WHEN SHE FILED CIVIL CASES NO. 7680 AND 126378, DURING ITS EFFECTIVITY. III THAT THE INTERMEDIATE APPELLATE COURT ERRED IN CONCLUDING THAT THE DECISION IN CIVIL CASE NO. 97479 HAS BECOME FINAL AND EXECUTORY. IV THAT THE INTERMEDIATE APPELLATE COURT FAILED TO APPREHEND THE LACK OF JURISDICTION OF THE TRIAL COURT IN CIVIL CASES NO. 7680 AND 126378 OVER THE PERSONS OF PETITIONERS. V THAT THE INTERMEDIATE APPELLATE COURT ERRED IN CONSIDERING THAT THE TRIAL COURT IN CIVIL CASE NO. 97479 HAS JURISDICTION OVER THE PERSONS OF DEFENDANTS SPOUSES FELICISIMO BAZAAR AND FE S. BAZAAR. VI THAT THE INTERMEDIATE APPELLATE COURT FAILED TO APPREHEND THAT THE DEED OF ABSOLUTE SALE EXECUTED BY THE DEPUTY CLERK

OF COURT, WAS NOT LEGAL AND VALID AND WITHOUT PROOF AND EFFECT. (Brief for the appellant, pp. 1 and 2) We find no merit in the present petition. There is a clear showing that although the late Maria Marasigan acquired the property in question from the Bazaars pursuant to a deed of absolute sale on December 18, 1974 or a little over four months before the filing of Civil Case No. 97479, the transaction became effective as against third persons only on July 5, 1977 when it was registered with the Registry of Deeds of Manila. It is the act of registration which creates constructive notice to the whole world. Section 51 of Act 496, as amended by Section 52 of the Property Registration Decree (P.D. 1529) provides: Sec. 52. Constructive notice upon registration. Every conveyance ... affecting registered land shall, if registered, filed or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering. Moreover, there is no question that when the late Maria Marasigan was issued her transfer certificate of title to the subject property (T.C.T. No. 126056), the Registrar of Deeds of Manila then carried over to the new title the notice of lis pendens which the private respondent had caused to be annotated at the back of the Bazar's title. In case of subsequent sales or transfers, the Registrar of Deeds is duty bound to carry over the notice of lis pendens on all titles to be issued. Otherwise, if he cancels any notice of lis pendens in violation of his duty, he may be held civilly and even criminally liable for any prejudice caused to innocent third persons (The Director of Lands, et al. v. Reyes, 68 SCRA 177). A notice of lis pendens means that a certain property is involved in a litigation and serves as notice to the whole world that one who buys the same does it at his own risk (Rehabilitation Finance Corporation v. Morales, 101 Phil. 171). It was also a clear notice to Maria Marasigan that there was a court case affecting her rights to the property she had purchased.1avvphi1 As earlier stated it was only on July 5, 1977 that the sale between Maria Marasigan and the Bazaars became effective as against third persons. The registration of the deed of sale over the subject property was definitely subsequent to the annotation made on January 27, 1976. Consequently, Marasigan was bound by the outcome of the litigation against her vendors or transferors. (See Rivera v. Tirona, et al., 109 Phil. 505). We reiterate the established rule that:

... the filing of a notice of lis pendens charges all strangers with a notice of the particular litigation referred to therein and, therefore, any right they may thereafter acquire on the property is subject to the eventuality of the suit. The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the subject matter of the litigation within the power of the Court until the judgment or decree shall have been entered; otherwise, by successive alienations pending the litigation, its judgment or decree shall be rendered abortive and impossible of execution. ... (Laroza v. Guia, 134 SCRA 34 1) The late Marasigan's transferors did not interpose any appeal from the adverse judgment dated February 24, 1976 in Civil Case No. 97479. The 30-day period under the old rule (Rule 41, section 3 of the Revised Rules of court now amended by Batas Pambansa Bilang 129, section 39) within which the Bazaars may have taken an appeal started to run from May 12, 1976 when they were served with a copy of the said decision. On June 11, 1976, the February 24, 1976 decision in Civil Case No. 97479 became final and executory. At this point after the finality of the said decision, the Bazaars no longer had the right to alienate the property subject of the litigation. Any transaction effective during the period of litigation is subject to the risks implicit in the notice of lis pendensand to the eventual outcome of the litigation. Moreover, we agree with the finding of the appellate court that the petition for relief from judgment by the Bazaars dated May 26, 1977 was filed beyond the two periods provided in Section 3 Rule 38 of the Revised Rules of Court. There may have been some errors in the computations but the petition itself was out of time. Rule 38, Section 3 of said Rules provides, in part, that: Sec. 3. Time for filing petition. ... A petition provided for in either of the preceding sections of this rule must be verified, filed within sixty (60) days after the petitioner learns of the judgment, order or other proceeding to be set aside, and not more than six (6) months after such judgment or order was entered or such proceeding was taken. ... The 60-day period must be reckoned from May 12, 1976 when the Bazaars were served with a copy of the assailed decision. Therefore, the 60-day period expired on July 11, 1976. It was only after 379 days or more than 12 months after they learned of the judgment that the Bazaars filed their petition for relief from said judgment. (See Domingo v. Dela Cruz, 23 SCRA 1121) The appellate court computed the 6-month period from the date of the judgment was rendered. Rule 38 states that the counting should commence from the entry of the judgment or order. (See Dirige v. Biranya, 17 SCRA 840). A judgment is entered only after its finality and Civil Case No. 97479 became final on June 11, 1976. Since the records do not bear the exact date the questioned judgment was entered, the 6-month period can be counted for purposes of our

decision from July 12, 1976 when the writ of execution of the final judgment was issued. The phrase "or other proceeding" in Section 3 of Rule 38 includes a writ of execution (Aquino v. Blanco, 79 Phil. 647). The 6-month period from July 12, 1976 lapsed on January 8, 1977. A period of ten (10) months had already lapsed when the Bazaars filed their petition for relief from judgment on May 26, 1977. Obviously, the petitioners cannot now question the effects of the final and executory judgment in Civil Case No. 97479. In the words of Laroza v. Guia (supra) they cannot render the final judgment abortive and impossible of execution. The deed of sale executed by the Deputy Clerk of Court on behalf of the Bazar spouses pursuant to the court's judgment was valid and binding. The petitioners cannot also raise before us the issues of prescription or laches and lack of jurisdiction over the persons of the Bazar spouses in Civil Case No. 97479. This cannot be done in this petition which stems from Civil Case No. 126378 in the trial court and AC-G.R. No. 00183 in the appellate court. The Bazaars were the proper parties who ought to have raised them as defenses either in a motion to dismiss or in their answer. Since they did not do so, the same were deemed waived. (See Rule 9, section 2 of the Revised Rules of Court; MD Transit & Taxi Co., Inc. v. Estrella, 113 SCRA 378; Torreda v. Boncaros, 69 SCRA 247; Visayan Electric Co., Inc. v. Commissioner of Internal Revenue, 39 SCRA 43; Republic v. Mambulao Lumber Company, 6 SCRA 858). WHEREFORE, in view of all the foregoing, the petition is hereby DISMISSED for lack of merit. The appellate court's decision is AFFIRMED. SO ORDERED.

NOT REQUIRED TO EXPLORE FURTHER THAN WHAT TITLE INDICATES FOR HIDDEN EFFECTS THIRD DIVISION

[G.R. No. 137471. January 16, 2002]

GUILLERMO ADRIANO, petitioner, vs. ROMULO PANGILINAN, respondent. DECISION PANGANIBAN, J.:

Loss brought about by the concurrent negligence of two persons shall be borne by the one who was in the immediate, primary and overriding position to prevent it. In the present case, the mortgagee -- who is engaged in the business of lending money secured by real estate mortgages -- could have easily avoided the loss by simply exercising due diligence in ascertaining the identity of the impostor who claimed to be the registered owner of the property mortgaged. The Case Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the November 11, 1998 Decision[1] of the Court of Appeals (CA) in CA-GR CV No. 44558. The dispositive portion of the CA Decision reads as follows: WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE, and another entered dismissing the complaint instituted in the court below. Without costs in this instance.[2] Also questioned is the February 5, 1999 CA Resolution[3] denying petitioners Motion for Reconsideration. The CA reversed the Regional Trial Court (RTC) of San Mateo, Rizal (Branch 76) in Civil Case No. 845, which disposed as follows: WHEREFORE, premises considered, judgment is hereby rendered declaring the real estate mortgage constituted on the property described in and covered by TCT No. 337942 of the Registry of Deeds for the Province of Rizal, in the name of Guillermo Adriano, to be null and void and of no force and effect, and directing defendant Romulo Pangilinan to reconvey or deliver to herein plaintiff Guillermo Adriano the aforesaid title after causing and effecting a discharge and cancellation of the real estate mortgage annotated on the said title. No pronouncement as to costs. Defendants counterclaim is dismissed for want of basis.[4] The Facts The undisputed facts of the case are summarized by the Court of Appeals as follows: [Petitioner] Guillermo Adriano is the registered owner of a parcel of land with an area of three hundred four (304) square meters, more or less, situated at Col. S. Cruz, Geronimo, Montalban, Rizal and covered by Transfer Certificate of Title No. 337942.

Sometime on November 23, 1990[, petitioner] entrusted the original owners copy of the aforesaid Transfer Certificate of Title to Angelina Salvador, a distant relative, for the purpose of securing a mortgage loan. Without the knowledge and consent of [petitioner], Angelina Salvador mortgaged the subject property to the [Respondent] Romulo Pangilinan. After a time, [petitioner] verified the status of his title with the Registry of Deeds of Marikina, Metro Manila, and was surprised to discover that upon the said TCT No. 337942 was already annotated or inscribed a first Real Estate Mortgage purportedly executed by one Guillermo Adriano over the aforesaid parcel of land, together with the improvements thereon, in favor of the [Respondent] Romulo Pangilinan, in consideration of the sum of Sixty Thousand Pesos (P60,000.00). [Petitioner] denied that he ever executed the deed of mortgage, and denounced his signature thereon as a forgery; he also denied having received the consideration of P60,000.00 stated therein. [Petitioner] thereafter repeatedly demanded that [respondent] return or reconvey to him his title to the said property and when these demands were ignored or disregarded, he instituted the present suit. [Petitioner] likewise filed a criminal case for estafa thru falsification of public document against [Respondent] Romulo Pangilinan, as well as against Angelina Salvador, Romy de Castro and Marilen Macanaya, in connection with the execution of the allegedly falsified deed of real estate mortgage: this was docketed as Criminal Case No. 1533-91 of the Regional Trial Court of San Mateo, Rizal, Branch 76. [Respondent] in his defense testified that he [was] a businessman engaged in the buying and selling as well as in the mortgage of real estate properties; that sometime in the first week of December, 1990 Angelina Salvador, together with Marilou Macanaya and a person who introduced himself as Guillermo Adriano, came to his house inquiring on how they could secure a loan over a parcel of land; that he asked them to submit the necessary documents, such as the owners duplicate of the transfer certificate of title to the property, the real estate tax declaration, its vicinity location plan, a photograph of the property to be mortgaged, and the owners residence certificate; that when he conducted an ocular inspection of the property to be mortgaged, he was there met by a person who had earlier introduced himself as Guillermo Adriano, and the latter gave him all the original copies of the required documents to be submitted; that after he (defendant) had verified from the Registry of Deeds of Marikina that the title to the property to be mortgaged was indeed genuine, he and that person Guillermo Adriano executed the subject real estate mortgage, and then had it notarized and registered with the Registry of Deeds. After that, the alleged owner, Guillermo Adriano, together with Marilou Macanaya and another person signed the promissory note in the amount of Sixty Thousand Pesos (P60,000.00) representing the appraised value of the mortgage property. This done, he (defendant) gave them the aforesaid amount in cash.

[Respondent] claimed that [petitioner] voluntarily entrusted his title to the subject property to Angelina Salvador for the purpose of securing a loan, thereby creating a principal-agent relationship between the plaintiff and Angelina Salvador for the aforesaid purpose. Thus, according to [respondent], the execution of the real estate mortgage was within the scope of the authority granted to Angelina Salvador; that in any event TCT No. 337942 and the other relevant documents came into his possession in the regular course of business; and that since the said transfer certificate of title has remained with [petitioner], the latter has no cause of action for reconveyance against him. [5] In his appeal before the CA, [6] respondent contended that the RTC had erred (1) in holding that petitioners signature on the Real Estate Mortgage was a forgery and (2) in setting aside and nullifying the Mortgage. Ruling of the Court of Appeals The CA ruled that when a mortgagee relies upon a Torrens title and lends money in all good faith on the basis of the title standing in the name of the mortgagor, only to discover one defendant to be an alleged forger and the other defendant to have by his negligence or acquiescence made it possible for fraud to transpire, as between two innocent persons, the mortgagee and one of the mortgagors, the latter who made the fraud possible by his act of confidence must bear the loss.[7] It further explained that even conceding for the sake of argument that the appellants signature on the Deed of First Real Estate Mortgage was a forgery, and even granting that the appellee did not participate in the execution of the said deed of mortgage, and was not as well aware of the alleged fraud committed by other persons relative to its execution, the undeniable and irrefutable fact remains that the appellee did entrust and did deliver his Transfer Certificate of Title No. 337942 covering the subject property, to a distant relative, one Angelina Salvador, for the avowed purpose of using the said property as a security or collateral for a real estate mortgage debt of loan. [8] Hence, this present recourse.[9] The Issues In his Memorandum,[10] petitioner raises the following issues for our consideration: I Whether or not consent is an issue in determining who must bear the loss if a mortgage contract is sought to be declared a nullity[;]

and II Whether or not the Motion for Reconsideration filed by the petitioner before the Court of Appeals should have been dismissed[.][11] This Courts Ruling The Petition is meritorious. First Issue: Effect of Mortgage by Non-Owner Petitioner contends that because he did not give his consent to the real estate mortgage (his signature having been forged), then the mortgage is void and produces no force and effect. Article 2085 of the Civil Code enumerates the essential requisites of a mortgage, as follows: Art. 2085. The following requisites are essential to the contracts of pledge and mortgage: (1) That they be constituted to secure the fulfillment of a principal obligation; (2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged; (3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for that purpose. Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (1857) (Italics supplied) In the case at bar, not only was it proven in the trial court that the signature of the mortgagor had been forged, but also that somebody else -- an impostor -- had pretended to be the former when the mortgagee made an ocular inspection of the subject property. On this point, the RTC held as follows: The falsity attendant to the subject real estate mortgage is evidenced not only by herein plaintiffs vehement denial of having entered into that contract with defendant, but also

by a comparison between the signature of the debtor-mortgagor appearing in the said mortgage contract, and plaintiffs signatures appearing in the records of this case. Even to the naked eye, the difference is glaring, and there can be no denying the fact that both signatures were not written or affixed by one and the same person. The falsity is further infe[r]able from defendants admission that the plaintiff in this case who appeared in court [was] not the same person who represented himself as the owner of the property (TSN, pp. 7, 11, June 21, 1993 hearing) and who therefore was the one who signed the contract as the debtor-mortgagor.[12] The CA did not dispute the foregoing finding, but faulted petitioner for entrusting to Angelina Salvador the TCT covering the property. Without his knowledge or consent, however, she caused or abetted an impostors execution of the real estate mortgage. Even conceding for the sake of argument that the appellees signature on the Deed of First Real Estate Mortgage (Exh. B; Original Record, pp. 56-58) was a forgery, and even granting that the appellee did not participate in the execution of the said deed of mortgage, and was not as well aware of the alleged fraud committed by other persons relative to its execution, the undeniable and irrefutable fact remains that the appellee did entrust and did deliver his Transfer Certificate of Title No. 337942 (Exh. A; Original Record, pp. 53-55) covering the subject property, to a distant relative, one Angelina Salvador, for the avowed purpose of using the said property as a security or collateral for a real estate mortgage debt of loan. x x x[13] Be that as it may, it is clear that petitioner who is undisputedly the property owner -- did not mortgage the property himself. Neither did he authorize Salvador or anyone else to do so. In Parqui v. Philippine National Bank,[14] this Court affirmed the trial courts ruling that a mortgage was invalid if the mortgagor was not the property owner: After carefully considering the issue, we reach the conclusion that His Honors decision was correct. One of the essential requisites of a valid mortgage, under the Civil Code is that the thing pledged or mortgaged be owned by the person who pledges or mortgages it (Art. 1857, par. 2); and there is no question that Roman Oliver who pledged the property to the Philippine National Bank did not own it. The mortgage was consequently void.[15] Second Issue: Concurrent Negligence of the Parties The CA reversed the lower court, because petitioner had been negligent in entrusting and delivering his TCT No. 337942 to his distant relative Angelina Salvador, who

undertook to find a money lender. Citing Blondeau v. Nano[16] and Philippine National Bank v. CA,[17] it then applied the bona fide purchaser for value principle. Both cases cited involved individuals who, by their negligence, enabled other persons to cause the cancellation of the original TCT of the disputed property and the issuance of a new one in their favor. Having obtained TCTs in their names, they conveyed the subject property to third persons, who in Blondeau was a bona fide purchaser while in Philippine National Bank was an innocent mortgagee for value. It should be stressed that in both these cases, the seller and the mortgagor were the registered owners of the subject property; whereas in the present case, the mortgagor was an impostor, not the registered owner. It must be noted that a Torrens certificate serves as evidence of an indefeasible title to the property in favor of the person whose name appears therein. [18] Moreover, the Torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not protect a usurper from the true owner. It cannot be a shield for the commission of fraud. It does not permit one to enrich himself at the expense of another.[19] Thus, we ask these questions: Was petitioner negligent in entrusting and delivering his TCT to a relative who was supposed to help him find a money lender? And if so, was such negligence sufficient to deprive him of his property? To be able to answer these questions and apply the holding in Philippine National Bank, it is crucial to determine whether herein respondent was an innocent mortgagee for value. After a careful review of the records and pleadings of the case, we hold that he is not, because he failed to observe due diligence in the grant of the loan and in the execution of the real estate mortgage.[20] Respondent testified that he was engaged in the real estate business, including the grant of loans secured by real property mortgages. Thus, he is expected to ascertain the status and condition of the properties offered to him as collaterals, as well as to verify the identities of the persons he transacts business with. Specifically, he cannot simply rely on a hasty examination of the property offered to him as security and the documents backing them up.[21] He should also verify the identity of the person who claims to be the registered property owner. Respondent stated in his testimony that he had been engaged in the real estate business for almost seven years.[22] Before the trial court, he testified on how he had approved the loan sought and the property mortgaged: Q Mr. witness, you stated earlier that you are a businessman. Will you please inform the Hon. Court what kind of business you are engaged in? A First, as a businessman, I buy and sell real estate properties, sir, and engaged in real estate mortgage, sir.

Q A

In relation to your buy and sell business, Mr. witness, how many clients have you had since you started? Since I started in 1985, I have [had] almost 30 to 50 clients, sir. x x x x xxx x x

Q A Q A Q

Will you inform the Court, Mr. [W]itness, how are you found by your clients? I advertise it in the newspapers, sir. And what is the frequency of this advertisement in the newspapers? One whole week in every month, sir. Let us go specifically [to] the real estate mortgage, Mr. [W]itness, which has relation to this case. Will you inform the Court how you go about this business, meaning, if you have any procedure that you follow? As soon as my client go[es] to our house, I usually give them the requirements, sir. And what are these requirements? I usually require them to submit to me at least a machine copy of the title, the location plan with vicinity, the real estate tax, the tax declaration, the picture of the property and the Res. Cert. of the owner, sir. And when these documents are given to you, what else do you do, if any? When they present to me the machine copy, I require them to visit the place for the ocular inspection for the appraisal of the property, sir. What other steps, if any? After that ocular inspection, sir, appraising the property, I usually tell them to come back after one week for verification of the title in the Register of Deeds, sir. Will you inform the Court how you verif[ied] the title with the Register of Deeds? I got a certified true copy from the Register of Deeds, sir. Certified true copy of what, Mr. witness? The owners duplicate title [to] the property, sir. Will you inform the Court why you asked for these documents? To see to it that the title [was] genuine, sir.

A Q A

Q A Q A

Q A Q A Q A

x x Q A Q A

x xxx

You mentioned Residence Certificate. Why did you ask for a Residence Certificate? To fully identify the alleged owner, sir. So, when the machine copies of these documents x x x were given to you [as you said], what did you do next, if any? x x x [O]cular inspection, sir, that is my standard procedure. After they gave me all the requirements, we usually go there for the ocular inspection for the appraisal of the property, sir. So, you went to the house itself? Yes, sir. Did you go there alone or were you with somebody else? With the[ir] group x x x, sir, the one [which] came to our house. The two of them were Marilou Macanaya and Angelina Salvador. And when you went to the house, what did you see? I saw a man there x x x who posed as Guillermo Adriano and gave me all the original copies of the requirements, sir. Did you get to enter the house? As an architect, as soon as I [saw] the house, I already knew what [was] the appraisal, sir, and I knew already the surroundings of the property. So, you did not need to go inside the house? Inside the house, not anymore, sir, we talked only inside the property. And this person who gave you the original documents is the owner of the house? I assumed it, sir, [that] he [was] the owner.[23] (Emphasis supplied)

Q A Q A Q A Q A Q A Q A

On cross[-]examination, he made a clarification: Q Mr. Pangilinan, will you state again what business are you engaged [in]? A Q A First, as an Architect, I do design and build and as a businessman, I do the buy and sell of real properties and engag[e] in mortgage contract, sir. Actually, it is in the mortgage business that you practically have the big bulk of your business. Isnt it? Yes, sir.[24]

It is quite clear from the testimony of respondent that he dismally failed to verify whether the individual executing the mortgage was really the owner of the property. The ocular inspection respondent conducted was primarily intended to appraise the value of the property in order to determine how much loan he would grant. He did not verify whether the mortgagor was really the owner of the property sought to be mortgaged. Because of this, he must bear the consequences of his negligence. In Uy v. CA,[25] the Court through Mr. Justice Jose A. R. Melo made the following significant observations: Thus, while it is true, as asserted by petitioners, that a person dealing with registered lands need not go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to face up to the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendors or mortgagors title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation.[26] Indeed, there are circumstances that should put a party on guard and prompt an investigation of the property being mortgaged. Citing Torres v. CA,[27] the Court continued as follows: x x x [T]he value of the property, its principal value being its income potential in the form of monthly rentals being located at the corner of Quezon Boulevard and Raon Street, Manila, and the registered title not yielding any information as to the amount of rentals due from the building, much less on who is collecting them, or who is recognized by the tenants as their landlord - it was held that any prospective buyer or mortgagee of such a valuable building and land at the center of Manila, if prudent and in good faith, is normally expected to inquire into all these and related facts and circumstances. For failing to conduct such an investigation, a party would be negligent in protecting his interests and cannot be held as an innocent purchaser for value.[28] We are not impressed by the claim of respondent that he exercised due diligence in ascertaining the identity of the alleged mortgagor when he made an ocular inspection[29] of the mortgaged property. Respondents testimony negated this assertion. Q Now you told me also that you conducted an ocular inspection o[f] the premises. How many times did you do it? A Q Once, sir. Who were with you when you went there?

A Q A Q A Q A Q A Q

The same group of them, sir. How long did you stay in the premises? I think 5 to 10 minutes, sir. And did you see any people inside the premises where you visited? Yes, sir. Did you ask these persons? They told me that. . . Did you ask these persons whom you saw in the premises? No, sir. And what x x x did you [just] do when you inspected the premises? x x x x x x x x x

When I arrived in the property, that house, the alleged owner told me that the one staying at his house were just renting from him, sir. x x x x x x x x x

Again, Mr. Pangilinan, my question to you is, what did you do when you arrived in the premises in the course of your ocular inspection? Already answered.

Atty. Garcia: Court: You may answer. A When I arrived at that place, I just looked around and as an Architect, I [saw] that I [could] appraise it just [by] one look at it, sir. And after that, where did you go? Where did you and this group go? Just inside the property, sir. We talked [about] how much [would] be given to them and I told them this [was] only the amount I [could] give them, sir.[30] (Emphasis supplied)

Atty. Amado: Q A

Since he knew that the property was being leased, respondent should have made inquiries about the rights of the actual possessors. He could have easily verified from the lessees whether the claimed owner was, indeed, their lessor.

Petitioners act of entrusting and delivering his TCT and Residence Certificate to Salvador was only for the purpose of helping him find a money lender. Not having executed a power of attorney in her favor, he clearly did not authorize her to be his agent in procuring the mortgage. He only asked her to look for possible money lenders. Article 1878 of the Civil Code provides: Art. 1878. Special powers of attorney are necessary in the following cases: xxx xxx xxx

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration; xxx xxx xxx

(12) To create or convey real rights over immovable property; xxx xxx x x x.

As between petitioner and respondent, we hold that the failure of the latter to verify essential facts was the immediate cause of his predicament. If he were an ordinary individual without any expertise or experience in mortgages and real estate dealings, we would probably understand his failure to verify essential facts. However, he has been in the mortgage business for seven years. Thus, assuming that both parties were negligent, the Court opines that respondent should bear the loss. His superior knowledge of the matter should have made him more cautious before releasing the loan and accepting the identity of the mortgagor.[31] Given the particular circumstances of this case, we believe that the negligence of petitioner is not enough to offset the fault of respondent himself in granting the loan. The former should not be made to suffer for respondents failure to verify the identity of the mortgagor and the actual status of the subject property before agreeing to the real estate mortgage. While we commiserate with respondent -- who in the end appears to have been the victim of scoundrels -- his own negligence was the primary, immediate and overriding reason that put him in his present predicament. To summarize, we hold that both law and equity favor petitioner. First, the relevant legal provision, Article 2085 of the Civil Code, requires that the mortgagor be the absolute owner of the thing x x x mortgaged. Here, the mortgagor was an impostor who executed the contract without the knowledge and consent of the owner. Second, equity dictates that a loss brought about by the concurrent negligence of two persons shall be borne by one who was in the immediate, primary and overriding position to prevent it. Herein respondent who, we repeat, is engaged in the business of lending money secured by real estate mortgages could have easily avoided the loss by simply

exercising due diligence in ascertaining the identity of the impostor who claimed to be the owner of the property being mortgaged. Finally, equity merely supplements, not supplants, the law. The former cannot contravene or take the place of the latter. In any event, respondent is not precluded from availing himself of proper remedies against Angelina Salvador and her cohorts. WHEREFORE, the Petition is GRANTED and the assailed Decision SET ASIDE. The November 25, 1993 Decision of the RTC of San Mateo, Rizal (Branch 76) is hereby REINSTATED. No costs. SO ORDERED. Melo, (Chairman), Vitug, Sandoval-Gutierrez, and Carpio, JJ., concur.

[1]

Penned by Justice Renato C. Dacudao and concurred in by Justices Ma. Alicia AustriaMartinez (Division chairman) and Salvador J. Valdez Jr. (member). Rollo, p. 27. Rollo, pp. 15-16. RTC Decision dated November 25, 1993; records, pp. 130-133; penned by Judge Jose C. Reyes Jr. Rollo, pp. 22-23. Ibid., p. 3. Id., p. 26; CA Decision, p. 5. Id., pp. 24-25; Id., pp. 3-4. The case was deemed submitted for decision on June 16, 2000 upon the Courts receipt of respondents Memorandum, which was signed by Atty. Lourdes Fema A. Galinato-Acua of Sebastian Liganor & Galinato. Petitioners Memorandum, signed by Atty. Editha Arciaga-Santos of Ocampo Santos Loquellano Loveranes and Ribao Law Offices, was received by this Court on May 29, 2000. Rollo, pp. 74-84. Petitioners Memorandum, p. 77; original in upper case. RTC Decision, p. 3; Rollo, p. 19; records, p. 132. CA Decision, pp. 3-4; Rollo, pp. 24-25. 96 Phil. 157, November 26, 1954. Ibid., p. 160, per Bengzon, J.

[2] [3] [4]

[5] [6] [7] [8] [9]

[10] [11] [12] [13] [14] [15]

[16] [17] [18]

61 Phil. 625, July 26, 1935. 187 SCRA 735, July 24, 1990. Noblejas and Noblejas, Registration of Land Titles and Deeds, (1992 rev. ed.), p. 211, citing Ybaez v. IAC, 194 SCRA 743, March 6, 1991, per Fernan, CJ. Ibid., p. 47, citing Angeles v. Samia, 66 Phil. 444, November 3, 1938, per Diaz, J. Cf: GSIS v. CA, 287 SCRA 204, March 6, 1998. See State Investment House, Inc. v. CA, 254 SCRA 368, March 5, 1996, citing Sunshine Finance and Investment Corp. v. IAC, 203 SCRA 210, October 28, 1991. TSN, May 31, 1993, p. 3. Ibid., pp. 2-7. TSN, June 21, 1993, p. 5. GR No. 109197, June 21, 2001, citing Crisostomo v. CA, 197 SCRA 833, May 31, 1991, per Paras, J. Ibid., pp. 8-9. 186 SCRA 672, June 21, 1990, per Medialdea, J. Uy v. CA, supra, p. 9, per Melo, J. Rollo, pp. 118-119. TSN, June 21, 1993, pp. 7-8. See Uy v. CA, 246 SCRA 703, July 20, 1995; Tomas v. Tomas, 98 SCRA 280, June 25, 1980; Gatioan v. Gaffud, 27 SCRA 706, March 28, 1969.

[19] [20] [21]

[22] [23] [24] [25]

[26] [27] [28] [29] [30] [31]

KNOWLEDGE OF DEFECT CANNOT GF FIRST DIVISION

SPS. JESUS CHING AND LEE POE G.R. No. 156076 TIN, Petitioners, Present: - versus PUNO, C.J., Chairperson, CORONA, CARPIO MORALES*, AZCUNA, and LEONARDO-DE CASTRO, JJ. & ARSENIA Promulgated: Respondents. September 17, 2008 x------------------------------------------------------------------------------------------x DECISION LEONARDO-DE CASTRO, J.:

SPS. ADOLFO ENRILE,

Assailed in the instant petition for review on certiorari are the Decision [1] of the Court of Appeals (CA) dated August 29, 2002 in CA-G R. CV No. 42985 and the Resolution[2] dated November 21, 2002 denying petitioners motion for reconsideration. The assailed CA decision reversed the decision of the Regional Trial Court (RTC) of Makati City, Branch 135, in Civil Case No. 90-064, an action for quieting of title thereat commenced by petitioner spouses Jesus Ching and Lee Poe Tin against respondent spouses Adolfo and Arsenia Enrile. The antecedent facts follow. On September 5, 1985, petitioners purchased from a certain Raymunda La Fuente a 370-square meter lot located at Barrio Tungtong, Las Pias and covered by TCT No. 83618. La Fuente delivered to petitioners a duly notarized Deed of Absolute Sale [3] with the Owners Duplicate Certificate of Title and thereafter, petitioners took physical possession of the subject property.

For reasons known only to petitioners, the conveyance was not registered in the Register of Deeds as prescribed by Section 51 of PD 1529 [4]. Instead, on November 20, 1986, petitioners executed an Affidavit of Adverse Claim which was recorded and annotated at the back of TCT No. 83618 reflected in the Memorandum of Encumbrances under Entry No. 86-62262.[5] In the meantime, petitioners peacefully and continuously possessed the subject property. On August 19, 1988 three years after they purchased the disputed property, petitioners received a Notice of Levy on Attachment and Writ of Execution issued by the Regional Trial Court (RTC) of Pasig in favor of respondents, in Civil Case No. 54617 entitled Sps. Adolfo Enrile and Arsenia Enrile v. Raymunda La Fuente. The Notice of Levy on Attachment was recorded at the dorsal portion of TCT No. 83618 under Entry No. 3433-2 while the Writ of Execution was inscribed under Entry No. 3434-2. Also inscribed in the TCT is the Certificate of Sale dated January 26, 1989 covering the disputed property in favor of respondents. On January 8, 1990, petitioners filed a Petition to Remove Cloud on or Quiet Title to Real Property asserting ownership of the disputed property. On May 11, 1993, the RTC rendered judgment in favor of petitioners upholding the latters superior right over the disputed property in view of the registration of the Affidavit of Adverse Claim prior to the Certificate of Sale annotated in favor of respondents. Dispositively the decision reads: WHEREFORE, premises, the above-entitled petition is granted for being preponderantly meritorious. Judgment is hereby rendered ordering: 1) The Register of Deeds of Las Pias, Metro Manila to cancel all the annotations of encumbrances in favor of defendants [respondents] in Transfer Certificate of Title No. 83618 issued by the Register of Deeds of Pasay City, Metro Manila, District IV; 2) Defendants [respondents] to pay plaintiffs [petitioners] in the sum of P 10,000.00 as compensatory damages by way of litigation expenses; 3) To pay to plaintiffs [petitioners] the sum of P 10,000.00 as attorneys fees; and, 4) To pay the cost of the proceedings. SO ORDERED.

In time, respondents appealed to the CA, principally arguing that the RTC committed reversible error in ruling that petitioners had a better right over the disputed property. Respondents theorized that the prior conveyance of the disputed property made by La Fuente to petitioners being a voluntary dealing with a registered land, mere registration of their adverse claim was insufficient. To respondents, in order to have petitioners interest protected, they should have registered the Deed of Absolute Sale with the Register of Deeds pursuant to Section 51 of PD 1529 and not merely register an adverse claim under Section 70 of the same law. Citing the second paragraph of Section 70 which provides that an adverse claim shall be effective for a period of thirty days from the date of registration, respondents insisted that the annotated Adverse Claim of petitioners had already expired, hence, it offered no protection when respondents acquired the disputed property through execution sale. On August 29, 2002, the CA rendered the herein challenged decision reversing that of the RTC. Even as the CA viewed the prior sale of the disputed lot in favor of petitioners as perfected and consummated, it nonetheless upheld respondents preferential right over the disputed property. Finding merit in respondents arguments, the CA ruled: This Court, also believes that there is truth in defendants-appellants assertion that while the sale is perfected and consummated, plaintiffsappellees failed to diligently protect their interests by failing to register the conveyance or transaction in the office of Register of Deeds. An owner of a registered land is vested by law with rights and obligations and thus exercises all attributes of ownership. These attributes include among others the right to dispose the real property itself. The owner of the land may convey, mortgage, lease or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instrument as are sufficient in law. However, as clearly provided by Section 51 of Presidential Decree 1529, no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, until the same has been registered in the office of the Register of Deeds. It shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to effect registration. The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the Office of the Register of Deeds of the province or city where the land lies. Unless and until the subject transaction has been filed or registered in the office of the Register of Deeds, the transaction shall only be binding on

the parties to the contract but not on the third person. The instrument is not thereby rendered void by failure to register. Section 51 of PD 1529 states: Section 51. Conveyance and other dealings by registered owner An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make registration. The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies. Laying the blame on petitioners, the CA added: The law provides protection to third person, who believing in good faith and relying on the sweet representations of some evil minded persons, may be unjustifiably inveigled to enter into a contract or transaction not knowing that the subject real property has been encumbered or sold. It is the duty of the buyer or vendee to register the transaction before the Register of Deeds of the province or city where the property lies. The registration is intended to inform any minded individual that the property has been subjected to a prior transaction and that entering into any further contract involving the same property shall be at his own risk. In the event that any third person was bona fide tricked to enter into any transaction involving the same property because the transferee or vendee failed to register the same as required by law, the latters interests should be subordinated to that of the third party. Axiomatic is the rule in this jurisdiction that when loss or damage was caused to two individuals who both acted in good faith but one is negligent, the loss or damage shall fall upon the one who acted negligently. Citing a myriad of jurisprudence[6], the CA declared that respondents, as attaching creditors who registered the order of attachment and the sale of the property to them as the highest bidders, acquired a valid title to the disputed property as against petitioners

who had previously bought the same property from the registered owner but failed to register their deed of sale. The CA further declared respondents as purchasers in good faith. On the premise that petitioners filing of the Affidavit of Adverse Claim was procedurally flawed and that the annotated adverse claim had already prescribed on December 20, 1986 after the lapse of 30 days from its registration which was November 20, 1986, the CA ruled that it cannot be considered sufficient notice to third person like the respondents who were not aware of the sale of the disputed lot to petitioners prior to the levy on attachment. As stated at the threshold hereof, the CA, in its decision [7] of August 29, 2002, reversed and set aside that of the RTC, thus: WHEREFORE, in view of the foregoing, the Decision dated May 11, 1993 of the Regional Trial Court, National Capital Judicial Region, Branch 135, Makati City in Civil Case No. 90-064 is hereby REVERSED. The Register of Deeds of Las Pias, Metro Manila is hereby mandated not to cancel any annotations of encumbrances in favor of defendants-appellants in Transfer Certificate of Title No. 83618 issued by the Register of Deeds of Pasay City, Metro Manila, Dist. IV. Who among the parties has a preferential right over the disputed property. SO ORDERED.

Their motion for reconsideration having been denied by the CA in its challenged Resolution of November 21, 2002, petitioners are now before this Court, faulting the CA as follows: WITH DUE RESPECT, THE COURT A QUO GRAVELY ERRED AND ABUSED ITS DISCRETION WHEN IT RENDERED SUBJECT DECISION AND RESOLUTION IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR RULES WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT; Specifically, the Court a quo erred; a. When it held that the levy on attachment LATER annotated shall prevail over the Adverse Claim EARLIER annotated at the

back of the title by the mere lapse of 30 days and even without any petition in court for its cancellation; b. When it did not dismiss the appeal considering that the question raised were questions of law and NO question of fact.[8] The petition is impressed with merit. At the outset, the Court finds that the CA committed reversible error when it ruled that the annotated adverse claim had already prescribed by the mere lapse of 30 days from its registration. The issue is no longer of first impression. In the 1996 case of Sajonas v. Court of Appeals,[9] we explained that a notice of adverse claim remains valid even after the lapse of the 30-day period provided by Section 70 of PD 1529. Section 70 provides: Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Decree for registering the same, make a statement in writing, setting forth fully his alleged right or interest, and how or under whom acquired, a reference to the number of the certificate of title of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimant's residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest. Provided, however that after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant.

In the same case, we held that for as long as there is yet no petition for its cancellation, the notice of adverse claim remains subsisting: Thus: At first blush, the provision in question would seem to restrict the effectivity of the adverse claim to thirty days. But the above provision cannot and should not be treated separately, but should be read in relation to the sentence following, which reads:

After the lapse of said period, the annotation of the adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest. If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the lapse of thirty days, then it would not have been necessary to include the foregoing caveat to clarify and complete the rule. For then, no adverse claim need be cancelled. If it has been automatically terminated by mere lapse of time, the law would not have required the party in interest to do a useless act.[10]

In a petition for cancellation of adverse claim, a hearing must first be conducted. The hearing will afford the parties an opportunity to prove the propriety or impropriety of the adverse claim.[11] Now, as we see it, the recourse will either rise or fall on the decisive question of whether or not respondents were purchasers in good faith when they acquired the disputed lot despite the annotated adverse claim on their title. We rule and so hold that they were not. The Court has invariably ruled that in case of conflict between a vendee and an attaching creditor, an attaching creditor who registers the order of attachment and the sale of the property to him as the highest bidder acquires a valid title to the property as against a vendee who had previously bought the same property from the same owner but who failed to register his deed of sale. This is because registration is the operative act that binds or affects the land insofar as third persons are concerned. It is upon registration that there is notice to the whole world. But where a party has knowledge of a prior existing interest, as here, 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.[12] Knowledge of an unregistered sale is equivalent to registration.[13] The general rule is that a person dealing with registered land is not required to go behind the register to determine the condition of the property. In that case, such person is charged with notice of the burden on the property which is noted on the face of the register or certificate of title.[14] Article 1544 of the Civil Code governs in cases of double sale. It provides:

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. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. An innocent purchaser for value or any equivalent phrase shall be deemed to include, under the Torrens System, the innocent lessee, mortgagee, and other encumbrancer for value.[15] In Bautista v. Court of Appeals,[16] we held that where the thing sold twice is an immovable, the one who acquires it and first registers it in the Registry of Property, in good faith, shall be the owner. Who then can be considered a purchaser in good faith? In the early case of Leung Yee v. F.L. Strong Machinery Co. and Williamson,[17] the Court explained good faith in this wise: One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.[18] Good faith, or the want of it, is capable of being ascertained only from the acts of one claiming its presence, for it is a condition of the mind which can only be judged by actual or fancied token or signs.[19] It is beyond dispute that the property in question had already been sold by La Fuente to petitioners on September 5, 1985. Petitioners immediately took possession thereof. When the Notice of Levy on Attachment was recorded at the dorsal portion of TCT No. 83618 and when the Writ of Execution and Certificate of Sale were inscribed under Entry No. 3434-2 in favor of respondents, on January 26, 1989, petitioners have

been, since September 5, 1985, in actual, physical, continuous and uninterrupted possession. The law does not require a person dealing with the owner of registered land to go beyond the certificate of title as he may rely on the notices of the encumbrances on the property annotated on the certificate of title or absence of any annotation. Here, petitioners adverse claim is annotated at the back of the title coupled with the fact that they are in possession of the disputed property. To us, these circumstances should have put respondents on guard and required them to ascertain the property being offered to them has already been sold to another to prevent injury to prior innocent buyers. A person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value. It is a well-settled rule that a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor.[20] As aptly observed by the RTC, regardless of the non-registration of the Deed of Absolute Sale to petitioners, nor the 30-day effectivity of the adverse claim under Section 70 of PD 1529, respondents were constructively notified of petitioners prior purchase of the disputed property. We quote with approval the RTCs observation on this matter, thus: xxx In derogation to defendants claim that they have a better right over the questioned property superior over that of the plaintiffs, the Court has only to carefully examine the face of TCT No. 83618 and its dorsal part on Memorandum of Encumbrances for entries and inscriptions in their chronological order of dates of annotation of documents in the Office of the Register of Deeds. On the title itself it is readily perceived and palpable that Entry No. 86-62262/T-83618 in reference to the Adverse Claim executed by plaintiff Jesus Ching was registered way ahead on November 20, 1986 compared to Entries Nos. 3433-2, 3434-2 and 736-3, respectively the Notice of Levy, Writ of Execution and Certificate of Sale in favor of spouses defendants Enrile which were duly registered on August 19, 1988 (for the first two documents) and on March 21, 1989 (for the last document). Perforce, before the registrations of the three documents purporting to be the rights and interests of defendants in the property in question, the defendants more particularly and the whole world in general were given constructive notice that Raymunda La Fuente, the judgment debtor in Civil Case No. 54617 of the Regional Trial Court of Pasig, has no more interest and rights to the property subject of litigation. Defendants should have at the first instance been duly warned and notified that the

property involved in litigation subject to attachment and levy, execution and sale from actual registration of the defendants documents referred herein. The annotation of inscription to Entry No. 86-622/T-83618 is obviously and indeed very clear indicating that the plaintiffs registered adverse claim in reference to the sale of the same property sought by defendants to be levied on attachment, final execution and sale came ahead.
[21]

Hence, the particular circumstances of this case constrain us to rule that respondents were not purchasers in good faith and, as such, could not acquire good title to the property as against the former transferee.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals promulgated on August 29, 2002, in CA-G R. CV No. 42985, and the Resolution dated November 21, 2002 are hereby REVERSED and SET ASIDE. In lieu thereof, the decision of the Regional Trial Court, of Makati City Branch 135, dated May 11, 1993, in Civil Case No. 90-064 is REVIVED and AFFIRMED in toto.

EN BANC G.R. No. L-11658 February 15, 1918

LEUNG YEE, plaintiff-appellant, vs. FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees. Booram and Mahoney for appellant. Williams, Ferrier and SyCip for appellees. CARSON, J.: The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery company from the defendant machinery company, and executed a chattel mortgage thereon to secure payment of the purchase price. It included in the mortgage deed the building of strong materials in which the machinery was installed, without any reference to the land on which it stood. The indebtedness secured by this instrument not

having been paid when it fell due, the mortgaged property was sold by the sheriff, in pursuance of the terms of the mortgage instrument, and was bought in by the machinery company. The mortgage was registered in the chattel mortgage registry, and the sale of the property to the machinery company in satisfaction of the mortgage was annotated in the same registry on December 29, 1913. A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola Filipina" executed a deed of sale of the land upon which the building stood to the machinery company, but this deed of sale, although executed in a public document, was not registered. This deed makes no reference to the building erected on the land and would appear to have been executed for the purpose of curing any defects which might be found to exist in the machinery company's title to the building under the sheriff's certificate of sale. The machinery company went into possession of the building at or about the time when this sale took place, that is to say, the month of December, 1913, and it has continued in possession ever since. At or about the time when the chattel mortgage was executed in favor of the machinery company, the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to the plaintiff upon the building, separate and apart from the land on which it stood, to secure payment of the balance of its indebtedness to the plaintiff under a contract for the construction of the building. Upon the failure of the mortgagor to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured judgment for that amount, levied execution upon the building, bought it in at the sheriff's sale on or about the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered in the land registry of the Province of Cavite. At the time when the execution was levied upon the building, the defendant machinery company, which was in possession, filed with the sheriff a sworn statement setting up its claim of title and demanding the release of the property from the levy. Thereafter, upon demand of the sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon which the sheriff sold the property at public auction to the plaintiff, who was the highest bidder at the sheriff's sale. This action was instituted by the plaintiff to recover possession of the building from the machinery company. The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of the machinery company, on the ground that the company had its title to the building registered prior to the date of registry of the plaintiff's certificate. Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the ownership shall be transfer to the person who may have the first taken possession thereof in good faith, if it should be personal property. Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry. Should there be no entry, the property shall belong to the person who first took possession of it in good faith, and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. The registry her referred to is of course the registry of real property, and it must be apparent that the annotation or inscription of a deed of sale of real property in a chattel mortgage registry cannot be given the legal effect of an inscription in the registry of real property. By its express terms, the Chattel Mortgage Law contemplates and makes provision for mortgages of personal property; and the sole purpose and object of the chattel mortgage registry is to provide for the registry of "Chattel mortgages," that is to say, mortgages of personal property executed in the manner and form prescribed in the statute. The building of strong materials in which the rice-cleaning machinery was installed by the "Compaia Agricola Filipina" was real property, and the mere fact that the parties seem to have dealt with it separate and apart from the land on which it stood in no wise changed its character as real property. It follows that neither the original registry in the chattel mortgage of the building and the machinery installed therein, not the annotation in that registry of the sale of the mortgaged property, had any effect whatever so far as the building was concerned. We conclude that the ruling in favor of the machinery company cannot be sustained on the ground assigned by the trial judge. We are of opinion, however, that the judgment must be sustained on the ground that the agreed statement of facts in the court below discloses that neither the purchase of the building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was made in good faith, and that the machinery company must be held to be the owner of the property under the third paragraph of the above cited article of the code, it appearing that the company first took possession of the property; and further, that the building and the land were sold to the machinery company long prior to the date of the sheriff's sale to the plaintiff. It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith," in express terms, in relation to "possession" and "title," but contain no express requirement as to "good faith" in relation to the "inscription" of the property on the registry, it must be presumed that good faith is not an essential requisite of registration in order that it may have the effect contemplated in this article. We cannot agree with this contention. It could not have been the intention of the legislator to base the preferential right secured under this article of the code upon an inscription of title in

bad faith. Such an interpretation placed upon the language of this section would open wide the door to fraud and collusion. The public records cannot be converted into instruments of fraud and oppression by one who secures an inscription therein in bad faith. The force and effect given by law to an inscription in a public record presupposes the good faith of him who enters such inscription; and rights created by statute, which are predicated upon an inscription in a public registry, do not and cannot accrue under an inscription "in bad faith," to the benefit of the person who thus makes the inscription. Construing the second paragraph of this article of the code, the supreme court of Spain held in its sentencia of the 13th of May, 1908, that: This rule is always to be understood on the basis of the good faith mentioned in the first paragraph; therefore, it having been found that the second purchasers who record their purchase had knowledge of the previous sale, the question is to be decided in accordance with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911] edition.) Although article 1473, in its second paragraph, provides that the title of conveyance of ownership of the real property that is first recorded in the registry shall have preference, this provision must always be understood on the basis of the good faith mentioned in the first paragraph; the legislator could not have wished to strike it out and to sanction bad faith, just to comply with a mere formality which, in given cases, does not obtain even in real disputes between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of the La Revista de los Tribunales, 13th edition.) The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery company had bought the building from plaintiff's judgment debtor; that it had gone into possession long prior to the sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. The execution of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery company had filed its sworn claim of ownership, leaves no room for doubt in this regard. Having bought in the building at the sheriff's sale with full knowledge that at the time of the levy and sale the building had already been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to have been a purchaser in good faith; and of course, the subsequent inscription of the sheriff's certificate of title must be held to have been tainted with the same defect. Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of sale to the plaintiff was not made in good faith, we should not be understood as questioning, in any way, the good faith and genuineness of the plaintiff's claim against the "Compaia Agricola Filipina." The truth is that both the plaintiff and the defendant

company appear to have had just and righteous claims against their common debtor. No criticism can properly be made of the exercise of the utmost diligence by the plaintiff in asserting and exercising his right to recover the amount of his claim from the estate of the common debtor. We are strongly inclined to believe that in procuring the levy of execution upon the factory building and in buying it at the sheriff's sale, he considered that he was doing no more than he had a right to do under all the circumstances, and it is highly possible and even probable that he thought at that time that he would be able to maintain his position in a contest with the machinery company. There was no collusion on his part with the common debtor, and no thought of the perpetration of a fraud upon the rights of another, in the ordinary sense of the word. He may have hoped, and doubtless he did hope, that the title of the machinery company would not stand the test of an action in a court of law; and if later developments had confirmed his unfounded hopes, no one could question the legality of the propriety of the course he adopted. But it appearing that he had full knowledge of the machinery company's claim of ownership when he executed the indemnity bond and bought in the property at the sheriff's sale, and it appearing further that the machinery company's claim of ownership was well founded, he cannot be said to have been an innocent purchaser for value. He took the risk and must stand by the consequences; and it is in this sense that we find that he was not a purchaser in good faith. One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor. His mere refusal to believe that such 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 afterwards develops that the title was in fact defective, and it appears that he had such notice of the defects as would have led to its discovery had he acted with that measure of precaution which may reasonably be acquired of a prudent man in a like situation. Good faith, or lack of it, is in its analysis a question of intention; but in ascertaining the intention by which one is actuated on a given occasion, we are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined. So it is that "the honesty of intention," "the honest lawful intent," which constitutes good faith implies a "freedom from knowledge and circumstances which ought to put a person on inquiry," and so it is that proof of such knowledge overcomes the presumption of good faith in which the courts always indulge in the absence of proof to the contrary. "Good faith, or the want of it, is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged of by actual or fancied tokens or

signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.) We conclude that upon the grounds herein set forth the disposing part of the decision and judgment entered in the court below should be affirmed with costs of this instance against the appellant. So ordered.

SECOND DIVISION

[G.R. No. 150730. January 31, 2005]

MILA SALES LLANTO, YOLANDA SALES CABILLO, OSCAR SALES, ACQUILINA[1] SALES, FRANCISCO SALES, ALBERTO SALES, GLORIA SALES ALIPIO, EDUARDO SALES, EMERCIA-NA [2] SALES ALGIRE, ELENITA SALES SERRANO, and CONRADO SALES, petitioners, vs. ERNESTO ALZONA, DOMINADOR ALZONA, ESTELA SALES PELONGCO,[3] and the REGISTER OF DEEDS OF CALAMBA, LAGUNA, respondents. DECISION AUSTRIA-MARTINEZ, J.: Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Decision[4] of the Court of Appeals (CA) promulgated on March 19, 2001 in CA-G.R. CV No. 52951,[5] which affirmed with modification the decision dated May 30, 1996 of the Regional Trial Court (RTC) of San Pedro, Laguna (Branch 31); and the Resolution dated October 26, 2001, denying petitioners motion for reconsideration. The facts of the case are as follows: Bernardo Sales and Maria Sales were husband and wife. They have twelve children, eleven of whom are the present petitioners while the remaining child, Estela Sales Pelongco, is one of herein respondents. Maria was the registered owner of a certain parcel of land with an area of 202 square meters and covered by Original Certificate of Title

(OCT) No. P-3225 which she acquired under a free patent. [6] The property is located at Banlic, Cabuyao, Laguna.[7] Until they died, Maria and Bernardo, together with some of their children, lived on said land and in the house which they constructed thereon. Maria died on August 27, 1986[8] while Bernardo died on January 1, 1997. On January 29, 1990, a real estate mortgage contract was purportedly executed by Maria, who was already deceased at that time, and Bernardo in favor of herein respondent Dominador Alzona.[9] Respondent Estela Sales Pelongco signed as an instrumental witness to the mortgage contract.[10] Respondent Ernesto Alzona admitted that while he was a co-mortgagee of his brother, Dominador, his name does not appear in the mortgage contract. The mortgage was subsequently foreclosed for alleged failure of Bernardo and Maria to settle their obligation secured by the said mortgage. The property was thereafter sold in a mortgage sale conducted on December 20, 1990 wherein Ernesto Alzona was the highest bidder. Consequently, a certificate of sale was awarded to Ernesto on December 20, 1990,[11] and on January 22, 1992, he executed a Consolidation of Ownership over the property.[12] Accordingly, Transfer Certificate of Title No. T-261853 was issued in his name while OCT No. P-3225 in the name of Maria Sales was cancelled.
[13]

On December 17, 1992, herein petitioners caused the inscription of an adverse claim on the title to the property.[14] On October 15, 1993, herein petitioners filed before the RTC of San Pedro, Laguna a complaint for Annulment of Mortgage and of Auction Sale, with Reconveyance of Title and Damages.[15] Respondents Ernesto and Dominador Alzona and the Register of Deeds of Calamba, Laguna filed their answers, respectively. However, respondent Estela Sales Pelongco failed to file her answer; as a consequence of which, she was declared in default. After trial, the RTC rendered judgment, the dispositive portion of which reads as follows: WHEREFORE, judgment is hereby rendered in favor of defendants Dominador Alzona and Ernesto Alzona and against Estela Sales dismissing plaintiffs complaint with costs against plaintiffs, and ordering plaintiffs to pay defendants Dominador Alzona and Ernesto Alzona the sum of P50,000 plus P1,000 per court appearance for and as attorneys fees. For paucity of evidence, no judgment can be rendered by this Court on the other reliefs prayed for by defendants Dominador Alzona and Ernesto Alzona in their counterclaim against the plaintiffs and in their crossclaim against defendant Estela Sales. Relative to plaintiffs complaint against defendant Estela Sales, judgment is hereby rendered in favor of the plaintiffs and against defendant Estela Sales by ordering the latter

to pay the plaintiffs the amount of P30,000 for and as attorneys fees plus P1,000 per court appearance and P200,000 for moral damages. For paucity of evidence, no judgment can be rendered on the other reliefs prayed for by plaintiffs in their complaint against defendant Estela Sales. For lack of evidence, the complaint of plaintiffs against defendant Register of Deeds of Laguna, Calamba Branch, is as it is, hereby DISMISSED. SO ORDERED.[16] Aggrieved by the trial courts decision, petitioners filed an appeal with the CA. On March 19, 2001, the CA rendered a decision affirming the judgment of the RTC but deleting the attorneys fees awarded to petitioners.[17] Petitioners motion for reconsideration was denied in a resolution issued by the Court of Appeals on October 26, 2001.[18] Hence, herein petitioners filed the present petition on the following grounds: GROUNDS FOR THE PETITION A. THE RULE THAT A PURCHASER OR MORTGAGEE OF LAND IS NOT OBLIGATED TO LOOK BEYOND THE CERTIFICATE OF TITLE CANNOT BE APPLIED WHERE THERE IS NO QUESTION AS TO THE TITLE OF THE MORTGAGOR AND WHERE A DIFFERENT PERSON MORTGAGED THE PROPERTY. B. A MORTGAGEE, SPECIALLY ONE WHO IS IN THE LENDING BUSINESS, IS LEGALLY REQUIRED TO TAKE THE NECESSARY PRECAUTIONS WHICH PRUDENCE WOULD DICTATE, BEFORE ENTERING INTO A MORTGAGE CONTRACT.[19] In the present case, since it is no longer disputed that the mortgagors were not the owners of the property subject of the petition the question that remains is whether Ernesto and Dominador are mortgagees in good faith. Petitioners contend that the principle regarding innocent purchasers for value enunciated by the CA in its decision is not applicable to the present case because in the cases cited by the CA there was no question that the mortgagors were the real owners of the property that was mortgaged, while in the instant case, the mortgagors were impostors who pretended as the real owners of the property. We do not agree. The principle of innocent purchasers for value is applicable to the present case.

Under Article 2085 of the Civil Code, one of the essential requisites of the contract of mortgage is that the mortgagor should be the absolute owner of the property to be mortgaged; otherwise, the mortgage is considered null and void. [20] However, an exception to this rule is the doctrine of mortgagee in good faith. Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. [21] This principle is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title.[22] This is the same rule that underlies the principle of innocent purchasers for value cited by the CA in its decision. The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor to the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. [23] Hence, even if the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee in good faith is, nonetheless, entitled to protection.[24] For persons, more particularly those who are engaged in real estate or financing business like herein respondents Ernesto and Dominador Alzona, to be considered as mortgagees in good faith, jurisprudence requires that they should take the necessary precaution expected of a prudent man to ascertain the status and condition of the properties offered as collateral and to verify the identity of the persons they transact business with, particularly those who claim to be the registered property owners. [25] In the instant case, the CA affirmed the ruling of the trial court that Ernesto and Dominador are mortgagees in good faith. The trial court gave credence to Ernestos testimony that he conducted a credit investigation before he approved the loan sought and the property mortgaged. It is well settled in our jurisdiction that the determination of credibility of witnesses is properly within the domain of the trial court as it is in the best position to observe their demeanor and bodily movements. [26] Further, findings of the trial court with respect to the credibility of witnesses and their testimonies are entitled to great respect, and even finality, unless said findings are arbitrary, or facts and circumstances of weight and influence have been overlooked, misunderstood, or misapplied by the trial judge which, if considered, would have affected the case. [27] These findings are binding on this Court especially when affirmed by the appellate court. [28] After a re-examination of the evidence presented, we find no cogent reason to depart from this rule. Indeed, a perusal of the testimony of Ernesto proves that he exercised the necessary precautions to ascertain the status of the property sought to be mortgaged and the identity of the mortgagors. During his cross-examination he testified as follows: q. And according to you, you made a credit investigation of the property in question?

a. Yes, sir.

q.

And you went to the place because according to you of a sketch given to you by Estela? Where in Brgy. Banlic is the property specifically located in relation to any landmark? The question is rather vague, Your Honor.

a. Yes, sir. q.

Pampolina:

You mentioned perhaps a place that is known that is near the place. Court: Witness may answer. Where in Brgy. Banlic is the property located, Mr. Witness? a. It is about five (5) houses away before reaching the junction going to Brgy. Mamatid and in the corner, there is the Rural Bank of Cabuyao, sir. Mendoza: You were only equipped with a sketch given to you by Estela. How were you able to see specifically the property? a. I inquired from the neighbors, sir. q. Who among the neighbors did you inquire? The question is who? a. The first one is a male residing.. Court: q. q. a. Felix Icepel and the second one is Auring Sales, wife of Francisco Sales, sir. When you asked these persons, did you ask where was Maria Sales? Did this Felix Icepel pointed to you the house of Bernardo Sales and Maria Sales? Did you also ask Auring Sales about the house of Maria Sales? Why did you ask again Auring Sales about the house of Maria Sales considering that youve asked Felix Icepel about this. Aside from asking their houses, did you ask whether Maria Sales and Bernardo Sales were there? a. No, sir.

a. Yes, sir. q. q. a. Yes, sir.

a. Because I would like to have two witnesses, sir. q.

a. I did not ask, sir.

Court: Considering that Aurings surname is Sales and the one applying for a loan from you is also surnamed Sales, did you ask her if she has any relation with the Saleses? a. Yes, maam. She even volunteered. q. q. q. What was the answer? You also said that Auring is the wife of Francisco Sales? And Francisco Sales is one of the children of Maria Sales and Bernardo Sales? For which reason she is claiming that she is the daughter-in-law of Bernardo Sales and Maria Sales? Continue. a. That she is the daughter-in-law of Bernardo Sales and Maria Sales, sir. a. Yes, maam.

a. Yes, maam. q.

a. Yes, maam. Court: Mendoza: You pointed to two persons earlier whom you said went to your house? a. Yes, sir. q. And who were they when you said them? a. They are Estela, the couple, Yolanda, Gloria, Conrado and three other women, sir. q. q. q. Where did you meet these persons? And you were able to talk to Maria Sales at that time? And when the couple went to you in November, 1989, they were the same couple whom you met in the house of Bernardo Sales? And when you saw Bernardo Sales, he can walk? At that time you went to their house, did he stand up? a. Inside the house of Bernardo Sales and Maria Sales, sir. a. Yes, sir.

a. Yes, sir. q. q. a. He was sitting down at that time, sir.

a. Yes, sir. I think he stood up. q. q. q. q. And Maria Sales offered you a coffee at that time? What time did you go there when you made a credit investigation? And for how long did you talk with the couple, Yolanda, Gloria and Estela? You pointed earlier the person of Yolanda whom you said you saw on January 26, 1990 inside the house of the Saleses? And you also mentioned of Gloria Sales whom you said is not in court today? And you saw this woman when she testified in court? And you saw her several times before she testified in court until she completed her testimony? a. No, sir. a. It was in the morning, sir. a. It lasted for 30 minutes, sir.

a. Yes, sir. q.

a. Yes, sir. q. q. a. Yes, sir.

a. Yes, sir. When she came to my house. Mendoza: We would like to make it on record that Gloria Sales Alipio is now present in court. Pampolina: But with eyeglasses, Your Honor. She was not wearing an eyeglass when she took the witness stand. Mendoza: I would like to manifest Your Honor that even a person is wearing eyeglasses, if you saw her several times, you know her. Court: Alright. Gloria Sales is there. Continue. Mendoza: During that meeting with the couple, Estela, Gloria, Yolanda and Conrado in January 1990 at the house of the Saleses, were they together inside the house? a. Yes, sir. q. q. Who among the group greeted you? And Estela told you the property they were mortgaging? a. Estela, sir.

a. Yes, sir. Their house. q. q. And again the couple was introduced to you by Estela? When you went to the place, Estela, Yolanda, Gloria, Conrado and the couple did not know that you would go to their place on January 26, 1990? He will be incompetent. a. No, sir. I was introduced to the brother and sisters.

Court:

Mendoza: Why did you say that Yolanda, Gloria, Conrado were expecting you when in fact you have not met them? a. Because Estela asked when I am going to visit their place, she even made a sketch of their place, and I said, probably on January 26, 1990 because that is the feast day of St. Policarp and its Mendoza: Okay, thats it.[29] The CA affirmed the findings of the trial court that petitioners never disputed Ernestos claim that when he inspected the subject property on January 26, 1990, he met petitioners Yolanda, Gloria and Conrado together with Estela and the persons whom he knew as Bernardo and Maria Sales at the house built inside the premises of the said property. A further reading of the transcript of stenographic notes reveals that Ernesto even went inside the house and, in the presence of the aforementioned persons, discussed with Estela the matter regarding the loan they were seeking and the mortgage of the subject property.[30] It was only in their motion for reconsideration filed with the CA did petitioners dispute the foregoing claims of Ernesto. However, their disputation merely consisted in denying that Ernesto met Gloria Sales inside the house of Bernardo and Maria. They did not contradict Ernestos claim that he also met Conrado and Yolanda inside the said house. On the contrary, the truth of the abovementioned claims of Ernesto is bolstered by the testimonies of Francisco and Gloria Sales to the effect that during the period between 1989 and 1990, Estela, Yolanda, Gloria and Conrado were all living in the house built on the subject property. [31] The trial court also gave credence to Ernestos testimony that prior to the execution of the contract of mortgage, he was even shown a copy of the OCT and the tax declaration in the name of Maria Sales. [32] From the foregoing, we find no error in the ruling of the CA that Ernesto sufficiently established that he acted in good faith by exercising due diligence in ascertaining the status of the property mortgaged and the identity of the owners and occupants of the said property; that it was Estela and the persons who represented themselves as Bernardo and Maria who perpetrated the fraud. Hence, Ernesto can no longer be faulted if he was led into believing that the old man and woman whom he met in November 1989 and January 1990 are Bernardo and Maria Sales when, in fact, they are not. While it was also established that petitioners Yolanda, Gloria and Conrado were present at the time Ernesto conducted his credit investigation on January 26, 1990, no

direct and conclusive evidence was presented to show that they had sufficient knowledge of the fraud that was perpetrated by their sister Estela and the persons posing as Bernardo and Maria as to hold them equally guilty of such fraud. In fine, we hold that respondents Ernesto and Dominador Alzona are mortgagees in good faith and, as such, they are entitled to the protection of the law. WHEREFORE, the instant petition is DENIED and the assailed decision and resolution of the Court of Appeals in CA-G.R. CV No. 52951 are AFFIRMED in toto. SO ORDERED. Puno, (Chairman), Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.
[1] [2] [3] [4]

Spelled as Aquilina in other parts of the record and TSN. Spelled as Emerenciana in other parts of the record and TSN. Spelled as Pillongco in other portions of the record and TSN. Penned by Justice Eloy R. Bello, Jr. and concurred in by Justices Eugenio S. Labitoria and Perlita J. Tria Tirona. Entitled, Bernardo Sales, et. [sic] al., plaintiffs-appellants, vs. Ernesto Alzona, et. [sic] al., defendants-appellees. Exhibit B, Original Records, p. 151. Ibid. Exhibit A, OR, p. 262. Exhibit C, OR, pp. 267-268. Ibid. Exhibit 11, OR, p. 352. Exhibit 21, OR, pp. 361-362. Exhibit 22, OR, p. 363. Exhibit B-3, OR, pp. 264-266. OR, p. 1. The dispositive portion of the decision was amended on June 6, 1996 per RTC Order of even date, OR, p. 489. CA Rollo, pp. 83-89. CA Rollo, p. 123.

[5]

[6] [7] [8] [9]

[10] [11] [12] [13] [14] [15] [16]

[17] [18]

[19] [20]

Rollo, pp. 20-21. Art. 2085. The following requisites are essential to the contracts of pledge and mortgage: (1) (2) (3) That they be constituted to secure the fulfillment of a principal obligation; That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged; That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.
[21] [22] [23]

Cavite Development Bank vs. Lim, February 1, 2000, 324 SCRA 346, 358. Ibid. Cebu International Finance Corporation vs. Court of Appeals, February 13, 1997, 268 SCRA 178, 188-189. Cabuhat vs. Court of Appeals, September 28, 2001, 366 SCRA 176, 186. Adriano vs. Pangilinan, January 16, 2002, 373 SCRA 544, 553. Rodriguez vs. Court of Appeals, June 17, 1997, 273 SCRA 607, 616; Dela Cruz vs. Court of Appeals, July 20, 2001, 361 SCRA 636, 645. Ibid. Ibid. TSN, July 6, 1995, pp. 45-54. TSN, July 6, 1996, pp. 25-27. TSN, Testimony of Francisco Sales, December 1, 1994, pp. 28-29; TSN, Testimony of Gloria Sales Alipio, March 24, 1995, p. 10. TSN, June 16, 1995, p. 15.

[24] [25] [26]

[27] [28] [29] [30] [31]

[32]

SECOND DIVISION G.R. Nos. L-48971 & 49011 January 22, 1980

PACIFICO GARCIA, petitioner-appellant, vs. BENJAMIN M. GOZON, TECLA GUTIERREZ, ROSARIO FELIX, PAULINO D. BUENAVENTURA, RAYMUNDO DIONISIO, VIRGILIO AUSTRIA and MARCEON VICENCIO, respondents-appellees; PHILIPPINE NATIONAL BANK, petitioner-appellant, vs. COURT OF APPEALS (Third Division), CAROLINA LAPUZ- GOZON, assisted by her husband BENJAMIN M. GOZON, TECLA GUTIERREZ, ROSARIO FELIX, PAULINO D. BUENAVENTURA, RAYMUNDO DIONISIO, VIRGILIO AUSTRIA and MARCEON VICENCIO, respondents-appellees. Agapito Mendoza & Antonio G. Ibarra for appellant Pacifico Garcia Laurel Law Office and Flores Ocampo, Dizon & Domingo for private appellees.

AQUINO, J.: This case is about the issuance of two or more transfer certificates of title to different persons for the same lots, or subdivisions thereof, due to the fact that the original title was allegedly not cancelled when the first transfer certificates of title were issued to replace the original title. The factual background is as follows: 1. On August 9, 1918, a deed of sale for two parcels of land, E and G (with a total area of more than seven hectares) of the Hacienda Maysilo, located in Malabon, Rizal and covered by Original Certificate of Title No. 983, was executed in favor of Ismael Lapus a bona fide occupant thereof. The deed was executed pursuant to an order of the Court of First Instance of Rizal in Civil Case No. 391, Negao vs. Vidal, a partition proceeding involving the said hacienda (See Bustamante vs. Tuason, 47 Phil. 433, 434). 2. The deed of sale was presented for registration at two-twenty five in the afternoon of January 15, 1920 and was recorded as Primary Entry No. 7710. That deed of sale itself contains the following entries showing that it was annotated on the back of OCT NO. 983: Presentado en este Registro a las 2:25 de la tarde del dia de hoy segun el Asiento No. 7710 de tomo 10 del Libro Diario, Pasig, Rizal, Enero 15, 1920. Register of Deeds (Exh. B-12)

Inscrito el documento que precede al dorso del certificado de Titulo Original No. 983 del Tomo A-9, de inscritor en las paginas 113 y 114 ambos del libro T-25 de registro como certificados de titulo Nos. 4910 y 4911, archivado en el legajo T-#4910. Pasig, Rizal, Enero 15, 1920.: Register of Deeds (Exh. B-1). However, it seemed that, contrary to the foregoing entry and the official routine or standard operating procedure, the deed of sale was not annotated on OCT No. 983 and that, consequently, that title was apparently not cancelled. Why that annotation did not appear in OCT No. 983 and why there was no notation of the cancellation of that title, as it appeared in 1962, is a mystifying circumstance in this case. 3. As a result of the registration of that deed of sale, Transfer Certificate of 'Title No. 4910 was issued to Lapus for the two parcels of land, E and G, and I Transfer Certificate of Title No. 4911 was issued for the remaining five lots covered by OCT No. 983 (which embrace an area of more than two hundred fifty-eight hectares registered in the names of more than twenty-six-co-owners). TCT Nos. 4910 and 4911 contain the following entries: "Transfer from No. 983. Originally registered on the 29th day of January, in the year 1917 in Book No. A-9, page 215, of the said Province of Rizal, pursuant to a decree entered in Case No. 3850." 4. Lapus on different occasions mortgaged the two parcels of land to secure his obligations to the Philippine National Bank, the Government and the Philippine Trust Company. He died in 1951. The two parcels of land were inherited by his daughter, Carolina Lapuz-Gozon. She became the registered owner of the two lots. She subdivided them into fifty-five lots. She sold some of the subdivision lots to her co-respondentsappellees herein. Lapus and his successors-in-interest have been in possession of the two parcels even before 1910 or for more than seventy years. 5. Meanwhile, in 1962, certain. alleged heirs (collectively known as the Riveras) of the late Maria de la Concepcion Vidal filed a motion in Land Registration Cases Nos. 4429 and 4496 of the Court of First Instance of Rizal, alleging that they were deprived of their participation in the Hacienda Maysilo covered by OCT No. 983 and for other titles and that, since only OCT No. 983 was supposedly unencumbered, all the land covered by that title should be adjudicated to them. The court granted the motion. It should be stressed that OCT No. 983 appears to have remained uncancelled notwithstanding the sale to Lapus of two parcels covered by it and the fact that it had been replaced by TCT Nos. 4910 and 4911. 6. On June 7, 1963, OCT No. 983 was definitely cancelled and in lieu thereof Transfer Certificate of Title No. 112236 was issued to the Riveras. Later, Lots 5 and 7 of the said title (corresponding to parcels E and G which were sold to Ismael Lapus in 1918 as stated

earlier) were assigned by Bartolome Rivera to Sergio Cruz and Pacifico Garcia and TCT Nos. 112743 and 112742 were issued to Cruz and Garcia, respectively. Thus, two sets of transfer certificates of title for Lots E and G or 5 and 7, originally covered by OCT No. 983, were issued, one to the heir of Ismael Lapus and another set to the successors-ininterest of the Riveras. 7. On October 22, 1964, Garcia subdivided Lot 7 (G) into Lots A and B. Garcia retained Lot A and obtained TCT No. 134958 for it. He assigned Lot B to Antonio Muoz on November 5, 1964. As a consequence of the assignment, TCT No. 112742 was cancelled and TCT No. 134957 was issued to Muoz. In 1965, he mortgaged Lot B to the Associated Banking Corporation to secure a loan of P200,000. 8. On the other hand, on July 17, 1964 Cruz sold to Santiago Go Lot 5 (E) covered by TCT No. 112743. TCT No. 131329 was issued to Go on August 25,1964. On December 23, 1964, Go mortgaged Lot 6 to the Philippine National Bank (PNB) to secure a loan of P50,000 which was later increased to P60,000. 9. Muoz and Go did not pay their mortgage debts. The two banks foreclosed the mortgages. The PNB bought the mortgaged lot at the auction sale held on May 4. 1967. The sheriff issued to it a certificate of sale dated May 19, 1967 but at that time there was already a notice of lis pendens annotated on the title of the mortgaged lot. TCT Nos. 212163 and 236881 for the mortgaged lots were issued to the Associated Banking Corporation and the Philippine National Bank, respectively. 10. The Riveras and their successors-in-interest have never set foot on the disputed lots. 11. Mrs. Gozon later learned that the Riveras and their successors-in-interest had acquired the land (more than two hundred fifty-eight hectares) covered by OCT No. 983. Her lawyer and a surveyor informed her that parcels E and G, which she inherited from her father, were identical to Lots 5 and 7 which were conveyed to Cruz and Garcia. She registered adverse claims on the titles covering Lots 5 and 7. On December 27, 1965 she and the persons to whom she had transferred portions of parcels E and G filed with the Court of First Instance of Rizal at Caloocan City against the Riveras, Cruz, Muoz, Garcia, Associated Banking Corporation, PNB and others an action to quiet title and for damages. 12. A notice of lis pendens was annotated on January 25, 1966 on the titles of Garcia, Muoz and Go. The notice of lis pendens was annotated on the title of the PNB when the sale in its favor was registered on December 13, 1969. 13. The trial court in its decision of July 30, 1975 declared valid TCT Nos. 141802 to 141855 and 143512 issued to Mrs. Gozon and her co-plaintiffs. It voided TCT No. 112235 issued to the Riveras and all titles and transactions emanating therefrom insofar

as those titles covered the lots embraced in plaintiffs' titles. The Riveras were ordered to pay the plaintiffs twenty thousand pesos as attorney's fees. 14. The trial court also ordered Muoz to pay the Associated Banking Corporation, in the event that the bank would be evicted from the lot covered by TCT No. 212153, two hundred sixty-five thousand seventy-two pesos and fifteen centavos with twelve percent interest per annum from the date of the eviction plus ten thousand pesos as attorney's fees. 15. Santiago Go was ordered to pay the PNB, should it be evicted from the lot covered by TCT No. 236881, the sum of sixty thousand pesos plus nine percent interest per annum from the date of the eviction and six thousand pesos as attorney's fees. 16. That judgment of the trial court was affirmed by the Court of Appeals in its decision of May 25, 1978. Garcia and the PNB appealed from that decision. The Associated Banking Corporation, now the Associated Citizens Bank, tried to appeal but it was not able to file its petition for review (L-49010). Garcia contends that the Court of Appeals erred in not holding that his title is valid and that the titles of Ismael Lapus and his successors-in-interest lost their right to the disputed lots due to their negligence or inaction. The issue is whether the 1920 title issued to Lapus and the titles derived therefrom should prevail over the 1963title issued to the Riveras and the subsequent titles derived from it. Should Lapus' title prevail even if it was not annotated by the register of deeds on the anterior or parent title which was not cancelled before 1963? It was that noncancellation which led to the issuance of the duplicative title to the Riveras and eventually to the execution of the controversial mortgages and foreclosure sales to the two banks. We hold that the two appeals have no merit. The title of Lapus and the titles derived therefrom should be given effect. The title of the Riveras and the titles springing from it are void. There can be no doubt that Lapus was an innocent purchaser for value. He validly transmitted to his successors-in-interest his indefeasible title or ownership over the disputed lots or parcels of land. That title could not be nullified or defeated by the issuance forty-three Years later to other persons of another title over the same lots due to the failure of the register of deeds to cancel the title preceding the title issued to Lapuz. This must be so considering that Lapus and his interest remained in possession of the disputed successors in lots and the rival claimants never possessed the same. "The general rule is that in the case of two certificates of title, purporting to include the same land, the earlier in date prevail, whether the land comprised in the latter certificate

be wholly, or only in part, comprised in the earlier certificate" (Hogg, Australian Torrens System 823, citing cases and cited in Legarda and Prieto vs. Saleeby, 31 Phil. 590, 595). "Where two certificates (of title) purport to include the same land, the earlier in date prevails. ... In successive registrations, where more than once certificate is issued in respect of a party estate or interest in land, the Person claiming under the prior certificate is entitled to the estate or interest; and that person is deemed to hold under the prior certificate who is the holder of, or whose claim is derived directly or indirectly from the person who was the holder of the earliest certificate issued in respect thereof " (Niblack, Analysis of the Torrens System page 237, cited in Legarda and Prieto vs. Saleeby, supra, pages 595-6). And the rule that in case of double registration the owner of the earlier certificate is the owner of the land applies to the successive vendees of the owners of such certificates . "The vendee of the earlier certificate would be the owner as against the vendee of the owner of the later certificate" (Legarda and Prieto vs. Saleeby, supra, pages 597-9). It is settled that is this jurisdiction the maxim prior est in tempore, potior est in jure (he who is first in time is preferred in right) is followed in land registration matters (La Urbana vs. Bernardo, 62 Phil. 790, 806). Appellant Garcia invokes the ruling that the mere entry of a document in the day or entry book without noting it on the certificate of title is not a sufficient registration (Bass vs. De la Rama, 73 Phil. 682, 685). That ruling was superseded by the holding in the later six cases of Levin vs. Bass, 91 Phil. 420, where a distinction was made between voluntary and involuntary registration, such as the registration of an attachment, levy upon execution, notice of his pendens, and the like. In cases of involuntary registration, an entry thereof in the day book is a sufficient notice to all persons even if the owner's duplicate certificate of title is not presented to the register of deeds. On the other hand, according to the said cases of Levin vs. Bass, in case of voluntary registration of documents an innocent purchaser for value of registered land becomes the registered owner, and, in contemplation of law the holder of a certificate of title, the moment he presents and files a duly notarized and valid deed of sale and the same is entered in the day book and at the same time he surrenders or presents the owner's duplicate certificate of title covering the land sold and pays the registration fees, because what remains to be done lies not within his power to perform. The register of deeds is duty bound to perform it. (See Potenciano vs. Dineros, 97 Phil. 196.) The instant case is not Identical to the Bass cases. Here the deed of sale in favor of Lapus, which was judicially authorized, was entered in the entry book and a new title was issued

to him. As already stated, and this point should be underscored, the deed of sale in favor of Lapus contains the notation that it was annotated on the back of OCT No. 983 (presumably, the original and owner's duplicate thereof). But why in 1962 it appeared that no such annotation was found on the back of OCT No. 983, contrary to what was stated in the 1918 deed of sale, is a mystery that the trill court and the plaintiffs failed to unravel during the trial. Moreover, the title issued to Lapus contains the usual notation that it was a transfer from a previous title which in this case was OCT No. 983. It should be further observed that the deed of sale in favor of Lapus and the titles issued to him and his successors interest together with his mortgage in 1929 of the disputed lots to the PNB itself, are all a matter of public record in the registry of deeds. As stressed in Legarda and Prieto vs. Saleeby, 31 Phil. 590, 600, "the record is notice to all the world. All persons are charged with the knowledge of what it contains. All persons dealing with the land so recorded, or any portion of it, must be charged with notice of whatever it contains. The purchaser is charged with notice of every fact shown by the record and is presumed to know every fact which the record discloses. "When a conveyance has been properly recorded, such record is constructive notice of its contents and all interests, legal and equitable, included therein." "Under the rule of notice, it is presumed that the purchaser has examined every instrument of record affecting the title. Such presumption is irrefutable. He is charged with notice of every fact shown by the record and is presumed to know every fact which an examination of the record would have disclosed" (Legarda and Prieto vs. Saleeby, supra, page 600). As Justice Johnson says, "this presumption cannot be overcome by proof of innocence or good faith. Otherwise, the very purpose and object of the law requiring a record would be destroyed. Such presumption cannot be defeated by proof of want of knowledge of what the record contains any more than one may be permitted to show that he was ignorant of the provisions of the law. The rule that all persons must take notice of the facts which the public record contains is a rule of law. The rule must be absolute. Any variation would lead to endless confusion and useless litigation" (Legarda and Prieto vs. Saleeby, supra, pp. 600-601). As to the PNB's claim that it was a mortgagee and purchaser in good faith and for value, the Appellate Court held that the bank should have made an on-the-spot investigation of the lot mortgaged by Go to ascertain whether he was in possession of it or it was claimed by other persons. Its failure to do so precludes the bank from being considered as a mortgagee in good faith and for value (Gatioan vs. Gaffud, L-21953, March 28, 1969, 27 SCRA 706).

On the other hand, the trial court held that the PNB was not a buyer in good faith when it bought Go's lot at the auction sale because there was already a notice of his pendens annotated on his title. In the Gatioan case, it appears that in 1935 Rufina Permison secured a Torrens title for a parcel of land on the basis of a free patent. The land was sold to Encarnacion Gatioan and Transfer Certificate of Title No. T-1212 was issued to her. She mortgaged the land three times to the PNB In 1956, the spouses Sixto Gaffud and Villamora Logan were able to secure a Torrens title for the same lot also on the basis of a free patent. They mortgaged the land also to the PNB. The Secretary of Agriculture and Natural Resources, on discovering that two Torrens titles were issued for the same land, recommended the cancellation of the later title issued to the Gaffud spouses. As the PNB refused to cancel the mortgaged executed by Gatioan, in spite of the fact that she had made full payment of the mortgage debt, she filed against the Gaffud spouses and the PNB an action to quiet title. It was held that Gatioan's title should prevail over that of the Gaffud spouses and that the mortgage executed by them in favor of the PNB was void. The Gaffud spouse were ordered to pay damages to Gatioan. Since the applicable rule in the instant case is that the earlier certificate of title should be recognized as superior and controlling there is no justification for relying on the doctrine laid down by Justice Holmes in Eliason vs. Wilborn 281 U.S. 457, that "as between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss." There was no breach of trust in this case. What is note. worthy in this case is that after it was recited in the registered deed of sale that sale was annotated at the back of the title covering the lots sold, it turned out that the title did not contain such an annotation and that the title was not cancelled. For that anomaly, the purchaser, Ismael Lapus, the how" of the earlier title, was not culpable or blameworthy. WHEREFORE, the judgment of the Court of Appeals, affirming the decision of the trial court, should stand. Costs against the appellants. SO ORDERED. FIRST DIVISION G.R. No. L-69622 January 29, 1988

LILIA Y. GONZALES, petitioner, vs. INTERMEDIATE APPELLATE COURT and RURAL BANK OF PAVIA, INC., respondents.

GANCAYCO, J.: This is a petition for review on certiorari of the Decision of the Court of Appeals dated November 15,1983, 1affirming the decision of the trial court of July 16, 1975 2 dismissing the complaint for annulment of title and ordering plaintiff, herein petitioner, to deliver possession of the property covered by said title and to account for the produce thereof to defendant bank, private respondent herein. The antecedent facts of this case as found by the Appellate Court are as follows: The spouses Asuncion Sustiguer and Dioscoro Buensuceso were the original owners of Lot No. 2161 of the Cadastral Survey of Barotac Nuevo, the property subject of this controversy. For delinquency in the payment of the real estate taxes due thereon, the land was sold at public auction to the Province of Iloilo in 1955. Hortencia Buensuceso, daughter of said spouses, discovered in the office of the Register of Deeds of Iloilo that the Certificate of Title of subject land, OCT No. 3351, was still in the name of her parents. Hortencia paid the back taxes on the land in behalf of her mother (who by that time was already separated in fact from her father) in whose favor the Provincial Treasurer executed a deed of repurchase on April 10, 1969. On April 17, 1969, the spouses Gaudioso Panzo and Hortencia Buensuceso bought the land from the latter's mother for P1,000.00. Thereafter, the spouses Panzo filed a petition in the Court of First Instance of Iloilo for the reconstitution of the original certificate of title. On February 26,1971, a reconstituted original certificate of title was issued in the name of Asuncion Sustiguer alone. And by virtue of the sale of said property by Sustiguer to the spouses Panzo, her title was cancelled and in lieu thereof TCT No. T-64807 was issued by the Register of Deeds of Iloilo in the spouses' name on March 3, 1971. The said spouses then mortgaged the property to respondent Rural Bank of Pavia for P5,000.00. Upon their failure to pay the account, respondent bank foreclosed the mortgage on August 11, 1973 and the bank was the highest bidder. A certificate of sale was executed by the Provincial Sheriff in its favor. On April 18, 1974, petitioner as judicial co-administratrix of the Intestate Estate of the late Matias Yusay brought an action, against the spouses Panzo and the respondent Rural Bank seeking the annulment and cancellation of the title in the name of the Panzos and the issuance of a new title in favor of Yusay. In her complaint, 3 petitioner alleged among other things: that the subject property was first mortgaged to Yusay on April 30, 1929 by

the spouses Sustiguer and Buensuceso; that sometime November, 1934, said property was verbally sold to Yusay by the same spouses; that since Yusay bought the property in 1948, he and his administrator and later plaintiff administratrix, have been in possession of the property thru their tenant Elias Daguino until April 15, 1971, when defendants spouses Panzo wrested possession from their tenant; that on May 12, 1971, plaintiff administratrix filed an action, for forcible entry against them before the Municipal Court of Barotac Nuevo, Iloilo docketed as Civil Case No. 577; that the trial court having ruled in favor of plaintiffs on November 4, 1972, defendants spouses appealed the said decision to the Court of First Instance of Iloilo, where the said appeal still pends; that defendant Rural Bank was not a mortgagee in good faith for not having taken the necessary precaution before accepting the subject property as collateral for the loan granted the defendants-spouses. In its answer of May 14,1984 4 defendant Rural Bank set up the defense of good faith alleging that the certificate of title in the names of the spouses Panzo was free from any lien and that the rigid requirements for loan applications had been duly deserved by the Bank. It further claimed that on August 11, 1973, the mortgage executed by the spouses was foreclosed and defendant bank being the highest bidder was issued a certificate of sale by the Provincial Sheriff of Iloilo. Upon receipt of the answer of defendant Bank, plaintiff on July 15, 1974 moved to dismiss the case as regards defendants spouses Panzo on the ground that the subject property having already been sold to defendant Rural Bank, the said spouses ceased to have any interest in the property. 5 The lower court acting on this motion ordered the dismissal of the case on July 26, 1974 against the said defendant-spouses only. 6 After trial and submission of the respective memoranda of the parties, the court a quo addressing itself to the only issue of whether or not defendant Rural Bank was a mortgagee and subsequent buyer for value and in good faith ruled in favor of said defendant. 7 From the decision of the court a quo, petitioner appealed to the Intermediate Appellate Court which rendered its decision, subject of this petition, agreement in toto the decision of the court a quo. Thus: xxx xxx xxx This being so, whether or not the bank inspect d the premises or whether or not the reconstituted title was void is indeed irrelevant in the land in question was confiscated for non-payment of taxes and that it was sold at public auction, for if so, then at the time of its confiscation, in effect the land in question lost its Identity as private land and acquired the status of a government land to say the least. If sold at public auction and the buyer was

Asuncion Sustiguer, then all prior ownership there was cancelled, including that of the original owners, (the spouses Asuncion Sustiguer and her husband Dioscoro Buensuceso). Record shows they were later separated. There is therefore, no conjugal property to speak of for the exclusive buyer of the land at the public auction was Asuncion Sustiguer and she alone. When this was not redeemed by the couple as they were then separated, Asuncion Sustiguer became the exclusive owner of the land on the basis of the Tax Sale pursuant to Sec. 40 Com. Act No. 470 and Velasquez vs. Coroner, 9 SCRA 986-990. Its subsequent sale to the Panzos and later its acquisition by the Rural Bank, the herein defendant, is now beyond question. 8 In the petition for review before Us, herein petitioner, assigns the following errors: I THE INTERMEDIATE APPELLATE COURT COMMITTED AN ERROR OF LAW IN HOLDING THAT THE LAND IN QUESTION LOST ITS IdENTITY AS A PRIVATE LAND AND ACQUIRED THE STATUS OF A GOVERNMENT LAND, WHEN IT WAS SOLD AT PUBLIC AUCTION FOR NON-PAYMENT OF TAXES TO THE PROVINCE OF ILOILO, DIVESTING THE SPOUSES BUENSUCESO AND THEIR SUCCESSOR-IN-INTEREST, MATIAS YUSAY, OF THE OWNERSHIP THEREOF, WITH ASUNCION SUSTIGUER BECOMING THE EXCLUSIVE OWNER UPON HER REPURCHASE OF THE SAID LAND FROM THE PROVINCE OF ILOILO. II THE INTERMEDIATE APPELLATE COURT COMMITTED AN ERROR OF LAW IN NOT HOLDING THAT THE RECONSTITUTED TITLE IN THE NAME OF ASUNCION SUSTIGUER IS VOID FOR WANT OF JURISDICTION OF THE CADASTRAL COURT IN RECONSTITUTING THE SAME. III THE INTERMEDIATE APPELLATE COURT COMMITTED AN ERROR OF LAW IN NOT HOLDING THAT SINCE ADMITTEDLY THE SPOUSES PANZOS WERE GUILTY OF FRAUD IN SECURING THE SAID RECONSTITUTED TITLE IN THE NAME OF ASUNCION SUSTIGUER FROM THE CADASTRAL COURT, THEN THEY CAN NOT TRANSMIT TITLE TO DEFENDANT BANK.

IV THE INTERMEDIATE APPELLATE COURT COMMITTED AN ERROR OF LAW IN NOT HOLDING THAT THE PUBLIC AUCTION SALE OF THE PROPERTY IN QUESTION IN 1955 FOR NONPAYMENT OF TAXES IN FAVOR OF THE PROVINCE OF ILOILO, IS NULL AND VOID, FOR WANT OF NOTICE TO JOSE S. YUSAY, THEN ADMINISTRATOR OF THE ESTATE OF MATIAS YUSAY, HENCE THE SALE OF THE PROVINCE OF ILOILO IN FAVOR OF ASUNCION SUSTIGUER AND FROM HER TO THE SPOUSES PANZOS, ARE NULL AND VOID. V THE INTERMEDIATE APPELLATE COURT ERRED IN NOT RESOLVING THE FOLLOWING ERRORS OF FACT OF THE TRIAL COURT. (a) The lower court erred in finding that defendant bank has made an ocular inspection of the property prior to the granting of the loan in favor of the spouses Gaudioso Panzo and Hortencia Buensuceso; (b) The lower court erred in holding that defendant bank is not negligent in not consulting a lawyer before granting the loan; (c) The lower court erred in finding plaintiff as grossly negligent in not taking steps to perfect its title over the property. We affirm the dismissal by the court a quo. The principal question in this controversy is whether or not the respondent bank was an innocent mortgagee and subsequent buyer for value in good faith of the property. When the certificate of title in the name of the Panzo spouses was submitted to private respondent bank for purposes of their loan application, it was free from any lien and encumbrance. The mortgage was duly constituted and registered with the Register of Deeds on May 28,1971. The ejectment case which was filed by petitioner against the said spouses which petitioner claims should have put the respondent bank on its guard was annotated at the back of the subject title only on March 29,1973. There was therefore nothing on the face of the title of the Panzos which would arouse the suspicion of the

respondent bank. The certificate of title was in the name of the mortgagors when the land was mortgaged by them to respondent bank. Such being the case, said respondent bank, As mortgagee, had the right to rely on what appeared on the certificate of title and, in the absence of anything to excite suspicion, was under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate. 9 To further determine the good faith of the mortgagee Rural Bank, We must address ourselves to the fifth assigned error which focuses on the alleged negligence of the respondent bank in taking the precautionary steps in the processing of the loan application of the Panzo spouses. The findings of the trial court which were affirmed by the appellate court ruled out any negligence of the Rural Bank, thus: The preponderance of evidence favors defendant Rural Bank. This Court is satisfied that an ocular inspection was indeed conducted by Gorriceta pursuant to established practice among banks. Assuming, for the sake of argument, that the Panzo spouses were not in actual possession of the entire property, the fact is that they possessed a substantial part thereof and his possession coincided with the visit of Gorriceta. At that particular moment, Panzo had been working for him in the construction of the building and weeding of the land. These man had recognized Panzo as the owner of the land in response to inquiries by Gorriceta to go around the entire perimeter of the property because there was nothing to arouse his suspicion, what with certificate of title in the name of the Panzos having been submitted to him. A contrary requirement would negate the efficacy of a torrens title. In fact, the allegations of plaintiff in Civil Case No. 517 (the ejectment case filed against Gaudencio Panzo and Hortencia Buensuceso Annex D of the complaint in this case), would bear out the claim of defendant Bank that the Panzos were in effective possession of the property. 10 We have examined the records of this case and We find no cogent reason to disturb the findings of the court below in this regard. Well-settled is the rule that the findings of facts of the Court of Appeals are generally final and conclusive upon this Court. 11 Petitioner now claims that the negligence of respondent bank consists in its failure to consult a lawyer before approving the loan of the Panzo spouses. She asserts that had a lawyer been consulted, the fact that the Panzo's title had been derived from a reconstituted title would have surfaced. This would have provoked an inquiry as to the status of the original title by the lawyer and he would have found out about the irregularity of the reconstitution proceedings consisting of the lack of publication and notices.

We agree with the trial court that the respondent Bank was not negligent in failing to consult a lawyer. The loan application of the Panzos was subjected to the rigid requirements of the bank. There was a physical inspection of the property. The loan application passed thru the scrutiny of the Credit Committee, the members of which are also the Directors of the Bank. 12 The mortgage wits then duly registered with the Register of Deeds. The credit investigation and approval were undertaken by responsible officers of the respondent Bank. For the bank to consult a lawyer would not have made much difference in its findings. As the trial court pointed out, the most that a lawyer could have done was to consult the records in the reconstitution case which would not reveal anything irregular. It must be presumed that official duty was duly and properly exercised in the reconstitution proceedings. 13 The well-known rule in this jurisdiction is that a person dealing with a registered land has a light to rely upon the face of the torrens certificate of title and to dispense with the need of inquiring her except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make inquiry. 14 It has also been held that a bank is not required, before accepting a mortgage, to make an investigation of the title of the property being given as security. 15 Of course, banks are cautioned to 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 the 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. 16It is for this reason that banks before approving a loan send representatives to the premises of the land offered as collateral and investigate who are the true owners thereof. 17 In this regard, We believe that respondent bank had exercised the due care demanded of it relative to the real estate loan of the Panzos for it to be considered an innocent mortgagee for value. If anyone can be faulted for being negligent, it is the petitioner herself and her predecessors-in-interest. In the complaint, petitioner alleged that the subject property was sold verbally to Matias Yusay by the original owners, the spouses Buensuceso, in November, 1934 (under paragraph 5 of the same complaint, it was alleged to have been bought by Yusay in 1948). From that time to the filing of the ejectment case in May 1971, or a period of almost 37 years, petitioner and her predecessors did not take any step to perfect their title over the property. There was not even a tax declaration over the subject property of Matias Yusay or his successors-in-interest.

When the land was sold at public auction to the Province of Iloilo in 1955 for non-payment of taxes, petitioner's brother Jose Yusay, the administrator of the Yusay estate did not do anything to redeem the property. Petitioner alleged that the reason why she and her predecessors had not been paying the taxes was their mistaken belief that Lot 2161, the subject property, was Lot 2159, an adjacent lot, 18 the taxes of which were being paid by her. She further claims that they were not given any notice of the public auction sale. So it was only in 1971, at the time of the filing of their ejectment case against the Panzos that petitioner came to know of said public auction. Noteworthy is the case of Paguio vs. Ruiz, 19 where this Court upheld the city treasurer's 1947 tax sale of the delinquent property despite non-delivery of the treasurer's notices of sale to the registered owner who was already deceased. We ruled Yet it was her gross negligence which brought about the appellee's predicament. Knowing her property to be subject to tax, she neglected to pay her obligation. Vigorous in her protest that she was not given opportunity to protect her rights, she at least neglected to put the Government in a position to allow her that opportunity. And this, notwithstanding the categorical mandate of Section 2482 of the Revised Administrative Code, which she was presumed to know, and which makes it the duty of each person acquiring real estate in the City to make a new declaration thereof, with the advertence that failure to do so shall make the assessment in the name of the previous owner valid and binding on all persons interested and for all purposes, as though the same had been assessed in the name of the actual owner. Apart from this, the subject property was not even included in the project of partition and even the re-amended project of partition over the estate of Matias Yusay after he died in 1948. What is revealing is that it took them almost 37 years to discover that there was such a discrepancy. The law helps the vigilant but not those who sleep on their rights. For time is a means of destroying obligations and actions, because time runs against the slothful and contemners of their own rights. 20 By their inexplicable inaction for such a long period of time, they are now barred by laches to lay claim over the property. 21 Moreover, there are several inconsistencies in the evidence of petitioner ranging from the date of the alleged verbal sale in favor of Matias Yusay as stated in the complaint 22 to the testimonies of her witnesses, particularly her tenant Elias Daguino as to his possession of subject property. 23 Indeed, the validity of petitioner's claim appears to be questionable. Respondent bank is no doubt an innocent mortgagee for value but is it a subsequent purchaser in good faith and for value?

It will be remembered that at the time of the purchase of the subject property at the foreclosure sale on August 11, 1973, the notice of lis pendens had already been inscribed in the title of the Panzos, subject of the mortgage. It is true that the notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, and serves as a warning that one who acquires an interest over said property does so at his own risk, so that he gambles on the results of the litigation over said property. 24 However, it has also been held that any subsequent lien or encumbrance annotated at the back of the certificate of title cannot in any way prejudice the mortgage previously registered, and the lots subject thereto pass to the purchaser at the public auction sale free from any lien or encumbrance. Otherwise, the value of the mortgage could be easily destroyed by a subsequent record of an adverse claim, for no one would purchase at a foreclosure sale if bound by the posterior claim. 25 In the case of Gomes vs. Government of the Philippine Islands 26 this Court ruled: The appealed judgment was finally based on the fact that both the plaintiff and the intervenor had succeeded in having notices of lis pendens noted in transfer certificate of title No. 25909. It seems that it is desired to attribute to these notations a legal effect similar to a lien. This is not, however, the effect of a notice of lis pendens under sections 79 of Act No. 496, and 401 of the Code of Civil Procedure. The notation of the plaintiffs notice produced no effect whatsoever against the Government's mortgage not only because the latter was prior to the former but also because once the mortgage is declared valid and effective by final judgment, the plaintiff can no longer enforce any preferential right. ... We hold, therefore, that the notices of lis pendens and the attachment did not constitute justifiable or lawful cause to prevent the execution of the judgment of foreclosure of mortgage obtained by the Government. A person who takes a mortgage in good faith and for a valuable consideration, the record showing a clear title in the mortgagor will be protected against any equitable titles to the premises or equitable claims on the title, in favor of their persons, of which he had no notice, actual or constructive and that protection extends to a purchaser at a Sheriff s sale under proceedings on the mortgage although such purchaser had notice of the alleged equity. 27 In the case at bar, it is the respondent bank, the mortgagee itself, which purchased the subject property in the foreclosure sale. Being an innocent mortgagee with a superior lien over that of petitioner, its right to a foreclosure of the property is reserved. 28 The notice of lis pendens which antedated the foreclosure and sale at public auction of subject

property could not affect the rights of the respondent bank because the foreclosure sale retroacts to the date of registration of the mortgage. 29 Its character of being an innocent mortgagee continues up to the date of actual foreclosure and sale at public auction. At any rate, even if the pending litigation between petitioner and the Panzos be finally decided in favor of the former, it will have no effect on the ownership rights of the respondent bank over the subject property since a forcible entry suit is not conclusive as to ownership but only as to possession. 30 Petitioner, in the rest of the assigned errors, persists in questioning the validity of the titles of the respondent bank's predecessors-in-interest, not only the title of its immediate transferor, the Panzo spouses but even that of Asuncion Sustiguer, seeking a declaration of their nullity. Furthermore, petitioner contends that notwithstanding the good faith of the respondent bank, its title over the subject property is fatally defective since the title of its predecessors are null and void. Respondent Bank, however, maintains that the arguments of petitioner constitute a collateral attack on said titles. We find merit in this contention. Asuncion Sustiguer from whom the Panzo spouses obtained their title was never made a party to the proceedings. Her title was acquired from the Province of Iloilo which in turn acquired the property way back in 1955 at a sale at public auction. As to the Panzo spouses, they were originally defendants in this case but on petitioner's motion, they were dropped from the complaint even before they had the opportunity to file their answer. Thus, the case proceeded against the respondent bank alone. It is well-settled that a Torrens Title cannot be collaterally attacked. The issue on the validity of the title can only be raised in an action expressly instituted for that purpose. 31 A Torrens Title can be attacked only for fraud within one year after the date of the issuance of the decree of registration. Such attack must be direct and not by collateral proceeding. The title represented by the certificate cannot be changed, altered, modified, enlarged or diminished in a collateral proceeding. 32 After one year from the date of the degree, the sole remedy of the landowner whose property has been wrongfully or erroneously registered in another's name is not to set aside the decree, but, respecting the decree as incontrovertible and no longer open to review, to bring an ordinary action in the ordinary court of justice for reconveyance or, if the property has passed into the hands of an innocent purchaser for value, for damages. 33

The title of Asuncion Sustiguer was obtained on February 26, 1971 while that of the Panzos on March 3, 1971. The complaint in this acto, was filed only on April 18, 1974, clearly more than one year from the date of the decree of registration. The disputed titles by then had become indefeasible. Since the property had already been acquired by respondent bank at the foreclosure sale, as an innocent purchaser for value, an action for reconveyance cannot prosper. The only remedy of petitioner is an action for damages against the person whom she claims procured the wrongful registration in his name. 34 Nevertheless, even assuming that the validity of the titles of Asuncion Sustiguer and the Panzo spouses may be questioned in these proceedings and such titles may be declared null and void, it will still be of no moment in this case. Where the torrens title of the land was in the name of the mortgagor and later given as security for a bank loan, the subsequent declaration of said title as null and void is not a ground for nullifying the mortgage right of the bank, which had acted in good faith. 35 Being thus an innocent mortgagee for value, its right or lien upon the land mortgaged must be respected and protected, even if the mortgagors obtained their title thereto thru fraud. 36 WHEREFORE, the decision of respondent Intermediate Appellate Court of November 15, 1983 agreement in totowith costs the decision of the Court of First Instance of Iloilo dated July 16, 1975 is hereby AFFIRMED without pronouncement as to costs. SO ORDERED. Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur. FIRST DIVISION G.R. No. L-32762 January 27, 1983 CRISTINA PENULLAR, petitioner, vs. PHILIPPINE NATIONAL BANK, respondent. Teodoro T Junio for petitioner. Antonio M. Ramos for respondent PNB.

GUTIERREZ, JR., J.: The principal issue raised in this petition is whether or not the Court of Appeals, even as it sustained the trial court's finding that the titles covering the disputed parcels of land are null and void, could still declare that the mortgages annotated on those titles are valid.

The Court of Appeals stated the facts of this case as follows: RESOLVING: On Appeal Civil Case No. D-894 of the Court of First Instance of Pangasinan instituted by Cristina P. Penullar against Florencio Felix et. al., for declaration of absolute nullity of judicial proceedings in which after filing of the complaint on 9 May, 1959, answer on 27 May, 1959 by the Philippine National Bank stipulation of facts on 1 February, 1967 and hearing on 11 August 1967 with only plaintiff presenting evidence purely documentary there was after that promulgated decision disposing. WHEREFORE, in view of all the foregoing the Court rules that: (1) that the proceedings made under Land Registration Case No. 16347 are null and void; (2) that all the titles issued by the Land Registration Court pursuant to the said Land Registration proceedings, as well as all Certificate of Title flowing from the said original title are null and void; (3) that the land covered by this case are the registered properties of the plaintiff over which she holds an irrevocable and indefeasible title over the same; (4) that the writ of possession issued by the land registration court on 26 of September 1958 in connection with Land Registration Case No. 16347 is null and void; (5) that since the plaintiff has been found to be the sole and absolute owner of the properties in question, the defendants are hereby ordered to vacate the same and to surrender the possession as well as the ownership thereof in favor of the plaintiff; (6) that the defendants are required to render a true and faithful accounting of the fruits of the said properties from September 26, 1958 until the possession of the plaintiff has been restored, and to indemnify value of said products as may be found in said accounting. The defendants are likewise ordered to pay the costs of this suit. xxx xxx xxx which defendant Philippine National Bank has taken here on appeal on the errors assigned in its brief;

IT APPEARING: That the antecedents are rather complicated; it will be the task of this Court to simplify; on 27 February, 1936 claiming that she was the absolute owner but that therein defendants were pretending to have an interest in the property and had intruded sometime in December, 1935, Genoveva Miguel filed Civil Case No. 7199 in the Court of First Instance of Pangasinan against Praxedes Moya et al., predecessors of herein plaintiff Cristina Penullar, for declaration of ownership over three (3) portions of agricultural land situated at Bayambang, Pangasinan; Praxedes Moya and companions presented their answer in due time Exh. A-1; while that Civil Case No. 7199 was pending, Genoveva Miguel presented formal application for registration of her title on 1 February, 1938 in land Case No. 16347; and Praxedes Moya opposed on 10 June, 1938 Exh. B-3; well then on a date which is not very clear in the records but during the pendency of both Civil Case No. 7199 and the land registration Case No. 160.47, Praxedes Moya was able to obtain free patent over the property and unto her was issued original certificate of title No. 3148 and on another parcel also was issued a free patent in the name of one Josefa Sison also one of herein plaintiff's predecessors and unto her was issued Original Certificate of Title No. 2932; in both cases, Civil Case No. 7199 and Expediente 16347 trial Judge issued order on 15 February, 1940 suspending hearing in order to give a chance to Genoveva Miguel to investigate the Original Certificates of Title No, 3148 and 2932 Exh. A-4, issuing a supplementary order on 11 September, 1940 that said cases be held in abeyance, Until after the Department of Agriculture and Commerce pass upon the complaint that Genoveva Miguel and others have made for the cancellation or withdrawal of the free 'patent certificate issued in the name of Praxedes Moya and others. the parties shall immediately notify the Court soon after the Department of Agriculture and Commerce renders any action on said claim. 'Exh. B- 6; but nothing more happened with respect to the cancellation of the free patents; and so it was that, on 22 May, 1947 Exh. A-7 because since September 11, 1940 up to this date, the plaintiff has failed to take any steps for the prosecution of her action. trial Judge in Civil Case No. 7199 dismissed the case, without prejudice and without pronouncement as to costs,

and what Genoveva Miguel instead did after that was to prosecute the registration case and after the same had been finally heard, in the absence of Praxedes Moya, et. al., the Registration Court promulgated its decision on 20 December, 1955 ordering the inscription of the properties now in question in the name of applicant Genoveva Miguel's heirs because she had died in the meantime and as the judgment afterwards became final: Genoveva Miguel or better stated her successors in interest applied for a writ of possession which was granted the Registration Court on 25 September, 1958 and it was executed by the Sheriff on 30 September, 1958 but in the words of the Sheriff, herein plaintiff successor in interest of oppositor Praxedes Moya, vehemently objected to the possession of the applicant,' and a few months after that herein plaintiff Cristina Penullar filed the present Civil Case No, T-894 for annulment of the Registration Proceeding specifically the decision rendered therein and the titles issued pursuant to that in the name of the heirs of Genoveva Miguel, namely Original Certificates No. 14242, 24244, 24240, 14238, 24313 as well as the incumbrance by way of mortgage constituted by the said adjudicatees in favor of the Philippine National Bank, on the Position that the lands having already been registered, although by way of free patent, the titles in the names of Praxedes Moya and Josefa Sison, predecessors in interest of Cristina Penullar became an absolute bar against posterior registration and in the trial of the case plaintiff submitted her case on the basis of aforementioned documentary proofs constituting of Exhs. A to 0, against this, Philippine National Bank in its answer p. 23 R.A. submitted as special defense that it was an innocent mortgagee for value having granted loans to the adjudicatees in the registration case namely Maximo Alejo, Filomeno Domingo, Serafina Gascon relying on their titles which appeared to be genuine, issued in due course and regular on their face; and it is to be stated that the fact of this constitution of the mortgages in favor of the Philippine National Bank by the said adjudicatees successors in interest of Genoveva Miguel does not appear to be debated; but trial Judge after hearing the case held for Cristina Penullar successor in the interest of Praxedes Moya and Josefa Sison and annulled the titles issued pursuant to the decision of the Land Registration Court in favor of the successors in interest of Genoveva Miguel; ... The respondent Court of Appeals modified the appealed decision to the effect ... that the mortgages in favor of Philippine National Bank attacked by plaintiff are hereby declared valid.' In all other respects, the decision of the lower court was affirmed. (Annex " D ", p. 18, rollo)

Not satisfied with the modified decision, plaintiff-appellee Cristina Penullar filed a motion for reconsideration and when the motion was denied by the respondent court, filed the instant petition. The petitioner assigns the following errors: I THE COURT OF APPEALS ERRED IN HOLDING AS VALID THE MORTGAGES NEVER ANNOTATED IN PETITIONER'S TITLES BUT IN THE VOID TITLES OF RESPONDENT'S CO-DEFENDANTS. II THE COURT OF APPEALS ERRED IN ADJUDICATING RESPONDENT'S APPEAL UPON AN ISSUE NOT RAISED IN THE PLEADINGS BEFORE ITSELF NOR BEFORE THE TRIAL COURT. III THE COURT OF APPEALS ERRED IN RESORTING TO PALPABLY UNTENABLE THEORIES AND POSTULATES TO JUSTIFY ITS DECISION. The main issue centers on the ruling of the Court of Appeals' sustaining the validity of the mortgages in favor of the respondent Philippine National Bank. The petitioner contends: 1. that the Court of Appeals did not have a basis to rule on the matter since the issue of the Philippine National Bank as a mortgagee in good faith was never raised before the trial court and the Court of Appeals, and 2. under the facts obtaining in the case was not justified in ruling that respondent Philippine National Bank's mortgages were valid. The record on Appeal filed by the Philippine National Bank shows that in the Answer of the bank, there was alleged the special defense .. that the Philippine National Bank, a credit institution, in the ordinary course of business, in good faith and for valuable consideration, is an innocent purchaser having granted loans to Maximo Alejo. ... and to Filomeno Domingo and Serafina Gascon ... under the security of Torrens Title issued to the borrower and relying on the fact of the same which appeared to be genuine, regular and in due form." (Record on Appeal, p. 24) Moreover, respondent Philippine National Bank on the very theory that it was a mortgage in good faith filed a Motion to Dismiss the case as against it. (Record on Appeal, pp. 31-34) And this motion was subject to another URGENT MOTION for Resolution filed by respondent Philippine National Bank

(Record on Appeal, pp. 39-40).1wph1.t The same motion prompted the petitioner plaintiff in the trial court, to file an Opposition thereto, (Record on Appeal, PP- 40-41) which in turn led the respondent Philippine National Bank to file a Reply to the Opposition. (Record on Appeal pp, 48- 50). In its appeal to the Court of Appeals, the Philippine National Bank maintained its position that it was a mortgagee in good faith. Thus, in the third Assignment of Error of its brief filed before the appellate court, the Philippine National Bank adequately discussed its being a mortgagee in good faith. The first proposition is without merit. The second proposition covered by the first and third assignments of errors is premised on the following arguments: Since the torrens titles wherein respondent Philippine National Bank's mortgages were annotated were declared void, necessarily the same mortgages annotated in the said torrens title should also be declared void, on the theory that a mortgage is but an accessory contract. The petitioner maintains that her torrens title should not answer for the same mortgages since the latter were not annotated considering the "fundamental principle of registration that Torrens titles are affected only by the encumbrance registered and annotated in said titles." Furthermore, she argues that to validate the mortgages annotated in the void titles of Philippine National Bank's codefendants but never annotated in her torrens titles would in effect revalidate the void titles to co-exist with her valid title. The petitioner considers the ruling of the Court of Appeals inconsistent because according to her no valid lien could emanate from a void title. The petitioner's arguments have no merit. The Court of Appeals fully explained the reasons why the mortgages annotated in the void torrens titles should be considered valid. Thus: ... now in resolving this question let it be granted that there is clear logic in the position of appellees that the titles of the heirs of Genoveva Miguel mortgagors to Philippine National Bank having been declared void, on the principle that the rights of Philippine National Bank being dependent upon those void titles, Philippine National Bank should not be permitted to pretend that its mortgages should be considered a valid encumbrance upon the property, for it is like the branch of a dead tree so to speak but the trouble is that cases cannot be decided upon pure logic; the fact of the matter is that the Bank relief upon regular Torrens Titles issued pursuant to a regular judgment of the registration Court: there is no showing, absolutely no showing, that the Bank was made specifically aware of the fact that the very property already covered by the free patents were only afterwards adjudicated to and Torrens Titles issued in the name of the heirs of Genoveva Miguel, who were the parties that afterwards had secured the

mortgages from the Bank, not only this, the declaration of nullity of the titles of the heirs of Genoveva Miguel due to the fact that there had already been free patents issued in the name of plaintiff's predecessors Praxedes Moya and Josefa Sison came in only much later and in fact as of the time when these mortgages were accepted by the Bank, there was as yet no decision declaring the titles of the mortgagors null and void; stated otherwise there can be no denying the fact that the Bank was made to rely and had the right to rely upon regular certificates of title first presented to it by the mortgagors; ... (Rollo, pp. 17-18) The foregoing findings and conclusions of the respondent Court are sustained by rulings in precedent cases. In Director of Lands v. Abache (73 Phil. 606) the principal issue hinged on whether or not the mortgage lien annotated on the torrens title which was declared null and void should likewise be ordered null and void. We said: Where, however, innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights and order the total cancellation of the certificate. The effect of such an outright cancellation would be to impair public confidence in the certificates of title, for everyone dealing with property registered under the Torrens System would have to inquire in every instance as to whether the title has been regularly or irregularly issued by the court. And this is contrary to the evident purpose of the law. Section 39 of Act No. 496 provides that every person receiving a certificate of title in pursuance of a dectree of registration, and every subsequent purchaser of registered land who takes a certificate of title for value in good faith, shall hold the same free of all encumbrance except those noted on said certificate. We have heretofore emphasized, and do so now, that 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 . Resolving a similar issue in Blanco, et al. v. Esquierdo, et al. (110 Phil. 495) this Court ruled: That the certificate of title issued in the name of Fructuosa Esquierdo (mortgagor) is a nullity, the same having been secured thru fraud, is not here in question. The only question for determination is whether the defendant bank is entitled to the protection accorded to 'innocent purchasers for value', which phrase, according to sec. 38 of the Land Registration Law,

includes an innocent mortgagee for value. The question, in our opinion, must be answered in the affirmative. The trial court, in the decision complained of, made no finding that the defendant mortgagee bank was a party to the fraudulent transfer of the land to Fructuosa Esquierdo. Indeed, there is nothing alleged in the complaint which may implicate said defendant mortgagee in the fraud, or justify a finding that it acted in bad faith. On the other hand, the certificate of title was in the name of the mortgagor Fructuosa Esquierdo when the land was mortgaged by her to the defendant bank. Such being the case, the said defendant bank, as mortgagee, had the right to rely on what appeared in the certificate and, in the absence of anything to excite suspicion, was under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the fact of said certificate. (De Lara, et. al. vs. Ayroso 95 Phil. 185; 50 Off. Gaz., [101 4838; Joaquin vs. Madrid, et al., 106 Phil. 1060). Being thus an innocent mortgagee for value, its right or lien upon the land mortgaged must be respected and protected, even if the mortgagor obtained her title thereto thru fraud. ... In the instant case, the Philippine National Bank relied on the torrens titles of the mortgagors which had been regularly issued. The torrens titles were the result of regular land registration proceedings duly registered with the Register of Deeds. There was nothing in the torrens titles which would excite suspicion that the same were fraudulently processed by the mortgagors. Applying, therefore, the principles enunciated in the aforecited cases, the respondent Bank was not duty bound to further investigate the validity and/or invalidity of the torrens title. The assertion that the Philippine National Bank could not be an innocent mortgagee in good faith considering that the same parcel of land covered by the invalidated titles was previously mortgaged by: first, Domingo Cayabyab, a predecessor-in-interest of the petitioner and second, by the petitioner herself under Transfer Certificate of Title No. 8822 to the respondent Philippine National Bank is not well-taken. An examination of the technical descriptions of the parcels of land covered by the three subject torrens titles shows that they are different from each other and there is no way for a reader to detect that the void torrens titles covered the same parcels of land in Transfer Certificate of Title No. 8822, previously mortgaged to the respondent Bank. Thus, Transfer Certificate of Title No. 8822 has the following technical description of the land it covers: A parcel of land Plan F-61451, situated in the barrio of Pant-at Municipality of Bayambang, Province of Pangasinan, Islands of Luzon, Bounded on the Northeast by Lot No. 1-B of Plan Psd 8364, Lot No. 1 of Plan Psu-30431Amd. and Lot No. 2 of plan Psu-37494 vs. Lot No. 2 of plan Psu 30431 Amd. on the Southeast, by property of Josefa Sison de Mananzan, on the

Southwest, by properties of Maximiano Felix and Heirs of Martin Palisoc, and on the Northwest by Lot No. 5 of plan Psu-103094, and Lot No. 1-B of plan Psd 8364. Containing an area of ONE HUNDRED FIVE THOUSAND TWO HUNDRED SEVENTY EIGHT (105,278), square meters more or less. Surveyed under authority of Sections 41, 43, Act No. 2874 and in accordance with existing regulations of the Bureau of Lands by Pedro Terrado, Private Land Surveyor, on Dec. 17, 1933. On the other hand, the technical description of the parcel of land awarded to Maximo Alejo, mortgagor in one of the subject mortgages in favor of the respondent Bank, which appears in the writ of possession issued by the cadastral court in the voided land registration proceedings and which necessarily must have been included in the Original Certificate of Title No. 14240 issued in the name of the same Maximo Alejo reads: 4. A parcel of land (Lot No. 3, plan Psu-103094). Bounded on the NE, by property of Gregorio de Leon & Domingo Rodriguez (before) Onofre Sison Abalos (now); on the SE. by lot No. 2; on the SW. by properties of Flaviano Junio and Vicente Castillo; and on the NW. by Lot No. Area 14,807 square meters. Adjudicated in favor of Maximo Alejo. The technical description of the parcel of land awarded to Filomeno Domingo, the mortgagor in the other mortgage in favor of respondent Philippine National Bank, which description necessarily must have been inscribed on Transfer Certificate of Title No. 24313 issued in his name reads: 1. A parcel of land (Lot No. 1, plan Psu- 103094).Bounded on the N. and NW. by Lot No. 2; on the NE. by property of Gregorio de Leon & Domingo Rodriguez (before) Onofre Sison Abalos (now); on the SE. by Vecinal Road (before) heirs of German Maramba (now); and on the SW. by properties of Faustino Pinto and Filemon Padua. Area 27,463 square meters. Adjudicated in favor of Florencio Felix. 2. A parcel of land (Lot No. 2, Plan Psu-103094). Bounded on the NE: by property of Gregorio de Leon & Domingo Rodriguez before Onofre Sison Abalos (now); on the SE. and S. by Lot No. 1; on the SW. by property of Flaviano Junio and on the NW. by Lot No. 3. Area 26,870 square meters. Adjudicated in favor of Florencio Felix. We agree with the invocation by the Court of Appeals of the principle of equity: ... if there be any doubt as to the correctness of this solution this court might as well invoke the principle that where one of two innocent parties must have to suffer due to the act of a third person, he whose negligence had

caused the damage should be made to bear the loss; in the present case if 'he heirs of Genoveva Miguel, that is to say herein plaintiff had only been diligent, and had appealed from the decision in the registration case, no certificate of Title would have been issued just like that in the name of the heirs of Genoveva Miguel and no mortgage could have been constituted by them in favor of Bank but as it is, said successors of Praxedes Moya and Josefa Sison failed to do that; instead they let the decision in the registration case gain the status of finality; allowed without prior protest, the certificate of title to be issued; did not even as early as possible, annotate an adverse claim on the "titles; and they filed this case only several months afterwards, it was their negligence that permitted said adjudicatees in the said registration case to apply for and secure mortgages from the Bank. The petitioner argues that neither she nor her predecessors could have appealed the decision in the land registration proceedings because: 1) her predecessors were already dead at the time of the promulgation of the decision, and 2) she was not substituted as a party nor was she aware of said registration proceedings, 3) petitioner's predecessor Praxedes Moya who was aware of the land registration proceedings had the right to rely on the previous suspension of the land registration proceedings; and 4) petitioner's predecessor had the right to rely on the dismissal of Civil Case No. 7199 filed by respondent's co-defendant against; petitioner's predecessors for "declaration of ownership 'over the subject, parcels of land and that nobody notified petitioner or her predecessors of the revival of the void subsequent registration proceedings. The arguments are not well-taken. The records show that Praxedes Moya, predecessor-ininterest of the petitioner, was fully aware of the subject land registration proceedings. From the stipulation of the Facts" alone, the extent of her knowledge can be gleaned Thus: xxx xxx xxx (7) That Notice of Hearing of the Registration Case No. 16347, G.L.R.O. Record No. 52435, dated July 11, 1955 was issued by the Court, setting the trial for October 6, 1955. (8) Copy of this Notice of Hearing was sent by registered mail, under Registered letter No. 118, which was received by counsel for Praxedes Moya Atty. Jose M. Garcia, on July 22, 1955, as evidenced by Registry Return Card of letter No. 118 attached in the Record of the said registration case on page 148; and, (9) Praxedes Moya herself received or. July 23, 1955 copy of the Notice of Hearing as evidenced by Registry Return Card of registered letter No. 119

attached to the records of Registration Case No. 16347 on page 151. (See minutes of October 6, 1955, page 153 of the Records of Registration Case No. 16347, G.L.R.O. Records No. 524 35. (10) On December 20, 1955, the Court rendered its decision in said Reg. Case 16347, Record 52435 making the following adjudication ... xxx xxx xxx Copy of this Decision were (sic) sent by registered mail to Atty. Jose M. Garcia, counsel for Praxedes Moya who received it on January 27, 1956 as evidenced by Registry Return Card of Letter No. 39 attached to the Record of Registration Case No. 16347, on page 187, (12) Praxedes Moya, herself, was also notified of this decision, furnished to her by registered letter which she received on January 30, 1956 as evidenced by Registry Return Card of Registered Letter No. 138, attached to the record of this registration Case 16347, on page 179. " (Record on Appeal pp, 55-56) xxx xxx xxx As successor-in-interest, the petitioner did not only succeed to the rights and interests of her predecessor-in-interest but she was also bound to recognize the liens and/or encumbrances attached to the subject parcels of land which by law are considered to be valid though not inscribed in the torrens title of that land. The petitioner cannot invoke her relationship with her predecessor when it is to her advantage and yet disclaim the effects of said relationship on exactly the same subject matter when it is to her disadvantage. This is the principle which the Court of Appeals took into consideration when it ruled that the negligence of petitioner's predecessor-in-interest was binding upon the petitioner herself notwithstanding her non- substitution as party to the subject land registration proceedings. WHEREFORE. the decision appealed from is hereby affirmed. Costs against the petitioner. SO ORDERED.

AZNAR v. AYING
AZNAR BROTHERS REALTY COMPANY, petitioner

LAURENCIO AYING, IN HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF EMILIANO AYING, PAULINO AYING, IN HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF SIMEON AYING, AND WENCESLAO SUMALINOG, IN HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF ROBERTA AYING, respondents. Ponente: AUSTRIA-MARTINEZ, J.

FACTS: Disputed property: Lot No. 4399 with an area of 34,325 square meters located at Dapdap, LapuLapu City. CrisantaMaloloy-on petitioned for the issuance of a cadastral decree in her favor over the lot. After her death in 1930, the Cadastral Court issued a Decision directing the issuance of a decree in the name of CrisantaMaloloy-ons eight children, namely: Juan, Celedonio, Emiliano, Francisco, Simeon, Bernabe, Roberta and Fausta, all surnamed Aying. The certificate of title was, however, lost during the war. March 3, 1964 - The heirs of the Aying siblings executed an Extra-Judicial Partition of Real Estate with Deed of Absolute Sale, conveying the lot to Aznar Brothers Realty Company. The deed was registered under Act No. 3344 (the law governing registration for unregistered land), and since then, petitioner had been religiously paying real property taxes on said property. 1988 Aznar filed a Petition for Reconstitution of the Original Title because it was lost during the war. April 12, 1988 - the court granted said petition and directed the RD to issue a reconstituted title in the name of the Aying siblings. OCT was issued. 1991 - Aznar, claiming to be the rightful owner, sent out notices to the persons occupying the lot to vacate. Unheeded, Aznar filed a complaint for ejectment against the occupants. MTC ordered the occupants to vacate the property. Meanwhile, Respondents, along with other persons claiming to be descendants of the eight Aying siblings (220 persons in total) filed a complaint for cancellation of the Extra-Judicial Partition with Absolute Sale, recovery of ownership, injunction and damages with the RTC. Dismissed twice then re-filed. Respondents alleged that they are co-owners of the lot xxx the extra-judicial partition of real estate with deed of absolute sale is a fraud and is null and void ab initio because not all the coowners of subject property affixed their signature on said document and some of the co-owners who supposedly signed said document had been dead at the time of the execution xxx Aznardenied the respondents claims and allege that it had actual been in possession of the land as owner by virtue of the extra-judicial partition of real property and deed of absolute sale executed in its favor xxx prescription of action because it took them more than 27 years to file the case (implied trust=4 years) RTC: In favor of Aznar. Cancel OCT and issue TCT in favor of Aznar. CA: Affirmed RTC but modified that 3/8 of the land belonged to the heirs of EmilianoAying, Simeon Aying and Roberta Aying. o CAs RATIO: An action for recovery of possession of registered land never prescribes under PD1520 to the effect that no title to registered land in derogation to that of a registered owner shall be acquired by prescription. o Further, even if the action based on implied trust, prescription did not begin to run since there is no evidence that positive acts of repudiation were made known to the heirs who did not participate in the execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale. o The CA upheld the validity of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale, except as to the shares of the heirs of Emiliano, Simeon and Roberta, who did not participate in the execution of said document. ISSUE: WON the act of registration of the deed of partition with sale may be considered an unequivocal repudiation of the trust giving rise to prescription (Simply put: WON the action to file the action

has prescribed) Yes, as regards the heirs of Roberta Aying and No, as regards the heirs of Emiliano and PaulinoAying. RATIO: SC affirmed the validity of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale and it is binding only as to the heirs who participated in the execution. o Hence, The heirs of Emiliano, Simeon and Roberta Aying, who undisputedly did not participate, cannot be bound by said document. However, the facts on record show that petitioner acquired the entire parcel of land with the mistaken belief that all the heirs have executed the subject document. o Thus, the applicable provision to this case is Article 1456 of the Civil Code which states: ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. In Vda. De Esconde vs. Court of Appeals: o Implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties. o In turn, implied trusts are either resulting or constructive trusts. o Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and are presumed always to have been contemplated by the parties. o Constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold. In constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship. Necessarily, repudiation of said trust is not a condition precedent to the running of the prescriptive period.

So, what is the applicable prescriptive period? o An action for reconveyance based on a constructive trust must prescribe in 10 years. o The ten-year prescriptive period begins to run from the date of registration of the deed or the date of the issuance of the certificate of title over the property , but if the person claiming to be the owner thereof is in actual possession of the property, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe. In the present case, the heirs of the 3 Aying siblings, all testified that they had never occupied or been in possession of the land in dispute. Hence, the prescriptive period of ten years would apply to herein respondents.

When should the 10-year period be reckoned considering that the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under Act No. 3344 and not under the LRA? o Registration operates as a constructive notice to the world o If the land is registered under the LRA and it is sold but the subsequent sale is registered not under the Land Registration Act but under Act 3344, as amended, such sale is not considered REGISTERED o Since the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under Act No. 3344 and not under the LRA, said document is deemed not registered. o The prescriptive period only began to run from the time respondents had actual notice of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale.

Notably, with regard to respondent heirs of Roberta Aying who had knowledge of the conveyance as far back as 1967, their cause of action is already barred by prescription.

As to the respondent heirs of Emiliano and Simeon Aying, they were able to initiate their action for reconveyance of property based on implied or constructive trust well within the ten-year prescriptive period reckoned from 1991 when they were sent by petitioner a notice to vacate the subject property (remember they had no knowledge of the extra-judicial partition and Deed of Sale).

DISPOSITIVE: IN VIEW OF THE FOREGOING, the petition is PARTIALLY GRANTED and the Decision of the Court of Appeals dated March 7, 2000 is MODIFIED, as follows: The amended complaint of the heirs of Roberta Ayingis DISMISSED on the ground of prescription. However, the heirs of EmilianoAying and Simeon Aying, having instituted the action for reconveyance within the prescriptive period, are hereby DECLARED as the LAWFUL OWNERS of a 2/8 portion of the parcel of land covered by Original Certificate of Title No. RO-2856.
FIRST DIVISION UDK No. 7671 June 23, 1988 DEVELOPMENT BANK OF THE PHILIPPINES, registrant-appellant, vs. THE ACTING REGISTER DEEDS OF NUEVA ECIJA, respondent-appellee.

NARVASA, J.: This case, rather cut-and-dried as far as factual background is concerned, turns upon a determination of the true meaning and intendment of Section 56 of Presidential Decree No. 1529, 1 which in part reads: Sec. 56. Primary Entry Book; fees, certified copies. Each Register of Deeds shall keep a primary entry book in which, upon payment of the entry fee, he shall enter, in the order of their reception, all instruments including copies of writs and processes filed with him relating to registered land. He shall, as a preliminary process in registration, note in such book the date, hour and minute of reception of all instruments, in the order in which they were received. They shall be regarded as registered from the time so noted, and the memorandum of each instrument, when made on the certificate of title to which it refers, shall bear the same date: Provided, that the national government as well as the provincial and city governments shall be exempt from the payment of such fees in advance in order to be entitled to entry and registration. xxx xxx xxx The facts are few and undisputed. On June 13, 1980, the Development Bank of the Philippines (hereafter, DBP) presented for registration to the Register of Deeds of Nueva Ecija, Cabanatuan City, a sheriff's certificate of sale in its favor of two parcels of land covered by Transfer Certificates of Title Nos. NT-149033 and NT-149034, both in the names of the spouses Andres Bautista and Marcelina Calison, which said institution had acquired as the highest bidder at an extrajudicial foreclosure sale. The transaction was entered as Entry No. 8191 in the Registry's Primary Entry Book and DBP paid the requisite registration fees on the same day. Annotation of the sale on the covering certificates of title could not, however be effected because the originals of those certificates were found to be missing from the files of the Registry, where they were supposed to be kept, and could not be located. 2 On the advice of the Register of Deeds, DBP instituted proceedings in the Court of First Instance of Nueva Ecija to reconstitute said certificates, and reconstitution was ordered by that court in a decision rendered on June 15, 1982. 3 For reasons not apparent on the record, the certificates of title were reconstituted only on June 19,1984. 4 On June 25, 1984, DBP sought annotation on the reconstituted titles of the certificate of sale subject of Entry No. 8191 on the basis of that same fouryear-old entry. The Acting Register of Deeds, being in doubt of the proper action to take on the solicitation, took the matter to the Commissioner of Land Registration by consulta raising two questions: (a) whether the certificate of sale could be registered using the old Entry No. 8191 made in 1980 notwithstanding the fact that the original copies of the reconstituted certificates of title were issued only on June 19, 1984; and (b) if the first query was answered affirmatively, whether he could sign the proposed annotation, having assumed his duties only in July 1982. 5 The resolution on the consulta held that Entry No. 8191 had been rendered "... ineffective due to the impossibility of accomplishing registration at the time the document was entered because of the non-availability of the certificate (sic) of title involved. For said certificate of sale to be admitted for registration, there is a need for it to be re-entered now that the titles have been reconstituted upon payment of new entry fees," and by-passed the second query as having been rendered moot and academic by the answer to the first. 6 Unwilling to accept that result, the DBP appealed the resolution to the Court of Appeals (then the Intermediate Appellate Court) 7 which, after reviewing the record, certified the appeal to this Court as involving a question purely of law. 8 The appealed resolution appears to be based upon a reading of the cited Section 56 of PD No. 1529, and particularly of the provision therein referring to the Register's act of making a primary entry as " ... a preliminary process in registration ...," as depriving of any effect a primary entry without a corresponding annotation thereof on the certificate of title to which the instrument subject of said entry refers.

That view fails to find support from a consideration of entire context of said Section 56 which in another part also provides that the instrument subject of a primary entry "... shall be regarded as registered from the time so noted ...," and, at the very least, gives such entry from the moment of its making the effect of putting the whole world on notice of the existence the instrument on entered. Such effect (of registration) clearly attaches to the mere making of the entry without regard to the subsequent step of annotating a memorandum of the instrument subject of the entry on the certificate of title to which it refers. Indeed, said Section, in also providing that the annotation, "... when made ... shall bear the same date ..." as the entry, may be said to contemplate unspecified intervals of time occurring between the making of a primary entry and that of the corresponding annotation on the certificate of title without robbing the entry of the effect of being equivalent to registration. Neither, therefore, is the implication in the appealed resolution that annotation must annotation entry immediately or in short order justified by the language of Section 56. Furthermore, it is amply clear that the four-year hiatus between primary entry and proposed annotation in this case has not been of DBP's making. Though it was under no necessity to present the owner's duplicates of the certificates of title affected for purposes of primary entry, since the transaction sought to be recorded was an involuntary transaction, 9 and the record is silent as to whether it presented them or not, there is nonetheless every probability that it did so. It was the mortgagee of the lands covered by those titles and it is usual in mortgage transactions that the owner's duplicates of the encumbered titles are yielded into the custody of the mortgage until the mortgage is discharged. Moreover, the certificates of title were reconstituted from the owner's duplicates, 10and again it is to be presumed that said duplicates were presented by DBP, the petitioner in the reconstitution proceedings. It is, furthermore, admitted that the requisite registration fees were fully paid and that the certificate of sale was registrable on its face. 11 DBP, therefore, complied with all that was required of it for purposes of both primary entry and annotation of the certificate of sale. It cannot be blamed that annotation could not be made contemporaneously with the entry because the originals of the subject certificates of title were missing and could not be found, since it had nothing to do with their safekeeping. If anyone was responsible for failure of annotation, it was the Register of Deeds who was chargeable with the keeping and custody of those documents. It does not, therefore, make sense to require DBP to repeat the process of primary entry, paying anew the entry fees as the appealed resolution disposes, in order to procure annotation which through no fault on its part, had to be deferred until the originals of the certificates of title were found or reconstituted. That it is hardly just or equitable to do so also seems to have occurred to the Solicitor General, who dilutes his argument in support of the appealed resolution with the suggestion that "... the making of a new entry ... would be the more orderly procedure," and that DBP should not be made to pay filing fees anew. 12 Jurisprudence on the subject, while it has not been entirely consistent, is not wanting. In Government vs. Aballe, 13this Court ruled that " ... (a)lthough a notice of attachment has not been noted on the certificate of title, its notation in the book of entry of the register of deeds produces all the effects which the law gives to its registration or inscription." Seemingly, that ruling was abandoned in the wartime case of Basa vs. De la Rama, 14 where it was held that the entry of an instrument in the primary entry book produces no legal effect unless a memorandum thereof is noted on the certificate of title. Villasor vs. Camon, 15 however, clarified that Aballe was never really abandoned or reversed insofar as it applied to involuntary transactions. Said the Court in that case, which involved a voluntary transactions a deed of assignment of rights in a parcel of land and its improvements: The appellant cannot invoke in support of her contention, the ruling laid down in the case of Government of the Philippine Islands vs. Aballe, 60 Phil., 986, which was followed in Director of Lands vs. Abad, 61 Phil. 479, to the effect that an attachment entered upon the entry book is duly registered although the duplicate certificate is not presented at the time of registration to the register of deeds. Appellant cannot invoked said ruling, not because it has been abandoned by the Supreme Court during the Japanese occupation in the case of Bass VS. De la Rama, et al., ... in which it was said that "we are constrained to abandon the ruling in said two cases,"- it was not abandoned for the decision was concurred by only two justices or less than a majority, and said statement was not necessary or an obiter dictum and against the law, as correctly stated by the two associate justices who dissented and only concurred in the result, but because said ruling, subsisting and in force, does not support appellant's contention, for it is only applicable to registration of involuntary instruments, such as attachment, or other liens and adverse claims of any description. This ruling is correct or in conformity with the provisions of section 72 of Act No. 496, which do not require the production by the registrant of the duplicate certificate of the land to be affected, ... (emphasis supplied) The decision in Villasor also quoted with approval the following excerpt from an earlier case, Philippine National Bank vs. Fernandez. 16 Coming now to the second ground on which the appellant bases his claims, we find that when Simona Fausa executed the document, Exhibit 3, on October 17, 1928, conveying her interest in the land to the appellant, her interest therein had already been attached by the provincial sheriff and also by him at public auction to the Philippine National Bank, and the certificate of sale filed in the office of the register of deeds in accordance with the law (sections 429 and 450 of the Code of Civil Procedure). It was not necessary for the sheriff to present the owner's duplicate of the certificate of title when he filed notice of attachment with the register of deeds, nor was it necessary for the Philippine National Bank to present the owner's duplicate when the bank filed its certificate of sale for registration (sections 71 and 72 of Act No. 496). Later cases appear to have applied the Aballe ruling that entry in the day book, even without the corresponding annotation on the certificate of title, is equivalent to, or produces the effect of, registration to voluntary transactions, provided the requisite fees are paid and the owner's duplicates of the certificates of title affected are presented. Thus, in Levin vs. Bass, et al., 17 it was held: ... Under the Torrens system the act of registration is the operative act to convey and affect the land. Do the entry in the day book of a deed of sale which was presented and filed together with owner's duplicate certificate of title which the office of the Registrar of Deeds and full payment of registration fees constitute a complete act of registration which operates to convey and affect the land? In voluntary registration, such as a sale, mortgage, lease and the like, if the owner's duplicate certificate be not surrendered and presented or if no payment of registration fees be made within 15 days, entry in the day book of the deed of sale does not operate to convey and affect the land sold. In involuntary registration, such as an attachment, levy upon execution, lis pendens and the like entry thereof in the day book is a sufficient notice to all persons of such adverse claim. ... The pronouncement of the court below is to the effect that an innocent purchaser for value has no right to the property because he is not a holder of a certificate of title to such property acquired by him for value and in good faith. It amounts to holding that for failure of the Registrar of Deeds to comply and perform his duty, an innocent purchaser for value loses that character-he is

not an "innocent holder for value of a certificate of title." ... Neither violence to, nor stretching of the meaning of, the law would be done, if we should hold that an innocent purchaser for value of registered land becomes the registered owner and in contemplation of law the holder of a certificate thereof the moment he presents the owner's duplicate certificate of title to the property sold and pays the full amount of registration fees, because what remains to be done lies not within his power to perform. The Registrar of Deeds is in duty bound to perform it. We believe that is a reasonable and practical interpretation of the law under considerations-a construction which would lead to no inconsistency and injustice. (emphasis supplied) A similar ruling was made in Potenciano vs. Dineros, et al., 18 concerning land a deed of sale of which was entered in the day book upon payment of the corresponding fees and presentation of the owner's duplicate of the covering certificate of title, on November 4, 1944. However, due to the confusion arising from the bombing of Manila (this having happened during the final months of the Japanese Occupation), the papers presented by the registrant were either lost or destroyed, no certificate of title was issued to him and as far as the records of the Register of Deeds showed, the property remained in the name of the vendor. Another party later sued the vendor, obtained judgment against him and purchased the property on execution sale. In affirming judgment annulling the execution sale in an action brought by the original purchaser, this Court held: The judgment creditor contends that entry of the deed in the day book is not sufficient registration. Both upon law and authority this contention must be rejected. Section 56 of the Land Registration Act says that deeds relating to registered land shall, upon payment of the filing fees, be entered in the entry book also called day book in the same section with notation of the year, month, day, hour, and minute of their reception and that " they shall be regarded as registered from the moment so noted." And applying this provision in the cases of Levin vs. Bass, etc., G.R. Nos. L-4340 to 4346, decided on May 28, 1952, this Court held that "an innocent purchaser for value of registered land becomes the registered owner and in contemplation of law the holder of a certificate thereof the moment he presents and files a duly notarized and lawful deed of sale and the same is entered on the day book and at the same time he surrenders or presents the owner's duplicate certificate of title to the property sold and pays the full amount of registration fees, because what remains to be done lies not within his power to perform." Current doctrine thus seems to be that entry alone produces the effect of registration, whether the transaction entered is a voluntary or an involuntary one, so long as the registrant has complied with all that is required of him for purposes of entry and annotation, and nothing more remains to be done but a duty incumbent solely on the register of deeds. Therefore, without necessarily holding that annotation of a primary entry on the original of the certificate of title may be deferred indefinitely without prejudice to the legal effect of said entry, the Court rules that in the particular situation here obtaining, annotation of the disputed entry on the reconstituted originals of the certificates of title to which it refers is entirely proper and justified. To hold said entry "ineffective," as does the appealed resolution, amounts to declaring that it did not, and does not, protect the registrant (DBP) from claims arising, or transactions made, thereafter which are adverse to or in derogation of the rights created or conveyed by the transaction thus entered. That, surely, is a result that is neither just nor can, by any reasonable interpretation of Section 56 of PD 1529, be asserted as warranted by its terms. The qualms implicit in the query of the respondent (and present appellee) register of deeds about making annotation of an entry effected before he assumed that office are more imagined than real. He would only be making a memorandum of an instrument and of its entry based on or reciting details which are already of indubitable record and, pursuant to the express command of the law, giving said memorandum the same date as the entry. No part of that function is exclusive to the incumbent of the office at the time entry was made or is forbidden to any of his successors. WHEREFORE, the appealed resolution of the Acting Commissioner of Land Registration is SET ASIDE. The respondent-appellee Register of Deeds of Nueva Ecija, or his successor, is ordered to annotate on the originals of the reconstituted Transfer Certificates of Title Nos. NT-149033 and NT-149034 of his Registry a memorandum of the certificate of sale in favor of appellant Development Bank of the Philippines as entered under Entry No. 8191 dated June 13, 1980 of the Primary Entry (Day) Book of said Registry. No pronouncement as to costs. SO ORDERED.

SECOND DIVISION

[G. R. No. 102377. July 5, 1996]

ALFREDO SAJONAS and CONCHITA SAJONAS, petitioners, vs. THE COURT OF APPEALS, DOMINGO A. PILARES, SHERIFF ROBERTO GARCIA OF QUEZON CITY and REGISTER OF DEEDS OF MARIKINA, respondents. DECISION
TORRES, JR., J.:

A word or group of words conveys intentions. When used truncatedly, its meaning disappears and breeds conflict. Thus, it is written - By thy words shalt thou be justified, and by thy words shalt thou be condemned. (Matthew, 12:37) Construing the new words of a statute separately is the raison detre of this appeal. Essentially, the case before us is for cancellation of the inscription of a Notice of Levy on Execution from a certificate of Title covering a parcel of real property. The inscription was caused to be made by the private respondent on Transfer Certificate of Title No. N-79073 of the Register of Deeds of Marikina, issued in the name of the spouses Ernesto B. Uychocde and Lucita Jarin, and was later carried over to and annotated on Transfer Certificate of Title No. N-109417 of the same registry, issued in the name of the spouses Alfredo Sajonas and Conchita R. Sajonas, who purchased the parcel of land from the Uychocdes, and are now the petitioners in this case. The facts are not disputed, and are hereby reproduced as follows:

On September 22, 1983, the spouses Ernesto Uychocde and Lucita Jarin agreed to sell a parcel of residential land located in Antipolo, Rizal to the spouses Alfredo Sajonas and Conchita R. Sajonas on installment basis as evidenced by a Contract to Sell dated September 22, 1983. The property was registered in the names of the Uychocde spouses under TCT No. N-79073 of the Register of Deeds of Marikina, Rizal. On August 27, 1984, the Sajonas couple caused the annotation of an adverse claim based on the said Contract to Sell on the title of the subject property, which was inscribed as Entry No. 116017. Upon full payment of the purchase price, the Uychocdes executed a Deed of Sale involving the property in question in favor of the Sajonas couple on September 4, 1984. The deed of absolute sale was registered almost a year after, or on August 28, 1985. Meanwhile, it appears that Domingo Pilares (defendant-appellant) filed Civil Case No. Q-28850 for collection of sum of money against Ernesto Uychocde. On June 25, 1980, a Compromise Agreement was entered into by the parties in the said case under which Ernesto Uychocde acknowledged his monetary obligation to Domingo Pilares amounting to P27,800 and agreed to pay the same in two years from June 25, 1980. When Uychocde failed to comply with his undertaking in the compromise agreement, defendant-appellant Pilares moved for the issuance of a writ of execution to enforce the decision based on the compromise agreement, which the court granted in its order dated August 3, 1982. Accordingly, a writ of execution was issued on August 12, 1982 by the CFI of Quezon City where the civil case was pending. Pursuant to the order of execution dated August 3, 1982, a notice of levy on execution was issued on February 12, 1985. On February 12, 1985, defendant sheriff Roberto Garcia of Quezon City presented said notice of levy on execution before the Register of Deeds of Marikina and the same was annotated at the back of TCT No. 79073 as Entry No. 123283.

When the deed of absolute sale dated September 4 1984 was registered on August 28, 1985, TCT No. N-79073 was cancelled and in lieu thereof, TCT No. N-109417 was ssued in the name of the Sajonas couple. The notice of levy on execution annotated by defendant sheriff was carried over to the new title. On October 21, 1985, the Sajonas couple filed a Third Party Claim with the sheriff of Quezon City, hence the auction sale of the subject property did not push through as scheduled. On January 10, 1986, the Sajonas spouses demanded the cancellation of the notice of levy on execution upon defendant-appellant Pilares, through a letter to their lawyer, Atty. Melchor Flores. Despite said demand, defendant-appellant Pilares refused to cause the cancellation of said annotation. In view thereof, plaintiffs-appellees filed this complaint dated January 11, 1986 on February 5, 1986.
[1]

The Sajonases filed their complaint in the Regional Trial Court of Rizal, Branch 71, against Domingo Pilares, the judgment creditor of the Uychocdes. The relevant portion of the complaint alleges:
[2]

7. That at the time the notice of levy was annotated by the defendant, the Uychocde spouses, debtors of the defendant, have already transferred, conveyed and assigned all their title, rights and interests to the plaintiffs and there was no more title, rights or interests therein which the defendant could levy upon; 8. That the annotation of the levy on execution which was carried over to the title of said plaintiffs is illegal and invalid and was made in utter bad faith, in view of the existence of the Adverse Claim annotated by the plaintiffs on the corresponding title of the Uychocde spouses; 9. That a demand was made by the plaintiffs upon the defendant Domingo A. Pilares, to cause the cancellation of the said notice of levy but the latter, without justifiable reason and with the sole purpose of harassing and embarrassing the plaintiffs ignored and refused plaintiffs demand; 10. That in view of the neglect, failure and refusal of the defendant to cause the cancellation of the notice of levy on execution, the plaintiffs were compelled to litigate and engage the services of the undersigned counsel, to protect their rights and interests, for which they agreed to pay attorneys fees in the amount of P10,000 and appearance fees of P500 per day in court.
[3]

Pilares filed his answer with compulsory counterclaim on March 8, 1986, raising special and affirmative defenses, the relevant portions of which are as follows:
[4]

10. Plaintiff has no cause of action against herein defendants;

11. Assuming, without however admitting that they filed an adverse claim against the property covered by TCT No. 79073 registered under the name of spouses Ernesto Uychocde on August 27, 1984, the same ceases to have any legal force and effect (30) days thereafter pursuant to Section 70 of P.D. 1529; 12. The Notice of Levy annotated at the back of TCT No. 79073 being effected pursuant to the Writ of Execution dated August 31, 1982, duly issued by the CFI (now RTC) of Quezon City proceeding from a decision rendered in Civil Case No. 28859 in favor of herein defendant against Ernesto Uychocde, is undoubtedly proper and appropriate because the property is registered in the name of the judgment debtor and is not among those exempted from execution; 13. Assuming without admitting that the property subject matter of this case was in fact sold by the registered owner in favor of the herein plaintiffs, the sale is the null and void (sic) and without any legal force and effect because it was done in fraud of a judgment creditor, the defendant Pilares.
[5]

Pilares likewise sought moral and exemplary damages in a counterclaim against the Sajonas spouses. The parties appeared at pre-trial proceedings on January 21, 1987, after which, trial on the merits ensued.
[6]

The trial court rendered its decision on February 15, 1989. It found in favor of the Sajonas couple, and ordered the cancellation of the Notice of Levy from Transfer Certificate of Title No. N-109417.
[7]

The court a quo stated, thus:

After going over the evidence presented by the parties, the court finds that although the title of the subject matter of the Notice of Levy on Execution was still in the name of the Spouses Uychocde when the same was annotated on the said title, an earlier Affidavit of Adverse Claim was annotated on the same title by the plaintiffs who earlier bought said property from the Uychocdes. It is a well settled rule in this jurisdiction (Guidote vs. Maravilla, 48 Phil. 442) that actual notice of an adverse claim is equivalent to registration and the subsequent registration of the Notice of Levy could not have any legal effect in any respect on account of prior inscription of the adverse claim annotated on the title of the Uychocdes.
xxx xxx xxx

On the issue of whether or not plaintiffs are buyers in good faith of the property of the spouses Uychocde even notwithstanding the claim of the defendant that said sale executed by the spouses was made in fraud of creditors, the Court finds that the

evidence in this instance is bare of any indication that said plaintiffs as purchasers had notice beforehand of the claim of the defendant over said property or that the same is involved in a litigation between said spouses and the defendant. Good faith is the opposite of fraud and bad faith, and the existence of any bad faith must be established by competent proof. (Cai vs. Henson, 51 Phil 606)
[8]

xxx

xxx

xxx

In view of the foregoing, the Court renders judgment in favor of the plaintiffs and against the defendant Pilares, as follows: 1. Ordering the cancellation of the Notice of Levy on Execution annotated on Transfer Certificate of Title No. N-109417. 2. Ordering said defendant to pay the amount of P5,000 as attorneys fees. 3. Dismissing the Counterclaim interposed by said defendant. Said defendant is likewise ordered to pay the costs.
Dissatisfied, Pilares appealed to the Court of Appeals , assigning errors on the part of the lower court. The appellate court reversed the lower courts decision, and upheld the annotation of the levy on execution on the certificate of title, thus:
[9]

WHEREFORE, the decision of the lower court dated February 15, 1989 is reversed and set aside and this complaint is dismissed. Costs against the plaintiffs-appellees."
[10]

The Sajonas couple are now before us, on a Petition for Review on Certiorari , praying inter alia to set aside the Court of Appeals decision, and to reinstate that of the Regional Trial Court.
[11]

Private respondent filed his Comment on March 5, 1992, after which, the parties were ordered to file their respective Memoranda. Private respondent complied thereto on April 27, 1994 , while petitioners were able to submit their Memorandum on September 29, 1992.
[12] [13] [14]

Petitioner assigns the following as errors of the appellate court, to wit:

I

THE LOWER COURT ERRED IN HOLDING THAT THE RULE ON THE 30-DAY PERIOD FOR ADVERSE CLAIM UNDER SECTION 70 OF P.D. NO. 1529 IS ABSOLUTE INASMUCH AS IT FAILED TO READ OR CONSTRUE THE

PROVISION IN ITS ENTIRETY AND TO RECONCILE THE APPARENT INCONSISTENCY WITHIN THE PROVISION IN ORDER TO GIVE EFFECT TO IT AS A WHOLE.
II

THE LOWER COURT ERRED IN INTERPRETING SECTION 70 OF P.D. NO. 1529 IN SUCH WISE ON THE GROUND THAT IT VIOLATES PETITIONERS SUBSTANTIAL RIGHT TO DUE PROCESS.
Primarily, we are being asked to ascertain who among the parties in suit has a better right over the property in question. The petitioners derive their claim from the right of ownership arising from a perfected contract of absolute sale between them and the registered owners of the property, such right being attested to by the notice of adverse claim annotated on TCT No. N-79073 as early as August 27, 1984. Private respondent on the other hand, claims the right to levy on the property, and have it sold on execution to satisfy his judgment credit, arising from Civil Case No. Q28850 against the Uychocdes, from whose title, petitioners derived their own.
[15] [16]

Concededly, annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not otherwise provided for by the Land Registration Act or Act 496 (now P.D. 1529 or the Property Registration Decree), and serves a warning to third parties dealing with said property that someone is claiming an interest on the same or a better right than that of the registered owner thereof. Such notice is registered by filing a sworn statement with the Register of Deeds of the province where the property is located, setting forth the basis of the claimed right together with other dates pertinent thereto.
[17]

The registration of an adverse claim is expressly recognized under Section 70 of P.D. No. 1529.
*

Noting the changes made in the terminology of the provisions of the law, private respondent interpreted this to mean that a Notice of Adverse Claim remains effective only for a period of 30 days from its annotation, and does not automatically lose its force afterwards. Private respondent further maintains that the notice of adverse claim was annotated on August 27, 1984, hence, it will be effective only up to September 26, 1984, after which it will no longer have any binding force and effect pursuant to Section 70 of P.D. No. 1529. Thus, the sale in favor of the petitioners by the Uychocdes was made in order to defraud their creditor (Pilares), as the same was executed subsequent to their having defaulted in the payment of their obligation based on a compromise agreement.
[18]

The respondent appellate court upheld private respondents theory when it ruled:

The above stated conclusion of the lower court is based on the premise that the adverse claim filed by plaintiffs-appellees is still effective despite the lapse of 30 days from the date of registration. However, under the provisions of Section 70 of P.D.

1529, an adverse claim shall be effective only for a period of 30 days from the date of its registration. The provision of this Decree is clear and specific.
xxx xxx xxx

It should be noted that the adverse claim provision in Section 110 of the Land Registration Act (Act 496) does not provide for a period of effectivity of the annotation of an adverse claim. P.D. No. 1529, however, now specifically provides for only 30 days. If the intention of the law was for the adverse claim to remain effective until cancelled by petition of the interested party, then the aforecited provision in P.D. No. 1529 stating the period of effectivity would not have been inserted in the law. Since the adverse claim was annotated On August 27, 1984, it was effective only until September 26, 1984. Hence, when the defendant sheriff annotated the notice of levy on execution on February 12, 1985, said adverse claim was already ineffective. It cannot be said that actual or prior knowledge of the existence of the adverse claim on the Uychocdes title is equivalent to registration inasmuch as the adverse claim was already ineffective when the notice of levy on execution was annotated. Thus, the act of defendant sheriff in annotating the notice of levy on execution was proper and justified.
The appellate court relied on the rule of statutory construction that Section 70 is specific and unambiguous and hence, needs no interpretation nor construction. Perforce, the appellate court stated, the provision was clear enough to warrant immediate enforcement, and no interpretation was needed to give it force and effect. A fortiori, an adverse claim shall be effective only for a period of thirty (30) days from the date of its registration, after which it shall be without force and effect. Continuing, the court further stated;
[19]

. . . clearly, the issue now has been reduced to one of preference- which should be preferred between the notice of levy on execution and the deed of absolute sale. The Deed of Absolute Sale was executed on September 4, 1984, but was registered only on August 28, 1985, while the notice of levy on execution was annotated six (6) months prior to the registration of the sale on February 12, 1985. In the case of Landig vs. U.S. Commercial Co., 89 Phil 638 it was held that where a sale is recorded later than an attachment, although the former is of an earlier date, the sale must give way to the attachment on the ground that the act of registration is the operative act to affect the land. A similar ruling was restated in Campillo vs. Court of Appeals (129 SCRA 513).
xxx xxx xxx

The reason for these rulings may be found in Section 51 of P.D. 1529, otherwise known as the Property Registration Decree, which provides as follows: Section 51. Conveyance and other dealings by the registered owner.- An owner of registered land may convey, mortgage, lease, charge, or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make registration. The act of registration shall be the operative act to convey or affect the land in so far as third persons are concerned, and in all cases under the Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies. (Italics supplied by the lower court.)
Under the Torrens system, registration is the operative act which gives validity to the transfer or creates a lien upon the land. A person dealing with registered land is not required to go behind the register to determine the condition of the property. He is only charged with notice of the burdens on the property which are noted on the face of the register or certificate of title.
[20]

Although we have relied on the foregoing rule, in many cases coming before us, the same, however, does not fit in the case at bar. While it is the act of registration which is the operative act which conveys or affects the land insofar as third persons are concerned, it is likewise true, that the subsequent sale of property covered by a Certificate of Title cannot prevail over an adverse claim, duly sworn to and annotated on the certificate of title previous to the sale. While it is true that under the provisions of the Property Registration Decree, deeds of conveyance of property registered under the system, or any interest therein only take effect as a conveyance to bind the land upon its registration, and that a purchaser is not required to explore further than what the Torrens title, upon its face, indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto, nonetheless, this rule is not absolute. Thus, one who buys from the registered owner need not have to look behind the certificate of title, he is, nevertheless, bound by the liens and encumbrances annotated thereon. One who buys without checking the vendors title takes all the risks and losses consequent to such failure.
[21] [22]

In PNB vs. Court of Appeals, we held that the subsequent sale of the property to the De Castro spouses cannot prevail over the adverse claim of Perez, which was inscribed on the banks certificate of title on October 6, 1958. That should have put said spouses on notice, and they can claim no better legal right over and above that of Perez. The TCT issued in the spouses names on July, 1959 also carried the said annotation of adverse claim. Consequently, they are not entitled to any interest on the price they paid for the property.
[23]

Then again, in Gardner vs. Court of Appeals, we said that the statement of respondent court in its resolution of reversal that until the validity of an adverse claim is determined judicially, it cannot be considered a flaw in the vendors title contradicts the very object of adverse claims. As stated earlier, the annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property, and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or has a better right than the registered owner thereof. A subsequent sale cannot prevail over the adverse claim which was previously annotated in the certificate of title over the property.
[24]

The question may be posed, was the adverse claim inscribed in the Transfer Certificate of Title No. N-109417 still in force when private respondent caused the notice of levy on execution to be registered and annotated in the said title, considering that more than thirty days had already lapsed since it was annotated? This is a decisive factor in the resolution of this instant case. If the adverse claim was still in effect, then respondents are charged with knowledge of pre-existing interest over the subject property, and thus, petitioners are entitled to the cancellation of the notice of levy attached to the certificate of title. For a definitive answer to this query, we refer to the law itself. Section 110 of Act 496 or the Land Registration Act reads:

Sec. 110. Whoever claims any part or interest in registered lands adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Act for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, and a reference to the volume and page of the certificate of title of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimants residence, and designate a place at which all notices may be served upon him. The statement shall be entitled to registration as an adverse claim, and the court, upon a petition of any party in interest, shall grant a speedy hearing upon the question of the validity of such adverse claim and shall enter such decree therein as justice and equity may require. If the claim is adjudged to be invalid, the registration shall be cancelled. If in any case, the court after notice and hearing shall find that a claim thus registered was frivolous or vexatious, it may tax the adverse claimant double or treble the costs in its discretion.
The validity of the above-mentioned rules on adverse claims has to be reexamined in the light of the changes introduced by P.D. 1529, which provides:

Sec. 70 Adverse Claim- Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original

registration, may, if no other provision is made in this decree for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, a reference to the number of certificate of title of the registered owner, the name of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimants residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest : Provided, however, that after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant. Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance where the land is situated for the cancellation of the adverse claim, and the court shall grant a speedy hearing upon the question of the validity of such adverse claim, and shall render judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered cancelled. If, in any case, the court, after notice and hearing shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less than one thousand pesos, nor more than five thousand pesos, in its discretion. Before the lapse of thirty days, the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn petition to that effect. (Italics ours)
In construing the law aforesaid, care should be taken that every part thereof be given effect and a construction that could render a provision inoperative should be avoided, and inconsistent provisions should be reconciled whenever possible as parts of a harmonious whole. For taken in solitude, a word or phrase might easily convey a meaning quite different from the one actually intended and evident when a word or phrase is considered with those with which it is associated. In ascertaining the period of effectivity of an inscription of adverse claim, we must read the law in its entirety. Sentence three, paragraph two of Section 70 of P.D. 1529 provides:
[25] [26]

The adverse claim shall be effective for a period of thirty days from the date of registration.
At first blush, the provision in question would seem to restrict the effectivity of the adverse claim to thirty days. But the above provision cannot and should not be treated separately, but should be read in relation to the sentence following, which reads:

After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest.
If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the lapse of thirty days, then it would not have been necessary to include the foregoing caveat to clarify and complete the rule. For then, no adverse claim need be cancelled. If it has been automatically terminated by mere lapse of time, the law would not have required the party in interest to do a useless act. A statutes clauses and phrases must not be taken separately, but in its relation to the statutes totality. Each statute must, in fact, be construed as to harmonize it with the pre-existing body of laws. Unless clearly repugnant, provisions of statutes must be reconciled. The printed pages of the published Act, its history, origin, and its purposes may be examined by the courts in their construction. An eminent authority on the subject matter states the rule candidly:
[27]

A statute is passed as a whole and not in parts or sections, and is animated by one general purpose and intent. Consequently, each part or section should be construed in connection with every other part or section so as to produce a harmonious whole. It is not proper to confine its intention to the one section construed. It is always an unsafe way of construing a statute or contract to divide it by a process of etymological dissection, into separate words, and then apply to each, thus separated from the context, some particular meaning to be attached to any word or phrase usually to be ascertained from the context.
[28]

Construing the provision as a whole would reconcile the apparent inconsistency between the portions of the law such that the provision on cancellation of adverse claim by verified petition would serve to qualify the provision on the effectivity period. The law, taken together, simply means that the cancellation of the adverse claim is still necessary to render it ineffective, otherwise, the inscription will remain annotated and shall continue as a lien upon the property. For if the adverse claim has already ceased to be effective upon the lapse of said period, its cancellation is no longer necessary and the process of cancellation would be a useless ceremony.
[29]

It should be noted that the law employs the phrase may be cancelled, which obviously indicates, as inherent in its decision making power, that the court may or may not order the cancellation of an adverse claim, notwithstanding such provision limiting the effectivity of an adverse claim for thirty days from the date of registration. The court cannot be bound by such period as it would be inconsistent with the very authority vested in it. A fortiori, the limitation on the period of effectivity is immaterial in determining the validity or invalidity of an adverse claim which is the principal issue to be decided in the court hearing. It will therefore depend upon the evidence at a proper hearing for the court to determine whether it will order the cancellation of the adverse claim or not.
[30]

To interpret the effectivity period of the adverse claim as absolute and without qualification limited to thirty days defeats the very purpose for which the statute provides

for the remedy of an inscription of adverse claim, as the annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not otherwise provided for by the Land Registration Act or Act 496 (now P.D. 1529 or the Property Registration Decree), and serves as a warning to third parties dealing with said property that someone is claiming an interest or the same or a better right than the registered owner thereof.
[31]

The reason why the law provides for a hearing where the validity of the adverse claim is to be threshed out is to afford the adverse claimant an opportunity to be heard, providing a venue where the propriety of his claimed interest can be established or revoked, all for the purpose of determining at last the existence of any encumbrance on the title arising from such adverse claim. This is in line with the provision immediately following:

Provided, however, that after cancellation, no second adverse claim shall be registered by the same claimant.
Should the adverse claimant fail to sustain his interest in the property, the adverse claimant will be precluded from registering a second adverse claim based on the same ground. It was held that validity or efficaciousness of the claim may only be determined by the Court upon petition by an interested party, in which event, the Court shall order the immediate hearing thereof and make the proper adjudication as justice and equity may warrant. And it is only when such claim is found unmeritorious that the registration of the adverse claim may be cancelled, thereby protecting the interest of the adverse claimant and giving notice and warning to third parties.
[32]

In sum, the disputed inscription of adverse claim on the Transfer Certificate of Title No. N-79073 was still in effect on February 12, 1985 when Quezon City Sheriff Roberto Garcia annotated the notice of levy on execution thereto. Consequently, he is charged with knowledge that the property sought to be levied upon on execution was encumbered by an interest the same as or better than that of the registered owner thereof. Such notice of levy cannot prevail over the existing adverse claim inscribed on the certificate of title in favor of the petitioners. This can be deduced from the pertinent provision of the Rules of Court, to wit:

Section 16. Effect of levy on execution as to third persons- The levy on execution shall create a lien in favor of the judgment creditor over the right, title and interest of the judgment debtor in such property at the time of the levy, subject to liens or encumbrances then existing. (Italics supplied)
To hold otherwise would be to deprive petitioners of their property, who waited a long time to complete payments on their property, convinced that their interest was amply protected by the inscribed adverse claim. As lucidly observed by the trial court in the challenged decision:

True, the foregoing section provides that an adverse claim shall be effective for a period of thirty days from the date of registration. Does this mean however, that the plaintiffs thereby lost their right over the property in question? Stated in another, did the lapse of the thirty day period automatically nullify the contract to sell between the plaintiffs and the Uychocdes thereby depriving the former of their vested right over the property? It is respectfully submitted that it did not.
[33]

As to whether or not the petitioners are buyers in good faith of the subject property, the same should be made to rest on the findings of the trial court. As pointedly observed by the appellate court, there is no question that plaintiffs-appellees were not aware of the pending case filed by Pilares against Uychocde at the time of the sale of the property by the latter in their favor. This was clearly elicited from the testimony of Conchita Sajonas, wife of plaintiff, during cross-examination on April 21, 1988.
[34]

ATTY. REYES Q - Madam Witness, when Engr. Uychocde and his wife offered to you and your husband the property subject matter of this case, they showed you the owners transfer certificate, is it not? A - Yes, sir. Q - That was shown to you the very first time that this lot was offered to you for sale? A - Yes. Q - After you were shown a copy of the title and after you were informed that they are desirous in selling the same, did you and your husband decide to buy the same? A - No, we did not decide right after seeing the title. Of course, we visited... Q - No, you just answer my question. You did not immediately decide? A - Yes. Q - When did you finally decide to buy the same? A - After seeing the site and after verifying from the Register of Deeds in Marikina that it is free from encumbrances, that was the time we decided. Q - How soon after you were offered this lot did you verify the exact location and the genuineness of the title, as soon after this was offered to you? A - I think its one week after they were offered.[35]

A purchaser in good faith and for value is one who buys 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 claims or interest of some other person in the property. Good faith consists in an honest intention to abstain from taking any unconscientious advantage of another. Thus, the claim of the private respondent that the sale executed by the spouses was made in fraud of creditors has no basis in fact, there being no evidence that the
[36] [37]

petitioners had any knowledge or notice of the debt of the Uychocdes in favor of the private respondents, nor of any claim by the latter over the Uychocdes properties or that the same was involved in any litigation between said spouses and the private respondent. While it may be stated that good faith is presumed, conversely, bad faith must be established by competent proof by the party alleging the same. Sans such proof, the petitioners are deemed to be purchasers in good faith, and their interest in the subject property must not be disturbed. At any rate, the Land Registration Act (Property Registration Decree) guarantees to every purchaser of registered land in good faith that they can take and hold the same free from any and all prior claims, liens and encumbrances except those set forth on the Certificate of Title and those expressly mentioned in the ACT as having been preserved against it. Otherwise, the efficacy of the conclusiveness of the Certificate of Title which the Torrens system seeks to insure would be futile and nugatory.
[38]

ACCORDINGLY, the assailed decision of the respondent Court of Appeals dated October 17, 1991 is hereby REVERSED and SET ASIDE. The decision of the Regional Trial Court dated February 15, 1989 finding for the cancellation of the notice of levy on execution from Transfer Certificate of Title No. N-109417 is hereby REINSTATED. The inscription of the notice of levy on execution on TCT No. N-109417 is hereby CANCELLED. Costs against private respondent. SO ORDERED. Regalado, (Chairman), Romero, Puno, and Mendoza, JJ., concur.

[1]

Decision, pp. 38-50, Records (CA-G.R. CV. No. 24015). Volume 1, pp. 1-3, Record. Ibid., p. 3. Ibid., p. 19. Ibid., pp. 22-23. Ibid., p. 58. Ibid., p. 162. Ibid., p. 167.

[2]

[3]

[4]

[5]

[6]

[7]

[8]

Appeal was assigned to the Special Tenth Division, Associate Justice Salome A. Montoya, ponente and concurred by Justices Eduardo Bengzon and Fortunato A. Vailoces.
[9] [10]

Decision, supra. Rollo, pp. 6-16. Ibid., p. 57. Ibid., p. 63.

[11]

[12]

[13]

[14]

Ibid., p. 74. Vol. I, p. 6, Ibid. Vol. II, p. 5, Ibid.

[15]

[16]

Paz Ty Sin Tei vs. Lee Dy Piao, 103 Phil. 858; Sanchez vs. CA, G.R. No. 40177, February 12, 1986, 69 SCRA 327.
[17] *

Idem. Comment, supra., pp. 57-61. Decision, p. 22, supra. Reynes vs. Barrera, 68 Phil. 656.

[18]

[19]

[20]

Gardner vs. CA-G.R. No. L-59952, August 31, 1984, 131 SCRA 585; PNB vs. CA-G.R. Nos. L-30831 and L-31176, November 21, 1979, 94 SCRA 357.
[21] [22]

Noblejas and Noblejas, Registration of Land Titles and Deeds, 1986 ed., p. 180. Supra. Supra.

[23]

[24]

JMM Promotions and Management, Inc. vs. NLRC, G.R. No. 109835, November 22, 1993, 228 SCRA 129.
[25] [26]

Aboitiz Shipping Corp. vs. City of Cebu, G.R. No. L-14526, March 31, 1965, 121 Phil. 425.

Commissioner of Customs vs. ESSO Standard Eastern Inc., G.R. No. L-28329, August 7, 1975, 66 SCRA 113.
[27]

Sutherland, Statutory Construction, 2d. Ed., 386, citing International Trust Co. vs. Am. L & L. Co., Minn. 501.
[28] [29]

IBP Journal, Vol. XI, No. 3, p. 103, by Raymundo Blanco. Ibid. Ty Sin Tei vs. Lee Dy Piao, Sanchez vs. CA, supra. Ibid. Decision of the Regional Trial Court, pp. 162-172, Volume I, Original Record. Decision, supra. TSN, Cross Examination of Conchita Sajonas, April 21, 1988, p. 21. De Santos vs. IAC, G.R. No. L-69591, January 25, 1988, 157 SCRA 295. Fule vs. Legare, G.R. No. L-17951, February 28, 1963, 7 SCRA 351. De Jesus vs. City of Manila, 29 Phil. 73; Fule, et al. vs. De Legare, supra.

[30]

[31]

[32]

[33]

[34]

[35]

[36]

[37]

[38]