PHILIPPINE COMMERCIAL & INDUSTRIAL BANK, ADMINISTRATOR OF THE TESTATE ESTATE OF CHARLES NEWTON HODGES (SP. PROC. NO. 1672, COURT OF FIRST INSTANCE OF ILOILO), PETITIONER, VS. NU…

Philippine Commercial and Industrial Bank versus Lozada

The Case

This is a petition for certiorari brought by the Philippine Commercial and Industrial Bank, as administrator of the testate estate of the late Charles Newton Hodges, against David Lozada and Numeriano Villalva. The Bank asks the Supreme Court to reverse a decision of the Court of Appeals which had upheld the trial court's ruling that certain titles and deeds over a parcel of land in Talisay, Negros Occidental were void because they were procured through fraud. The case matters because it pits the vaunted conclusiveness of a Torrens certificate of title against the equitable power of courts to strip that protection from a buyer who was not in good faith. It is a classic illustration that the Torrens system protects only the innocent purchaser and cannot be used as a shield for fraud.

Procedural History

The dispute began in the Court of First Instance, which dismissed the complaint of David Lozada and declared void the affidavit of consolidation of ownership executed by Enrique Vicente, the transfer certificate of title issued in Vicente's name, the deed of sale in favor of Charles Newton Hodges, the transfer certificate of title issued in Hodges's name, and the contract to sell in favor of Lozada. The trial court ordered the Register of Deeds to cancel these documents and to reinstate or issue a new title in the name of Natividad Vda. de Allic, and to issue a new title to Numeriano Villalva upon registration of a deed of reconveyance. It also awarded exemplary damages against Vicente and Hodges.

On appeal, the Court of Appeals, through Justice Alvendia, affirmed the judgment of the trial court but set aside the award of exemplary damages. The Bank, as administrator of Hodges's estate, then elevated the matter to the Supreme Court by petition for certiorari, insisting that the Court of Appeals erred in not according the Torrens title its quality of conclusiveness.

Facts

The land, Lot No. 409 of the Talisay Cadastre, covering 6,125 square meters, was originally owned by Natividad Vda. de Allic. On May 16, 1932, she sold it to Enrique Vicente with a right to repurchase, the redemption period expiring on August 1, 1932. According to Villalva, Allic redeemed the property before the period lapsed, but Vicente did not return her title, claiming it was misplaced. Villalva then bought the land from Allic in 1938 and remained in open, continuous, peaceful, and adverse possession as owner, paying the real estate taxes from that time.

After the last war, Vicente surreptitiously obtained a reconstituted title in Allic's name. In 1958, he executed in his own favor an affidavit of consolidation of ownership, which cancelled Allic's reconstituted title and led to the issuance of a transfer certificate of title in his name on June 24, 1958. On July 28, 1958, Vicente sold the property to Charles Newton Hodges, who on the very same day executed a contract to sell in favor of David Lozada. Hodges's own title was issued only on August 1, 1958, four days after he had already contracted to sell the land.

The Court of Appeals found that the fraud was engineered by Jesus Golez, Jr., Vicente's son-in-law, who was then an employee of the Register of Deeds of Negros Occidental. It also found that Hodges was not a purchaser in good faith. Before buying, Hodges entrusted the investigation of the seller's title to his counsel, who commissioned Ruth Deocares. She went to the land, saw a house standing on it and a person gathering tuba, but did not inquire to whom the house belonged or for whom the tuba gatherer worked. The Court of Appeals held that these facts should have prompted further inquiry, and that the negligence of Hodges's agents was his own negligence. The hurried sale, and the fact that Hodges required Golez to execute a contract of guarantee, further showed that he had notice of the doubtful validity of Vicente's title.

Issues

• Whether or not the Court of Appeals erred in refusing to accord the Torrens title of Charles Newton Hodges the quality of conclusiveness.
• Whether or not Hodges was an innocent purchaser in good faith entitled to the protection of the Land Registration Act.
• Whether or not a buyer of registered land may rely entirely on the face of the certificate of title without need of supporting his claim of good faith.

Applicable Provisions

Paragraph 2 of Article 1409 of the New Civil Code provides:

Those which are absolutely simulated or fictitious are inexistent and void from the beginning.

The trial court relied on this provision in declaring the affidavit of consolidation, the deeds, and the titles null and void ab initio for being simulated and fictitious.

Article 2229 of the Civil Code provides:

Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.

The trial court awarded exemplary damages under this provision, but the Court of Appeals set that award aside.

Ruling

On the first issue, the Court held that while there is a strong public interest in maintaining the integrity of a Torrens title, there is a countervailing doctrine of equal weight that mitigates the harsh application of that principle. The Court stressed that the acceptance accorded the Torrens system would be impaired if it could be utilized to perpetrate fraud and chicanery. Deceit is not to be countenanced; duplicity is not to be rewarded. The Court cited the favor with which jurisprudence has looked on the action for reconveyance and the recognition of the constructive trust. It quoted the leading 1925 case of Gustilo versus Maravilla:

The Land Registration Act only protects the holder in good faith, and cannot be used as a shield for frauds.

On the second issue, the Court affirmed the finding of the Court of Appeals that Hodges was not an innocent purchaser in good faith. The haphazard investigation made by his agents, who failed to inquire about the house and the tuba gatherer, constituted notice sufficient to put him on his guard. The negligence of his agents was his own negligence. The Court also noted that Hodges had been a litigant in a prior case, Hodges versus Dy Buncio, where he was likewise found not to be a purchaser in good faith, showing a pattern of conduct that could not elicit entire approbation.

On the third issue, the Court rejected the argument that a buyer of registered land may rely completely and entirely on what appears on the face of the certificate of title. Whatever plausibility such a view might possess as an ordinarily sound doctrine, the deceased Hodges, on the facts duly established, could not stand to benefit from it.

Doctrine

The Torrens system protects only the holder in good faith and can never be used as a shield for fraud. Registration of property by one person in his name, whether by mistake or fraud, the real owner being another, impresses upon the title so acquired the character of a constructive trust for the real owner, which justifies an action for reconveyance. A buyer of registered land cannot rely solely on the face of the certificate of title; where circumstances exist that should put him on his guard, he is bound to inquire further, and the negligence of his agents is his own negligence. These rules are tied to the equitable principle that deceit is not to be countenanced and duplicity is not to be rewarded, as reflected in the quoted holding of Gustilo versus Maravilla that the Land Registration Act only protects the holder in good faith.

Disposition

The Supreme Court affirmed the decision of the Court of Appeals, with costs against the petitioner Philippine Commercial and Industrial Bank. The Bank lost; the titles and deeds in favor of Enrique Vicente and Charles Newton Hodges remained void, and the land was restored to Natividad Vda. de Allic and Numeriano Villalva.

Remember This

The single line worth memorizing is that the Torrens system only protects the holder in good faith and has never been erected as a shield to fraud. Examiners like to use this case to test the limits of the conclusiveness of a Torrens title and the doctrine of the innocent purchaser for value, especially where the buyer's agents failed to make the inquiries that the circumstances demanded.