G.R. No. L-21953. March 28, 1969
ENCARNACION GATIOAN, PLAINTIFF-APPELLEE, VS. SIXTO GAFFUD, ET AL., DEFENDANTS, PHILIPPINE NATIONAL BANK, DEFENDANT-APPELLANT.
BARREDO, J.:
Appeal from the Court of First Instance of Isabela.
The facts as found by the said court are as follows:
The land in question was originally registered in the name of Rufina Permison under Original
Certificate of Title No. I-3432, dated December 18, 1935 on the basis of a free patent. In the year 1948, Permison
sold it to Sibreno Novasteras
who in turn, conveyed it to appellee Encarnacion Gatioan on April 1, 1949. Through the initiative of appellee,
the said Original Certificate of Title No. I-3432 in the name of Rufina Permison was cancelled on June 3, 1949, and in lieu thereof,
Transfer Certificate of Title No. T-1212 was issued in favor of appellee.
On June 12, 1950,
appellee obtained a loan in the amount of P900.00
from the appellant, Philippine National Bank, and as security therefor, mortgaged the land described in TCT No.
T-1212. Said mortgage was duly inscribed
at the back of the title but was cancelled when it was fully paid on June 3, 1953. Using the same land and title as collateral, appellee acquired another loan in the sum of P1,100.00 from
the same bank on May 3, 1954. The annotated incumbrance
covering this second loan was upon its being paid released on June 28, 1956. On July
18, 1957, appellee secured a third loan
from, the same bank, this time for a bigger amount – P2,800.00. Again, she remortgaged
the same land and title. This third loan
appears as Entry No. 8511 at the back of TCT No. T-1212. The third loan not yet paid, she secured an
additional loan of P3,170.00 from the same bank on July 30, 1957, for which she, however, gave as
collateral, another parcel of land covered by TCT No. T-4807. The deed of mortgage covering the last amount
was jointly and severally executed by appellee and
the other registered co-owners appearing in the last mentioned title.
On August 12, 1960,
appellee paid P2,800.00, plus interest, in full
payment of the last loan secured by mortgage on the land covered by TCT No.
T-1212, as per receipt No. 402272-B.
Partial payment was also given for the other joint obligation secured
with the joint deed of mortgage on the other land. Despite these payments, appellant executed
no instrument releasing or discharging the incumbrance
on TCT No. T-1212.
In the meantime, on January
23, 1956, the defendant spouses Sixto Gaffud and Villamora Logan
procured a free patent covering the identical parcel of land described in TCT
No. T-1212 of appellee, on the basis of which
Original Certificate of Title No. P-6038 was issued in their favor. On May
15, 1956 and January 8,
1957, they also obtained two loans from appellant Bank in the sum
of P1,400.00 and P300.00, respectively, and as collateral for both, they
mortgaged the said land covered by OCT No. P-6038. Without paying these two obligations, a
consolidated mortgage in the sum of P2,300.00 was executed by them on June 17, 1957, for which they gave as
security, in addition to the land described in OCT No. P-6038, another parcel
of land described in Original Certificate of Title No. 3137, also in their
names.
Subsequently, the Secretary of Agriculture and Natural Resources
compared the technical descriptions, areas, lot numbers and cadastral numbers
of the land described in TCT No. T-1212 with that covered by OCT No. P-6038,
and convinced that both titles covered the same identical land, he recommended
the cancellation of the latter.
On May 16, 1962,
because of the existence of OCT No. P-6038 in the name of the defendant spouses
Gaffud and Logan, containing an annotation of the
aforementioned consolidated mortgage in favor of the appellant Bank, and, the
annotation on TCT No. T-1212 of the mortgage incumbrance
covering the already paid loan of P2,800.00 to the appellee,
which appellant Bank refused to have cancelled, appellee
filed the complaint for quieting of title in this case.
The above facts were found by the lower court from the
stipulations submitted by the parties, except defendant spouses Gaffud and Logan who were declared in default. No oral evidence was presented by any of the
parties.
From a judgment favorable to the plaintiff thus:
“WHEREFORE, the Court renders judgment:
“(a) Declaring null and void ab initio the patent and certificate of title No.
P-6038 issued in the name of the defendant spouses Sixto
Gaffud and Villamora Logan;
“(b) Ordering the Register of Deeds of Isabela
to cancel, upon payment of the fees, original certificate of title No. P-6038
in the name of said spouses, and ordering the Philippine National Bank to
surrender to the Register of Deeds of Isabela the
owner’s duplicate certificate of said title for its cancellation;
“(c) Declaring the real estate mortgage executed by the defendant
spouses Sixto Gaffud and Villamora Logan in favor of the Bank, recorded on OCT
P-6038 null and void and unenforceable as against the herein plaintiff, and
ordering its cancellation, without prejudice of the Bank’s right to collect
from the said spouses;
“(d) Dismissing the complaint and its prayer, to order the defendant
bank to immediately cancel or release the mortgage recorded on Transfer
Certificate of Title No. T-1212 in the name of the plaintiff, unless the other
joint obligation secured with the joint deed of mortgage executed, by the
herein plaintiff together with her co-debtors has been fully paid; and
“(e) The court hereby sentences the defendant spouses Sixto Gaffud and Villamora Logan to pay to the plaintiff as actual or
compensatory and exemplary or corrective damages, and attorney’s fees, the
total amount of ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00), and to pay the
costs.”
only the appellant Bank has come to Us on
appeal on a sole question of law related to paragraphs (a), (b) and (c)
thereof. (See Notice of Appeal, p. 90,
Record on Appeal.)
Appellant does not, however, impugn the lower court’s ruling in
declaring null and void and cancelling OCT No.
P-6038 in favor of the defendant spouses Gaffud and
Logan; it only insists that the lower court should have declared it an innocent
mortgagee in good faith and for value as regards the mortgages executed in its
favor by said defendant spouses and duly annotated on their above-mentioned
OCT P-6038 and that consequently, the said mortgage annotations should be
carried over to and considered as incumbrances on the
land covered by TCT No. T-1212 of appellee which, as
already stated, is the identical land covered by OCT P-6038 of the Gaffuds. We find no
merit, whatsoever, in this contention, because the point raised was already
passed upon by this Court in no uncertain terms in Legarda
v. Suleeby, 31 Phil. 590, way back on October 2, 1915
and in subsequent cases of similar nature.[1]
We unhesitatingly affirm the judgment of the Lower court.
Indeed, upon the facts found by the trial court as above stated,
there can be no question that the decision of this Court in Legarda v. Saleeby, supra,
is controlling herein. Therein this
Court held:
“We find statutory provisions which, upon first reading, seem
to cast some doubt upon the rule that the vendee acquires the interest of the
vendor only. Sections 38, 55; and 112 of
Act No. 496 indicate that the vendee may acquire rights and be protected
against the defenses which the vendor would not. Said sections speak of available rights in
favor of third parties which are cut off by virtue of the sale of the land to
an ‘innocent purchaser’. That is to say,
persons who had had a right or interest in land wrongfully included in an
original certificate would be unable to enforce such rights against an
‘innocent purchaser’, by virtue of the provisions of said sections. In the present case Teus
had his land, including the wall, registered in his name. He subsequently sold the same to the appellee. Is the appellee an ‘innocent purchaser’, as the phrase is used in
said sections? May those who have been
deprived of their land by reason of a mistake in the original certificate in
favor of Teus be deprived of their right to the same,
by virtue of the sale by him to the appellee? Suppose the appellants had sold their lot,
including the wall, to an ‘innocent purchaser’, would such purchaser be
included the phrase ‘innocent purchaser’, as the same is used in said sections?
Under, these examples there would be two innocent purchasers of the same land,
if said sections are to be applied.
Which of the two innocent purchasers, if they are both to be regarded as
innocent purchasers, should be protected under the provisions of said
sections? These questions indicate the
difficulty with which we are met in giving meaning and effect to the phrase
‘innocent purchaser’, in said sections.
“May the purchaser of the land which has been included in a
‘second original certificate’ ever be regarded as an ‘innocent purchaser’, as
against the rights or interest of the owner of the first original certificate,
his heirs, assigns, or vendee? The first
original certificate is recorded in the public registry. It is never issued until it is recorded. 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.
This rule is so well established that it is scarcely necessary to cite
authorities in its support (Northwestern National Bank v. Freeman, 171 U.S.
620, 629; Delvin on Real Estate, sections 710,
710-[a]).
“When a conveyance has been properly recorded such record is
constructive notice of its contents and all interests, legal and equitable,
included therein. (Grandin
v. Anderson 15 Ohio State, 286, 289; Orvis v. Newell,
17 Conn. 97; Buchanan v. International Bank, 78 Ill. 500; Youngs
v. Wilson, 27 N.Y. 351; McCabe v. Grey, 20 Cal. 509; Montefiore
v. Browne, 7 House of Lords Cases 341.)
“Under the rule of notice, it is presumed that the purchaser
has examined every instrument of record affecting the title. Such presumption is irrebutable. 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. 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.
“While there is no statutory provision in force here requiring
that original deeds of conveyance of real property be recorded, yet there is a
rule requiring mortgages to be recorded.
(Arts. 1875 and 606 of the Civil Code.) The record of a mortgage is indispensable
to its validity. (Art. 1875.) In the
face of that statute, would the courts allow a mortgage to be valid which had
not been recorded, upon the plea of ignorance of the statutory provision, when
third parties were interested? May a
purchaser of land, subsequent to the recorded mortgage, plead ignorance of its
existence, and by reason of such ignorance have the land released from such
lien? Could a purchaser of land, after
the recorded mortgage, be relieved from the mortgage lien by the plea that he
was a bona fide purchaser? May there be
a bona fide purchaser of said land, bona fide in
the sense that he had no knowledge of the existence of the mortgage? We believe the rule that all persons must
take notice of what the public record contains is just as obligatory upon all
persons as the rule that all men must know the law; that no one can plead
ignorance of the law. The fact that all
men know the law is contrary to the presumption. The conduct of men, at times, shows clearly
that they do not know the law. The rule,
however, is mandatory and obligatory, notwithstanding. It would be just as logical to allow the plea
of ignorance of the law affecting a contract as to allow the defense of
ignorance of the existence and contents of a public record.
“In view, therefore, of the foregoing rules of law, may the
purchaser of land from the owner of the second original certificate be an ‘innocent
purchaser’ when a part or all of such land had theretofore been registered in
the name of another, not the vendor? We
are of the opinion that said sections 38, 55, and 112 should not be applied
to such purchasers. We do not believe
that the phrase ‘innocent purchaser’ should be applied to such a
purchaser. He cannot be regarded as an
innocent purchaser’ because of the facts contained in the record of the first
original certificate. The rule should
not be applied to the purchaser of a parcel of land the vendor of which is not
the owner of the original certificate, or his successors. He, in no sense, can be an innocent
purchasers of the portion of the land included in another earlier original
certificate. The rule of notice of what
the record contains precludes the idea of innocence. By reason of the prior registry there cannot
be an innocent purchaser of land included in a prior original certificate and
in a name other than that of the vendor, or his successors. In order to minimize the difficulties we
think this is the safer rule to establish.
We believe the phrase ‘innocent purchaser’, used in said sections,
should be limited only to cases where unregistered land has been wrongfully
included in a certificate under the torrens system. When land is once brought under the torrens system, the record of the original certificate and
all subsequent transfers thereof is notice to all the world. That being the rule, could Teus even be regarded as the holder in good faith of that
part of the land included in his certificate which had theretofore been
included in the original certificate of the appellants? We think not.
Suppose, for example, that Teus had never had
his lot registered under the torrens system. Suppose he had sold his lot to the appellee and had included in his deed of transfer the very
strip of land mow in question. Could his
vendee be regarded as an ‘innocent purchaser of said strip? Certainly not. The record of the original certificate of the
appellants precludes the possibility. Has the appellee
gained any right by reason of the registration of the strip of land in the name
of his vendor? Applying the rule of notice
resulting from the record of the title of the appellants, the question must be
answered in the negative. We are of the
opinion that these rules are more in harmony with the purpose of Act No. 496
than the rule contended for by the appellee. We believe that the purchaser from the owner
of the later certificate, and his successors, should be required to resort to
his vendor for damages, in case of a mistake like the present, rather than to
molest the holder of the first certificate who has been guilty of no negligence. The holder of the first original certificate
and his successors should be permitted to rest secure in their title, against
one who had acquired rights in conflict therewith and who had full and
complete knowledge of their rights. The
purchaser of land included in the second original certificate, by reason of
the facts contained in the public record and the knowledge with which he is
charged and by reason of his negligence, should suffer the loss, if any,
resulting from such purchase, rather than he who has obtained the first certificate
and who was innocent of any act of negligence.” (31 Phil. 590, 599-603)
Moreover, it is a matter of judicial notice that before a bank
grants a loan on the security of land, it first undertakes’ a careful
examination of the title of the applicant as well as a physical and on-the-spot
investigation of the land itself offered as security. Undoubtedly, had herein appellant Bank taken
such a step which is demanded by the most ordinary prudence, it would have’
easily discovered the flaw in the title of the defendant spouses; and if it did
not conduct such examination and investigation, it must be held to be guilty of
gross negligence in granting them the loans in question. In either case, appellant Bank cannot be
considered as a mortgagee in good faith within the contemplation of the law.[2]
A more factual approach would lead to the same result. From the stipulated facts, it can be seen
that prior to the execution of the mortgage between appellant and the defendant
spouses, the appellee had been mortgaging the land
described in TCT No. T-1212 to it. She did
this first in the year 1950 for a loan of P900.00, and again in 1954 for a loan
of P1,100.00. In both instances, the
appellant Bank had possession of, or at least, must have examined appellee’s title, TCT No. T-1212, wherein appear clearly
the technical description, exact area, lot number and cadastral number of the
land covered by said title. In other
words, by the time the defendant spouses offered OCT P-6038, in their names,
for scrutiny in connection with their own application for loan with appellant,
the latter was charged with the notice of the identity of the technical
descriptions, areas, lot numbers and cadastral numbers of the lands purportedly
covered by the two titles and was in a position to know, if it did not have
such knowledge actually, that they referred to one and the same lot. Under the circumstances, appellant had
absolutely no excuse for approving the application of the defendant spouses and
giving the loans in question. To
appellant, therefore, fittingly applies the following pronouncement of this
Court:
“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 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 that measure of precaution which may reasonably
be required of a prudent man in a like situation. x x x.” (Dayao v. Diez, supra; citing the case of Leung Yee v. Strong
Machinery Co., 37 Phil. 644.)
Anyway, appellant Bank is not without any remedy. It appears that defendant spouses have
another land covered by OCT 3137 which is also mortgaged to it and which
perhaps may yet be sufficient to cover the loans in question. In any event, again, the following ruling of
this Court in the recent case of De Villa v. Trinidad,
G. R. No. L-24918, March 20, 1968, applies to appellant:
“We have laid the rule that where two certificates of title
are issued to different persons covering the same land in whole or in part, the
earlier in date must prevail as between original parties and in case of
successive registrations where more than one certificate is issued over the
land, the person holding under the prior certificate is entitled to the land
as against the person who rely on the second certificate. The purchaser from the owner of the later
certificate and his successors should resort to his vendor for redress, rather
than molest the holder of the first certificate and his successors, who should
be permitted to rest secure in their title.” (Citing Legarda v. Saleeby, 31 Phil. 590)
[Underlining supplied]
The recourse to the cases of Blanco et al. v. Esquierdo,
G. R. No. L-15182, December 28, 1960
and Director of Lands v. Abache, 73 Phil. 606, made
by appellant in its brief is obviously unavailing. The factual settings of those cases are
entirely different from the one before us now.
In the case of Abache, what happened was that
the land which one Santiago Imperial and his mother claimed during the
cadastral proceedings was adjudicated by the cadastral court in its decision to
other parties, the Adornados, who had never made any
claim thereto, and when the Imperials asked later on, after the decree and
title had been issued, for the annulment of such title in the name of said
non-claimants, it appeared that the latter had already mortgaged the land to
one Luis Meneses.
This Court decreed that although the title of the Adornados
was void and the Imperials were entitled to the issuance of the title in their
favor, the mortgage in favor of Meneses constituted a
valid lien over the lands the remedy of the Imperials was to go against the
Assurance Fund. Thus, in that case,
there was nothing in the title itself which could indicate to Meneses that there was a flaw in the title of the Adornados, because the error was committed by the court in
the proceedings and not in the issuance of the title, hence, it contained on
its face no circumstances of suspicion at all, from any point of view, unlike
in the present case wherein an examination of the title of the defendant
spouses was sufficient to put appellant on notice that the land described
therein was identical with the land it had previously dealt with under another
title in the name of somebody else.
The same is true with the other cited case of Blanco et als. v. Esquierdo, supra. The pertinent portions of said decision are
as follows:
“That the certificate of title issued in the name of Fructuosa Esquierdo 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 face of said certificate. ‘(De Lara
et al. vs. Ayroao, 50 Off. Gaz.
4838; Joaquin vs. Madrid et al., G. R. No. L-13551, January 30, 1960.) Being thus an innocent
mortgage 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. The remedy of the persons
prejudiced is to bring an action for damages against those causing the fraud,
and if the latter are insolvent, an action against the Treasurer of the Philippines
may be filed for the recovery of damages against the Assurance Fund. (De la Cruz vs. Fabie,
35 Phil. 144; Blondeau vs. Nano,
61 Phil. 625; Sumira et al. vs. Vistan
et al., 74 Phil. 138; Raymundo et al. vs. Mayon Realty Corp. et al., 54 Off. Gaz.
4954; Avecilla vs. Yatco et
al., 54 Off. Gaz. 6415.)
“In this connection, it will be noted that the deceased Maximiano Blanco died way back in 1930 and the certificate
of title pursuant to his homestead application was issued in the name of his
heirs sometime in 1934. Plaintiffs,
however, took no steps for the settlement of their late brother’s estate, and
instead merely took possession of the land in question jointly with Fructuosa Esquierdo. They also appear to have entrusted the
owner’s certificate to said Fructuosa Esquierdo thus making it possible for her to fraudulently
secure a transfer certificate of title in her name. This should be emphasized, for in several
cases it is what impelled this Court to apply the principle of equity that
“as between two innocent persons, one of whom must suffer the
consequences of a breach of trust, the one who made it possible by his act of
confidence must bear the loss.” (De Lara et al. vs. Ayroso,
supra.)
Again, it is clear that in that case, the
title examined by the bank had no indication, whatsoever, of any defect in it,
unlike, as already stated, in this case.
By no means of reasoning, therefore, can anyone ever say that the
cases cited and relied upon by appellant could have modified the doctrine in Legarda v. Saleeby, supra,
and the other cases wherein it was reiterated.
In fact, no mention at all is made by appellant of the Legarda v. Saleeby case in its
brief by way of explaining why said appellant had to bring this case on appeal
to Us in the face of the said decision which explained clearly and in detail
the law on the point appellant now urges before Us. We are thus persuaded that appellant paid
little heed to the merit or lack of merit of this appeal which we find to be
frivolous.
WHEREFORE, as appellant has not appealed from the judgment
of the lower court insofar as paragraphs (d) and (e) thereof are concerned,
said paragraphs stand, and the rest of said judgment is hereby affirmed. Double costs against appellant in this
instance.
Concepcion, C.J., Reyes, JBL, Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Capistrano, and Teehankee, JJ., concur.
Ruiz Castro, J., in the result.
[1]
Leung Yee v. Strong Machinery Co., 37 Phil. 644; La Urbana
v. Bernardo, 62 Phil. 790; Dayao v. Diez, G. R. No. L-4106, May 29, 1952.
[2]
Although the case of Legarda v. Saleeby, supra, refers specifically to
purchasers, Section 38 of Act 496, as amended, provides that “Whenever the
phrase ‘innocent purchaser for value’ or any equivalent phrase occurs in this
Act, it shall be deemed to include an innocent lessee, mortgagee, or other encumbrancer for value.”